Is Adding Your Child to Your Title a Bad Idea?
概要
TLDRJim Cunningham advises against adding your child to your house title despite its apparent benefits, such as avoiding probate and simplifying inheritance. Doing so transfers a portion of ownership, which can lead to loss of control over the property. Risks include exposure to child’s creditors, potential forced sales due to bankruptcy, family disputes, negative tax implications, and complicated gift tax requirements. Instead, legal and financial experts often recommend trusts as a safer alternative for transferring property, as they can protect against these risks and ensure more control over the asset. Trusts prevent the need for probate, preserve privacy, and maintain fair distribution among heirs. Cunningham stresses that expert legal advice is essential when navigating these complex estate matters.
収穫
- 🏠 Adding a child to the house title can seem beneficial but poses risks.
- ⚖️ Legal advice is crucial in estate planning and property transfers.
- 📜 Trusts are safer alternatives for property transfer than simply changing the title.
- 💰 Capital gains tax implications can be severe if titles are shared or transferred improperly.
- 🛡️ Trusts provide protection from creditors and can help in maintaining control.
- 💔 Family conflicts can arise from unequal property distribution.
- 💡 Important to understand the implications of partition actions and forced sales.
- 💼 Property co-ownership can complicate decision-making and financial responsibilities.
- 🔍 California has stringent probate laws which can be bypassed with smart planning.
- 📈 Applicable federal rates must be considered in family loans to avoid tax issues.
タイムライン
- 00:00:00 - 00:05:00
Jim Cunningham introduces the video discussing why adding your child to your house title might not be a good idea, highlighting potential risks and control issues.
- 00:05:00 - 00:10:00
Jim elaborates on various legal ways to transfer home ownership to children and warns about California's trust-friendly but probate-averse laws, focusing on trusts over wills.
- 00:10:00 - 00:15:00
He presents risks of adding a child to a home title such as loss of control, bankruptcy risks, exposure to creditors, and potential family conflicts.
- 00:15:00 - 00:20:00
Jim discusses tax implications such as negative capital gains consequences and gift tax responsibilities when transferring home title to children.
- 00:20:00 - 00:25:00
Partition action risks are elaborated, where added children could force a house sale, leading to family conflict and financial complications.
- 00:25:00 - 00:30:00
Jim explains enhanced statutory protections now available in California against involuntary properties sales due to heirs or debts resulting from co-ownership.
- 00:30:00 - 00:35:00
Capital gains tax calculations on property transfers to children are explained, showing tax pitfalls of early gifting versus inheritance through a trust.
- 00:35:00 - 00:40:00
Jim outlines potential family disputes from unequal advancements on inheritance and stresses the importance of fair planning in estate distribution.
- 00:40:00 - 00:45:00
He covers alternative ways of helping children acquire property, including loans, living trusts, and considerations for fair gifting to maintain family harmony.
- 00:45:00 - 00:50:21
Finally, Jim concludes with a reminder of the value of professional legal advice in estate planning, offering services from Cunningham Legal and promoting upcoming webinars.
マインドマップ
ビデオQ&A
What are the risks of adding a child to the title of your home?
Adding a child to the title can lead to loss of control over the property, exposure to the child's creditors, potential forced sales, and family conflicts.
How can adding a child to the title impact capital gains taxes?
It can lead to negative capital gains tax consequences, as the child's cost basis remains the same as the parent's, potentially resulting in a taxable gain if the property is sold.
What is a partition action?
A partition action is a legal process where a co-owner requests the court to divide or sell a property, which can lead to forced sales and family disputes.
Why is probate problematic in California?
Probate in California is lengthy, costly, and lacks privacy, as all estate details become public record.
Are there safer alternatives to adding a child to your house title?
Yes, creating a trust or using a living trust can safely transfer the property to children and avoid many issues related to taxes and creditors.
How can trusts protect your home from future risks?
Trusts can protect assets from creditors, divorce settlements, and ensure controlled distribution according to your wishes.
Is there a way to ensure equal distribution among children when adding them to property titles?
Yes, outlining the intentions clearly in a will or a trust and considering advance inheritance agreements can help maintain fairness.
What is the significance of the applicable federal rates in family loans?
These rates determine the minimum interest that must be charged on family loans to prevent them from being considered gifts for tax purposes.
Can an LLC be used to hold property ownership effectively?
Yes, holding property in an LLC can offer additional liability protection and ease of management, but requires careful legal setup.
What are the potential complications of co-ownership in property?
Co-ownership can lead to shared decision-making, potential for disagreements, and exposure to the other owner's financial issues.
ビデオをもっと見る
What is the Best Toothpaste? (according to a dental hygienist)
What is Stunting?
Five simple strategies to sharpen your critical thinking | BBC Ideas
Cyberpunk 2077 - 10 Things I Wish I Knew Earlier (Tips and Tricks)
Improve your English in 30 days with this ACTION PLAN
THE STORY OF THE ROLLING GIANT EXPLAINED (The oldest view) theory
- 00:00:00hi this is Jim Cunningham why shouldn't
- 00:00:02you add your child to your title to your
- 00:00:04house now that sounds like a good idea
- 00:00:07maybe I can just add my kid to the title
- 00:00:09maybe that'll solve a lot of problems
- 00:00:10we're going to talk about why that may
- 00:00:12not be such a good idea and a lot of the
- 00:00:14stuff that can go wrong because really I
- 00:00:16think on a high level this seems kind of
- 00:00:17kind of easy right like oh I'll just add
- 00:00:19Johnny to the title that'll take care of
- 00:00:22a lot of things uh but really is you're
- 00:00:23going to see it can create a lot of risk
- 00:00:26and a lot of potential problems and of
- 00:00:28course lawyers are in the in the
- 00:00:29business of kind of warning people of
- 00:00:31all the stuff that can go bad and taking
- 00:00:33the right path to minimize that future
- 00:00:35risk
- 00:00:38[Music]
- 00:00:48so there are many many ways to and what
- 00:00:51we're talking about here specifically is
- 00:00:52transferring your home what you're live
- 00:00:54in which you know everyone most of our
- 00:00:56clients own their home right so you're
- 00:00:58living in your house and you say look I
- 00:00:59want my children to inherit this I want
- 00:01:01to to put them on title and make it easy
- 00:01:03so we don't have to waste money on
- 00:01:04lawyers I totally get that law lawyers
- 00:01:06are very expensive uh there are several
- 00:01:08ways to do it and several ways not to do
- 00:01:11it so you can we're going to talk about
- 00:01:13gifting we're going to talk about
- 00:01:15titling we're going to talk about use of
- 00:01:16wills and trusts we'll probably lean
- 00:01:18more on the trusts uh we're in
- 00:01:20California and California is uh really
- 00:01:22supportive of trusts and kind of
- 00:01:24punitive when it comes to wills and
- 00:01:25probate and we're going to talk about uh
- 00:01:28uh ways to protect your home when it
- 00:01:31goes to your child your son or your
- 00:01:33daughter protecting it from future
- 00:01:35ex-son-in-law and future
- 00:01:36ex-daughter-in-law so I have children
- 00:01:38and I know I'm concerned about that so
- 00:01:40I'm Jim Cunningham I'm at a partner at
- 00:01:42Cunningham legal I've been an attorney
- 00:01:43for 30 years uh just uh just slightly
- 00:01:46over 30 years we have offices throughout
- 00:01:48the state of California I'm a certified
- 00:01:49specialist in a state planning trust
- 00:01:51appropiate law Securities Insurance
- 00:01:52licensed and a pilot single engine land
- 00:01:55these are currently the lawyers in our
- 00:01:56Law Firm we are devoted to All Things
- 00:01:58wealth peaceful trans of wealth between
- 00:02:00one generation to the next involving
- 00:02:02family businesses real estate uh trusts
- 00:02:05estate planning uh disclaimer is very
- 00:02:07important I'm a lawyer I'm talking words
- 00:02:09are coming out of my mouth uh I am not I
- 00:02:12not giving you legal advice okay so this
- 00:02:14is not a do-it-yourself project what
- 00:02:16we're talking about here requires uh
- 00:02:18frankly a a a great lawyer a Savvy
- 00:02:21lawyer alongside with you to get to uh
- 00:02:24the goal that you would like to be in
- 00:02:26terms of transferring your wealth in
