0:19 foreign hello I'm a little bit disheveled this morning because uh at the last minute my my guest for today had to cancel um they well my guess I should have said for today had to cancel they had an emergency with with their child and uh unfortunate well I mean it's it's Unfortunately they can't be here but understandably um when you know when it's your child so that that takes priority so uh had to do
0:54 a uh what a there's a there's a name for it in sports a quick sort of you know adjustment here and uh so it's it's it's gonna be just me for today sorry about that for those of you who are expecting somebody else um or well other people in addition to me um but we'll we'll have them on at another time and hopefully um everything will will turn out out okay for their for their child and um for those of you who are parents I'm I'm sure you have experienced this uh you know these kind of occurrences most
1:29 more than once in your life and and they can be you know just a little bit frightening it is your child after all and and and of course uh it it does disrupt the uh you know when one's regular day and especially on a Monday seem to be so crazy anyway right um and right after Father's Day so um I I I wish them well and and hope that everything uh works out okay with their daughter and and we'll you know we'll we'll do a quick uh change up here and uh I'll pinch I'll pinch hit for them today and uh we will
2:05 proceed so um anyway hello and uh I am this is um trust and Estates weekly and I'm your host Kevin bemle we're here every Monday morning well Monday morning West Coast time 10 10 a.m and 1 p.m Eastern Time an hour in for Central and mountain time and our purpose for being together for this 30 minutes each Monday is to talk about all things related to trusts Estates probates dealing with our property and
2:41 making sure um that it uh um I just got a guest here hold on one second in me okay um um dealing with um uh all of those things that may happen to our our property um after um uh you know after we we die it's it's it's not a particularly Pleasant uh subject um but uh I think it's it's one that we
3:17 we need to deal with um the reality of the situation is if we don't make some kind of plan for what's going to happen with our assets after we pass away so then the state the state government for the most part is going to make those decisions for us so there are laws on the books in in each state um essentially determining what happens with our property if we die what's called intestate intestate means without
3:53 a will and without a trust and so um you know like I said that the the the state of the the state will make those decisions for us they will look at the various laws as to who gets what based on how close a relative they are to us and and if they can't find um relatives um close enough then the state will take our money and and they will keep it so and so we may have a very close friend for example who we want part of our
4:30 property go to if we don't arrange that prior to when we pass away the state is not going to give that property to that person they're not related to us in any you know in any way shape or form um and so therefore they will be excluded um I'm you know they can the the person of course can fight it they could mount a legal Ace and try and um you know convince a judge then indeed it was your intention for them to get uh whatever property it is they believe um you wanted them to have
5:06 um but uh it's a tough fight it could be costly um and and so really the The Prudent thing to do is to uh make sure that you know we handle these things while we're still able to and so that is that's our that's our purpose here and for those of us like me who are professionals it's our job to help our clients help people deal with these um that deal with these circumstances and help them understand the various issues um so that they can make informed
5:41 decisions ones that will best Express um their wishes their values and and and and um and and be in line with the the relationships that they have so for today I was actually going to cover this next week but uh like I said I did a quick change up here I'm gonna talk about um the about gift tax and making gifts while we're still alive and the reason I want to cover this is it's not
6:16 necessarily um well it's it's yeah it's not necessarily necessary I know that sounds weird for us to wait until we pass away to start Distributing our assets so um there are um there may be good reasons to start making gifts to other to the people we want to have our assets before we pass away and and there are rules about that and and
6:51 we have to make sure that those are taken care of and there's an important change happening soon that uh for those of you who have very large Estates will will make a big big difference and so I'm gonna just I'm gonna share my screen and we're going to take a look at some information on the this is the website for the Internal Revenue Service so um you know that is the tax collecting agency here in the United States okay
7:26 and and there may be by the way um rules about gift taxes in your individual State um I I should preface my remarks by saying none of this is considered to be tax advice legal advice accounting advice I'm taking you through the irs's website and so that you can see what the IRS is telling us about these circumstances but of course as always before you do anything make sure that you are acting in accordance are you getting advice based on your own
