[music] Welcome to Mobile Estate Planning with your host, Michael Bailey. Over a decade ago, attorney Michael Bailey turned his attention to a state law after he recognized the unacceptable number of adults without proper end-of-life planning. Michael recognizes that many of his clients have difficulty finding the time for making a proper estate plan. That’s why he became the “Mobile estate planner.” He will go to wherever you are to assist you with your estate planning, including writing wills, trusts, and giving you the information you need to avoid probate. Now ATX, Ask the Experts, presents Mobile Estate Planning with your host, Michael Bailey. [music] All right, good afternoon. Welcome to Mobile Estate Planning with Michael Bailey, so we can do something besides just leave your family alone. You’re listening to KLZ560 AM, 100.7 FM, possibly the KLZ560 radio app, or if you’re a Luke, you’re lucky enough to be listening live and making sure everybody else can hear. If you’re not lucky enough to be a Luke, well, there’s only one Luke and that’s… it’s good to only have one Luke because, you know, if somebody else were another Luke, then there’d be two Luke’s and that would be confusing and that’d be no good. We like the Luke we have, we don’t need a second Luke unless you want to be cloned Luke. There’s lots of movies why that’s a bad idea. Yeah, yeah. I mean, it makes things more efficient until my clone turned evil and tried to kill me or something. Right. Or you get the copy of the copy of the copy and then it just never seems to work out. Downhill slide. And I’m sure that all of these movies are based in scientific fact instead of being fiction like they all are, right? Very factual. Because it’s surely been done a million times. Oh yes. That’s why you see clones everywhere. Right. I mean, there’s a movie called Attack of the Clones, so apparently they can turn evil in attack. I mean, there’s so many options. And none of which are real. But, you know, if you were to be attacked by clones, we would need some sort of protection from the clones I would suppose, right? Probably, yes. Yep. So if we are looking at, so protection is, that’s one of those concepts that always comes up with, I have lots of clients who are like, oh, well, I just need protection. I need to protect my wife, or I need to protect my kids. And I’m like, okay, protect them from what? Well, I just need to protect them. I’m like, okay, I don’t mean to be, you know, not having any concept of what you’re saying here. But what are we looking to protect from? Because when we say protect, we have, there’s lots of different weight things that we’re trying to protect from. So I mean, when I, in an estate planning, you know, we’re like, people are like, well, I want to protect my wife and kids. I’m like, okay, what are we protecting them from? Are we protecting them from not knowing what to do? Are we protecting them from going through probate? Are we protecting them from creditors? Are we protecting them from, you’re trying to protect them from taxes, from losing money to probate fees and course, or you know what kind of protection are we looking for? Because the word protection doesn’t necessarily mean quite what people say. And I just, I have to look for clarification. So in a estate plan, you’re looking to protect your family. Yeah, I get that. So we’re saying, okay, I mean, probably the easiest one is we’re protecting them from, you know, the unknown. Okay, well protecting from the unknown, we can put together an estate plan. We can say, here’s what’s going to happen to your assets when you die. They go here there or somewhere else, protecting them from, you know, not having, I had a couple of clients or potential clients call me this week, who they had parents who were going into hospice or, you know, probably not going to make it more than a couple of weeks. And so they needed powers of attorney to so they could make decisions on their parents behalf. And just because of my availability or lack thereof, I was unable to, you know, help them because I’ve booked out several weeks. But my, when my mom had her seizure a few years ago and was not able to make her own medical decisions, I had a power of attorney in place so that I could go and make decisions for her and do all the things that needed to happen. So we were protected there. So if you’re protected from the unknown or protected from who can make decisions, that’s fairly straightforward. But I don’t think that most people necessarily have that type of protection. Maybe they do, but sometimes, when I say, well, protect from what? Well, you know, just everything. Just everything again, doesn’t quite work. So you have to drill down, you have to, to clarify what are we protecting from. So an estate plan is decided to protect your assets and pass them on to your family and to whom you want them to go instead of to whomever is listed as the default folks under the Colorado Intestate Statute, which means to die without a will. Now, I had a client today who says, who said to me, well, you know, if I die because we went through who she wanted everything to get, who she wanted to get everything and she has one living child. So she wanted to make sure that would go to that child and I’m like, okay, she’s like, okay. So now that I’ve talked to you, everything will just go to him, right? No. We need to actually draft the documents. We need to get them signed, witnessed and notarized. We have to have them in place. I said, well, it probably because of the Intestate Statute, you would get to them, but we can make it a whole lot quicker and easier and simpler to understand and straightforward by putting this all together and getting it taken care of. And so she’s, she’s like, well, I don’t plan on dying anytime soon. I’m like, well, I really hope not. I’m just