- 00:02:28your home so why shouldn't you add your
- 00:02:31child uh to your title to your home and
- 00:02:35this is a very common actually Google
- 00:02:37search term is you know why how do I add
- 00:02:41my child to to my title how do I do that
- 00:02:43and really there's a question of why why
- 00:02:45you want to do that but here are some
- 00:02:46risks so this is why you should not add
- 00:02:49a child to the title of your home when
- 00:02:51you make a transfer of uh you know
- 00:02:53either it's your whole home or part of
- 00:02:55your home maybe I'll I'll put them on as
- 00:02:56a joint tenant or him or her as a joint
- 00:02:58tenant that is primarily a loss of
- 00:03:01control because that person that you add
- 00:03:03to your title is a present owner of that
- 00:03:05property and you the control that you
- 00:03:08did have that 100% control that you did
- 00:03:10have now you don't have 100% control so
- 00:03:12if you add them to your title a portion
- 00:03:14of control is going over to them you no
- 00:03:16longer have 100% now it's sort of shared
- 00:03:19uh you have to you have to make
- 00:03:21decisions jointly and you say well
- 00:03:22that's not bad you know I trust my child
- 00:03:24they're responsible uh are they you know
- 00:03:26are they married what what sort of U
- 00:03:29trouble can they get into creditor
- 00:03:30exposure what we're talking about here a
- 00:03:32lot of times is bankruptcy the leading
- 00:03:34cause of of bankruptcy is health care
- 00:03:37and so what that means is people get
- 00:03:38sick and they can't afford uh the the
- 00:03:40cost of their care and they run up a
- 00:03:42huge medical debt and I I guarantee
- 00:03:44everyone on this knows someone who's run
- 00:03:46up medical debt it's just a fact of of
- 00:03:48being an American unfortunately as we
- 00:03:50know people and if that's you I'm I'm
- 00:03:51sorry to hear that that is the leading
- 00:03:53cause of bankruptcy is Healthcare uh
- 00:03:55family conflict you know if you have two
- 00:03:57children and you put one child on the
- 00:03:58title to your home how's that other
- 00:04:00child going to feel right so if if
- 00:04:02Johnny got the red bike for Christmas
- 00:04:04decades ago and is still mad uh that's
- 00:04:06going to be a problem and um you know
- 00:04:09you might say well it's easy I'll just
- 00:04:10add two kids to to the title well that
- 00:04:12may double your your risk um risk of
- 00:04:14loss of the property this is very
- 00:04:16important because if that child that you
- 00:04:18add to title goes into bankruptcy the
- 00:04:20bankruptcy trustee so what happens when
- 00:04:22you when you when you declare bankruptcy
- 00:04:24personal bankruptcy you no longer have
- 00:04:26control over your asset so if you've
- 00:04:28added your child to that title the
- 00:04:31bankruptcy trustee can force a sale
- 00:04:33right and then you then that house is
- 00:04:36sold and that money is going to go to
- 00:04:38your your child's creditors so big big
- 00:04:40problem um and that's why you would want
- 00:04:43to think twice about adding your child
- 00:04:44to the title a negative capital gains
- 00:04:47tax consequences we'll have an example
- 00:04:48here where you add a child as a joint
- 00:04:50tenant uh that means that the capital
- 00:04:53gains tax that you could otherwise avoid
- 00:04:55or your child could otherwise avoid when
- 00:04:57you pass away you don't get that with
- 00:04:59joint t you don't get that full benefit
- 00:05:01we'll talk about that and then also gift
- 00:05:02tax consequences if you have a property
- 00:05:05and you you you create a deed
- 00:05:08transferring that property to you and
- 00:05:09your child you have just made a gift to
- 00:05:12your child okay so that means you got to
- 00:05:14file a gift tax return probably don't
- 00:05:17have to pay gift taxes but it depends on
- 00:05:18how much you've given you know if you've
- 00:05:20given a substantial amount during your
- 00:05:21lifetime and as we do this currently the
- 00:05:23current the gift tax exemption is about
- 00:05:2713.61% in 2025
- 00:05:30very important to understand that um you
- 00:05:33know if you make that gift it is a
- 00:05:34reportable gift whether taxes do or not
- 00:05:36you still have to report that and a lot
- 00:05:38of people don't don't realize that so
- 00:05:40loss of control um this what I'm talking
- 00:05:43about here is a forced sale it's also
- 00:05:45called A Part partition action so uh
- 00:05:48when property is used as uh when
- 00:05:51somebody owns property and then they
- 00:05:52have a creditor somebody who sues them
- 00:05:55and they want to recover money that they
- 00:05:56borrowed let's say they ran up a credit
- 00:05:58card right and they don't pay that
- 00:06:00credit card and that that judgment
- 00:06:03creditor can seize the assets of the
- 00:06:05debtor so if your child you add your
- 00:06:06child on title and your child runs up a
- 00:06:09bunch of credit card debt and that
- 00:06:10credit card company successfully sues
- 00:06:11the child they're going to go after your
- 00:06:14house right that you're you put your
- 00:06:16your son or daughter on on the title and
- 00:06:18they're going to seek a sale of that
- 00:06:20house to be paid and that's going to
- 00:06:22create a big problem a shared
- 00:06:23decision-making this is important so
- 00:06:25once your child's added to title they
- 00:06:28become a co-owner and this has to do
- 00:06:30with sales refinances and the nature of
- 00:06:32of California real estate is if you add
- 00:06:35someone as a 10% owner they are 10 a 10%
- 00:06:38owner of the whole thing so they have a
- 00:06:40fractional interest so if you have a 10
- 00:06:42acre parcel and you give them 10% and
- 00:06:44you're trying to just give them that one
- 00:06:45acre you can't really do that okay you
- 00:06:48would have to you would have to take a
- 00:06:49lot of extra steps so very important to
- 00:06:52understand this shared decision making
- 00:06:55um can cause a lot of problems if people
- 00:06:57don't agree now again you may say well
- 00:06:58gee we agree it's no problem but what if
- 00:07:01your child passes away and now you're
- 00:07:03dealing with a an a son or
- 00:07:06daughter-in-law or maybe some grandkids
- 00:07:08or some other people depending on what
- 00:07:09your child's will has so it's a very um
- 00:07:13it it's it's hard to control your
- 00:07:15property when you add somebody to title
- 00:07:17no asset protection as a co-owner the
- 00:07:19child's share of that property can be
- 00:07:21subject to claims by creditors and
- 00:07:23divorce and that's a big one now you may
- 00:07:25say well you know Jim I've watched your
- 00:07:28other videos and if you you make a gift
- 00:07:30of property during marriage that is
- 00:07:32separate property well that's true so if
- 00:07:33you make a gift to your daughter and
- 00:07:35that's a separate property gift that is
- 00:07:38your daughter's gift well if your
- 00:07:39daughter transmutes that property and
- 00:07:41says to her spouse well honey you know I
- 00:07:43love you so much this you know this half
- 00:07:45of the house that my my parent gave me I
- 00:07:47want to share that and that should be
- 00:07:48community property that may then become
- 00:07:50community property so it's property that
- 00:07:53you acquire by gift if you're married
- 00:07:55does not always stay separate property
- 00:07:57it can uh become can easily slide into
- 00:08:00community property the family conflict
- 00:08:02and stress I mean obviously everything
- 00:08:04we've talked about here could cause a
- 00:08:06lot of family conflict and stress and I
- 00:08:07think we all want to avoid that so if
- 00:08:09you're watching this on YouTube I've got
- 00:08:11a a still here from The Brady Bunch
- 00:08:13which I grew up watching as a kid and I
- 00:08:15distinctly remember this episode because
- 00:08:16I didn't have any siblings so you've got
- 00:08:18two brothers who have decided to divide
- 00:08:20up their room and they put down a piece
- 00:08:22of tape between the room that is a
- 00:08:24partition so a partition action is hey
- 00:08:26you stay on this side I'll stay on that
- 00:08:28side that's kind of what's going on here
- 00:08:30but what happens in the real world a
- 00:08:32partition action either separates the
- 00:08:35parcel into two Parcels now if you have
- 00:08:37a section of property which is 640 acres
- 00:08:39that's kind of easy each person gets 320
- 00:08:41Acres now assuming they're equal right
- 00:08:44in in value and and desirability uh
- 00:08:46let's say they're just flat egg Acres
- 00:08:48okay maybe you can divide those up uh
- 00:08:50easily but you know if you have a condo
- 00:08:52or a house you can't really partition a
- 00:08:54house so this is in the situation where
- 00:08:56you add a child to the house things turn
- 00:08:58South things go sour and uh that child
- 00:09:02wants to sell the home and get their
- 00:09:03money and we've seen this happen in re
- 00:09:05in real world with clients of ours where
