Trust Advisor Training Week #4 - Personal Trust Instructions
3:17AM Jul 20, +0000
Speakers:
David Phillips
Keywords:
client
trust
assets
liability
beneficiary
related party transaction
musical chairs
trustee
documents
gift tax return
bank account
long
account
gift
question
exemption
audited
llc
convey
instructions
Well welcome everyone to another abundance group, truck advisor training. Today is Tuesday, July 19 2020, theory of milling, do normally pay celebration. I guess I can still take celebrations on this particular call, you guys have any celebrations around just advising
I'm back celebration,
that's a giant, you are not allowed to go anywhere for more than two days ever again,
today. I think that's right. Two days, that's it.
Two days is the max. I keep that in mind. Yeah.
Make sure you write a note to life.
I'm gonna let you write that note to my wife. And let's see how that goes.
We'll be coming as soon as they get off. I was able to
ties trust in his apartment to his LLC.
Oh, that's a good celebration. Thank you. So on today's call, we are going to move away from structure and into instructions are going to go through the why behind. So we're gonna start with the personal choice, I think it is to call to get through the whole thing. We'll see how far we get today. Once you've done the affections for the personal choice, they'll then go do instructions for the business. So once you get through that, I will actually create instructions for foundations. So we'll go through all three, because all of you really need to know all three. Now, as you saw instructional causes, so far, structure can change. No matter how it changes. Every client starts with number one on the instructions for personal trust. Even if they push you to do their business trusts first, do not let them do it. But then know that they have to go in order. If they try and do the business trust, first thing that's gonna get very messed up very quickly. And the why behind that is this. Because asking me needs to come through the person or otherwise, without that the assets being held in a personal trust, at least to the business Joseph mitigate taxes. If they try and set up the business trust first, the assets don't have been conveyed for the first time. And that is great. Oh, God is that this person? Step one is get the documents into their hands, get them to execute it. included in the cost of the charge is the notary. And which needs to be notarized. Julie Barra, she's on the call. She's a trusted adviser just like everybody else is. In addition, she is a real online notary. For some clients, it's appropriate for Julie to get them on Zoom. And they execute costs, you know, that arises right use it. For other clients that are a little technically challenged. Julie can get a mobile notary out to them regardless of where they're at. Country. So when you reach out to your clients, make sure they know they need to get the trust, executed, ASAP. And together, they should reach out to the notary fees is really a service that we provide. I pay for it. And I do because with the kind of prices we're charging, that's how it should be. They should not have to go pay 50 bucks for a notary. So it's all included. We like to get that done in one single session. Right Joey?
Yes.
They have coaches that are going to need to sign they need to be on that session like Julie's not going to do three and four sessions to get everybody's signature on the document. Once they have done it, Julie, anything to add about executing that personal stuff?
Yes. And they can be anywhere. They can be anywhere in the world as long as they have access to the internet. And I've done one person in Africa One person in Hawaii and one person in the US all at the same time.
Yep. And I think he even did another client that is in South America. So it can be anywhere. It could even be on a boat have internet access.
I have actually had one guy on a boat on his way to the Bahamas.
How often is that once they get the house executed, they need to do step one. Step one is open a bank account. The bank account isn't the name of the trust file using the trust tax idea to open the bank account, they need three documents during the execution of the trust, they would have completed two of those documents. The last document in the trust finder is going to be hanging on my pharmacy again I'll be right back. Okay, last documents in the binder will be the letter of introduction and instructions. In that there is a paragraph where they need to name the signatories they want on bank account. The trustee is always listed there automatically. If they have a co trustee, they can listicle trustee as well. They should not beneficiary beneficiaries do not get access to the bank itself. They can talk to it is the second of the last document on the shelf binder. It's the certification. The third documents they need to open their bank account is going to be the EIN letter. It's called an SS four letter, the letter from the IRS that gives them what their tax ID number is. In the front of the binder, in some of the tabs, the table of contents every session, there is a welcome letter from we make it very cool an orphan letter, that the easiest thing to work with is trying to align things. They are not a bank that's nationwide, they have a presence in Utah, they have several locations, then they are online, they can handle accounts. out it's really super easy to use. There's so many different reasons why I love foreign alliances. The biggest the witches, they get trust, they understand what an irrevocable trust, and they're not ever gonna give a client on their fields are super low. They are a network of them a member of the network, there's about 120. So if their account goes over, join it in 50,000. So that Anything over that amount is not insured by FDIC, they can set their account up so every time they go over 250 It automatically spins up a new bank account. Another thing that is in the exact same terms as our timeline. So that's a really great thing. All of the accounts become depositor, not shareholder. That's an important distinction. depositor accounts that are non interest are the only type of account that would actually receive dollars with dollar insurance from the FDIC. In the event, there was a major economic collapse in the bank shuttered stores. If they have a shoulder account, on interest bearing account, they're not going to get dollar for dollar recovery up to 250,000 per account, per bank. So to have a network where they can put joiner video 1000 And up to 120 song base. So really helpful thing
if they don't want to do online banking so FICO is the next The easiest thing to deal with as Wells Fargo, although I will tell you that Justice week I've had two different clients, two different states, two different branches. So both for that as of April 1 of this year, Wells Fargo is no longer allowed to open accounts for non grantor trusts. Defiance go to a different Wells Fargo branch, they weren't able to open the account. The second one, but that happened twice in one week seems a little odd. Other than Wells Fargo one time Alliance, most banks to get to give your client a headache, opening the account. They just don't get trust. They may want to grant your social security number. But in the case of our justice, not a grantor does that work? And we're not ever going to let the settler social security number on their account. It's not required by law banks will try and make you believe that it is it is no they can get the name and phone number. Now, you don't want to mess up on that account should not have access to any assets held within the trust. So if your clients have no time to open a bank account, we would encourage them to try Wells Fargo are already much better at any questions about opening a bank account.