like, well, you know, I can probably, you know, you know, we’ll get it done as soon as we can. I’m like, yes, but we don’t want to sign it and try to die the next day. That’s no good. We want to, we want to live long, happy, healthy lives after we’ve got our estate plan in place. But, you know, she wanted instant protection where everything was done the day that we met and I said, well, I unfortunately can’t quite offer that. You know, I said, you know, I’ve, I’ve only had one or two clients in the past six, almost 18 years who have passed away between when I first met with them and when I last and when we were trying to get things signed. One, I had gone to visit her in a skilled nursing center and I met with her and we got everything set up and you know, she told me everything she wanted to do. It’s a great I’ll go draft this. I’ll get you a draft copy in a couple of weeks and that was a Friday afternoon. And so we, you know, that Friday afternoon, I’d, you know, put all the information together. She’s going to draft it the next week and then Monday morning at a call from her son that apparently she had had a massive stroke on Saturday morning and she was gone. And I was like, oh, I’m so sorry. That’s so sad. And at that point, I was like, well, I guess I don’t need to draft a trust. There’s just, yeah, everything’s set up the way that it is and they go through it. I had another gentleman several years ago who I met with him on a Thursday and he had had some sort of, I want to say, Kidney or Liver Cancer for the last two years. And so I met with him on a Thursday and we set up an appointment on the following Wednesday where I could come back and get everything signed. So it’s going to be less than a week of turnaround, which was possible for me back then when I had less, I had more availability and less clients scheduled out have become busier so I couldn’t do that now. But I met with him on Thursday on Saturday morning. I drafted everything, sent it out for review. It was supposed to meet with him on Wednesday, but on Tuesday morning, he passed away. And again, I thought that was very sad. I thought it was very terrible and I wish I’d been able to get everything done quicker. That particular client got very, very angry at me that I hadn’t done everything the day that we met. And I’m like, well, I came to your house. I sat right next to his hospital bed inside of your house. And I don’t have a portable printer that I carry with me everywhere. It does take actually time to do things. And I’m sorry that it didn’t work out and I’m sorry that we were unable to get it done. But I mean, she was, the daughter was just beyond angry with me. And I didn’t tell the daughter this, but I said I kind of thought to myself, so anytime in the last two years with the cancer diagnosis was not the correct time to call me apparently. Because you don’t want to be doing things last minute. You don’t want to be, I mean, not only because it’s the last minute, but sometimes my availability doesn’t match up with your last minute. And so we want to plan ahead. And so I guess protection from the unknown, protection from the unknown nature of things of, you know, none of us know when our next moment will be our last, but we want to protect ourselves so that when the time comes, we’re not scrambling and trying to do things or it might be too late. So you’re listening to mobile estate planning with Michael Bailey here on 560 KLZ. Also heard on 100.7 FM or on the KLZ 560 radio app. Phone number to talk to me on the air is 303-477-5600. And again, that’s 303-477-5600. And my direct line is 720-3946-887. And again, direct line 720-3946-887. So we’ve got, so we’re protecting from the unknown, we’re protecting from not having any clue of who’s empowered to do what. I mean, I’ve read stories about people who, you know, when somebody dies and they, you know, nobody wants to step up to take over as the personal representative of their estate or, you know, so you’re like, “Oh, we need to know who’s going to be doing that, who’s going to be able to accomplish what they need.” And so we want to do those type of things. We want to get, get it taken care of for her, or for him or her. Just thinking of my female client who I was talking to this morning, who wanted her, you know, who was looking for protection for her son, then, you know, not going to be able to have it until we get it signed. But we’ve got the, so, you know, but other people have different protections in mind. Some people will call to be like, “Oh, well, I want to protect my, I want to protect my family from any sort of lawsuits, or it’s performing any sort of creditors, or any sort of long-term care, etc.” And, you know, sometimes that’s possible. Sometimes it’s not. It’s really not where I tend to specialize in protecting things from like lawsuits. You know, some people will say, “Some people will say, “Oh, well, I want to set things up so that if anybody ever shoes me, they can’t come and take my stuff.” And I say, “Well, we’ve got to talk about that.” You know, there’s, you know, owning things does, in fact, mean that they’re open to, if you do something wrong, and there’s a lawsuit against you, that there may very well be a chance that they come in if you do something that hurt somebody else, we would have some sort of issue there. All right, looks like we have a collar here. Tony, are you there? I’m here. Hey, Tony, how are you? Michael Bailey. What can I do for you, sir? Okay, my question involves the stepped-up basis. And what I’m wrestling with is if, so you have a brokerage account and you have stocks that have appreciated over time. Right. And then you have a trust. Right? Okay. So, if so, do you lose the stepped-up basis if you, if those assets from your brokerage account go into the trust as opposed to going to say like, you know, a