- 00:09:08they they put added their kids to title
- 00:09:09without us you know kind of before they
- 00:09:12came to us they've added their child to
- 00:09:13title and now that child is Seeking a
- 00:09:15sale of the property which I you know
- 00:09:17it's hard for me to believe someone
- 00:09:18would do that to their parent um but
- 00:09:20there are recent changes in the law to
- 00:09:21protect uh co-owners particularly years
- 00:09:24these are statutes that were passed in
- 00:09:25the last couple of years and really the
- 00:09:27focus is on a fair process and Pro
- 00:09:29prevention of involuntary loss because
- 00:09:31this is really trying these these
- 00:09:32statutes are trying to solve a problem
- 00:09:34that arose when somebody maybe added a
- 00:09:36child to the title and then the child
- 00:09:38forced a sale of the property which is
- 00:09:40called a partition action but really you
- 00:09:42can think of it as a sale action because
- 00:09:44the idea is not to split the property
- 00:09:46into two halves if you will it it is to
- 00:09:49sell the property and for the child to
- 00:09:51get the money so we have two acts one is
- 00:09:53the uniform uh partition of airs
- 00:09:55property act that was effective January
- 00:09:561 2022 this defines airs uh property so
- 00:10:00this is in the situation where somebody
- 00:10:02passes away and maybe three kids inherit
- 00:10:05the property and two want to keep it and
- 00:10:07one wants to sell it uh what do you do
- 00:10:10uh it this now requires a fair market
- 00:10:12appraisal and provides a first right of
- 00:10:14refusal for the other co-owners so it
- 00:10:17used to be that if heirs Inherited
- 00:10:19property uh that uh they the one
- 00:10:22disgruntled air could go in and force a
- 00:10:24sale and it would go to auction and the
- 00:10:27other co-tenants or the other owners did
- 00:10:29didn't have the any rights any bundle of
- 00:10:31Rights well now they do so now in the
- 00:10:33situation where you've got a property
- 00:10:34that goes to three children and they own
- 00:10:36that all together um then now now
- 00:10:39there's more more protection for those
- 00:10:40other children who might want to keep
- 00:10:42the property so they have that first
- 00:10:43right of refusal and then the partition
- 00:10:45of real property Act was uh January 1
- 00:10:472023 this expanded the protections uh to
- 00:10:50all tency and common properties not just
- 00:10:52inherited properties and so this allows
- 00:10:54the non-partitioning co-owners to buy
- 00:10:56out the others and this encourages uh
- 00:10:58partition and kind over sales again what
- 00:11:01this in kind means is if you have that
- 00:11:03640 acre parcel which is a square mile
- 00:11:05of of land that's a little bit easier to
- 00:11:07divide up into two 320 acre SE uh
- 00:11:11Parcels than it is to divide a condo how
- 00:11:13are you going to divide a condo what you
- 00:11:14get that bedroom I get that bedroom that
- 00:11:16doesn't even make sense um but this does
- 00:11:18now expand those those heirs rights to
- 00:11:20all co-tenants and this actually does
- 00:11:23we're talking about not adding your
- 00:11:24child as as a tenant or as a as a
- 00:11:27co-owner but if you have added your
- 00:11:30child as a co-owner right and something
- 00:11:31has gone wrong you now have more
- 00:11:33protection as a co-tenant so I would say
- 00:11:35you have more te more protection in
- 00:11:37court it does not stop the process but
- 00:11:39it does give you a little bit more um
- 00:11:41when you look at your bundle of Rights
- 00:11:43it gives you a little bit more than than
- 00:11:45you might have had before passage of
- 00:11:47these two acts so um this is again
- 00:11:49enhanced protection for co-owners these
- 00:11:51two acts in 2022 and 2023 I will say
- 00:11:54this does add a layer of complexity so a
- 00:11:56lot of times uh California especially
- 00:11:59past laws and rules and regulations as a
- 00:12:02it's designed to protect people and
- 00:12:04enhance people's well-being what happens
- 00:12:07many times as we have added complexity
- 00:12:08and frankly cost and if you're in
- 00:12:10California you know exactly what I'm
- 00:12:11talking about uh there are um the courts
- 00:12:15can now consider sentimental
- 00:12:16non-economic factors not just the
- 00:12:18economic factors so again the context
- 00:12:20we're talking about here is somebody uh
- 00:12:22it co-owns property with a child and
- 00:12:24that child wants to sell the property
- 00:12:26and the parent used to have really have
- 00:12:28not many rights and they might just have
- 00:12:30to sell the property and lose their home
- 00:12:32so um increased complexity okay creditor
- 00:12:35exposure risk of leans on property if
- 00:12:37the child incurs a debt and is unable to
- 00:12:40pay them and this property is in the
- 00:12:41child's own name the creditors can lean
- 00:12:43the property place a lean on the
- 00:12:44property uh or force a sale and leans
- 00:12:47make the property frankly unsellable
- 00:12:49until the lean is released so or to get
- 00:12:51a a to get a mortgage or to refinance
- 00:12:54your mortgage so if you want to sell
- 00:12:56that property you've added a child as as
- 00:12:58a um
- 00:12:59as a co-tenant and now a few years later
- 00:13:02you want to sell that property but the
- 00:13:03child's creditor is placed a lean on the
- 00:13:05property that lean Holder will have to
- 00:13:06be paid before you're going to get your
- 00:13:08money from the sale of the property so
- 00:13:10inadvertent adding of you know these
- 00:13:13sort of inadvertent unanticipated
- 00:13:14consequences of adding a child to um to
- 00:13:18title so uh you are going to feel
- 00:13:21pressured to settle your child's debts
- 00:13:23before uh you can protect your property
- 00:13:25and when a lean is on the property it's
- 00:13:27not necessarily on that just that
- 00:13:29child's interest it's on the property
- 00:13:31itself which may complicate things so
- 00:13:33that you know if you if the relationship
- 00:13:35is soured with the child uh you know you
- 00:13:38may find that you're going to have to
- 00:13:39pay that half and the child pays half if
- 00:13:41you guys own it 50/50 it just depends on
- 00:13:43how the math works out rather than all
- 00:13:45of that debt being uh on the the side of
- 00:13:48the child so again can be very risky the
- 00:13:51example here is we have Abel Abel adds
- 00:13:53Abel's son Baker to the title of Abel's
- 00:13:55home Baker with dreams of becoming a
- 00:13:57llama wool Trader runs up a credit card
- 00:13:59debt to create a llama Ranch but alas
- 00:14:01the world isn't quite ready for high-end
- 00:14:03llama wool Baker defaults and Baker's
- 00:14:05creditors put a lean on ael's home so
- 00:14:07that's what we're talking about maybe
- 00:14:08child running a credit card another one
- 00:14:10might be medical debt right that's
- 00:14:11another example so potential for
- 00:14:14conflict uh let's say Abel decides she
- 00:14:16wants to sell the family home to
- 00:14:17downsize but Baker who's now a cone
- 00:14:19owner refuses because of Baker's
- 00:14:20emotional attachment while I really love
- 00:14:22that I know my llama uh business didn't
- 00:14:24go so well now you've got conflict uh
- 00:14:27Baker wants to rent the property out to
- 00:14:29generate additional income but AEL
- 00:14:30doesn't want a stranger living with Abel
- 00:14:32so Abel says hey I'm want to run out my
- 00:14:34room you know there's two room
- 00:14:36two-bedroom house and and we own it 5050
- 00:14:38I want to rent my half out that's not
- 00:14:40really legal by the way that's not sort
- 00:14:42of a but that's a lot what a lot of
- 00:14:44people think and I think a lay person
- 00:14:46might think that um and then Abel
- 00:14:48notices that the homes Foundation has
- 00:14:49developed significant cracks which could
- 00:14:51lead to Serious structural issues so
- 00:14:52Baker argues they should seek cheaper
- 00:14:54temporary fixes to Baker's Current
- 00:14:57financial constraints so you can see
- 00:14:58here hear this conflict when you add
- 00:15:00someone to uh to a title and again you
- 00:15:02may say well gee my kids are responsible
- 00:15:05my kids are great this will never happen
- 00:15:06you don't know what's going to happen
- 00:15:07right if you say my kids's marriage is
- 00:15:09great half a marriage is in a divorce
- 00:15:11and you know I've been through that I've
- 00:15:12been married for over 30 years and uh we
- 00:15:15my wife and I have seen many people we
- 00:15:16knew who were married who we thought
- 00:15:17would never be divorced and you know
- 00:15:19they're divorced and and you probably
- 00:15:20see that as well okay let's talk about
- 00:15:23capital gains tax consequences so this
- 00:15:24is another um downside so let's say you
- 00:15:27have a property you paid $1,000 for that
- 00:15:29is now worth 500,000 this is very common
- 00:15:32in California um many people have had
