[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] Good afternoon and welcome to Mobile Estate Planning with Michael Bailey here on 560KLZAM. 100.7 FM, the KLZ 560 radio app, or there might be other ways to hear. I don’t know. A phone number to talk to me on the air is 303-4775-6000. And again, that’s 303-4775-6000. And my direct line is 720-3946-887. Once again, that’s 720-3946-887. So we’ve got all sorts of exciting, wonderful things to talk about today. And I’ve had a couple of clients, or potential clients, called me, and they were like, “Well, you know, I don’t know that I have much of an estate. So, you know, I don’t know if we even need a estate plan.” I’m like, “Well, okay, let’s talk about what you need for an estate.” So, I mean, really, if you have anything that’s anything that you own, then you have an estate. Now, sometimes it’s not so much the value of an estate can cause things. So, if you’ve got an estate, if all you have, you know, and sometimes I’ve been there and I have an estate who — so I’ve, you know, I’ve been — when I was younger, and, you know, so like when I was in college, and I’m like, “Well, you know, if I’m in college or even when I was in law school,” and I’m like, “We’ve got a car, had a couch, had a desk. I had a bed. Those are about the only things that I owned.” And then I, you know, especially in law school, they had a whole bunch of — that a whole bunch of student loan debt from college or from law school. I didn’t have — I managed to get through undergraduate without student loan debt because I had scholarships. But in law school, I’m like, “Yeah, it’s expensive. I should go to law school.” So, I couldn’t just have enough — so, you know, if I had died, mostly it would have been like, “Hey, sell my stuff, pay off student loans.” And, you know, then that’s it. I mean, my stuff wasn’t nearly as much as my student loans would have been. But it’s one of those things that were good. And so, you know, at that point, you know, having a smaller estate, I don’t know that I needed necessarily a huge estate plan or an important — you know, when I was in college, things would have gone back to my parents. When I was in law school and I had first gotten married, then I would have — you know, would have gone to my spouse. But there wasn’t a lot there on an estate plan. So, you know, the estate plan, especially where I was married, didn’t have kids. I’m just kind of like, “Okay, well, we’ve got a — it’s not going to work so well to — and I didn’t necessarily need a full, you know, written estate plan because the default rules were going to say, “Well, you know, you’re married, you don’t have kids, then everything goes to your spouse.” Cool. Awesome. And so, you’re all right, that’s — that’s fun, that’s nice. But there wasn’t a whole lot. So, if that’s all you’ve got is, you know, a couple of things and not too much, then, you know, we’re in a spot where that may not particularly go — you know, we’re — you’re having a estate plan, having a written estate plan, you know, just based on the circumstances, it wasn’t so much that I didn’t need in a estate plan, but I already knew that I had enough of an estate plan and it was just going to go to a spouse that it wasn’t a concern. But then life changed a little bit. And my last year of law school, four days before my last law school class, my daughter was born. My eldest daughter, who I’m in a couple weeks, I’m going to take off to college. We’re going to — actually, we’re dropping her off two weeks from today. At college, so I will not be here in two weeks. I will be probably carrying furniture and things like — well, there’s a little — we’ve got a little cube that she can put her shoes in, but then we’re carrying pots and pans and things like that into her — she’s in a cooking dorm, so she’ll be cooking for herself, but we’ve got to move all the clothes and bedding and all that kind of stuff in. So, that’s what I’ll be doing. Probably exactly two weeks from today since her checking time is 2 p.m. I’m pretty sure that I’ll be carrying stuff at that point. But when she was born, suddenly it became — well, under the default rules, it really wasn’t that much more complicated. But under the default rules, if I had died and the art only child was the child of both of us and everything still would have gone to my spouse. But at that point, I started thinking about, well, who would — so if something happens to me, I’ve got my spouse who will raise the child. That’s great, and that’s what we want. But if my spouse and I die, hmm, now what are we going to do? And so, you’re a state plan. You know, she is still one of my most three valuable assets, her along with her younger sister and youngest brother. They’re my most valuable assets. They