When money or assets are passed down to family members, questions about paying tax always arise. In this week's #PinkMicLegalConfessions episode attorney Stephanie Garces will explain how the IRS views inheritance.
Good afternoon everyone. Welcome to Pink Mic Legal Confessions. I'm Stephanie Garces Donat, owner of Garas Law Firm here in Palatine, helping you prepare for the unexpected and also helping families and parents and guardians prepare for their legacy and to protect their assets over time. So today we are going to be talking about an interesting topic and.
Kind of not so exciting has some of the other ones, but it's about taxes and a lot of people have an idea as to what advantages there are for estate planning and taxes. But one of the main benefits of the estate planning in general is the tax advantages that come with having your ass. Is protected.
Specifically when it comes to property or maybe financial assets that you have, A lot of times there is ways to circumvent the taxes that would come and sort of either reduce or limit them or even eliminate them, pass them on to to. To another generation. So one of the things that we are gonna cover today is that, and all parties involved with estate planning have to follow I IRS guidelines.
Of course. So in today's episode, I'm going to talk a lot about that. I think one of the things is that people always think There's two things that are for certain death and taxes. We know this. But proper estate planning does take a lot of time and planning. And so, a lot of things that are included in estate planning that tends to be something of interest is transferring your properties upon your death.
And so a lot of people think, Okay, if I have my property in my name, and in my spouse's name, that'll be enough. And unfortunately there is some things that you do need to do to take an extra step. So, in taxes, of course, it's something that your family has to deal with sometimes if you don't have an estate plan at all.
So, there is ways to reduce them and to transfer property physical property, real estate, property, financial assets and things of value. There are rules to be aware of when it comes to estate planning especially to avoid headaches when it comes to any tax penalties or any issues. And so working within a state planning attorney that's experienced and understands this, can really explain it to you very clearly is.
The best way to navigate some of these issues. And so today I'm gonna break down three areas to be aware of when it comes to how the IRS views transfer of property assets and financial wealth. Oddly enough, I think the, if you look, go on the IRS's website, they actually have their own terminology for what the definition of a trust is.
And so their textbook answer, It's basically saying a trust is a relationship in which one person holds title to property, subject to an obligation to keep or use the property for the benefit of another. And so, keep in mind, trusts are a great way to protect your assets. Now every state has different laws, so it's important for you to know that.
Who we are working with is licensed in your state and actually understands what you're actually doing with your assets. But the point is that the IRS is always going to want to know to an extent for tax purposes if there's a trust in place or if there's not a trust in place. And so when it comes to the first type that we're gonna cover today is physical property.
So real estate assets that are in your name. How do beneficiaries You know, get that property and how do they have to kind of pay taxes or avoid taxes, that sort of thing. When it comes to the second option, or excuse me, the second category we're gonna cover, we're gonna cover financial investments, cash, and life insurance.
So, ju beneficiaries need to declare this as income and report to this of irs. That's a really good question. So, the other thing we're gonna cover is the benefits of a trust. This is my personal favorite topic because it talks about what the trust actually does. And so I always say the trust is so much power and so a lot of people think there is state plan with the will maybe is enough, but it really depends on your situation.
You know, sometimes it could be enough and sometimes you need to trust. The trust is actually just a little bit more. For your things. And so it really depends on your specific circumstance. But how does IRS view a trust is really important to note. What do we care to know about trust and how do they reassign property, especially when it comes to your business or even commercial property.
Real estate property, your residential home. There's so many things. I always say the list goes on when it comes to to trusts and really how to avoid some of the tax implications that come from that. So, I wanna just mention too what we're talking about today is just. In the general, in a general statement.
So everyone's situation is different and especially when someone is passed there are other things that come into play. You know, estate tax is one of them. There's just a lot of things that come up and so we're gonna talk about it very generally. Lastly, please always remember that when we talk about estate planning and some of the things that we're doing for our clients, or the attorney that you've hired, hopefully knows that our role is really to guide you and to make sure that we've really covered everything that you've, you have wishes to, to leave for your family.