Hey, Gina, this is I missed your third item is that the declaration of trust? Did you say the whole declaration? No. Never ever does the client gets the full declaration letter of introduction and instruction certification of the SS four letter from the IRS. Okay. It's going to give the client the EIN
Gotcha. Okay, thanks. Those are the three things. Open up one more. Before I go. Any other questions about our orange need one vintage Hill portraits. So that means one for the first time, one for the business. One for the foundation, I have one for as many as three accounts, it is really helpful to have them all at the same bank. That would be a really, really good thing to do.
Okay, on to step two. Step two is playing musical chair. Though, what the heck is this all about? If the client has assets that they're about to convey to the chair, and the client at the same time is the trustee of the trust that is now acting as the seller of the asset. And as the fire of the equitable interest on behalf of the IRS says when you are playing both the sellers role and the buyers role, that is called a related party transaction. Under the related party transaction, there's something called a funding sale. And it's basically if an if a related party transaction occurs, the asset must be sold at fair market value. If it is sold for less than market value, fair market value, then the client must violate this tax rate or pay tax on the difference between the sale price and fair market. It's a very simple thing. In order to eliminate the possibility of a related party transaction, we suggest they play musical chairs. What that means is the client steps down from the role of trustee do not appoint a successor and then the client steps down as the trust protector then appoints a successor trust protector is going to take off as immediately. The new trust protector steps into the role first appoints the client as beneficiary then appoints a new trustee. Once the client is a beneficiary and not a trustee, they are no longer acting as seller. And buyer, when you deal with a fire sale, the seller, as long as the need for feet is not the parent or child, it's no longer a related party transaction. And therefore, the bargain sale rule doesn't apply. So they can sell the asset at something less than fair market value. Now, they have done a wonderful job of creating a decision tree flowchart for us. So that we can give clients some options. And those options look like this. Though, to play musical chairs, or not to play musical chairs, that is the question. But that thing, spaces equals a sum. For all assets that you are conveying to the fair market value equals the sum of fair market value for all assets are conveying to the total lesson v less cost basis equals the amount that you would be putting on a gift tax return if you have a related party transaction. So right now, we have a nice high gift tax exemption for a little over $12 million per person. So for a married couple that is $24 million, they can have a gift tax exemption for so to help clients figure out, should they play musical chairs, should they not play musical chairs, they did a fantastic job of giving them several options. Option one, under Option one, you remain the trustee. You have a related party transaction, it can be assets at fair market value instead of at cost basis. And taxes on the difference between your bases and FMV. On your 1040 return, there's no way around it be one and do their income taxes, you got a lot assets that you've achieved. But you can do that if you choose to then let the assets depreciate from a trust. And before they're gonna be the choice in your game, that you're going to be taxed on the game up until the point that I can't think of any clients that want optional, but we give it
option two client still remains the trustee. But they convey the assets at cost basis, not at us on V then they file a gift tax return on the difference between FMD and basis as one of the clients difference between FMV and basis is less than $12 is not going to cost me anything 24 million, it's gone right couple. What is the outcome? You have an increased risk of being audited, do the final ones a gift tax return? gift tax returns audited more frequently than any other type of tax return in the IRS? So I don't love the idea of filing a gift tax return, because they do get audited so frequently. The other reason I don't love it is because now you've got part sale part. Yes. This has not been litigated. And I don't talk about this all the time. But I can talk about it. If you guys there could be an issue in the event, the trust ever got sued. In that it's part and parcel sale is it's 100% sale, the trust is going to give the client ironclad asset protection. And good luck to anybody going after the app that's held in the forefront.
And if we've got for sale and make it a lot easier for the party to go after assets held because of the gifts portion of it, though, I don't love it. But it's it's a necessary evil because of the IRS tax code and the way that it works.
Option three, option three, become a beneficiary convey assets cost basis as a non parent child as defined as just eat done that way No gift tax is required because it's not a related party transaction. Its client can go back to being a trustee and trust protect your income later. They just can't do it during the time conveyances occur. So what is the outcome? If the client ever did get audited, they may have to explain why they switch roles. If it is deemed an avoidance, it could be penalized. And it may bring unwanted scrutiny or other circumstances. The likelihood that that's going to happen, I think, is slim. Because 1040 are the least audited type of return within the IRR. So unless they were going after a 1040 return, and because of the 1040, testing on the the bank 41, and then auditing the 1041, I just don't think it's likely to happen. I think option theory really is the best option. Next is option for Remainer. Chelsea, can the US bases, check the total gift value, meaning the difference between FM fan bases with a plan to file a gift tax return, once they get close to that lifetime exemption? Done That way the you don't have to go get a tax return today. But you could be penalized later, if you're audited for not filing. If you chose option four in the event of an audit, the auditor will give it a couple of weeks to file a gift tax return or you might even want to have the client prepare it in advance is to have to have numbers handy to do it with just in case of not if they could do it quickly, which would make it less likely that they would get penalized. Dave, you have anything else to add about the decision tree?