are not income-producing assets. They’re kind of the opposite, but they’re still my most valuable assets. But with her being born, start to think about, huh, what do we do? And then we moved from a two-bedroom apartment to a townhouse. We bought our first house. And now suddenly we had an asset that we needed to worry about, because, you know, before — you know, there wasn’t — you know, still was in law school. Didn’t have a whole lot of money in a bank account. Didn’t have a whole lot of money anywhere else. Didn’t have a whole lot of assets, you know, cars. Still had the bed. Still had the desk, you know, things like that. But it wasn’t going to be a huge thing that needed to be done. So, then we bought the house. And now suddenly we’re worried about the house. And part of the problem with having a house is opposed to some of those other assets is that — I mean, so the cars, you know, the county wants to know who owns the car, make sure that you have insurance, make sure you have a registered, you know, so as you’re driving a legal car and you’re doing — you’re following all the rules, you know, that’s part of — you know, the car. Well, with the house, suddenly now we have the county who’s involved and saying, “Okay, well, we’re going to keep track of who owns the house. We’re going to keep track of, you know, who is — you know, who’s dirt that is.” And there happens to be a house on the dirt, or, in my case, partially in the dirt since we have a walkout basement. You know, so if I go down on my basement, there’s dirt on either side of me. I’m like, “Cool, I’m in the dirt,” except for it’s a void in the dirt that has been improved so that it is either, you know, cooled in the summer or heated up in the winter, so it’s not just the temperature of the dirt, but, you know, dirt can be important. But who owns that dirt and who controls that dirt is very important to the government. The county wants to know who the owner is and the county wants to know who the — who’s supposed to be responsible for that dirt and who’s supposed to be responsible for all of those things. And so the county pays attention to that. And if you were to pass away and you wanted to transfer ownership of that dirt and everything built on that dirt to somebody else, the county is now involved and the county is least concerned. They want to know what’s being passed back and forth. So now we’ve got the government involved and the government has invested interest in knowing and understanding whose dirt that is and who owns the stuff that’s built on the dirt. So now it’s more complicated. And because the government’s involved and we’re not just passing it off to somebody and being like, “Oh, hey, here, have a house. Okay, cool. We have to have a more involved estate plan because of the way that our assets work.” So you are listening to Mobile Estate Planning with Michael Bailey. Here on 560KLZAM, also heard on 100.7 FM or the KLZ 560 Radio App. Phone number to talk to me on the air is 303-4775-6000. And again, that’s 303-4775-6000. And my direct line is 720-3946-887. And once again, that’s 720-3946-887. So if you’ve got a house, now suddenly we’ve got more involved assets. And we’re like, “Okay, we need to know what to do with them.” And there’s those more involved assets. You can either… There’s part of why you have a will. The will can say what happens to the assets. So the will gets taken to the probate court once you pass away. And the probate court will issue what’s called a letter testimentary or letter of administration. And that is basically the court giving the representative of the estate legal authority to transfer assets out of the estate, out of the deceased person’s name, and onto the named beneficiaries or the heirs. And so if the county is involved and they are saying, “Wow, we’re not sure how we’re supposed to transfer ownership of this.” We need to… We’ve got a transfer ownership of the house, but we need somebody who’s authorized to act and to transfer ownership of that house. Then if you have a will, the way you get authorized to transfer assets, you can’t just be like, “Oh, hey, the will says it’s me.” Like, “Yeah, that’s great. But you have to take the will to the probate court, so the probate court will then give you the representative of the proper legal authority to transfer your assets.” So that’s one way to do it. There’s also in Colorado what’s called a beneficiary deed. And a beneficiary deed is essentially a transfer on death deed so that you create a beneficiary deed for your property and when you die, and then you… Well, you record it with a county before you die. And then when you die, your kids can take a copy of your death certificate to the county and show that you have in fact died. And then the