- 00:15:34property for many years the property's
- 00:15:35gone way up in value and let's say the
- 00:15:38the the parent wants to add a child to
- 00:15:40the title uh and sell the property so if
- 00:15:43the purchase price is 100,000 you're
- 00:15:45your basis meaning if you buy something
- 00:15:46for 100,000 and it's now worth 500 and
- 00:15:49you sell it the gain is the $400,000
- 00:15:52difference pretty simple math 500,000
- 00:15:54minus 100,000 is
- 00:15:56400,000 if you add the child to title
- 00:15:59let's say the parent uh transfers
- 00:16:01transfers the title to the parent and
- 00:16:03the child 50/50 the child's cost basis
- 00:16:07is not 250,000 it's not half of the
- 00:16:09market value when the property changes
- 00:16:10hands but it is what the parents cost
- 00:16:12basis is so in this case the parent owns
- 00:16:1550% the child owns 50% the cost basis of
- 00:16:18the child is 50,000 the cost basis of
- 00:16:20the parent is 50,000 as well the child
- 00:16:23gets $250,000 of the sales proceeds so
- 00:16:27the child's gain is $200 ,000 and that
- 00:16:29is a taxable gain which is up to $75,000
- 00:16:32in California depending on the the
- 00:16:35child's capital gains tax rate so not a
- 00:16:38good outcome uh both the child and the
- 00:16:40parent and perhaps a parent will ow
- 00:16:41capital gains taxes on their respective
- 00:16:43gains now if this happens to be a
- 00:16:45residence the parent if they're if
- 00:16:47they're married filing jointly has a
- 00:16:49$500,000 um capital gains tax exclusion
- 00:16:52on the sale of a home so if this is your
- 00:16:53home you've really stepped in it by
- 00:16:55giving it to your kid so the family
- 00:16:57collectively is paying $75,000 more in
- 00:16:59tax this is a residence you would have
- 00:17:01paid
- 00:17:01nothing this is adding a property to CH
- 00:17:04adding the child to property so we do
- 00:17:06see this a lot people at the end of
- 00:17:07their life they want to they want to
- 00:17:09make sure oh I want this child to have
- 00:17:10this property I'm going to add them to
- 00:17:12title it is better to inherit that
- 00:17:13through a trust or a will that this
- 00:17:16works the same for a will but if you
- 00:17:17inherit it through a will or a trust the
- 00:17:19child gets a stepped up basis so what
- 00:17:21that means is that gain is wiped away
- 00:17:24you's take an eraser it's the capital
- 00:17:25gains tax eraser it just erases that
- 00:17:28gain and races that tax and if this had
- 00:17:31flown flowed through the living trust of
- 00:17:33the parent the child would have no
- 00:17:35capital gains tax saving $75,000 now I
- 00:17:38don't know about you but $75,000 is a
- 00:17:41lot of money to me and it's a lot of
- 00:17:42money to every single one of our clients
- 00:17:44even our wealthiest clients so it makes
- 00:17:46sense to pay attention to this right
- 00:17:48rather than uh just um doing so now if
- 00:17:51you give the whole property the kid that
- 00:17:53could be $150,000 tax bill right so
- 00:17:56because now you're looking at a $400,000
- 00:17:58capital gain so
- 00:17:59I would say on a very high level it's
- 00:18:01better to have that property go to the
- 00:18:03child at death versus during
- 00:18:06Lifetime and when you add your child to
- 00:18:08title it's likely considered a gift what
- 00:18:10does this mean if it's not a sale and a
- 00:18:12lot of people when they add their child
- 00:18:14to title they're not selling it they're
- 00:18:15giving it um it is a all or a portion of
- 00:18:18the property's value which can trigger
- 00:18:20the filing of a gift tax return uh under
- 00:18:23federal law so in
- 00:18:252018 2018 in 2024
- 00:18:29the uh gift tax exemption is 18,000 so
- 00:18:32if you make a gift of greater than
- 00:18:3318,000 the person who's making the gift
- 00:18:35has to file a gift tax return next year
- 00:18:38and we're in 2024 in 2025 that'll be
- 00:18:4119,000 uh but um you have to go over
- 00:18:45your lifetime gifts which for 2025 will
- 00:18:47be 13.99 million so it's kind of rare
- 00:18:50that tax is paid when a gift tax return
- 00:18:53is filed but it still does have to be
- 00:18:54filed and that chips away at the amount
- 00:18:56that you can leave taxfree when you pass
- 00:18:58away
- 00:18:59uh there's a kind of a weird
- 00:19:02basic you know foundational question of
- 00:19:06if you start adding one child to this
- 00:19:08property and another child to that
- 00:19:10property and the children get an unequal
- 00:19:16distribution that can cause problems now
- 00:19:19this is kind of goes to kindergarten
- 00:19:20fairness now what do I mean by that I
- 00:19:22have three children and my estate plan
- 00:19:25says I leave everything equally to my
- 00:19:26three
- 00:19:27children because I think I don't want to
- 00:19:30leave more to one and less to another
- 00:19:32because they're just going to be mad so
- 00:19:34when I'm gone they're going to ones the
- 00:19:35one who didn't get as much would look at
- 00:19:37the others and say you know that's
- 00:19:39that's terrible I don't want to have
- 00:19:40Thanksgiving with you ever again I don't
- 00:19:41want to see you again that happens right
- 00:19:44that can happen when when people leave
- 00:19:46it unequally if you are free to leave it
- 00:19:48unequally and you may have your reasons
- 00:19:50to leave it unequally but for me
- 00:19:51personally I'm I'm looking at an equal
- 00:19:54distribution which is the vast majority
- 00:19:56of clients it is an equal distribution
- 00:19:58if you help out one child uh but not the
- 00:20:01other and by definition if you're adding
- 00:20:03children to title the numbers are never
- 00:20:05going to be equalized right um because
- 00:20:08all properties are are unique and
- 00:20:10different how's how's that going to play
- 00:20:13out when you're gone right or even when
- 00:20:14you're alive um there is a provision in
- 00:20:18the California probate code that allows
- 00:20:19for an advance on an inheritance you can
- 00:20:22identify a specific gift as an advance
- 00:20:24and so what that means is if you were to
- 00:20:26give a child
- 00:20:27$500,000 and say Here's a $500,000 gift
- 00:20:30the child acknowledges that as an
- 00:20:31advance on The Inheritance so when you
- 00:20:34pass away and your assets are are
- 00:20:36inventory and everything's added up to
- 00:20:37be split up that $500,000 gift is
- 00:20:40factored in to the distribution Among
- 00:20:43The Heirs so important to understand
- 00:20:45that it is not automatic there's a
- 00:20:47process attached to it and you have to
- 00:20:49get the acknowledgement of the person
- 00:20:50who is receiving the Advance on The
- 00:20:51Inheritance acknowledging that it's the
- 00:20:53Advance on The Inheritance and we do
- 00:20:54cover that in other webinars um and then
- 00:20:57there's also here uh distribution of
- 00:20:58Note versus cancellation of debt for you
- 00:21:00CPA watching this uh cancellation of
- 00:21:03debt is taxable as income distribution
- 00:21:05of a note is not so if there's a note um
- 00:21:09and and a lot of times we will equalize
- 00:21:11in estate using a note where a child
- 00:21:13will get it a note um maybe for a some
- 00:21:18type of planning mechanism just
- 00:21:19understand that there's a difference
- 00:21:20there that's more for CPAs than than
- 00:21:22late people
- 00:21:34so let's talk about loans mom lends
- 00:21:36200,000 a son and mom gifts 200,000 a
- 00:21:40daughter right so Mom is has uh lent
- 00:21:43money to son maybe it's a note secured
- 00:21:46by daa Trust on on a property so Mom
- 00:21:49lends 200,000 a son to buy a property
- 00:21:51and Mom just gives 200,000 to the
- 00:21:53daughter mom dies and the $200,000 lent
- 00:21:57200,000 lent to the son is part of Mom's
- 00:22:00estate as a note the $200,000 gift is
- 00:22:04not in Mom's estate so son has to pay
- 00:22:07back the estate the daughter does not
- 00:22:10unless the daughter's $200,000 gift was
- 00:22:12documented was essentially booked as an
- 00:22:14advance on her inheritance it is not
- 00:22:16counted against the daughter so this is
- 00:22:18very very important when you are if you
- 00:22:21might be helping out a child buy a home
- 00:22:24okay many people uh do that now in
- 00:22:27California it's very common and the two
- 00:22:29ways you're going to do it you're either
- 00:22:30going to lend the money to your child or
- 00:22:32it's going to be a gift and the Title
- 00:22:34Company's going to ask you is this a
- 00:22:35loan or a gift and that's it so you're
- 00:22:38an owner or a loner in our society those
- 00:22:41are the two ways we handle property
- 00:22:44you're an owner if it's a gift and
- 00:22:45you're a laner if it's a loan so Mom has
- 00:22:48lent the money to the child and Mom has
- 00:22:50owed that money back or mom's estate has
- 00:22:52owed that money back if it's a gift it's
- 00:22:56just a gift it's out of mom's estate so
- 00:22:58those are treated separately and it's
- 00:22:59very important if you're thinking about