Sure. Thanks for Thanks for that. Yeah. So we sort of gamed out these scenarios with an actual client. And I've talked with multiple trust clients about it. And as far as option four goes, the we we discussed like what could happen if you were audited and they penalize you for not filing, how much would that cost you, et cetera. And we we kind of discussed Okay, well, if they charged you $300 a month, and you're audited seven years later, and that's when they penalize you for seven years of not filing it, then you're about looking at around $25,000 in penalties. But as long as you haven't exceeded the exempt gift, the gift tax exemption, then you don't owe any tax. So option four, I mean, these are really all these options are about risk, right? What risks do you want to take? option four is more about risking that you might be penalized later. And you would only take option four, if the value of the difference between the or the gift value as defined on this spreadsheet is more than the current exemption. And I should point out that in a couple years, the exemption is dropping, I think big dies 5 million or something?
I think it's gone under that I think it's gone down to one and a half,
isn't it? I know it's 25. I don't I thought it was five, but who knows it bottom line is is dropping a lot. So this whole chart is really about presenting options to your client, each client's unique situation is going to be you know, individual, if they have millions of dollars in assets with a very high gift value, there's they're likely going to need to either play musical chairs or file to gift tax return. But if they don't, and that doesn't exceed their exemptions, as long as they track it, the worst case scenario they're going to be is getting penalized for not filing the return. It's not against the law to not file a return it's against the law to not pay taxes.
Right big difference. Big giant that's huge. Yeah. That goes back to
the question Yeah. And I know you probably already addressed it. I just husband and wife for this always considered related parties, even if the assets only to my wife mean when she's the beneficiary, but I'm the trustee. We have to like do it married file separately in order to make that valid as a non related party transaction, or as long as we're filing joint, even if I'm the beneficiary or vice versa, if either one of us is trustee, even if all the assets are in the other person's name, and they're the beneficiary, can we still get dinged for that?
In asking the question, you bring up an even more important question. Remember, when clients are completing their new client questionnaire way up front before any of these steps ever happened? First thing they do is send them the money. Second thing they do is complete a new client questionnaire in abundance group.com forward slash training, podcast, training calm number one walks them step by step, you're completing your client questionnaire, clients if their husband and wife must both be on one side of the fence, or the other. What do I mean by that? On one side of the fence are the fiduciary role, which is the trustee and a trust protector, which is a non fiduciary role on the other side of beneficiary, in Section 671 to 678 of the Internal Revenue Code, provisions that state if a single spouse is a fiduciary, and the other spouse is a beneficiary, in a non grantor complex Trust, the fact creates an adversarial relationship between the spouses. And therefore, the Chelsea votes, differential taxes, grantor trust for tax purposes, it may also mean go into a simple shell instead of a complex stuff for tax purposes. In which case, none of the asset production what happens and none of the tax mitigation that happens, though, you should not ever run into a situation with clients where one spouse is the charge, ie, the other spouse isn't up to that rule, and that one is only one exception is this if the trust was established prior to them, and the marriage happens, and one spouse is the trustee, at that point in time, they can have the spouse become the beneficiary and not adjusted, but only if the trust predates a marriage. And I would say if the trust and the inception date is June 1, and the marriage is better than a firm up in advance to justify having one on one side and the other. On the other side. I'm talking like it was established itself was established long before they even considered marriage. So their situation couldn't happen. But let's say it did, then it's still a related party transaction no matter how, even if yes, it's only helped by one spouse and not the other. So
okay, that's what I thought we can hear you say that on the training call number. Is that correct?
I believe so.
Okay, I just got certain clients tell them that they're not going to believe it, too. They hear
it they don't believe he's going to go read 670 167 like crystal clear black and white. Okay, now. Okay. Got it. There you go. Any other questions about the decision tree or playing?
Yes, I have a question. Gina. Can you hear me? Yep. All right. So just to summarize for a person to come into the trust they need. In this reorganization, they would need an example is okay. They have someone who was willing to do their social without them because that's the non grantor part, right? I'm trying to see how many parties would be on this, then they would have husband and wife as the fiduciary roles. And then kids has beneficiaries and then they would need one other person to play musical chairs that other person would title or what it'd be It can't could you said no parent no child, so that means no step parents Correct. Okay,
so, go ahead. What I recommend. Yes, and I love the what you just look at the shuttler we provide. It should be A third party, it cannot be a family member because if you ever wanted to make a beneficiary, they can't become a beneficiary. So let us take the pressure off and we'll create just using a book our choice, not quite. So the clients have one person's fiduciary role as trustee, another as a trust protector, and a third as a beneficiary. But remember, the beneficiary doesn't have to be a human being, the beneficiary can be the beneficiary could be a foundation, or some other nonprofits, so that doesn't have to be a real person. Now, going back to what you're really asked, because evil just protects the role of the client is to play musical chairs who should film we recommend that the trust protector role be filled by an attorney, possibly an estate planning attorney. And the reason I recommend is an attorney or an attorney and first and foremost, that is a fiduciary role. Even though an attorney who is a fiduciary to the client is asked to play the trust protector, protector role as a non fiduciary. So it helps to ensure that the attorney is going to honor the client's wishes, even though they're in a non fiduciary role of a director recommend that the Chuck E if they have nobody else that they can name in their family. It could be a cousin, it's a lineal descendant. downline, isn't this uncle kugel. Otherwise, what we recommend is make whoever your bookkeeper is it's a logical choice. Because that bookkeepers handling, or they may even be paying bills. So it's might actually turn out that it makes it easier for you to manage everything by having a bookkeeper.