beneficiary deed will say, “Oh, well, if they’ve died, then the property belongs to the named beneficiary on the beneficiary deed.” And that transfer can happen to the county clerk and recorder’s office. Because then it’s the county clerk and recorder that’s doing the… It’s going to be like, “Oh, well, we’ve got this deed, so now it’s owned by this person.” All right, cool. Now, so now the county knows that the named beneficiary owns the property. And if the named beneficiary wants to keep the property, they can, if they want to sell the property, then they can show the beneficiary deed and the death certificate to the title company and the title company will research and say, “Yep, looks like you’re the authorized owner, so you can sell it.” And that’s another way to do it. And then you can also use a trust where you put your house inside of a trust. And when you create a trust, you have a… You are usually, not always, but you are usually the trustee of that trust, which means you’re in charge of the property. And that’s true of most revocable trusts and for asset protection trusts, like a Medicaid planning trust or something like that, then you cannot be in charge of it. So, most of the time, we put, like, kids or something like that in charge of it. So, if you have a trust, the trust is the legal document that authorizes somebody to act on behalf of the trust. So, if you create a trust and you’re the trustee, why you’ve authorized yourself to act on behalf of yourself when you’re acting on behalf of the trust. Where you’ve authorized yourself to act on behalf of yourself when you’re acting on behalf of the trust. Because in the trust, you’ve authorized yourself to act on behalf of your health when you’re acting on behalf of the trust. Where you’ve authorized… it becomes very circular. It’s all sorts of fun. But when you die, the trust does not die with you. The trust continues to exist. But the trust document itself says, “Oh, when I die, this person over here is going to be the trustee and be in charge.” So, the trust document itself that’s a grant legal authority has granted legal authority to that person. So, they don’t have to go to the… probate court to get legal authority to act because the trust that still exists gives them legal authority. And so, it’s just a trust becomes like a separate entity than the individual. And so, that’s why a trust doesn’t need to go through the probate process, you know, all these things. So, you know, and people are like, “Oh, will do I need a trust if I have a house?” And I say, “Well, not necessarily. You don’t necessarily… a trust is one way of transferring things.” But that doesn’t mean that she has to or that doesn’t mean that you have to always have a trust. It’s not required. You know, will is a perfectly Bible way of transferring things. It also means that you’ve got… you can use the beneficiary deed or the will or the trust. So, all three are okay. There’s not just one… there’s not just one way of doing things. There’s not just one way of setting things up. But when you end up with an asset like a house, you want to do something more than just, “Oh, well, I’ll plan that everything will go to my spouse or everything will go to my kids.” Now, on a house, if you are married or… usually when you’re married or if you have a spouse or if you’re in other spots, then you can… if you’re married, you can set up your assets in what is called a… is what is called joint tenancy. And joint tenancy means that your joint owners of the… your joint owners of the… of the… of the house. So, if one of the joint owners passes away, then the remaining joint owner, who’s alive, will have the house. So, you’ve got a… so, a lot of times, of married couples, that’s how your own joint property is jointly. So, like, if I were to die, then my spouse would take the house and she would be able to know that the house is in her name only. It was just to take a death certificate to the county, of course, to let the county know since the county has an interest in knowing who owns the dirt and the stuff that’s built on the dirt or in the dirt or under the dirt or however that works. So, for a lot of times when I get people who come in to talk to me, they’re like, “Well, you know, everything was so easy when my husband died, it will be that easy again when I die.” And I’m like, “Well, probably because you don’t own everything jointly, it won’t be nearly as simple.” Now, there are people who want to become joint tenants or joint owners with their parents on the house so that when a surviving parent passes away, it will just pass to the kids by virtue of the joint tenancy, and that’s great, and that’s awesome, and it is seamless, but it can have some serious negative tax consequences. Because