- 00:23:01lending to your children or if you're
- 00:23:03thinking about helping your children buy
- 00:23:04a house it's very important to
- 00:23:05understand the difference between this
- 00:23:07and again this goes back to treating
- 00:23:09children um equally which I think most
- 00:23:11people want to do again it's I I think
- 00:23:13it's it's a minority of situations where
- 00:23:15they don't treat them equally and there
- 00:23:16are reasons for that okay everyone has
- 00:23:18their own reasons but I think most
- 00:23:19people want to treat their kids equally
- 00:23:21and think about this how is son going to
- 00:23:23feel if um he has to pay the estate back
- 00:23:26right and the daughter doesn't
- 00:23:29he probably won't feel too well all
- 00:23:30right how do you hold title to real
- 00:23:32estate we covered this in other webinars
- 00:23:33but I do want to give a brief um
- 00:23:36overview of this sole ownership this is
- 00:23:38where I you know Jim Cunningham is the
- 00:23:39owner of the property community property
- 00:23:41community property can only be owned by
- 00:23:45people who are married or state
- 00:23:47registered domestic Partners so this
- 00:23:49under California law if you're a state
- 00:23:51registered domestic partner or a
- 00:23:54California uh or a a married couple only
- 00:23:57those people can own community Comm
- 00:23:58property single people cannot own
- 00:24:00community property okay joint tency
- 00:24:03joint tency is also known as joint tency
- 00:24:05with right of survivorship joint
- 00:24:07tendency says that it's uh if there are
- 00:24:09three people on title it's a third a
- 00:24:11third a third if they are four people on
- 00:24:12title it's 25% each and I sorry to throw
- 00:24:15math at you in fractions I apologize uh
- 00:24:18but it if as many people are it is an
- 00:24:20equal share so they're all equal it's
- 00:24:22kind of like King Arthur's knights at
- 00:24:24the round table Everyone's an equal at
- 00:24:27joint in common can be different so it
- 00:24:29can be 9010 it can be 8020 it can be 80
- 00:24:321010 and it does not have to be equal
- 00:24:35joint tency in California does have what
- 00:24:38is called a right of survivorship so you
- 00:24:39have three people and one dies those two
- 00:24:42people left standing own the property if
- 00:24:45that third person who died is married
- 00:24:47that's a problem right because their
- 00:24:49spouse would be like wait a minute I I
- 00:24:50thought I was going to step into shoes
- 00:24:52there so it's very important when you
- 00:24:53when you take title the property to pay
- 00:24:55attention to what this means and if
- 00:24:56you're confused about this you can
- 00:24:58certainly reach out to us and we can
- 00:24:59walk you through it uh community
- 00:25:01property with right of survivorship so
- 00:25:03community properties owned by married
- 00:25:04people uh the problem with community
- 00:25:07properties if if it's held if the deed
- 00:25:10says U Abel and Baker As community
- 00:25:15property then if Abel dies baker has to
- 00:25:17go through a probate to get title if
- 00:25:19Abel and Baker hold the property is
- 00:25:21community property with right of
- 00:25:22survivorship and able dies Baker does
- 00:25:24not have to go to court to get uh clear
- 00:25:27title so a lot of people uh do have kind
- 00:25:30of moved to community property with
- 00:25:31right of survivorship and then the
- 00:25:32property can be titled in an LLC
- 00:25:34partnership or corporation uh or a trust
- 00:25:37for example a living trust I will say
- 00:25:39one issue if you're holding commercial
- 00:25:41property or rental property or you're
- 00:25:43trying to borrow money uh or conduct
- 00:25:45business a lot of times a trust will
- 00:25:47create an LLC so that the LLC is on
- 00:25:50title but the shares of the LLC are
- 00:25:51owned by a trust it's just a little bit
- 00:25:53easier to uh to bank and to to deal with
- 00:25:57life with an LLC versus versus a trust
- 00:25:59now I'm not talking about a living trust
- 00:26:01but I'm talking about an irrevocable
- 00:26:03trust or maybe um you know a trust where
- 00:26:05you're making a gift so um if more than
- 00:26:09one person is on title you have two
- 00:26:10choices joint tency in California that
- 00:26:12has a right of survivorship so two or
- 00:26:13more people are entitle tency in common
- 00:26:16two or more people upon the death of one
- 00:26:18over or if it's a joint tency on the
- 00:26:20death of one over the TR the Property
- 00:26:22Transfers to the survivors uh but the
- 00:26:24surviving joint tenant has to file a
- 00:26:26death certificate and Affidavit of
- 00:26:27Survivor ship with the County recorder
- 00:26:30and in tency in common when one of those
- 00:26:32tenants dies that share goes through
- 00:26:35probate so it's a little bit different
- 00:26:37so if it's AEL and Baker As joint
- 00:26:38tenants able dies Baker gets the
- 00:26:40property if it's AEL and Baker As
- 00:26:42tenants in common Abel dies ael's estate
- 00:26:46goes through probate and that may go to
- 00:26:48Baker it may may not go to Baker we
- 00:26:49don't know it depends on it depends on
- 00:26:51ael's will so probates really bad in
- 00:26:54California we've covered this in other
- 00:26:56webinars it takes 16 to 24 months the
- 00:26:58probate fees are 48% of the gross value
- 00:27:00of the estate if there's debt on the
- 00:27:02estate if there's debt on the property
- 00:27:04it could be 100% And there's absolutely
- 00:27:06no privacy who inherits what open matter
- 00:27:09of public record addresses dates that
- 00:27:12people inherit all a matter of public
- 00:27:14record um and for a lot of people this
- 00:27:16is kind of freaky because their estate
- 00:27:19all what they own becomes a matter of
- 00:27:21public record course you're dead you're
- 00:27:22not going to feel anything right I mean
- 00:27:25but it's your kids right or your maybe
- 00:27:27your heirs who are on there and their
- 00:27:29name address and how much they inherit
- 00:27:32at the end of the estate is all a matter
- 00:27:34of public record and that is is kind of
- 00:27:36weird if you think about it um if a
- 00:27:39property is if you have a million dollar
- 00:27:41property and there's a $900,000 mortgage
- 00:27:43on the property the probate fees are
- 00:27:44still $50,000 so that $50,000 Equity
- 00:27:47evaporates effectively 100% uh probate
- 00:27:50fee so having only a will means you will
- 00:27:53go to probate court so will you can
- 00:27:55think of will is synonymous with probate
- 00:27:57probate in California is a formal uh
- 00:27:59Court governed process it is not the
- 00:28:01same in other states uh New York has a
- 00:28:02formal process as well we do have a fee
- 00:28:04calculator a probate fee calculator on
- 00:28:06our website so if you're thinking gee I
- 00:28:08want to get I want to put my child on
- 00:28:10title to avoid
- 00:28:12probate that's a good thing to avoid
- 00:28:14probate but you're probably going to
- 00:28:15want to do a living trust that is the
- 00:28:17the better way to give your child to
- 00:28:19your home give your home to your child
- 00:28:21so let's talk about better ways to give
- 00:28:23your child your home well an outright
- 00:28:26gift you you have an outright gift you
- 00:28:28can loan the money right or or loan the
- 00:28:30money to buy a property you can create a
- 00:28:32trust you can create an LLC there are a
- 00:28:35lot of ways you can give your child a
- 00:28:37home um or your home um the outright
- 00:28:40gift again not not great for tax reasons
- 00:28:44uh if you don't have a tax issue which a
- 00:28:46lot of people do that might not be such
- 00:28:48a bad idea um you can lend them money to
- 00:28:50buy a house and you or you could use
- 00:28:52your living trust living trust is what
- 00:28:53most people do so um let's talk
- 00:28:56about help your child get a property
- 00:28:59right so you can give them money for an
- 00:29:01outright purchase okay you can give them
- 00:29:04a down payment you can just give them
- 00:29:05the whole property there are anti-money
- 00:29:08laundering issues what do I mean by that
- 00:29:10when you when money is goes through a
- 00:29:12title company they are subject to
- 00:29:14anti-money laundering laws there are
- 00:29:16concepts of seasoning which is money has
- 00:29:18to be in an account for a certain period
- 00:29:20of time and they really pay close
- 00:29:21attention to this so this is something
- 00:29:23you're going to want to think about in
- 00:29:24advance um think about separate property
- 00:29:26versus community property if you make a
- 00:29:28gift of property of the entire property
- 00:29:30to your child or part of it in your
- 00:29:32child's name individually it is separate
- 00:29:34property but it can be transmuted to
- 00:29:36community property and then also you
- 00:29:38might need your gift tax return so uh
- 00:29:41let's look at a couple of examples so
- 00:29:42mom gives son a million to purchase a
- 00:29:45home and I'm using the numbers it could