You wanna protect your assets. And so I like to always remind my clients, Well, we're here for you and your families. Long after just creating your SD plan. So we do help families not just create the estate plan to protect the transfer of wealth and assets that. Basically generated or built over time.
Sometimes we have people that start with one home, have another one. And the next thing you know, they have a portfolio of about 19, 20 properties. And so, we are here to help you make sure you, you actually know how to buy the property to protect your asset from the beginning, not just later.
We also establish your trust. We review your trust. If there's any corresponding will that's in place. We try to preserve your legacy through putting everything in your estate plan, whether it's your living trust and will to really. You know, cover some unexpected scenarios, but also making sure that the people that you leave in charge are the ones that you are directing to, to do certain things in your estate plan.
And so, keep in mind there is never a right time to do this. A lot of people will put this in their to-do list. I have done many presentations in person which obviously if you follow us on social media, you'll see when I have those. But whenever I have this in person, I usually. Tell individuals that they really should consider having a, well, having an estate plan.
Even the most basic one, no matter what you have in assets, no matter what you have in the bank whether you have children or no children, because I think planning for unexpected scenarios is really important. Also one of the things that we do is we ensure the documents you have are compliant.
Illinois law or perhaps if you're have something from another state, we make sure it's compliant, that there isn't anything missing that would actually invalidate what the document is or perhaps you know, doesn't create more confusion with what you've, you know, have in place as opposed to what's happening now.
And a lot of times we have people that unfortunately have lost their spouse or have lost a child or something has happened. Basically life altering that would require you to update those documents, so we always make sure to double check that. You know, for us to review is not not a big job for us.
We just make sure that you have something that's compliant with state rules, but also with the IRS to make sure that we've, you know, stipulated to certain things in there so that you can avoid any tax issues. And we also make sure that things are properly notarized. I mean, I can't tell you how many times we.
Estate plans that we see that were either created on their own online which I never recommend, which is what we always talk about on their show. But also sometimes there's plans that perhaps don't also encompass some of the rules that you need for the particular state, especially Illinois.
You need you know, certain requirements, whether it's notarization and or witnesses to make sure it's valid Other. You know, what's the point of having something that won't work, that's not good . So that's something we always cover. We also help a lot of individuals during like emergency situations.
And so we do have a number of people that will call us whether mom or dad is ill or a family member is not doing well and we need to sort of expedite having an estate plan. Done. We call these, unfortunately, I hate the word, but a lot of people will call it deathbed signing. So not fun to talk about, but perhaps someone's just ill and so you just wanna get something in order.
That is something we offer and we do it pretty fast. So assuming that that is something you need, we are able to help. Just do not wait is my biggest advice, so that you can make sure everything is ready to go. The other thing too is, you know, we do guide your estate plan and we guide you as best as possible when it comes to picking out guardians picking out trustees for the administration or of your estates in the event that you've passed or becoming incapacitated.
So we do help kind of maneuver and pick who are the best people to do this. Keep in mind too a lot of people have big. So they don't know who to pick, or they're thinking, you know, is one more person better suited to do this than the other? And so we help you with that and we guide you to try to make sure that you have the right person in charge for your affairs.
So that's just something to keep in mind. I wanna also recap really quickly for those of you that are just joining me. I'm attorney Stephanie Garces Donat here at Garces Law Firm, my law firm in Palatine, where we help you prepare for the unexpected. We also help individuals, families and parents create legacy plans, protecting their future and their financial future.
And you know, you can always watch our Facebook videos if you missed what we talked about the previous week. But it is a really great way for us to educate our potential clients and our community to make sure everyone really has things in place in the event of the inevitable. So like I was telling you to earlier today, the topic that I'm covering is our beneficiaries inheritances.
Well, we always welcome you to join us here Tuesdays at one o'clock to cover Pink Mic Legal Confession topics with us. We cover a lot of stuff for parents, guardians and I would think almost all our viewers really do have something on their todo list. I know a lot of people that have been calling me recently that have seen our videos usually have to-do list, whether it's for them or their parents or their grandparents.
Right? There is somebody in your family tree that is a need estate. Very likely. So, be sure to share these videos with them so that they can take a look at this. Now uh, I know many of you have questions, so I wanna make sure to tackle them before I wrap up everything today. So, one of the questions I get in this arena is what happens to assets if I die without a will Now?