if you’re a joint owner, you probably aren’t going to be able to, or at least by the letter of the tax law, you’re not going to be able to claim the stepped up basis, but rather you’ll have to pay tax on the increase in value of the house from when your parents bought it to when you sell it. So, if you’re trying to, like if you’re like, you know, my parents have lived in the same house for close to not quite 40 years, but you know, coming up on 40 years, they’ve been in the same house. You know, they paid significantly less 40 years ago than the house is worth today. It’s probably worth 7, 8, 9, maybe even 10 times as much as they paid for it. So, that the difference between what it’s worth now and what they paid for it is the gain, the capital gain on a capital asset, and they would have to pay tax on the difference between those two numbers. So, if they sell the house, they’re allowed to exclude $250,000 per person, or $500,000 for a couple, of that gain. And so, if the gain is $450,000, if they sold their house, because it’s their primary residence, they would not have to pay any tax, even though it’s increasing value of $450,000. But if they put us kids on as a joint owner and then they die and we sell it and we have $450,000 of gain, then we need to pay capital gains tax on that, which at $450,000 would be 20%. So, of that $450,000, we would pay $90,000 in tax. So, that can be a significant amount, because if they just transferred it to us in a different way, so that we received it as an inheritance, then we don’t have to pay any tax on it. So, $90,000 in tax versus zero in tax. Help me out, Luke, is one better than the other? Zero is better, yes. Are you sure? I’m positive. Clearly, you do not work for the IRS, and you don’t think that you need more money. No, I do not like the IRS. All right, I’m just saying that the IRS would be more than happy with you. Oh, no, you need to pay the $90,000 in tax. They’d love to get that money. Yes, exactly. I would not love for them to get that money. Right, you would love to have the X-90,000. Correct. Now, if you remember, my family in that 90,000 is divided four ways, it would only be, what? 22,500 per person, but still. Is 22,500 per person or zero better? I would prefer that the kids get 22,000. They’re not the IRS. Yeah. Children should have that, not the IRS. Wow, we’re just making super controversial statements. Hot takes. Hot takes. I know. I want you to keep as much money as you can. I mean, I don’t have a problem paying taxes to the government. I just would like to pay them the minimum possible. And most people, I believe, agree with me. Maybe I’m wrong. Most sane people would agree with you. Most sane people. In my opinion. So, my efforts to market to the insane asylum are not going to end up well, is that what you’re saying? No, probably not. Maybe in October when we need some sort of, you know, Halloween favored, the same asylum option. Okay. So, well, thank you for agreeing with me, Luke. It’s good to know that I can recognize that paying zero dollars in taxes better than 90,000 or even 22,500. That’s what I’m here for. And for those who would like to do that math, go for it. I’ve already done it for you. So, you know, we, so there’s different ways of doing things. And, you know, yes, it may be the simplest, easiest, quickest way to be like, I’ll just be a joint tenant. But you got to look and see where the tax things lie and what happens there. I mean, I’ve also had people who, they give everything to one of their kids. And they’re like, well, they’ll just distribute it out to the others. I’m like, you’re giving, so you’ve got an estate with the house plus your savings and everything. It’s worth a million dollars because you bought a house for a hundred thousand dollars, forty years ago. And now it’s worth eight hundred thousand. You’ve got two hundred thousand in a retirement account. So, you’ve got a total of a million dollars. And so, I’ll just give everything to one kid. And then that kid can then distribute things to the other siblings. That’s great. And it’s awesome. And it’s doable. But if you give everything to one kid and then that kid starts giving things to their siblings, then that becomes a gift. And if you give more than seventeen thousand dollars per person per year, it becomes a taxable gift. Now, granted, the current estate tax limit and the gift tax limit, it’s a unified credit, is says you can give away a thirteen point six million dollars in your lifetime before you need to start paying tax. But those numbers are subject to change. And if somebody like Bernie Sanders were to get his way in these state tax, the exemption went down to zero, so everything gets taxed and all gifts get taxed. Well, then you’d have to pay tax