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Transfering assets to kids

Steve Smith
Posted Jan 24 2024, 06:47

Anyone active in transferring assets to their kids? Looking for creative idea to give them a few more dollars before I croak. I already give them the non taxable limit, but am giving them options on property, leases and notes where they can get more in the future, and working with others so they get more into their Roths with options.

Other ideas?

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Jonathan Bock
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Replied Jan 24 2024, 07:00

@Steve Smith

Lots of options with legacy planning I would recommend working with your advisors to create a detailed plan to make sure you are accomplishing your goals in the most effective way.  

Assuming you are married gifting each child 36k a year is a wonderful start.   

Jonathan Bock, CPA 

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Replied Jan 26 2024, 10:07
Thx Jonathan,
Advisors really don't know much more than I already know (have a built in tax advisor). They like to do traditional stuff. I'd like to get some "out of the box" ideas from folks who have done stuff. There are some very creative ways to transfer dollars into their IRAs, but can be in the grey area which I want to be very careful of. Right now my Roth can fund a deal for a friend who can give my kids IRA an option to purchase down the road, and set it up to favor the kids roth. (A bit grey).
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Bill B.#3 1031 Exchanges Contributor
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Bill B.#3 1031 Exchanges Contributor
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Replied Jan 26 2024, 12:18

Nice problem to have if your estate exceeds the $13 million tax free limit. Obviously separate your estate from your spouse if your married and take the full $26Million  

Ps. Pretty sure you can give today against that limit. But don’t give real estate as they’ll also receive your cost basis, not the stepped up basis they’ll get when you die. 

Pps. I read somewhere that the penalty for not recording the gifts you give towards that limit is you have to record the gifts against the limit. (It’s actually something like pay the taxes that would have been due. But the taxes due would have been zero.)

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Replied Jan 26 2024, 17:38

@Steve Smith

I like it your going Peter Thiel with it good luck let us know what you discover 

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Replied Jan 26 2024, 17:47

Describe your type of assets.  Don't need to know amounts, you can adjust to actual.  Also describe your kids.  Age, what they do, where they live compared to you, do they have kids, are they working or going to college, are they in the military, do they have businesses, the more you supply, the more ideas.  The following are some examples.  

Not your tax person, not giving financial advice, just examples, cover with your tax person.

1.  Buy their house from them and rent back to them.  Great terms, no down, long amort, stepped up basis later.  Loan gets cancelled.

2.  Generation skip

3.  College fund for Grandkids

4. If they are a dentist, chiropractor, electrician, baker, hair salon or anything that requires a building, buy and sell or lease to them. Don't do NNN, you pick up the charges, generous rental and loan terms. When you die they inherit and stepped up. In the meantime low cash outlay for them. Do a 0% down loan at 3% interest with no Balloon on a 35 year amort. Work the angles, although generous, make similar to 3rd party. Loan gets cancelled.

5.  Pay for their College and deduct??????  How do you do that?  Do they work for you????  Benefit???  Do they have a car???  Pay them advertising for signage on their car enough to pay for college.  Do you do commercials, have a website, advertising medium?  Pay them to be your spokesperson.  Etc.  Work the angles. If they have kids, have them be your spokesperson, they will have lower tax rates.

6.  Are you gifting to the grand kids?  Help pay for their high school car.  College.  etc.  This will reduce your kids' costs.

7. Do an LLC with each or all of them. Adapt the Operating agreement to a degree. You put all of the money in. They manage the asset. Ownership and revenue split don't have to be 100% your way, 50/50 or whatever split with your kids depending on how many they are. Ownership transfers.

8.  Not a financial suggestion.  Whether there are 2/3 or 4 kids.  Do not put them into the same asset and jointly manage.  Bad, Bad blood down the road.  Do not care about the concept of "EQUAL".

