What The Wealth Retirement Podcast
When it comes to financial planning and investing, many of us have more questions than answers. The “What the Wealth?!” Retirement Podcast offers sound financial information and guidance on numerous concerns to help Gen X and Y families and professionals as well as 50-Forward individuals create the lives they love. Jonathan P. Bednar, II, CFP, joined Paradigm Wealth Partners in January 2010, where he is in partnership with his father, Jon P. Bednar. As a Wealth Advisor, Jonathan enjoys guiding his clients to make informed financial decisions and planning as a means to solve their investment and retirement concerns.Securities offered through LPL Financial. Member FINRA/SIPC. Investment advice offered through Paradigm Wealth Partners, a registered investment advisor and separate entity from LPL Financial.
What The Wealth Retirement Podcast
The IRS is Calling: A Six-Figure Estate Planning Mistake (118)
We break down a costly estate planning mistake that can cost you six-figures with the IRS!
A simple change in timing preserves the step-up in basis. A real client story and a simple change that can preserve your gift.
• The risk of gifting appreciated real estate
• What's the step-up in basis?
• Probate, good or bad?
• Simplify gifting
• When and how to consult attorneys and advisors
• Practical steps for rentals, equities, and businesses
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Thanks for Listening!
Jonathan
The estate planning mistake that could cost your family hundreds of thousands of dollars. Imagine this, you spend your entire life working hard, saving, investing, acquiring properties, and then with one well-intentioned decision, you accidentally hand the IRS a six-figure check. That's money that should have stayed in your family. This happens every week. We see it frequently. And today I got off the phone with an 87-year-old client who almost triggered one of the biggest estate planning tax bombs I've seen. She wanted to make things easier for her son. And if you own rental properties, a vacation home, a business, or any appreciated asset, this episode could save your family a fortune. Let's dive into it. I'm Jonathan Bedner, certified financial planner, owner of Paradigm Wealth Partners, and host of the What the Wealth Retirement podcast. Today we're talking about a mistake that I promise you do not want to make. So here's what's happened: this conversation with a client 87. She's sharp, she's independent, she still lives alone, getting ready to move into a condo a couple miles away. She's done a great job managing her finances. She owns four duplexes. And she wants to simplify her plan. This is a very normal planning situation. And this is what she tells me, Jonathan, I'm going to go ahead and put all of the rental properties in my son's name. He's already taken care of them, he's collecting the rent, he's making the repairs. These are assets that he's going to inherit anyway. So I'm going to go ahead and have my attorneys update the deeds and go ahead and give those to him. And I hear this all the time for clients who want to make these things more simple for clients. What they're trying to do is avoid probate. But in this case, it would be one of the worst financial moves she could make. Why? Because transferring these properties while she's still alive wipes out one of the most powerful tax benefits she has. And that we have here in the United States. The step up in cost basis. Let me break down what that means for you very simply. The duplexes that she bought decades ago have appreciated massively over the last 30, 40 years. And if she gifts those to her son today, he gets the original cost basis that she purchased them for, not the value on the day that she grants or gifts those to him. Her cost basis, meaning if he should he sells one of those properties for$300,000 that she bought for, let's say,$80,000, he owes capital gains on$220,000 multiplied by four, and those duplexes are a huge tax bill if he chooses to sell them. If she keeps those properties in her name and in her estate, and then he inherits them when she passes, he gets a step up in basis to the fair market value. Meaning, if the property is worth$300,000 when he inherits it, his new cost basis is also$300,000. If he chooses to sell the asset right away, the tax bill is basically zero. Saving hundreds of thousands of dollars for the family. And instead of trying to make simple decisions, we actually make strategic decisions. Now she brought up probate. Nobody likes probate. It's slow, it's frustrating, it's paperwork, it takes time. But in this case, probate may cost a few thousand dollars, probably a little patience as well, versus handing the IRS a six-figure tax gift. Probate is annoying. This estate tax bomb is devastating. So when I explained this to her, she said, Jonathan, I had no idea this was even existing. Thank you for telling this. You just saved my family so much money. That's why conversations like this matter. You don't have to be an expert in tax law. You just have to have the right advice before you make an irreversible decision. So here's the takeaway. Before you retidel property, before you gift real estate or equities or the house or the business to your kids, before you simplify your estate, talk with your trusted professionals, talk with your attorney, talk with your financial advisor. Understand the decisions you're making. A 10-minute conversation could save your family a fortune. If you're not sure who to help or you're not sure who to call, we're here to help you. You can schedule some time with me to chat. Thank you for your interest in this video. Please like and subscribe for more real-world and real life retirement stories on this YouTube channel. Have a wonderful day. We'll see you in the next one. Thanks for joining me on another episode of What the Wealth. If you enjoyed the episode today, smash that subscribe button. It helps me more than you think. Also, if you found this episode insightful and a light bulb went off, share it. Your friend Aunt Judy, the random guy in the office who's always talking about investments. Wealth isn't about just the chick-chain. It's about our choices, chances, and changing our financial futures. The information in this podcast is informational and general in nature and does not take into consideration the listener's personal circumstances. This podcast is not intended to be a substitute for specific in financial, legal, or tax advice. You should consult the approved qualified professional prior to making a final decision. Security is offered through LPL Financial, member FINRA SIPC. Paradigm Wealth Partners is the other business name for Independent Advisor Alliance. Investment Advice offered through Independent Advisor Alliance, a registered investment advisor. Independent advisor alliance, and Paradigm Wealth Partners are separate entities for LPL Financial.