on it. And so, you know, let’s say you’re like my family, four kids. That’s my siblings, not my, I only have three children of my own, but I have one of four siblings. So, if one of four siblings, let’s say that my parents left me everything. I’m like, okay, great. Now, we’ll take two hundred fifty thousand dollars and give to each of my siblings. Well, you go two hundred fifty thousand dollars, subtract out the seventeen thousand for a year. And we’ve got two hundred and thirty seven thousand dollars worth of taxable gift that I’m giving away. Well, you say, well, you know, two hundred thirty seven thousand dollars, that’s, you know, far, far less than the thirteen point six million dollars. You know, it’s a total of seven hundred fifty thousand that I’m giving to my siblings. So, heck, I can still give away a little over, you know, a little under thirteen million dollars. And I’ll still be fine. And for most people, that’s not going to be a problem. You know, most people being like pretty much everybody that I’ve met. But the estate tax limit used to be a million dollars. And if it went back to that, let’s say that you take seven hundred fifty thousand dollars and I pay it out to my siblings. Well, now I can only give away two hundred fifty thousand dollars when I die because I’ve used part of my unified credit of estate taxes and gift taxes. And I’m like, okay, but what if I die and I have an eight hundred thousand dollar house? And I try to pass that on to my kids. But only two hundred fifty thousand dollars of that is exempt because I already gave away seven hundred fifty thousand dollars for my parents money. Well, now I have a three hundred fifty thousand dollar taxable portion of my estate that I have to give away. Well, if the estate tax is forty percent or it used to be fifty percent, it’s easier to use. We’ll say it’s fifty percent in my scenario. Now, the estate tax is fifty percent. So, that three hundred fifty thousand dollars, now my kids have to pay hundred seventy five thousand dollars in tax. Hmm. Now, that might not have been the best idea. Because hundred seventy five thousand is even worse than twenty two thousand five hundred or ninety thousand. It’s just a bigger number. So, maybe those numbers change, maybe they don’t. I mean, I don’t know that we’ll go back to a million dollars. But, I guess that someone like Bernie Sanders would really like it to go back and go to zero and, you know, nothing there. Now, someone like Rand Paul would like to say, well, you know, we should have an unlimited estate tax so we don’t have to give anything to the government. So, we’ve fallen somewhere in between those two extremes, which is, it’s always nice to fall somewhere between the extremes, I think. You know, I mean, I guess it depends on the extremes. You know, if the extreme is, I want to have a grand total of zero deaths by car accident in my life. That’s a good extreme to fall on. You know, just because I don’t want to have any, I don’t want to die in a car accident. I don’t think anybody does. Maybe, maybe they’re the irrational insane people who might feel differently. But, I’m not one of them. So, here we are. But, in anything you do, so, you know, in setting up an estate plan, like, okay, this, you know, is this a great idea? Is this a bad idea? Well, it’s usually a little bit of both. There’s usually, you know, good, bad, and otherwise, and everything you’re doing. So, we just need to plan for how can we make things go the way that you want them to? Because we don’t necessarily need to have, you don’t need to have million dollars in being transferred. And then suddenly making problems for the, for your children. So, as we set up an estate plan, we want to consider all of these different aspects. And sometimes, you’re thinking about one thing, you’re like, oh, wait. I didn’t know that doing that that way would cause a tax problem down the line. Oh, we have to think about that. I didn’t know that doing that would cause it to be, you know, be, take more time in probate. So, we have to think about that. And, you know, do we set up a trust so that we can avoid the time and the government interference of probate? Well, then there’s usually an increased cost of legal services to get everything set up so that we can avoid things like that. So, it’s all about what is the best plan for you and accomplishes your goals with what you want to do and at a price that works for you. So, thank you so much for listening to Mobile Estate Planning with Michael Bailey. I’ll be back next week, but stay tuned for John Rush in Rest reason. Thanks and bye. Mobile Estate Planning with Michael Bailey will return to ATX next Wednesday at 230 here on KLZ 560, AM 560, FM 100.7 and online at KLZRadio.com. [Music]