9.  Primary Residence, $0 capital gain tax per kid or spouse up to $250,000 each or $500,000 total.  Sell them a house that will escalate in Value.  Every two years have them sale and move.  If it fits their lifestyle.  They either pay off the loan, or it gets cancelled.

10.  If you want to move a lot of money and value FAST to them do Self Storage.  A.  Build a large location in a great location.  $1mm to $3mm Value increase in 2 years, which they can capture if they sale.  Loan them the money, with $0 down and interest only, 7-year balloon, on a 30-year amortization.  B. Or they can keep, and the cash flow will significantly higher than than the P/I payment.  C.  They can build an inexpensive Manager's living quarters and live there, saving on buying a residence.  It will be nice.  Marble countertops, fireplace, jacuzzi, tile floors, etc.  Loan gets cancelled.

11.  etc etc,  get creative.

12.  Can't really use 1031's since your related.

13. Pick two high end overseas tourist destinations. Get ready to move fast. When the next Covid world shutdown, or stock market crash, or China and the US stop Trade and there are shortages, or if the Panama canal goes dry in a year, etc etc. Those events will hit US overseas investors and they will want to sale their hobby resort houses on the beach as fast as possible. No STR rentals since everyone is saving money. Buy then at 60% of value. Then sale to your kids. The values will turn around within 1 or 2 years. Pick prime properties though. Loan will get cancelled. Asset will transfer.

Without knowing the type of assets you have and your family's situation, you really can't get too wild.  Example is one of them a Painter?  Buy a painting.  For a lot.  Don't commission the Painting.  Have the painting be more than a year old.

Above, I did not want to keep putting "at Death" at the end of each suggestion. Key is to help them reduce their costs, transfer wealth, put them into abnormally fast value increasing assets, transfer assets at stepped up basis at death, cancel Loans to them- which are assets- at death.

Talk with your Tax person.  They might not come up with the idea, but they can vet it.

If you want to get really wild and larger sums, I would source precious gems and Teak plantations.

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Replied Jan 26 2024, 17:47

Don't answer my questions above on this forum. 

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Replied Feb 18 2024, 06:50

I'm single, so have that advantage (or disadvantage). I understand about not giving them a house (loose the stepped up basis). Right now, I believe I'll help them just buy a few more properties and help them build their portfolio. Fund the property with good a good loan and/or use options to control so they benefit, which is not hard. But would like to seen the kids Roth grow a lot.

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Replied Feb 18 2024, 07:58
Quote from @Steve Smith:

Anyone active in transferring assets to their kids? Looking for creative idea to give them a few more dollars before I croak. I already give them the non taxable limit, but am giving them options on property, leases and notes where they can get more in the future, and working with others so they get more into their Roths with options.

Other ideas?


 Speak to a financial advisor.

typically a living trust is what many do. Not sure if it fits your situation but that is what we did.

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David M.
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Replied Feb 18 2024, 09:28
Quote from @Steve Smith:

I'm single, so have that advantage (or disadvantage). I understand about not giving them a house (loose the stepped up basis). Right now, I believe I'll help them just buy a few more properties and help them build their portfolio. Fund the property with good a good loan and/or use options to control so they benefit, which is not hard. But would like to seen the kids Roth grow a lot.

@Steve Smith I know using self-directed retirement accounts is pushed pretty big, but my understanding from accountants including my own is that people tend to get themselves into hot water with them.  My accountants won't even touch them because its not economical for them (even if billing by the hour) nor their clients.

If you want the kid's Roth to grow, consider how to generate earned income for them.  Even better if they already have decent to high salaries already sicne their SE/Fica responsibility will be covered.  Have their earned income be self-employment.  Use something like a self-employed 401k to max out their contributions.  I think the yearly limit now is ~$70k, the initial $20k then the rest at 25% of income.  Pretty much the only way to get funds into a retirement account is via earned income.

Of course, growing it inside an account is a different issue.

With those additional properties you say you are helping your kids buy, are you putting your name on Title?  At least even joint ownership will help partially with basis step up.