8:02 individual situation so that the decisions you make are based on your situation not on some you know general information that you got from me or frankly anyone else okay so first of all let's let's talk about what what what a is and and they don't uh okay so let's I'm going to talk to secretary what is considered a gift so a gift is any transfer to an individual either directly or indirectly where full consideration is not received in return Okay so
8:37 let's say that um uh I give my daughter um a gift of five thousand dollars and I get nothing or I give my daughter not a gift I give my daughter five thousand dollars and I get nothing in return for that five thousand dollars and by the way love and admiration and appreciation is not considered uh consideration okay um while while we may desire that okay from the irs's standpoint that that's not going to fly as consideration okay
9:12 so that five thousand dollars to her would be considered a gift okay and now I'm going to talk about this in a minute whether that gift is excluded from the rules on gifts will depend on why I gave her the money okay so let's let's but I'll set that aside I'll get to that in a moment now let's say I give her five thousand dollars because she worked for me for um you know 50 hours during the past
9:47 month okay or she's going to be working for me for 50 hours during the you know upcoming month or two right so she's getting whatever it is a hundred dollars an hour okay you know I think my daughter's worth it but don't tell her that because she'll want to increase in her allowance so in that case I'm getting consideration for the five thousand dollars I paid her so that would not be a gift Okay now what's the difference well the difference is if I give her five thousand dollars and it qualifies
10:23 as a gift I'm responsible for the taxes on that money okay so if there's a gift tax due I pay it okay now in the case uh and you'll we'll see this in a minute um there's an annual exclusion on the size of gifts we can give to other people whether they're related to us or not makes makes no difference and so we don't have to pay gift tax on it and we'll we'll get to that in a couple minutes now if I give her the five
10:58 thousand dollars in return for her working for me now she's gonna have to pay taxes on that okay at least income taxes now depending on what the relationship is is she working as an independent contractor in which case I give her what's called a 1099 okay and now I don't have to pay any um SSI social security tax or any fat any Medicare tax on it I don't have to do I don't have to withhold anything for income taxes so she would be totally
11:33 responsible for any taxes on that income and in fact she would have to pay what's called SCT self-employment tax which is actually it's essentially Just Dub so it's it's the full income tax rate which is uh over 15 percent now okay for an employee the the employer and the employee each pay half of the Social Security tax or what's called FICA okay Federal Insurance contribution act I believe it is okay and they pay each pay half of the Medicare tax when someone acts as a um uh an independent
12:12 contractor okay so then that person is going to pay the entirety of that amount themselves okay that's typically why someone who is working as an independent contractor will get more on a per hour basis than someone working as an employee because they are automatically going to be paying an extra almost eight percent in taxes because they're paying the employer's share of FICA what amounts to the employer share a FICA their self-employment tax okay so in that case like I said if it's if I pay it to her
12:48 in exchange for her working for me so she's going to be responsible for um some or all of the taxes depending on what the employment Arrangement is okay so now let's let's now just stick with a situation where the five thousand dollars I gave her is a gift so what gifts then or what can be ex what kind of money can be excluded from gifts under the definition of a gift okay so in general the general rule is all gifts are taxable however okay there are
13:25 exemptions and we we can see this right here under what can be excluded from gifts okay so that so gifts that are not more than the annual exclusion for the calendar year are exempt and we'll get to the annual exclusion a minute gifts that are tuition or medical expenses that you pay for someone else okay those are not taxable so if I were to pay five thousand dollars for her to go to college or give her five thousand dollars for her to pay for college that's exempt okay I don't pay gift tax on it she pays no taxes on it okay gifts
14:03 that one person gives to his spouse or her spouse okay inter-spousal gifts are tax exam okay no matter what the size and finally gifts to political organizations for its use okay now the thing about political organizations are they may or may not be tax deductible that depends on what type of organization it is okay so just because um the you don't have to pay taxes on
14:39 the gift doesn't necessarily make the gift tax deductible those are two different things so for example a gift to the campaign for someone running for office that is not tax deductible okay it's it's not that's just how the rules work on the other hand the gift to an organization that is promoting a an issue without endorsing candidates generally speaking that will be