Hey, Gina, I'm gonna interrupt you on that. Because you and I have talked previously, like, you don't want my firm to be a trustee for any of the trusts. And yet my firm is doing books for some of the trust clients. So how do you how do you? I mean, like, I'm trying to reconcile those two things.
Is it because of musical chairs, and you have a really good disclaimers, I'd be okay with it. But really good disclaimers need to be in place. So otherwise, I don't know who else to choose. As a tactic. Technically, if you're putting someone into the role of currency, they really should be on the bank account. And a lot of times the bookkeeper is added to the bank account is something else as a power of attorney so that they can find checks so that they can pay the bill. That's why I would do it. On your Sunday. I would not have your people on the bank accounts or clients. The client executes a trust power of attorney to give me just reading. And then that I think that makes sense.
Okay, so the trust power of attorney would be the third party, not the trustee or the beneficiary. Obviously not the beneficiary. I don't know why I said that. But the trustee part, right.
So even though we're gonna name the housekeeper, as a trustee for purposes of musical chairs, if we bring new certification of trust to the bank, with a new letter of introduction and instruction that names the new trust ie I think that clients in a separation position in the events of that quote, Keeper ever walked off rather than changing a letter of introduction or instruction, that's going to get the client off the account if they do that.
If a client has the choice to sign a power of attorney to right and back was brought in the bay, a new added to the
A C With the requirement that now, in the event, there's never an audit, the client really should remain on that bank account for the period of time that they're conveying assets.
But, you know, a supplier didn't know any better. I think there may have called for us to do.
Otherwise, back into a related party transaction. So it's complicated. It's not even, I don't ever talk about this piece before the client shows with their job. Because it just gets them so overwhelmed. They can't make a decision, should I go forward or not? There's so much dignity by getting the assets into the trust. I've never had anybody come back to me. Because I didn't tell them about this stuff. Ever.
Yeah. I agree with you completely. I think you get to trust and then okay, here are your options on how you need to do what's your the next steps, here are the next steps here, the next steps? And then we know exactly, if we don't frame it as a big thing. It's just like, oh, this is normal, then they don't know any better. And then they just think, okay, and then, maybe a few years later, it's like, Oh, my God, I didn't know how to do all these things. Yeah, well, now, you have your trusts, and it's all set up properly. So you're totally on board with what you're saying. Hey, Gina, this
is not like they find out about it years later. They're gonna find out about it in weeks, not years. But if,
yeah, I just had a crazy idea. What if the first step? What if you open the trust as the with the client, as the beneficiaries, conveyed the assets, then switch to trustees and then open the bank account?
The problem is that clients typically are buying, because there's a transaction about to happen, that requires a bank account to do, they can't wait to get it open. And I had to tell the client, that bookkeeper was going to have to go open the bank account for their trial. Slip.
Yeah, I see that. Sorry, I was on mute. Okay.
If I have a situation where I would have been, if I had a situation where the client is really knowledgeable about financial matters, and it is an extremely large state, one that is very likely to exceed the gift tax exemption, I haven't feel not alive, but I have told them about this issue. And two out of three, have chosen to be beneficiary at inception, to be a long term trusted advisors that are on their bank accounts now. So that no problem with that individual having to open a bank account. And in those two out of three, one of them later chose to go back to being a trustee or go, we probably should say, but the other one didn't give for beneficiary and and bookkeepers, door handles. Real simple as that. So it can work a number of different ways that you will notice that in the document for personal trust instructions, as well as the business instructions, you see the blue underline things, those are actual leads. They take clients to the actual documents they need to do. So don't let them keep pestering your lawyer and then how do I do that? It's all like that. And the forum was really very straightforward. The, if I get into this one, which is the resignation of Chelsea of the blank, just very straightforward. It can be witnessed, or it can be no, it does not need to be those clients get to choose how they want to handle. As you know, sir in PDF form fills that I can just put in the type of thing and be done with it. And it's like this for every single step, whether we're talking about musical chairs or any of the other steps, every single thing takes you to the exact perfect document. So that they don't have to guess at what it is they need to do. This will be a point when a beneficiary, again, it can have a witness for it can have a trustee. Now, we are not paying for these documents to be notarized. Nor are we paying for the conveyance documents to denormalize. That's on the client. A lot of times because they work with Julie evilly, when they executed this, let's go back to Julie for me and the notary for Julie. Julie, very reasonable. So whatever shows the client, but if they asked, it's only one or the other, they can have it witness or they can have it notarized. They get to choose which one they do. Okay, any other questions about musical chairs before I go on to step number three?
Quick question. If a client decides to become the beneficiary initially, how long do they have to wait before they become interesting?