I know real estate investors are a huge fans of 1031, but I like my liquidity.  Also, people become spiteful about paying taxes when its sometimes cheaper to pay the tax -- already had a real life example with another person's post.  Also, depending on your situation and asset, sometimes the tax isn't as big as you think, especially if you have decent amount of PAL.  It could be cheaper to sell, then re-leverage.

Hope at least some of this helps.  Maybe you know all this already.  Good luck.

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Replied Feb 22 2024, 09:06

Thx, And good points.

I'd title the property to the entity that needed the tax break, for the most apart and give the income to the entity that didn't pay taxes (Roth). Do that with options. (I've done that many times, and am currently doing that). Probably give title to the kids.

I rarely do 1031s any more, but have often helped others do them.

What's PAL?

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David M.
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Replied Feb 22 2024, 11:29

@Steve Smith Passive Allowed Losses

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Jonathan Bock
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Replied Feb 22 2024, 11:49

Passive Activity Loss 

@David M.  @Steve Smith

https://www.journalofaccountancy.com/issues/2023/sep/passive...

Basic JoA article for bedtime reading.... 

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Replied Feb 23 2024, 13:10
Quote from @Jonathan Bock:

Passive Activity Loss 

@David M.  @Steve Smith

https://www.journalofaccountancy.com/issues/2023/sep/passive...

Basic JoA article for bedtime reading.... 

Jonathan,

Good info, but would put me to sleep in 2 minutes. I just hire that stuff out.

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David M.
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Replied Feb 23 2024, 13:21

Devil is in the details…

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Replied Feb 23 2024, 23:33
Quote from @David M.:

Devil is in the details…

David,

You're right and good info there. I have faced this for many years and has not been an issue (yet), and survived the scrutiny of an audit. However, not the purpose of this thread, which is transferring assets to kids.

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Replied Feb 27 2024, 01:02
Quote from @Account Closed:

One thing you might wanna consider is setting up a trust for your kids. It can be a solid way to pass on assets while you're still around or after you've passed. Trusts can offer some tax benefits and allow you to specify how and when your kids receive the assets. 

Plus, they're pretty flexible, so you can tailor it to fit your situation and your kids' needs. It might be worth talking to a financial advisor or estate planner to see if a trust could be a good fit for you.

RM, Thanks. I'm a big fan of trusts and have several. And, yes, they work very well. I'd like to find creative ways to get more dollars into their Roth IRAs.

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Replied Feb 27 2024, 05:17
Quote from @Steve Smith:
Quote from @Account Closed:

One thing you might wanna consider is setting up a trust for your kids. It can be a solid way to pass on assets while you're still around or after you've passed. Trusts can offer some tax benefits and allow you to specify how and when your kids receive the assets. 

Plus, they're pretty flexible, so you can tailor it to fit your situation and your kids' needs. It might be worth talking to a financial advisor or estate planner to see if a trust could be a good fit for you.

RM, Thanks. I'm a big fan of trusts and have several. And, yes, they work very well. I'd like to find creative ways to get more dollars into their Roth IRAs.


 The easiest way is for them to put them there.  What are they contributing currently?  Have them contribute to the max.  See my comments above to give them extra cashflow. 

The next option is for you to max out.  You’re over 50?  Max out.  Put this under a trust for their future benefit.


Nothing creative about the above, but the fastest way to achieve your objective.  Both are indirect, but easily accomplished.  

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Replied Feb 27 2024, 05:54
Quote from @Henry Clark:
Quote from @Steve Smith:
Quote from @Account Closed:

One thing you might wanna consider is setting up a trust for your kids. It can be a solid way to pass on assets while you're still around or after you've passed. Trusts can offer some tax benefits and allow you to specify how and when your kids receive the assets. 

Plus, they're pretty flexible, so you can tailor it to fit your situation and your kids' needs. It might be worth talking to a financial advisor or estate planner to see if a trust could be a good fit for you.