child that you put as the designated beneficiary of the brokerage account? So, it depends on the structure of the trust. Probably the most common type of trust that I write is a revocable living trust. And so, if you have assets that pass or that are set up, if you have a brokerage account and it gets put inside of a revocable living trust, then the tax attributes of that brokerage account are going to be the same tax attributes of you as an individual. So, if you were to die, then your named beneficiary, your errors get a stepped-up basis. If you put it inside of a revocable trust, a revocable trust for tax purposes is a flow through entity. So, brokerage accounts inside of a trust would also be eligible for the stepped-up basis. There are different types of trusts out there, like an irrevocable asset protection trust where you give up ownership of the assets that can change the tax attributes so that it’s further for IRS purposes. You have to set it up where it’s a grander trust and a grander type trust means that you would still be the tax owner for tax purposes, so you would be able to get the stepped-up basis. But there are non-grantier type, irrevocable asset protection trust that would not get the same tax treatment. So, really, it depends on the type of trust. So, let me see if I understand this then. Okay, so, if the way I have things set up now, and I’m hoping to contact you in your future to go over things, but I have a revocable trust, and I don’t have any of the assets put into the trust, or in other words, they’re still in my individual name. So, let’s say my brokerage account is in my individual name. I haven’t somehow made it an asset of the trust, but in the, but if you designate, for the way I have things set up now, all my designations are goes to my wife, and if my wife is the thesis before me, then the secondary beneficiary is my revocable trust. Okay. So, is that that type of setup would that kill the stepped-up basis? I know, I believe it would preserve the stepped-up basis. It would step up to the full fair market value of the brokerage account at the time of your death, and then that would reset the cost basis at the time of your death when it goes into the trust. Then, if there’s further appreciation while it’s in the trust, that would be subject to capital gains tax on the increase there, but because of the way that the stepped-up basis tax rules are tied to your death, then that you get the stepped-up basis as it goes to the named beneficiary. That’s my understanding that that would preserve the stepped-up basis. Okay. So, all right, I think I got it. So, I didn’t have, so in my example, I didn’t title the brokerage account to the trust. It’s still titled me as a person, and it sounds like that would remove the stepped-up basis, even if it’s titled in your own individual name when you pass. I think that’s what I, yeah. Is that true? I don’t, I don’t believe that it would remove the stepped-up basis. I believe it would still be, it would still be, I mean, I can’t give you a conclusion of, and I’m not giving you legal advice here on the radio, but my understanding is that because that’s the asset would be passing on to somebody else, but because of your death, that it would be eligible for the stepped-up basis. Yeah. Okay. Well, that was my question. I appreciate your help. You’re welcome. All right. Thank you. Yep. All right. Cool. So, yes. So, Tony is apparently trying to protect from taxes. That would be my guess. And that’s a fair thing. You know, we’re none of us want to pay any more taxes than what we need to. But if you’re trying to protect from taxes, using the stepped-up basis is a very useful and helpful thing. So, when you’re establishing your, when you’re establishing your state plan, and you want to have a stepped-up basis, whether you have a house that is highly appreciated or stocks that are highly appreciated, and you don’t really want to, or I mean, I have many clients who have not just one house, but they have real estate that’s highly appreciated. So, they bought a rental house 30 years ago for $100,000, and now that same house is worth $500, $600,000. They don’t really want to pay tax on the four or $500,000 with a vinkress. So, if they can get to where they get to where the person, where they pass away and then pass that on to their kids, or to trust, like he said, then if those kids then turn around and sell the house immediately, so let’s say that dad paid $100,000 for a rental house. And then he dies, and the rental house is worth $500,000. Well, the rental house is $100,000, if he sold it, the difference, there would be a $400,000 difference there that he has to pay the capital gains tax on. So, $400,000 times the 20% capital gains tax, there would be $80,000 in tax due. Well, if we go from, if he passes away, and gives that house to his kids, and his kids inherit the house worth $600,000 or $500,000, and they say, “Well, we don’t want to be landlords, we’re going to sell the house.” So, they sell the house for $500,000. Well, if you’re the, what needs to be, tax needs to be paid on the difference between what you paid for it and what you received it for or the cost basis, which our color told us. So, with that, we say, we say, “Okay, we’ve got, you know, $500,000 that we sold it for, we inherited it for $500,000, $500,000 minus $500,000 is zero, so it doesn’t matter what the tax rate is, we don’t know when he tax on it.” Well, that’s awesome, that’s cool, that’s a great way to save tax, all you have to do is die. Well, we’re not trying to kill people, but if you are going to die and you can save taxes, you might as well. So, you are listening to a mobile estate planning with Michael Bailey, here on KLC 560, I also heard on 100.7 FM or the KLC 560 radio app. The phone number to talk to me on the air is 303-477-5600. And