We harp on this all the time because when you die without a will, you basically have left no direction for your family. There is no way to name who you'd actually want to give your assets to because there's nothing left to to say there was nothing left of a plan. There's no direction given to your family, and so your assets really depending on the situation.
A lot of times there is no owner. To them, there is no automatic beneficiary. Now I know what you're thinking a lot of times. , the law does say there are errors, you know, next of kin that would be entitled to things. Yes, that is true. However transferring those assets is what ends you up in probate.
And so, when you don't have an estate plan, when you don't have a will, you really end up in a position where you basically have to have. Family member that's living on the air that would want to get access to the assets they have to open up in the state. And they do that by going to probate court which can be quite costly.
And quite honestly, it's never really a straight line. A lot of it requires a lot of paperwork, a lot of uh, checking in with heirs. We have to make sure too, like we don't know if the family members are around and how many kids are there and how many Is there anyone that's living or not living the family trees are so, interesting and that's one of the reasons I really like this area.
But at the same time, we do help with individuals who are trying to get access to that. But really what happens is you end up in probate for the most part. You definitely don't want to Be in that position because I think it creates a lot of stress and a lot of confusion as to what do you do.
But typically that's where you end up, I would say, as a general matter. The other thing too is how long does it take to transfer assets into a trust? Now this is such a great question because it depends how you set it up. So if we're saying, you know, the immediate things that we have to move, we can move those right away assuming that we can do it.
So what I mean by that is, for example, your home is the biggest example. A lot of people have a home and it's in their name, but if it's in your name that is unfortunately not. For the world of estate planning to protect the asset. And so we have to transfer the home which is one of the things we offer our clients in house because we are able to do it, move the house into the trust.
Why? Because that is basically putting it into the trust while you're living. And that is like one of the biggest things that you can do and the most beneficial things you can do with your Now, keep in mind if you have multiple properties maybe some that you own and some that you rent, we may advise you to do something a little bit different when it comes to the estate plan and the trust.
But there are so many ways for us to help you and transferring the assets could be done right away if it's something like real estate. Now keep in mind there's certain assets that you don't wanna transfer, right? You may not wanna transfer your IRA, for example, or if you have a retirement account because transferring it out of that account into a trust while you're living actually does have tax implications.
You could be penalized for moving that early. So, those are things that you certainly wanna avoid. But those sort of things that you really wanna consult with an attorney as to how long it takes and what transfers do you need to happen to the. That is a great question though, because there's so many answers to it depending on what we're discussing, what assets.
The other question that I get a is a trust a business entity? Now this is a good question because I think we've actually worked with a lot of individuals that have properties that are rentals properties that are a business entity. Or their owned by a business entity, I should say.
And so, typically a trust is not a business entity. A business entity is something like an llc a corporation, something where you've formalized that through the Secretary of State and it's an entity for purposes of taxes. And no, the trust is actually completely private. It's not a business entity.
The definition of business entity. Now, a lot of times people will think that the entity for a trust is similar or synonymous to an LLC or some sort of business entity, and it's really not. It's really an apples and oranges Keep in mind, for example, like business entities are you're conducting business under them.
You are you know, you have a business perhaps that you run through your business entity. For example if you think about like, you know, a company that does business rentals out of an LLC that is a business entity. It's like, you know, constantly being used for business purposes, whereas an estate plan is just a estate plan and it's actually private.
The trust is completely private. Nobody gets to see it. It's not public record and it's totally yours and you can use it right away. But it is not a business entity. So it is a good question to ask. Now the big question that we get all the time is, what other tax advantages does estate planning protect now or provide, I should say, does both.
But one of the things that when we think about taxes as a whole, I mean, having a trust is certainly a way to reduce taxes and depending on the type of trust it is, there's so many answers to that question. But estate. Is typically a federal law, it dictates what in the state is worth. And so, Usually there's exemptions up to a certain amount depending on the value of what you have.
So typically there is a threshold in the millions with regards to an estate. And so, to, I think I wanna say, When we think about the threshold, right? It depends on how much you have. And so the IRS does care as far as how much you're worth when you pass away because if you're.