15:15 deductible okay as just as just as any other charitable gift okay so the issue generally speaking is is the group endorsing any particular individual or individuals for office if they are then the gift probably is not tax deductible okay if they are not then the gift may be tax deductible that's a separate issue from whether you have to pay gift taxes on it which you do not okay when
15:50 it's a political gift or would a gift to a political organization okay now may I deduct my gifts on my income tax return that's what I was just talking about here okay so um foreign not be able to deduct a particular gift and that's what I was just talking about so if if the organization is a 501c3 organization that's that's an organization that's been given non-profit status by the IRS they file a
16:27 particular form to get that status the IRS reviews it and if they incur that it isn't a charitable or a non-profit organization they'll issue a letter um essentially saying that you know the the uh the organization qualifies for non-profit status okay that's that's not our our issue for today so I'm not going to spend any more time on that but understand that there's a difference between and I'm gonna I want to emphasize this so it's very clear there's a difference between not having to pay gift taxes on a gift
17:04 and a gift being tax deductible meaning you can deduct it from your income in determining your adjusted gross income or your taxable income okay those are those are two different things okay if you want to if you need to answer those questions specifically for yourself now that's when you want to start talking to your accountant or your lawyer or both if it's a large gift um then you may need to talk to both of them all right now here's the annual exclusion per dhoni
17:41 okay the dhoni is the person who who's receiving the gift if you give the gift you're the donor the person receiving the gifts is the don't e or as I used to explain when I taught real estate the or person is the person taking the action the E person is the person receiving the action okay so you can see for this year 2023 the annual exclusion is seventeen thousand dollars per dhoni okay now so if I were to give twenty thousand dollars to my daughter the first
18:18 seventeen thousand of that is excluded from gift tax but the remaining three thousand dollars all have to pay gift taxes on that okay so one of the things that people do is they set up and you you can see that it's been increasing for 2011 through 2012 it was thirteen thousand dollars and over the last 12 years or so it's increased to 17 000. so what what people will sometimes do if they have multiple children is
18:53 they will give each child each year up to the maximum exclusion amount and that way they can start transferring to their money to their children in advance of of dying tax-free now look at this what if my spouse and I want to give a gift together so if you've got um if you've got if if you're uh married so you can see if one spouse gives the gift that was the same table we just saw above right you see it's the same
19:30 numbers 13 14 15 Etc okay but if both spouses want to give an amount it actually doubles so if if you and your spouse I I know this is somewhat self-contradictory are still married okay um you can give up to today thirty four thousand dollars to each of your chill children tax-free meaning you don't pay gift tax on it okay so it's essentially double the amount now by the way it doesn't this is not limited only to your
20:07 children okay you you can give a gift to anybody okay so let's say you have um a a son or daughter-in-law okay they're not your child right they're just married to one of your children you could give them uh that amount too okay so let's so let's say you've got a child who's married okay and you're married so you could give each but both your child and your child's spouse up to thirty four thousand dollars a year or a total of sixty eight thousand
20:42 dollars okay to that married couple because it's per don't e and the and the marital unit is not considered a single dhoni it's the individuals and by the way if you had grandchildren you could give up to thirty four thousand dollars to each grandchild okay so this is all part of the estate planning process that's why I I encourage you to start engaging in this process now because it may make sense to start transferring assets before you die rather than waiting until after you die to transfer
21:19 all of them okay all right now there's one other issue that we need to take into account in dealing with gift taxes and that is in addition to there being annual limits there is a lifetime limit on how much you can give okay so if you're look you look right here it says gift and estate tax exemption the amount you can give during your lifetime or at death and be exempt from federal estate and Gifts taxes Rose this year 2023 from 12
21:55 million sixty thousand dollars to 12 million nine hundred and twenty thousand dollars so almost thirteen thousand dollars now this is important obviously you have to have a whole lot of money okay but if you do have a lot of money and you've been giving money to your children and or grandchildren whomever else for a a certain number of years what that's effectively going to do is reduce the amount that you can transfer in your estate tax free
22:30 okay so let's say over the last 10 years okay you've given gifts to various individuals totaling six million dollars okay what that means now is you can transfer another six million nine hundred and twenty thousand dollars tax-free going forward including whatever the amount of your estate is so if you've got an estate that's worth 10