Great question. I can't give you the time. When I've talked to tax attorneys about this, and I've talked to more than a dozen about this exact issue. It's kind of a split outfitter. Some say who I don't know, I would think the IRS would be okay if it was a three to six months after the conveyances were completed. Others will say it can't be based on time to the IRS, it needs to look like this was a permanent change intended to be a common. That's the one thing all of them have agreed upon, as if there is a change in circumstances. And based on the change in circumstances, it's a matter of convenience to have that be the time during which the client says back to the original, then that would be totally fine. And if we because the tax attorney is telling me that I came up with the idea of our choice watch for a trustless program to have a panel of experts assembled. We all sit down once a quarter and ask a question, do we need them and myself for any reason, or changes in law changes in circumstance changes in regulations, whatever it would merit updating, or typos in the trust that we were going to do it in July, I decided to wait and do it at the end of the next quarter beginning of the fourth quarter. So in October. And part of the reason I decided to do that is because one of the big changes I wanted to make before the end of the year is to add something called it from the provision to the trust, which will give clients a way to distribute up to $15,000 per beneficiary per year, without it being a taxable event to the beneficiary. That's all reasonable waiting so that I can finish off the call. But there just isn't a one size fits all. Whenever we update the trust, it is a matter of convenience for them to go back to whatever roles they want to play moving forward. And before we update October, we will take clients about two to three weeks before us whether or not they want to amend the old people, but if they want to great if they don't want to write and as someone came in, played musical chairs on the first of September, got all of their conveyances done. And then on October 1 When we go to put out the first amendment for this year, they wanted to go back to just the interest protection. Not a very long period of time, but as long as advances are all done, there's a change in circumstance that merits it. That would be totally fine with every tax attorney. I've asked the question. So hopefully that answers the question. Yeah, good. Thank you. Okay. Can they assets and liabilities to the trust? I will tell you that their life will be oh so much easier. If they actually watch the section We call it to be training called to be, which is going to go over completing what we call the purchase of assets and liabilities spreadsheet. So life will be so much easier. If they listen to that and complete the purchase of assets and liabilities spreadsheet before they start conveying assets. It will help them wrap their head around what needs to be done. So, you guys do the purchase of assets and liabilities. It's pretty straightforward. Column A is the asset or liability description. So what is it be as detailed as possible in column A, it will make it easier to complete the documents that they're going to need to create to convey assets and liabilities. Next, on what date are you going to put on your domain such as
currency, chart of account. So they're conveying assets, or liabilities? What's the appropriate sort of number for that asset or that liability? If they're conveying an asset, they must convey the liability it's not an optional thing. And what's easiest for creating the conveyance documents is that if let's say on Row eight, they have a real estate single family house that they want out. But it has a mortgage on it. That would appear on Row eight. On row nine, the details of the market flip over asset liability just makes it easier for everybody to understand what's going on. Next Door, which is column D, what's the asset value. And what we mean by that is what is the value you're putting on your books. If it is a primary residence, it needs to get as close to fair market value as possible. That means basis costume treatment, plus that exemption 250,000 additional 500,000 If you're married, get it as close to the fair market value as possible. Now we have had some clients recently that have had tremendous gain, especially in California, on primary residence. And if they've got a tremendous game, even adding the homestead exemption might not give them a high enough value to get it to fair market value. So what can they do with that? Okay, lots of things actually. First thing we do quite often, if we have them, they'll find a realtor that usually they know and get the realtors to do an opinion letter on the value of different resonance. And as of this date, my opinion based on comparable homes in the area is that a Home app fill in the blank that would be a fair market value of filling in the blanks with that has helped considerably fire. The numbers are sometimes lower than I can say. And that gets a little closer. They can always file a gift tax return on the difference between what they paid for it plus their improvements plus their homestead exemption. The difference between that, and FMD. They can do that if they choose or I had a few for it. The game wasn't exorbitant. So they chose to pay the capital gains tax on it. They held it long enough. It's a long term test, okay, not a short term, or glass options with it. But they need to put in column D, whatever the value is that they're conveying the asset to the next in column eight is liability value is or isn't always but if there is it goes in colonies. And in Koenji. It's hard to find what the label says it is. Here's what it's really saying. Whose account he wants credited for the Good Hands of this asset or liability. If it's performing great if it's the client and spouse rate if it's a beneficiary. Great. Well, I suggest just to make it easier on both the client and the vice versa. So is that if they have entities because they've got all these, so they're gonna have assets that need to get into the personal chart, I suggest using multiple sheets, one for each party that's going to have a 260 account, or 265. To 60 accounts are for trustees remaining assets. So trust is 65 accounts over beneficiaries conveying assets. If there's one asset that's owned by the client, another asset owned by the client and fellow, and then other assets that are owned by two different LLC, I might have five sheets, one for the client, one for the client and spouse, one for each of the LLC. And I might even have one just for the spouse, and that could be up to five, it just makes it easier to see it at a glance. And it makes it a lot easier for taking the next step of doing the actual conveyance. Other than that, it's pretty straightforward. It's used for many different things, it's given to the tax professional needs to be added to the client's financial, it's part of what goes on the balance sheet. The it's helpful for the tax professional tab, it's helpful for the tax professionals to have it for purposes of making sure that the 260 accounts or the C 65. has been properly documented based on the assets and liability. So it's helpful from that perspective. And I think it's also a good thing to keep in the chest. If the client personally or the LLC, or other entities themselves, ever convey the asset or liability in the future for the job, it should be added on to this. But it's to choke cash, and the focus is going out in securing an asset or buying an asset, it never would get added to this. This is for those assets that are being conveyed either from an individual or from an entity into the trust. Any questions about purchase of assets and liabilities? One
I have one real quick if a house is paid off, because I don't have to make people who do that. But if the house is paid off, the asset would be the house. So I'm earpieces dying, the asset will be the house and then the liability will be the property taxes. Is that correct?