- 00:29:48be 500,000 because some people might go
- 00:29:50wow a million that's a lot other people
- 00:29:52might say oh a million I can't even find
- 00:29:54a house for a million where I live so
- 00:29:57outright gifts of mom to son so mom
- 00:29:59gives son a million dollar to purchase
- 00:30:01the home so how does this work well Mom
- 00:30:03would wire a million dollars to the to
- 00:30:05the escrow account uh and later file the
- 00:30:08form 709 to report the gift so what's
- 00:30:10going on here so in in the year that the
- 00:30:13transaction happens the Sun goes out and
- 00:30:15identifies a property that the sun would
- 00:30:16like and say listen it's going to be an
- 00:30:17all cash transaction the money is going
- 00:30:19to be coming from my mom's account it
- 00:30:21will be booked as a gift on the on the
- 00:30:24escrow level right so they know that
- 00:30:26this is a legit that this money is not
- 00:30:28coming from some criminal activity so
- 00:30:31that m mom is going to wire that money
- 00:30:33into the escrow account directly if Mom
- 00:30:35wires it to sun and a day later Sun
- 00:30:38wires that money into the escrow I think
- 00:30:40you're going to have a problem with that
- 00:30:42okay just realistically so this is why
- 00:30:44you want to talk to your realtor you
- 00:30:46want to talk to your um you want to talk
- 00:30:48to the escrow what's the best way to do
- 00:30:49this this is kind of what we see in
- 00:30:51practice but it's important the gift tax
- 00:30:53return does not happen when the gift is
- 00:30:54made it happens when you file your your
- 00:30:57individual income tax return you're 1040
- 00:30:59the year following the gift so if you
- 00:31:01make a gift in 2024 you'd be filing that
- 00:31:04form 709 in
- 00:31:062025 uh the other thing mom could do is
- 00:31:08give son $200,000 for a down payment 20%
- 00:31:11fairly standard down payment on the
- 00:31:12million dooll home mom wires the 200,000
- 00:31:15escrow again and later files the form
- 00:31:16709 for the gift of 200,000 the other
- 00:31:19thing mom could do is Mom could buy the
- 00:31:21home herself and she then how she makes
- 00:31:24the the transfer to the sun is she makes
- 00:31:26that um later gifts the home by deed to
- 00:31:29the son so Mom buys the home right
- 00:31:32purchases the home it's in her name and
- 00:31:34then Mom executes a subsequent deed
- 00:31:36transferring the property to Sun this is
- 00:31:38an example of transferring the whole
- 00:31:39property to Sun and then you still have
- 00:31:42to Value the gift and you need an
- 00:31:44appraisal on the date of the gift and
- 00:31:47then Mom would attach that appraisal to
- 00:31:48reform 706 if you make a gift of cash
- 00:31:51you don't have to get an appraisal you
- 00:31:53just report the cash on the gift tax
- 00:31:54return I know this is getting a little
- 00:31:56granular but I just want you to think
- 00:31:58about different ways of doing this um
- 00:32:00and alone so another way people do this
- 00:32:03is they say you know I love my son I
- 00:32:06just don't want to give him a million
- 00:32:07dollars right I and I don't want to give
- 00:32:09him 200,000 and I don't want to buy the
- 00:32:11home and give it to him so uh what can
- 00:32:13you do well you can loan the money so in
- 00:32:15a gift situation the son becomes an
- 00:32:17owner of the money and in this case uh
- 00:32:20you can be an owner or a loaner right in
- 00:32:22this case a mom had owned the 200,000
- 00:32:25and then and then gifted it now she's a
- 00:32:27loner so so she loans money for the um
- 00:32:31for the purchase of the property now a
- 00:32:35loan requires three things a loan
- 00:32:38requires interest repayment of principle
- 00:32:42and security so if you don't have all
- 00:32:45three of those things you might find
- 00:32:47that it's treated as a gift okay so
- 00:32:50those are the three attributes of a loan
- 00:32:52and this there are certain rates that
- 00:32:55apply and what we have here if you're
- 00:32:56watching this on video is we have what
- 00:32:58are called the applicable federal rates
- 00:33:00for December of
- 00:33:022024 and this is the amount that you
- 00:33:05must charge on a loan this is the
- 00:33:08minimum uh interest that must be charged
- 00:33:10on on a loan otherwise it's deemed a
- 00:33:12gift and um this is a real issue because
- 00:33:16a lot of people say well I'm going to
- 00:33:18lend my child money but I'm not going to
- 00:33:19charge them interest if you do that the
- 00:33:22interest is deemed I mean you're you're
- 00:33:24going to be deemed to have received the
- 00:33:26interest and that's what your CPA going
- 00:33:27to do otherwise it's going to be a gift
- 00:33:29so you can't do an interest free loan
- 00:33:31that does not exist and what we do as
- 00:33:33lawyers is we we if a client comes in
- 00:33:35and they say I'd like to help my child
- 00:33:37buy a property and I'd like to lend them
- 00:33:39some money we say is this going to be um
- 00:33:42you know a short mid or long term and a
- 00:33:46long term is over over nine years and
- 00:33:48shortterm I think is two years and the
- 00:33:51midterm is 2 to 9 years and they
- 00:33:54different rates so uh a lot of times
- 00:33:57these are do nine-year notes or we pick
- 00:33:59the lowest interest rate uh many times
- 00:34:01uh but this is something that does
- 00:34:02either need to be acred or paid and it
- 00:34:05is taxable as income so there's some
- 00:34:06real world consequences to that so let's
- 00:34:09look at some examples a mom loans son a
- 00:34:10million dollars to purchase the home mom
- 00:34:12wires a million dollars to Escrow and
- 00:34:14Sun Signs an interest only note at the
- 00:34:17applicable federal rate in exchange for
- 00:34:20the money coming in so this is where son
- 00:34:22is going to buy a million dollar home
- 00:34:23and Mom says honey I'll just lend you
- 00:34:25the million dollars and that million
- 00:34:26dollars goes into escro and Sun Signs a
- 00:34:29note secured by D to trust that's an
- 00:34:31interest only note that's fine maybe
- 00:34:33it's due in 9 years paying that interest
- 00:34:35every every year mom loans son 200,000
- 00:34:39for the down payment on a hundred on a
- 00:34:41million dollar home mom wires A 200,000
- 00:34:43escrow Sun Signs an interest only note
- 00:34:45but this will be a subordinated note so
- 00:34:48what that means is this is a second
- 00:34:49mortgage a second deed of trust and the
- 00:34:52first deed of trust has priority so the
- 00:34:54bank that's lending
- 00:34:55800,000 if the sun doesn't make the
- 00:34:57payments and the property is sold in
- 00:34:59foreclosure and the sales proceeds are
- 00:35:01800,000 mom gets zero okay Mom gets zero
- 00:35:06because you know unless she buys that
- 00:35:08first and then turns around and sells
- 00:35:09the property that would be uh the risk
- 00:35:11for mom is that she's in second position
- 00:35:14with the million dooll loan mom's in
- 00:35:15first position okay Mom buys home for a
- 00:35:18million dollars and rents it to son
- 00:35:20that's another way of doing it and you
- 00:35:21can see that you know if you're trying
- 00:35:23to help your child get into a property
- 00:35:27um really look at this because it might
- 00:35:29make more sense to buy the home it from
- 00:35:31a wealth creation standpoint it might
- 00:35:33make more sense for mom to buy the home
- 00:35:36and rent it to the son it might also be
- 00:35:39might be better for the mom to lend the
- 00:35:41million to the son it just depends on
- 00:35:42the situation okay mom must charge fair
- 00:35:45market value rent anything less as a
- 00:35:47gift so a million dollar home is going
- 00:35:48to rent for a certain dollar amount
- 00:35:50let's say it's 4,000 a month mom's got
- 00:35:52to charge a 4,000 a month interest what
- 00:35:54or 4,000 a month rent whatever it is Mom
- 00:35:57can depreciate the property so this is
- 00:35:59important so we covered this in other
- 00:36:00webinars on straight line depreciation
- 00:36:02for residential rentals it's 272 years
- 00:36:05which means mom can pick up U reduce her
- 00:36:07income tax liability when son inherits
- 00:36:10that property okay son gets an adjusted
- 00:36:13cost basis right so Mom gets that tax
- 00:36:16benefit while she's alive versus son uh
- 00:36:19versus mom giving the million dollars to
- 00:36:21son and son owns the property um she's
- 00:36:25not getting any tax benefit from that
- 00:36:27the son
- 00:36:28are not getting any tax benefit now the
- 00:36:29son is paying rent so he's got to pay
- 00:36:31money to his mom but um you know again
- 00:36:34we run the numbers does it make sense to
- 00:36:35do that does it not so this may require
- 00:36:37Mom all of these may require mom to
- 00:36:39update her estate plan and add what we
- 00:36:41call nonpr language meaning the sun gets
- 00:36:43the property but maybe the daughter gets
- 00:36:46another property or some money or cash
- 00:36:48um and uh if there's a note if the son