23:05 million dollars right as of this year 2023 but you only have roughly seven million dollars left of your lifetime exemption you're going to end up paying taxes estate taxes on three million dollars hey hopefully that makes sense okay so as of 2023 the most you can give for your entire lifetime transfer tax free is 12 million nine hundred and twenty thousand dollars now here's
23:40 here's the real kicker okay this exemption is going away in three years so in 2026 it's going to revert back to the original 5 million dollar amount adjusted for inflation which is about seven million dollars okay so as of 2026 you're going to lose six mil the ability to transfer six million dollars okay now let me put a
24:16 caveat on that Congress can change the law to extend this deadline okay and and and they do I believe they've done it before with respect to this and this is one of the ways when they're when they're negotiating um the budget each year so see they'll they'll do what's called sunset this law which means they'll have a date when it ends and then they'll say okay so see as of 2026 we're going to generate a lot more tax revenue from
24:52 um from estate and gift taxes and so you know either the spending that we're doing will will be offset by that increased taxes or they may say but or this tax um uh decrease will be offset by this tax increase okay so they'll they'll say that today right um and then a few years later when they start getting complaints from their constituents about a big increase in gift and estate taxes they'll extend the law past the Sunset date okay and in
25:27 that way it won't affect all those those people okay so uh all right so this is another big reason why it's important to start your estate planning now because these laws change okay and they can have big big consequences on your tax situation okay now again they can change they can change again right as I just mentioned
26:02 but we want to we we need to be planning based on what the current situation is knowing that we may need to do some additional planning if things change down the road okay but we don't want to leave these particular issues to chance especially if you have a large estate okay now presumably your advisors are up to date on this change and they are getting with you and saying we need to take a look at this we need to take advantage of these you know the law while we can or or not as whatever whatever they're advising you that's you
26:38 know again I leave that between you and your advisors they know your situation I'm not giving you any advice except to say plan now plan in advance don't delay the delay could potentially be a big big problem and you may you know regret delaying okay so uh so get in touch with with your your account and get in touch with your lawyer get in touch with your financial advisors and and make sure that that that you know you you your
27:14 current situation is is either it's it's in line with where the law currently sits or find out what you need to do to uh you know in order to to get up to date so I do have um one attendee in the room and and uh rod do you have any questions um on anything that I cover today or on any other trust in a state matter I'll open up the floor to you give you a moment if if you want to uh unmute and and ask me a question I'm happy to do so
27:50 let's see oh okay well I'm gonna I'm gonna oh here we go uh okay we gotta oh okay great uh thank you Rod uh and thank you for joining me so that's what I have for you today um this has just been a brief overview of a of what is or what can be a very complex subject and but but it's something we all need to be aware of especially that annual exclusion that that's you know it went up again this year to 17
28:26 000 or if you have if you're you have a spouse thirty four thousand dollars if you give a a gift together do keep that in mind we're you know roughly halfway through the year now and so if if you have gifts to make you know annual gifts to make now is the time to start uh planning to do that and getting that all lined up so um uh hopefully um everything is okay with uh with my guests and their child and and as I said at the beginning we will uh I'll end up rescheduling with them so we'll have uh
29:02 uh Matt and Kimmy on uh ma'am Kimmy shemek on another time I just want to remind you tomorrow tomorrow at 11 A.M Pacific Time 2 p.m eastern time is my show business lessons from the military where we look at things like military Doctrine military history great leaders and distill from that ideas and information that we can use in our business lives to improve our businesses and either our own or the ones that we work for and then on Wednesday is at 12 30 p.m Pacific Time 3 30 p.m eastern
29:40 time is my show people making money my guest is Jeff Brown and he's going to be talking about his work in uh in in in holistic um a whole living a holistic life I think you will find Jeff to be a very interesting guest both because of what the work that he does as well as how he's how he was able to build a business to the point where he's able to do that work so I hope you'll join me again on on Tuesday and Wednesday thank you very much for joining me uh both here in the
30:16 meeting and online I appreciate it and I look forward to seeing you later this week and then we'll do it all again next week take care all the best folks oh before I sign off Marie darling you are my Val see almost forgot but I remembered all