again, that’s 303-477-5600. And my direct line is 720-3946-887. And once again, that’s 720-3946-887. So, the stepped up basis is a very nice tax attribute that’s out there where certain types of assets you can step up the basis so that you have to pay less tax. Now, there are certain assets that doesn’t apply to. But it does apply to a house or real estate investments, like the caller said, brokerage accounts. Those type of, if they have increased in value, then when you die, the increase in value gets kind of swallowed up by the estate tax exemption, which is currently $13.6 million scheduled to cut be cut in half to about $7 million at the end of 2025. But still, if you have less than $7 million or less than $14 million as a couple, which most people do. I fall in that category. I have less than $14 million. I think Luke falls in that category. Maybe not Payton Manning, but we’re not Payton Manning, are we? No, no. No, Payton Manning. You’re doing something else right about now. Right, right. But someone who has the money of Payton Manning, there’s much more sophisticated tax and estate tax techniques that the people who handle taxable estates do. I just don’t play in that arena. But that’s one of the things that becomes important if we’re trying to set up a trust is how do we preserve the tax attributes of an individual who can get the stepped up basis if we don’t want to put something into a type of trust that would be a lot of… We don’t want to put assets into a trust and be like, “Oh, well, we put your highly appreciated assets here.” So now they’re going to have to pay extra tax on them. Yeah, that may not be what we want to do. If we’re trying to… If we’re not able to be in a… If we’re saying, “Okay, well, let’s say that you have that in my example of the house, we’re going 100 to $500,000 to $400,000 or difference.” We’re like, “Wow, if we put it in this trust, we can get this benefit.” But then we lose the tax benefits. So now you’re going to have to pay $80,000 in tax. We’re like, “Well, we probably need to get more than $80,000 for the benefit out of whatever we’re doing to offset that $80,000 in tax because we don’t want to create extra tax so we owe, but we want to minimize the taxes that we pay. Legally, we don’t want to do anything that would be an illegal… We don’t want to engage in tax evasion or tax… Sorry, yes, tax evasion is illegal tax avoidance is just good planning. There we go. But we don’t want to do anything illegal, we don’t want to do anything that would jeopardize our ability to do things, but we certainly don’t want to have a… We want to preserve… Preserve as much money as possible to pass on to your family or your kids or your name to benefit series and pass as little as necessary on to the government. Now, the government, you know, there are legitimate functions of the government, there are legitimate reasons why things get taxed, but we can’t always… We just… We can’t avoid all tax, but we can minimize it as much as we can. So if we’ve got someone who wants to be protected from taxes, we can do that the best we can, protected from the unknown, we can do that best we can, protected from hopefully family fights, we can do the best we can, but there’s no accounting for people. We’ve protected from lawsuits, there are techniques to do that, not my specialty, not exactly what I do, but it is possible. Protection from long-term care costs, if we start early enough, we can do that. And then people are like, “Well, I want to make sure that, you know, no one ever has any questions and that everything goes smoothly every single time, and there’s no other… There’s no other… You know, no one will ever have any problems and everything will be smooth sailing.” And I’m like, “We just can’t offer that. I’m a part of a group where it’s people who are aging and they’re always asking questions about, “Well, how do I get my bank to recognize my power of attorney? How do I make sure that they can never question anything?” And I’m like, “Well, the problem is there’s no accounting for people, and there’s no accounting for a bank. Bank is not… Bank is composed of people who work in the bank, and there’s not always going to be everybody who has the same level and understanding of a power of attorney in the bank as we might hope for.” And I just use the bank as an example. There’s plenty of other… You know, whether it’s an insurance company or an investment company or a title company, sometimes they get confused by powers of attorney and, you know, I can understand why all these people don’t want to be dealing with people they shouldn’t be dealing with or, you know, using somebody else’s money to be doing things they need to. But I also can’t guarantee that if you have a power of attorney, everybody in every bank will be like, “Oh, I totally recognize this. I mean, I had someone who called me the other day and like, “Oh, well, I tried to take my power of attorney to the bank and they won’t accept it.” And I was like, “Okay.” And it took me like 20 different phone calls to finally get somebody to say, “Oh, well, you know, he didn’t sign the page where he accepted being an agent.” So I called the guy back and I’m like, “Well, sign and date that page.” He’s like, “Oh, hey, they took it.” I’m like, “Well, there we are.” You know, we can’t always protect from nothing ever happening, but we can be ready for what we need to and we can be as close to protected from, protect from what we can protect, but we have to make sure we know what we’re protecting from. Thanks so much for listening to Mobile State Planning with Michael Bailey. I’ll be back next week, but stay right, stay tuned for rush to reason next. Thanks and bye. Mobile State Planning with Michael Bailey will return to ATX next Wednesday at 230 here on KLC 560, AM 560, FM 100.7 and online at kelseyradio.com