- 00:36:51owes let's say Mom lends a son $200,000
- 00:36:55to buy a property and that note is still
- 00:36:57in Mom's estate mom can distribute the
- 00:37:00note to son okay this is not
- 00:37:02cancellation of debt it's a distribution
- 00:37:04of note should not be recognized as
- 00:37:06taxable as income it's an asset of the
- 00:37:09estate okay so that would be
- 00:37:11distribution of the note uh after Mom
- 00:37:13passes away again this is going to
- 00:37:14require a little modification to your
- 00:37:16estate plan uh how do you protect a gift
- 00:37:18or inheritance from threats um a lot of
- 00:37:21people don't think that their kids might
- 00:37:23need asset protection okay outright
- 00:37:25gifts are not protected they're not and
- 00:37:28if you make an outright gift I think a
- 00:37:30lot of people even know if it's a
- 00:37:31substantial gift look if you make a gift
- 00:37:33of $10,000 to a kid and they spend it
- 00:37:36all right it's gone there's there's
- 00:37:37nothing left to protect but if you're
- 00:37:39giving a substantial gift uh if you're
- 00:37:40giving real estate something that isn't
- 00:37:42immediately consumable really consider a
- 00:37:44dynasty or other gifting trust when
- 00:37:46making a sizable gift to a child or
- 00:37:47other loved one and the reason is uh
- 00:37:50when you make that gift to a child in
- 00:37:52the child's own name it is immediately
- 00:37:54subject to the claims of creditors
- 00:37:55divorce creditors uh judgement creditors
- 00:37:58government seizure whatever it is if if
- 00:38:00some problems arise uh and so what a lot
- 00:38:03of our clients do is if they're going to
- 00:38:04make a gift of a property to a child
- 00:38:06it's done in a trust right with a trust
- 00:38:08wrapper and that gives the child some
- 00:38:11significant creditor protection so at
- 00:38:13death consider what we call an
- 00:38:15inheritance protection trust or doll it
- 00:38:17out trust The Inheritance protection
- 00:38:18trust is where you leave your The
- 00:38:22Inheritance that you leave to a very
- 00:38:24responsible child that child has
- 00:38:26significant control over that asset it's
- 00:38:28almost like they they they own it
- 00:38:30themselves but it is in a trust
- 00:38:32sometimes they're trustee sometimes
- 00:38:33they're not and and they're different
- 00:38:35layers of what it means to be trusty and
- 00:38:36we covered that in other in other videos
- 00:38:38but it can protect it from a divorce it
- 00:38:40can protect it from from claims of other
- 00:38:42creditors and it can also stay outside
- 00:38:44of the estate of your child so if you
- 00:38:47leave an asset to your child and your
- 00:38:49child has a taxable estate uh meaning
- 00:38:52you have assets over 14 million then um
- 00:38:55there is a way to write that up so that
- 00:38:57you're you're not going to pay that 40
- 00:38:58or 45% death tax when the child passes
- 00:39:00away also a dolet out trust we cover
- 00:39:03that that's for kind of a less than
- 00:39:04responsible air somebody who maybe would
- 00:39:05blow the money and you're really
- 00:39:07concerned that maybe your son or
- 00:39:08daughter they inherit that million
- 00:39:10dollars is going to blow it a lot of
- 00:39:12times we set up a trust where that child
- 00:39:13might
- 00:39:15get $4,000 a month whatever it is uh as
- 00:39:18sort of a stipend rather than the full
- 00:39:20amount and and I think we all have our
- 00:39:22reasons why that why they might need
- 00:39:24that but that's something that we do uh
- 00:39:26quite often for clients so how does it
- 00:39:28you know we talk about living trusts for
- 00:39:29those of you who've never heard of a
- 00:39:30living trust uh and for those of you who
- 00:39:33have this will be a bit of a refresher
- 00:39:35I'm not going to belabor the point but a
- 00:39:36living trust is a lot like a bucket it's
- 00:39:38with a handle this handle the trustee
- 00:39:40holds on to the bucket holds your house
- 00:39:42your investment properties your stocks
- 00:39:43Bond savings mutual funds um and you
- 00:39:46transfer those by deed so that the the
- 00:39:49the real estate transfers by deed the
- 00:39:51the accounts transfer because you go to
- 00:39:53the institution and you change the the
- 00:39:54titling at the institution level and
- 00:39:56that trustee holds onto the bucket Iris
- 00:39:58401 k and nudi stay out of the trust
- 00:40:00bucket um all trustees are always going
- 00:40:03to have to have a trustee that someone
- 00:40:04at the at the driver's wheel right
- 00:40:06driving the trust a beneficiary that's a
- 00:40:08person who gets the benefit or the goods
- 00:40:10the benad right the goods from the trust
- 00:40:12and uh the Corpus or stuff so you have
- 00:40:14to have those three things a trust take
- 00:40:16care a living trust takes care of your
- 00:40:18assets while you're living avoids
- 00:40:19probated death and incapacity and this
- 00:40:22can protect an inheritance from divorc
- 00:40:24taxes and lawsuits if it's properly
- 00:40:25structured I will say most most of the
- 00:40:27living trust that we see certainly from
- 00:40:30um people outside of our Law Firm or
- 00:40:32clients who come in from with trust
- 00:40:34drafted by other firms do not have these
- 00:40:35protections do not have uh divorce
- 00:40:38protection for heirs uh so it's a not I
- 00:40:40don't know why other law firms don't do
- 00:40:42this but um certainly these uh these are
- 00:40:45out there these tools are out there and
- 00:40:46I really encourage you to take a look at
- 00:40:48those this can um a revocable trust
- 00:40:51typically becomes irrevocable at death
- 00:40:53so while you're alive it's it's easily
- 00:40:54malleable and changeable but once you
- 00:40:57pass away uh it does become irrevocable
- 00:41:00and uh it's private and a probate is
- 00:41:03creditor focused so probate is something
- 00:41:05where you know it's designed to benefit
- 00:41:07creditors trusts are designed to benefit
- 00:41:09beneficiaries so if you're going to
- 00:41:11leave property to a child we recommend
- 00:41:13that it it flow through it's best to
- 00:41:16happen at death it's best to flow
- 00:41:17through a living trust that really
- 00:41:19optimizes the gift to uh the child now
- 00:41:23what if your title is a partnership LLC
- 00:41:25or Corporation how does that work it's a
- 00:41:27little bit different than people on
- 00:41:29title this is what we call lawyers call
- 00:41:31this an entity um and the ownership
- 00:41:36interest is defined in what we call the
- 00:41:38corporate documents now for for the term
- 00:41:40corporate applies to Partnerships llc's
- 00:41:42and corporations a little confusing but
- 00:41:44if you hear lawyers talk about this or
- 00:41:46or do any research on this they'll talk
- 00:41:48about the corporate documents well how
- 00:41:49can a partnership have corporate
- 00:41:50documents well partnership has a
- 00:41:52partnership agreement but we
- 00:41:53collectively talk to talk about those as
- 00:41:55corporate documents
- 00:41:57and the title of the property is in the
- 00:41:59name of the LLC partnership or
- 00:42:00Corporation by the way we don't see a
- 00:42:02lot of property currently being put into
- 00:42:04a corporation people tended to put
- 00:42:07property in a corporation before
- 00:42:08creation of llc's when we only had
- 00:42:10limited Partnerships and that's from a
- 00:42:13very very long time ago and um a lot of
- 00:42:16times that property was put into the
- 00:42:17corporation in like the 30s the 40s or
- 00:42:19the 50s maybe even the 60s but these are
- 00:42:22real Legacy type um entities so if
- 00:42:24you're looking to create something I
- 00:42:26would not look at a corporation
- 00:42:28broadly speaking to put your real estate
- 00:42:29in there you're going to be using a
- 00:42:31partnership or an LLC potentially taxed
- 00:42:34as a partnership so property is used for
- 00:42:37the partnership purposes so this real
- 00:42:38estate title is in the name of the
- 00:42:40partnership the purchaser if somebody
- 00:42:42buys an interest in the in the property
- 00:42:45what they're really doing is they're
- 00:42:46buying an interest in the partnership or
- 00:42:48the corporate entity itself the
- 00:42:49partnership or the LLC they're not
- 00:42:51buying the property itself because the
- 00:42:53entity owns the property at death these
- 00:42:56interests pass in accordance with the
- 00:42:58partnership agreement or the LLC
- 00:43:00operating agreement or the corporate
- 00:43:01bylaws so you'll typically have Buy sell
- 00:43:04you'll typically have some written
- 00:43:07agreement that clearly defines what
- 00:43:09happens when somebody dies this is
- 00:43:11really important because an LLC does not
- 00:43:12require an operating agreement so if you
- 00:43:15have an LLC and you put property into
- 00:43:16the LLC and there's no it's silent about
- 00:43:20the succession to the shares of the LLC
- 00:43:23at death you're going to have to rely on