RM, Thanks. I'm a big fan of trusts and have several. And, yes, they work very well. I'd like to find creative ways to get more dollars into their Roth IRAs.


 The easiest way is for them to put them there.  What are they contributing currently?  Have them contribute to the max.  See my comments above to give them extra cashflow. 

The next option is for you to max out.  You’re over 50?  Max out.  Put this under a trust for their future benefit.


Nothing creative about the above, but the fastest way to achieve your objective.  Both are indirect, but easily accomplished.  

Clark,

You just can't put money into someones Roth IRA, there are rules on how they are funded. And I can't put anything in my kids IRA, I'm a "prohibited" person. They do contribute the max, but that's very limited. There are work arounds, and that's what i'm looking for. Roths make money by what they invest in, not thru contributions.

"The next option is for you to max out. You’re over 50? Max out. Put this under a trust for their future benefit."

What's over 50 have to do with it? And what kind of trust are you thinking?

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Replied Feb 27 2024, 06:10

@Steve Smith Honestly, its tough to figure out how to help you...

over 50 you can contribute more to the ira system.  But, it sounds like you are trying to overdrive the investing side, not the "supply side."  Your verbage jumps back and forth...

otherwise, I'd suggest a se401k (if it can be applied) or similiar to really get the contributions going to ~$70k annually.

If you really want to "juice" the returns, try other asset classes, perhaps...

Good luck.

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Replied Feb 27 2024, 06:59
Quote from @Steve Smith:
Quote from @Henry Clark:
Quote from @Steve Smith:
Quote from @Account Closed:

One thing you might wanna consider is setting up a trust for your kids. It can be a solid way to pass on assets while you're still around or after you've passed. Trusts can offer some tax benefits and allow you to specify how and when your kids receive the assets. 

Plus, they're pretty flexible, so you can tailor it to fit your situation and your kids' needs. It might be worth talking to a financial advisor or estate planner to see if a trust could be a good fit for you.

RM, Thanks. I'm a big fan of trusts and have several. And, yes, they work very well. I'd like to find creative ways to get more dollars into their Roth IRAs.


 The easiest way is for them to put them there.  What are they contributing currently?  Have them contribute to the max.  See my comments above to give them extra cashflow. 

The next option is for you to max out.  You’re over 50?  Max out.  Put this under a trust for their future benefit.


Nothing creative about the above, but the fastest way to achieve your objective.  Both are indirect, but easily accomplished.  

Clark,

You just can't put money into someones Roth IRA, there are rules on how they are funded. And I can't put anything in my kids IRA, I'm a "prohibited" person. They do contribute the max, but that's very limited. There are work arounds, and that's what i'm looking for. Roths make money by what they invest in, not thru contributions.

"The next option is for you to max out. You’re over 50? Max out. Put this under a trust for their future benefit."

What's over 50 have to do with it? And what kind of trust are you thinking?

Please reread my suggestion.  Both posts.  These are all indirect methods. You personally will not be making any contribution to a retirement plan other than yours. 

Really need more info to address your question.  

If you’re talking several million dollars then look at an Insurance Investment product.  Really depends on the age of your kids and grandkids whether it is worth it.   

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Replied Feb 29 2024, 13:05

What are your kids and grandkids ages?  What jobs do they do?  Have they owned their house for more than 2 years and have appreciation?  Do you have a business and a website?  Do your grandkids drive a car?  Will they or are they going to college near you?  Many other questions. Your response will then dictate potential methods to transfer wealth.  To your original message not transfers in a traditional sense.  

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Replied Feb 29 2024, 18:35
Quote from @Henry Clark:

What are your kids and grandkids ages?  What jobs do they do?  Have they owned their house for more than 2 years and have appreciation?  Do you have a business and a website?  Do your grandkids drive a car?  Will they or are they going to college near you?  Many other questions. Your response will then dictate potential methods to transfer wealth.  To your original message not transfers in a traditional sense.  