No liability means mortgage or lease. Property taxes are not considered a liability. Okay. But if I also say it off, you got a bigger issue. You can't put zero on the bill of sale. So the client is going to have to pick an amount to put in will be recorded on their 1040 return.
Okay, okay. And so if they're doing that, and it's really paid off, and it's on a bill of sale, are you would you recommend the fair market value of that? I guess so the the I mean, the basis.
So is it the primary residence, even if it's paid off, we still have the basis. But it's rental property, you could actually went into negative numbers. But say the A bought it for 200,000. He put 100,000 into it. And now the basis is up to 300,000. But it's fully depreciated. So technically, the basis becomes $0. But last year, he borrowed 200,000 against that property, so that you can tell by toppling number two, we have a model that needs to go into column D would be the 200,000. The amount that goes in the columns t would be the building column D is zero because it's been fully depreciated. in column D it would be 200,000 which is the liability which gives it a basis that gets conveyed to the child of minus $200,000. You cannot convey assets that are just negative numbers. You can even convey assets and zero. I'm going to build a veil So the client people, right. And we do have many clients that are in this pickle, it's our, and they don't love the option. In that case, here are the options. Number one, pick and choose to leave it outside of the truck, which is a horrible thing to do. If it's an investment property as got income, you're gonna get taxed. Well, unfortunately, it's outside the trust. So it's fully exposed and at risk in the event of a lawsuit. There's not a lot of choices. The only other option is, you're going to have documents. And clients don't like to do that. But there may be a die from, like a name. It's just not a lot of ways around it, they do give 2x return, they're going to gift it. But that could put that asset and others at risk. Because it could make it easier for a judgment creditor to give the asset, because it's a problem. And it's one that I usually find out during a console. Before the plans open days for the no GS denials have been exactly the same. I've done so many different ways of getting being really creative. How do you be aware of that if they ask you to review their purchase of assets and liabilities.
If it's if they already have an LLC would the other third option be to put it into the LLC, if it's not titled in the LLC already?
Because I was the way I was thinking is that they could actually move it, what basically gives them time to deal with the mortgage or the negative number and then move it in a year or something like that after they get that squared away. But at least it's protected, and it's not going to be too much of a liability for them. I know it'd be probably preferable to get it into the trust, but I was just looking at as another option where we're not having to sort of be super out of the box creative.
Yeah, just keep it is, yeah, we can do it. We can make the choice. And then the present partner. Or they can open the more often Wyoming or Tennessee and make the full number and not have to worry about the other 10% that is locked out
options. Exactly, exactly. Okay.
But do remember, hold on, they've got to get it into the LLC. Then when they got it, put it into the LLC, and citizen she was value in getting it into the trust me fall back by putting it into the LLC can have a negative capital account from the stock. And that's basically what it did. Okay, who else was that?
Yeah, there's Cheyenne. I'm sorry, um, I guess, depending on the value of the property, and I guess really the purpose of the property and so forth, I would think the foundation charitable trust or something would probably be a pretty good scenario for that, wouldn't it?
Yeah, I love the idea. Know that. If they're gonna make a charitable donation of real estate to their foundation, couple of things happen. Number one, especially if that's an investment property, then all of the income is going to belong to the foundation, they're not going to be able to use that income inside of their personnel. Be aware of that. Be aware also that in the charitable giving of real estate roles are so extensive, and kind of tricky. That mainstream nonprofits, the American Heart Association, American Cancer Association, and the like, they typically will not allow people to donate real estate. It does evolve with who's gonna have to be jumped through in order to make that gift valid as a tax deduction for the giver. Now, we don't have that problem, because when I decided I was going to offer help to people, I partnered with two amazing individuals with Rick Scott and Sherry Watson. So Watson is the founder of FANUC PS am on board, which stands for people for new America, that fork. She's been around for the last two years 30 plus years ago, she was one of two individuals that single handedly got the Americans with Disabilities Act passed through Congress. Ever since then. She's going in the world of nonprofits and Foundation, helping for profit business owners, to foundations as a leverage tool. Well, one of the things that Fana offers because all of our clients have for profit businesses and foundations, is they have a service that will come in and help our supporters get foundations that they control, to have real estate gifted to it. Sherry's team even goes out and finds a buyer for the real estate, so that when they sit down at the table to deal with closing, they're doing a simultaneous close selling from the original owner as a gift to the nonprofit than the nonprofit is selling to a third party outside of the organization at FMD. does raise charity charges 20% to our clients 30% to everybody else. But what ends up being the foundation is cash. But when it's in the foundation, it's kind of a walk in the gut some things you can do to make use of the foundation's money through joint ventures from your own and that's a little above our class today. But we will get into that in the event option one
Yeah, sounds great.
Okay, any other questions about purchase of assets and liabilities?
Hey, Gina, where do I find this a page of instructions you're going on?