- 00:43:24state law and you're better off with an
- 00:43:27operating agreement so um the creditors
- 00:43:30can get shares of the profits or
- 00:43:31foreclose on the partnership so one
- 00:43:33problem with a any frankly well the one
- 00:43:39problem with an LLC or a partnership
- 00:43:40that is is uh created under the laws of
- 00:43:43California is a creditor of the person
- 00:43:46who's a partner or a member of the LLC
- 00:43:48right so let's say you have a property
- 00:43:50in an LLC and you
- 00:43:52transfer 50% of the LLC to your child
- 00:43:55because you want you want to give them
- 00:43:57some of the the business interest right
- 00:43:59and you just put that in the child's
- 00:44:00name that child runs up creditors uh you
- 00:44:03know runs up debts the creditors then
- 00:44:05get a judgment against the child the
- 00:44:07Creditor can foreclose on the child's
- 00:44:10LLC interest much in the same way that a
- 00:44:13creditor would foreclose on real
- 00:44:14property and take ownership of the
- 00:44:16property so you put your kid on for 50%
- 00:44:18on the LLC that kid gets into trouble
- 00:44:21the kids creditors foreclose on those
- 00:44:23shares now you are partners with your
- 00:44:25child's creditors you are 5050 partners
- 00:44:27with your child's creditors there are
- 00:44:29ways to avoid this this is why people
- 00:44:31use a Wyoming close LLC and how this
- 00:44:34works is instead of you owning the
- 00:44:35shares of the LLC and of the California
- 00:44:39LLC that owns the California bricks and
- 00:44:40sticks and dirt right the property so
- 00:44:43the properties in the name of the LLC
- 00:44:45the shares are in your name and you
- 00:44:46transfer those shares to your your child
- 00:44:5050% a lot of people use a Wyoming LLC a
- 00:44:54Wyoming close LLC that's a holding
- 00:44:55company and transfer the shares of the
- 00:44:58holding company and the reason is is
- 00:44:59that prohibits the Creditor from
- 00:45:01foreclosing on the LLC because they have
- 00:45:03to go through the Wyoming LLC first now
- 00:45:06we cover this in other
- 00:45:07webinars um and uh it's something very
- 00:45:11important to understand so if you're
- 00:45:12going to be making Gifts of LLC interest
- 00:45:14to your children you really want to to
- 00:45:16meet with a lawyer who knows what
- 00:45:18they're doing like an attorney at our
- 00:45:19firm because we can walk you through
- 00:45:21these issues a lot of a lot of attorneys
- 00:45:22don't know know this even attorneys that
- 00:45:24do corporate work um they're not they're
- 00:45:26not so much in the asset protection
- 00:45:28space um if you say gee I'd like an LLC
- 00:45:30and I want to give my kid 50% sure we'll
- 00:45:32do that but you need to make sure that
- 00:45:34you're protected right that's where
- 00:45:35we're going with that so title in an
- 00:45:37entity U the LLC membership interest can
- 00:45:39be transferred at the owner's death so
- 00:45:41let's say you have an LLC so this
- 00:45:43answers the question hey I've got an LLC
- 00:45:45I want to move some of these LLC shares
- 00:45:47into my kids name what's the best way to
- 00:45:49do it again probably gonna death is
- 00:45:51probably the best way to do it in uh for
- 00:45:53for tax reasons and asset protection
- 00:45:55reasons um but how does it transfer well
- 00:45:58the terms of the operating agreement
- 00:45:59control uh estate planning document
- 00:46:02documents can also control uh or it's
- 00:46:05under intestate succession if you don't
- 00:46:07if you have an LLC but don't have a will
- 00:46:09and you know who inherits the LLC it's
- 00:46:11going to be intestate succession the in
- 00:46:13uh entity documents such as the LLC
- 00:46:15operating agreement can also include
- 00:46:16rules about death and how the real
- 00:46:18estates to be used and managed so that
- 00:46:20would be uh byell agreements broadly
- 00:46:22speaking byell or what happens when
- 00:46:24somebody separates from the LLC meaning
- 00:46:27you own the shares of the LLC you die
- 00:46:29you've separated from the LLC because
- 00:46:31you're not on Earth anymore and what
- 00:46:32happens to those shares and what's the
- 00:46:34process that should be outlined you know
- 00:46:35if your LLC has assets that should be
- 00:46:37outlined in the LLC so um let's look at
- 00:46:40an example of uh Oscar Oscar conveys
- 00:46:43whiteacre to whiteacre LLC a California
- 00:46:45limited liability company Papa Quebec
- 00:46:47and Romeo are the members of whiteacre
- 00:46:49LLC so Oscar's the owner of whiteacre
- 00:46:52Papa Quebec and Romeo create whiteacre
- 00:46:54LLC and then they buy white LLC from
- 00:46:57Oscar who's a human with a heartbeat and
- 00:46:59he Oscar signs the deed Papa so Papa
- 00:47:02Quebec and Romeo are not the owners of
- 00:47:04the property wher LLC is the owner of
- 00:47:07the property right so Papa who's single
- 00:47:10dies owning his LLC interest in his own
- 00:47:12name Papa's family initiates a formal
- 00:47:14probate action Quebec and Romeo by
- 00:47:16Papa's LLC interest from the estate of
- 00:47:18Papa in white acre LLC and Quebec and
- 00:47:21Romeo continu as owners a whiteacre it's
- 00:47:23a very important title does not change
- 00:47:25okay but you still have to go through
- 00:47:27probate right papa's name is not on the
- 00:47:30property but Papa's estate still has to
- 00:47:32go through probate can't they do this
- 00:47:34without probate yes but you have to have
- 00:47:37the structure in the LLC operating
- 00:47:39agreement as well as papa needs should
- 00:47:42be doing a living trust so the shares of
- 00:47:43that LLC that are in papa's name go to
- 00:47:46papa's living trust uh you could
- 00:47:48theoretically have a pay on death
- 00:47:51provision that gets into uh Buy sell
- 00:47:53agreements on uh on llc's and we cover
- 00:47:57that in other webinars so that brings us
- 00:47:59to the end of our materials today and
- 00:48:01thank you for joining us we have office
- 00:48:03locations uh throughout northern and
- 00:48:04southern California and uh what should
- 00:48:07you expect when you call Cunningham
- 00:48:08legal or schedule uh an online
- 00:48:11consultation uh when you call it will be
- 00:48:13one of our one of our client Specialists
- 00:48:15the attorneys don't answer the phone do
- 00:48:17let us know if you want an update uh to
- 00:48:19an estate plan or to create an estate
- 00:48:20plan or if someone's passed that's
- 00:48:22that's very important also if you're a
- 00:48:24business owner or looking at business or
- 00:48:26income tax planning let us know what
- 00:48:28what you're looking for um and then tell
- 00:48:30us your estate planning and your tax
- 00:48:32planning goals so that's that's very
- 00:48:34important you can tell that to the
- 00:48:35person that's on the phone I would say
- 00:48:37don't ask for pricing only attorneys can
- 00:48:38quote legal fees and uh don't ask for
- 00:48:40legal advice and because only attorneys
- 00:48:42can give legal advice and the again the
- 00:48:44person you're talking to is not a lawyer
- 00:48:46but they're helping facilitate if if if
- 00:48:48we can add value and we can help you
- 00:48:50right that's that's basically what we're
- 00:48:52doing and the goal of that initial call
- 00:48:53is to set an appointment with one of our
- 00:48:55lawyers or not and so it's fine give us
- 00:48:57a call there's no charge to call to call
- 00:49:00us and talk with somebody if you're
- 00:49:01talking to a lawyer uh typically there
- 00:49:03is and they can go over that with you on
- 00:49:04the phone if you're watching this on
- 00:49:06YouTube please subscribe to our YouTube
- 00:49:08channel and if you enjoy our webinars
- 00:49:10please review us on Google and I'd love
- 00:49:12doing these webinars I got to tell you
- 00:49:14I've been getting recently a lot of
- 00:49:16positive feedback and it's very
- 00:49:17gratifying so uh if if you say hey Jim
- 00:49:20great job love your webinars I'm going
- 00:49:21to do more it get gets me pumped up and
- 00:49:23gets me excited and next is Donor
- 00:49:25advised funds versus private foundations
- 00:49:27that is December 19th at 10
- 00:49:31a.m. that is going to be a great topic
- 00:49:35because we're coming to the end of the
- 00:49:36year people want to save taxes what is
- 00:49:38the difference donor advis fund versus
- 00:49:41private foundation so if you're
- 00:49:42charitably inclined and want to manage
- 00:49:43your charitable contributions a great
- 00:49:46webinar to attend and we will open it up
- 00:49:48for questions if you're watching this on
- 00:49:50YouTube please continue watching because
- 00:49:52magically another webinar is just going
- 00:49:54to roll right after this one and it may
- 00:49:56the one we just mentioned so we'll look
- 00:49:59forward to seeing you soon
- 00:50:01[Music]
- 00:50:07[Music]
- 00:50:17[Music]
- estate planning
- property transfer
- legal advice
- probate
- trusts
- creditor exposure
- family conflict
- capital gains taxes
- asset protection
- inheritance