Worth over a certain amount. Then you do get taxed a little bit differently than someone that's worth a little bit less. And so having a trust can really help reduce taxes. In many ways. It can generally make sure that. What's protected by your trust isn't taxed in the same way as if you didn't have a trust.
And so, there are so many d different types of trust that exist that can help you accomplish various estate planning objectives when it comes to tax planning. But. Basically you know, there are some liabilities too that come from it. There's gift tax which basically that's a whole different type of tax that's different than, well, it's kind of, it's in the estate tax world, but it's a little bit different.
There are some dilemmas that come up when it comes to taxes. If you are. Getting certain money or giving certain money or there's something left outside the trust. And so there's so many trust that can kind of help with tax planning. And so we usually, when we think about taxes, it really depends on what the person is worth.
And so having an idea and a trusted professional that can help you, guide you in that, not just an attorney, but also, you know, a lot of accountants are very well known to help with sort of formulating the plan. A lot of times we speak with them about what your goals are. If that's something that is relevant to your scenario, but there are a lot of the tax advantages in that you know, you can have a trust and even make you know, certain things owned by the trust and set it up between you and your spouse, for example, where you're avoiding being taxed in a certain way as if you didn't have it.
So there's always incentives to have a trust because there are so many tax advantages. So there's something to keep in. There's also I was gonna say there's also another way that you can help avoid, you know, significant taxes. Especially with making like charitable donations is really popular, so, a lot of times people bypass certain taxes, I should say, to transfer things to you, a charity, for example, through a trust.
And so, there are some. To get some tax incentives that way too. But like I said having your trust in estate plan really can help with taxes and there's just so much to it that it really is hard to encompass in one, one Facebook Live. But I do think that there is never a reason not to have it if you're trying to avoid tax implications.
And the other question that we get a lot is how do you charge for an estate plan? Now when we charge for consultations typically it really depends on your scenario. So a lot of times we've charge a hundred dollars initially, and a lot of times we'll help that go towards your final bill.
If it's something that we don't feel like we need to charge, then we don't, but we do have Some leeway and discretion to do that. So depending on your scenario, but a lot of times too, I mean, you do wanna make sure that whoever you're going with does have an idea as to, you know, your full estate plan anyone can create you know, their online estate plan and anyone can go to an attorney that says, Oh, I'm gonna just create your will.
But if we're not considering the full assets and some of the things you have, Even just what you're worth right now or at the time you've passed, it could really lead to some tax issues. And so a lot of times people do create trusts because they know that there's ways to defer taxes, and to avoid certain taxes being imposed as opposed to not having anything at all.
So just something to keep in mind. Now, where do you contact me if you have any questions? Well, my. Obviously our law firm website is on the screen, but if you wanted to make a consultation, you can always text us or call us at the number below because here we are actually always answering potential clients that have questions about how do we set up a consultation what do we go through, what do you prepare beforehand?
We will help you with all that. And it is our pleasure to be able to even assist. Or if you wanna even you know, have a family member that wants to come our way, we're happy to service you. But I do wanna thank you so much for watching today. Like I said, taxes and death are two certain things and they're very complex, at least when it comes to the tax world.
So having an estate plan that really secures your financial future is the way to go. So thank you to the viewers for watching me today. I really appreciate all your questions and insights and feedback as always that I get. So, like I always say, daily life can be very hectic and we know that with what's going on in the world, it's really easy to be distracted and to put off your estate plan.
So it's really important to set up a consultation. Try to do it as soon as possible. Don't wait until something happens, until someone gets sick. And it is a really. A very responsible thing to do. If you can try to take care of your family, be proactive, because if there's one thing you know, can do is you have control over the way that you react to certain things.
And so right now with everything going on with our economy and with our. Country. We wanna make sure that everyone's empowered to at least put something together to protect your family in the inevitable. So I invite you to join me here next week on Tuesday at one o'clock for Pink Mic Legal Confessions, and please share the recordings with your family and friends to see if they'd be interested in watching us.
So thank you. Thank you so much for everything today, and I will talk to you soon. Take care everyone.