If you go to abundance group.com forward slash cue Vance's pearl. In the conveyance of folder is a sub folder called accounting sub folder has a file called instruction stash personal child, and another called instruction stash business stuff. I noticed this week was the business stuff instructions need to get updated. I will have him updated before home next week. But be aware that they did this and they are there. Okay, so once they've completed the purchase of assets and liabilities, they're ready to go on to training call number three. Training call number three goes to every single kind of conveyance in the conveyancing folder at abundance with.com forward slash conveyances to help walk them step by step through completing each and every one of the kinda like, gosh, it is a boring call. But buyers love it, they're encouraged to it all the time. If they want it in writing, they can go to the training podcast. In the training podcast episode The facing different format, there will be a section of tax one of the pieces of tax survey that they can use to go to the transcripts. So for those clients that do better reading step by step, rather than listening to an audio or watching a video for the training, they've got all of those options available to them, they just got to look in the text section. The text of each and every one of the episodes of the training podcast was updated not that long ago. And it's so good overview of what they're going to learn what they need to be aware of things like that are all in each episode of the training podcast. I am not going to go through all of the campaign's documents with you guys. We're gonna go through a few of them, but not all of them only because I don't think it's important to for you to know about all the various it's important out there pleasures. One of the things I deal with the purchase of assets and liabilities. Final find as a trusted adviser to many clients. If we don't have enough one form right now, to answer All training on politics, I really, that's gonna get all of these people that I'm a trusted adviser to offer my calendar, which I will be so grateful for. But one of the things I like to do is I have them submit their purchase of assets and liabilities spreadsheet. Once it's completed, I then add one extra poem to it. And I go down that column and tell them exactly what documents they need to convey that asset for that liability. That's pretty much all I usually give is just a link to the appropriate doctors. I may give them some pointers on how to calculate sale price, I might not. But a lot of times will then go off and do their conveyer documents, then send them to me for review, or at least send me a sample of them to review that can really get some fun. If they're looking at this is a very daunting task. We do have a done for you solution for clients when it comes to conveying their assets and liabilities. Dave, Julia, I sat down one day and talked about how can you make this work better for Julie does give, she's able to record deeds and over 1900 counties nationwide. Data has numbers of foods that are apparel result that could easily go through and do the exact same thing. So it can really help to find out a lot. If we just go down that list. Tell them what they need, and then help them. But if you don't want to do it yourself, be seen as silly for your deeds, and any other kind of commands. Or you can use it for any other kinds of conveyance, if you need details on Jehovah digitally or any combination. thereof, how much are we charging these days for conveniences?
It's $100 a document.
And if it's deemed that a lot more to it, especially with Julie's gonna report it, it's 250 or so for most friends, they shouldn't be doing that stuff themselves. Or clients, if it doesn't take the time to complete all the conveyance all the assignments or liability, they are losing money while they're doing. If they really want the greatest leverage from the job is to hire somebody to do all of their convenience, they should not be doing. So for what it's worth. That's my thought. I think we are going to hold off on going to the next step until our next talk because I promise to keep this back for another hour to one hour and a half max. So we'll go through a variety of convenience documents. What are the questions you guys have about conveying assets and liabilities? Generally?
It's not really a question about finances. I just wanted to go back to it to summarize for some clients that will come in. I know you're great at saying this, but how do I say to them, you just have at least four people one would be your settler that you're not related to one would be the trustee. One would be the trust protector and then the person or entity could be the beneficiary. Does that kind of summarize it, like took us some people just want to know like, hey, how many people do I need to help me out with this? Because then they get confused with the forgot to call the merry go round or whatever
I call it really, the only people that matter to the client is going to feel that sense of urgency position is going to fill their temporary house protector position. I wouldn't call them temporary. The IRS will never heal, they will. But who are they going to get to play the fiduciary role and the non fiduciary role? We appoint themselves don't have to worry about that. The client becomes the beneficiary so we don't have to worry about that. It's just tasting again the other Tuesday. There my partner Joe McHugh, he will be self protection. It can't be just trustee or it can't be a fiduciary In other words, because there's no practice insure Extra 300 bucks, protect you no problem. They hire him as an attorney, they pay a $300 retainer, then he becomes interest protection. So for all sales, you can do that on all 50 states, even though his law license is in California. It's not make sense. And sometimes it's their subconscious, that makes it. So how we learned is easily impact whether their subconscious sees it is easy, or hard. It's up to us to choose our words carefully. So that it feels even if it's complex.
Yes, gotcha. Thank you.
Worth the next one? Don't can we get more deep into the fictitious business? Because I'm imagining the next one, we're gonna do this for business trusts? Yes. Or is that down the road?
We're gonna go through the whole Personal testing sections first, then we're gonna do the business trust instructions. And DBA. Yeah, business class DBAs. That's very much one of the things I'm adding to the business just instructions. So we will go over that in detail. Gotcha. Thanks so much. If you guys have not figured this out yet. I have not. I have on purpose, not been assigning people with business trusts to any of our trusted advisors. Only Barry and I typically take people on who have personal and business stuff. Just because I know so many of you don't know enough to really do a great job as a trusted adviser, related to the business trust, you will get there by the end of this course. I promise you thing is true with the foundation, as well. So what are you guys taking away from today's call? I'll be happy.