Henry,

No grandkids, owned house for over two year and appreciation has been huge, but they are not moving. No business or website, I'm only an investor. Will give you a call... been swamped with some big projects over the past week.
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Replied Feb 29 2024, 19:49

Not much to go on.  

1.  Check with them if they want to sell their house to you.  They don't have to move.  What this accomplishes, is they get the no tax on the gains if it was their primary house for 2 of 5 years.  They capture that gain and cash, tax free.  $250,000 per married person, $500,000 total. They then in turn can invest that.

2.  Now check with their tax accountant.  Recommend you either: A.  Sell the house back to them or have them move into another house that can experience or they can create more appreciation, or, B. Lease their house back to them at a very low rate.  They take stepped up basis when you pass.  In the meantime, in 1 above they can either invest in financial market, into a rental, or ?????

2a above.  You can loan them the difference on the new house they buy, at a very low rate.  Again, they get the loan if you pass away.

3.  Problem with some of the above.  You will probably go to a retirement home at some point.  Either you have to be Broke for the government to pay or all of your assets including the loans and house options noted above have to be collected and used up.  You need to address retirement care as a separate financial approach, otherwise you have to get out of the options through gifting to your kids or selling before 5 years before you go into a rest home.

4.  What are their jobs????  Do they have businesses?  Depending on their jobs or business, they may be able to deduct the majority of their living costs, if they/you set it up right.  Electric, property taxes, vehicles, internet, phones, water hoses, wheel barrows even, etc.

5.  What town do they live near???

6.  How old are they??

The more info, more options.   Hard to be creative with little info.  Each question I ask, there is an angle. 

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Replied Feb 29 2024, 20:00

You're really working hard towards Roth or IRA's. I'm not going that way, because we are on a Real Estate Forum. Leverage is the game for real estate.

With $300,000 I can make $1.7mm profit plus get my $300,000 back in 2 to 3 years.  I don't want a Roth.  You ask for nontypical or unconventional techniques that you won't get from a Financial Advisor.  Thats what I am trying to make available.  I'm not a Financial Advisor.

Example.  If they had some teenage kids.  How do you pay for their car for free and write off?  If you had a business, you have them put a business sign on their car and pay them for advertising.  Say $400 per month.

Example:  If you had a business, do advertising either through youtube or on your website.  Pay the kids to be your poster people $400 per month, even while they go to college.  So how do you help pay for their college while still getting a tax deduction.  Got to look at the angles.

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Replied Mar 1 2024, 03:41
Henry,

Great ideas, thx. The buy their house looks interesting and will look at that. But concerned about the homestead exemption.... I'll see if there's and angle around that.

"With $300,000 I can make $1.7mm profit plus get my $300,000 back in 2 to
3 years. I don't want a Roth. You ask for nontypical or
unconventional techniques that you won't get from a Financial Advisor."

That's quite an aggressive return on your dollar! More that doubling every year. Impressive. I like the non-typical and unconventional stuff, and that's where the Roth comes in.

The Roth is really a retirement vehicle, but works extremely well. If you take that same $300k and have it in a Roth, it can easily grow to well over several mm in value if one has a reasonable amount of time before retiring.
It can hold real estate assets of all kinds, and the rents, sales, option money, etc., come into them all tax free. Huge. And, it keeps building and building.

As for getting deductions along the way, car, in house office, businesses, etc. That's all fine and good, but has it's issues. I used to deduct my car, but have another for personal use, and you'll need two cars to do that. You can deduct mileage, which I do now, much easier. The in-house office has issues if you sell, you have recapture. The BIG deductions is in owning property. You can be creative on that one.

My issue, is my Roth can't self deal with my kid, so I have to help them along somehow.

But, I'm squeaky clean with taxes and very careful to do thing right. Last thing I want is an audit.