Did you know this is Tim, one of the big things taken away is the this all the questions that we went around talking about the musical chairs and the timing, that getting that clarity? Today was really good for me, because that's been I know, we all struggle with clients that have control issues, and don't want to do certain things at certain times. But just giving them the ability to say, hey, you know, I don't? Because that's been a lot of the questions will, when do I go back to being a trustee? And it's like, well, I don't, I can't really answer that. But once we review, we can put you back as trustees that that helps a lot from from my perspective. So that's one of the big takeaways that was taken away from today's call the clarity around that, I appreciate that.
And I will tell you on the musical chairs, it has gotten so much easier as a creative decision tree for for once they see their decision tree, they can see in black and white that their choices are. And I just give clients a homework assignment. It's up to you to go understand this. I appoint them do a call if I can. But as a recording of me walk me through it. And our next poll, I'll say, you come back and tell me which option you're going to choose. And we'll make it so that has made it so much easier. So use the tool you got guys. And we just did all bunch of flowcharts for me in the last 24 hours. She didn't herself. But she did such a lovely job. And I'm going to be adding those into the commands folder for everybody as well. Most of them relate to the business sense at the moment. So we're gonna get to the business instructions, I will be putting our flowcharts in there as well. Because I think it's really helpful for us to be able to have those types of tools to show clients. They don't have to guess about it anymore. And the other takeaways
This is my takeaway would be that be going through this, even though it's a complex revocable trust. It's not so complex once we get our head wrapped around it. So that was this is really helpful. Thank you.
There Very, very true, good, good things, you notice that because especially in the first 30 to 45 days, every single client, even those that are offline or with total financial background, the NSA state of confusion and overwhelm. And I found this all the time, there will come a point in time, it will be in the first search first 60 days, usually in the first 45 days, that they'll just wake up one morning was the biggest aha moment they've had. And they'll realize that they've been making it harder than it is to be. To be really isn't hard. It's just something you want to talk in school. And the first time you hear something complicated, if he wants to make it hard, on subconscious work, assure them of well known to have a conversation with those subconscious mind. And to assure the subconscious mind that the conscious mind knows what's going on, and recognizes that this feels hard. But get the subconscious on board to do it anyway. And help them say, she would say to my subconscious mind, don't worry, you will always be safe, I will protect you, we gotta do this. And I promise you'll feel at ease in the very near future, as long as you can get into just embrace it and do it anyway, that will help to bring that around faster, rather than slower. For those that don't ever do the implementation early, because of just sitting in limbo, feeling scared and feeling confused. The moment they gotta start upgrading. And in order to do that, it got to get all of the gymnasiums back here. So do whatever it takes to get them to that comfort level of trusting that we know what we're talking about. And very soon, they will understand that at a whole different level. And things will be overdone. They will have the aha moment. Not once ever have I had a client that actually implemented again using that didn't have it? Not once ever, even with managers and financial planners. It's so happened to everybody. Julian David anything not me.
Julie, sorry, I I can't take myself off. You said Julie are drooling. Oh, oh, sorry.
Julia, Julia,
for that flowchart, because I have a client about to hit about to explode, because they didn't have to when they first got the Platinum, they didn't know about this. And then now, you know, it's changed over and they're like, Well, I gotta do this too. And I appreciate the option of them, actually not having to do that, you know, as long as they stay below the yearly and, you know, the year, the yearly and the lifetime gift exclusions, I think that's big, especially for me, because I'm not starting off with millions dollars worth of assets or huge appreciation. So that's going to not only help my clients, but also helped me move forward because I'm knowing now, as long as I keep below that $600,000 exemption, I'm able to move a little bit quicker. So
you know, Julian's talk worm and salt, because, in what you just mentioned, brought up something else that I was remiss in didn't mention to many of you will be trusted advisors. So clients came into the finance group trust some other chests. Most of them are coming from either what's called the Masters just for the Rosen Rosen trust, that we do Etn things on other types of trusts, as well. If you're working with a client and doing a trust and belonging they have already conveyed as to what ever trust they already have. They do not need to worry about playing musical chairs once they're established. Because Because this isn't gonna change. They don't have to do anything to convey the assets when the old jokes and all this is gonna change and they're swapping one instrument for another. So for those that had maybe the old platinum, which is a rosin enrobing, as long as they did the implementation before that, into that tells a story about musical chairs at all Georgia
would just add to that, that for those that did it that way, it's good for them to go back and record what that what the, for each of the assets that they conveyed record that gift value, the difference between fair market value and in cost basis, so that they have that already together, if they are ever audited, because I feel like that helps show an auditor, at least a reasonable auditor that they were thinking about that once they hit that exemption level, they need to file and they're keeping track of it, just just because I would do that with new clients. So that's my thoughts.
I wholeheartedly agree with that comment. And one of the things that from my wish, is to create a step by step checklist that I would call a trust audit. For those who are in the support package, you can think of another test. I really think we should have a checklist for the advisors to walk them through to make sure that they've got all their I's dotted and T's crossed. And that's one of those little details, dotting the I's and crossing the t's. If anybody is interested in helping me to develop that, I would love it. Because I think all of our advisors and teens would benefit from periodically doing a trust audit with your client, especially a living trust or some other types of tests prior to having hours.
I'd be happy to help you with that Dr. Gina.
Thank you Okay, guys, I will see you all tomorrow for personal tests. Next Tuesday. We will continue with actual conveyance documents. We're going to talk about a why behind this.
Very real quick Doxygen are still good for 4pm or sound pretty busy. Would you like me to we're good thanks, guys. Thanks, guys. It was great time