Episode Transcript
[00:00:00] So we're coming up on the end of the year or we're right after the start of the year, depending on when you're seeing this. And your question is, well, what do I need to do before the end of the year? Or what can I do before the start of the year or right after the start of the year to make sure that my estate plan, asset protection business and life in general is in legal order to get everything off on the right foot as we move into the new year.
[00:00:25] Foreign.
[00:00:30] Hey, I'm Joe Siegel, Orlando real estate business and estate planning lawyer with almost 30 years worth of experience here to tell you just what's happening there.
[00:00:40] I often get the question, especially in December each year of okay, I'm not sure what I need to do. Do I need to do this before the end of the year or should I wait until after the start of the year? Whether it's opening a new llc, opening a new trust, getting their estate plan in order, gifting something, relatives. We all look at this in a particular light depending on your circumstances and what's happening.
[00:01:05] So I just want to talk about that today and really try to answer some of the most common questions I get about that this time of year.
[00:01:12] So number one is real estate, whether to put the property into a trust or an LLC before the end of the year or wait until after the start of the year. That's the number one question I get. And it's a pretty complicated question. It sounds simple, but it's actually a complicated question that comes up because we have to think about, number one, tax issues, real property taxes, as well as income taxes or capital gains taxes. Those have to all come into to account. And then also we have to think about real property taxes, the taxes that are going to be affected by the change in title as far as valuation and exemption caps and things like that. So one of the things that we talk about a lot is exactly what type of property you're wanting to move.
[00:01:58] So if you're wanting to move your, let's for instance, say your homestead into a land trust and you as the homeowner individually are going to remain the beneficiary of that land trust, doing that before the end of the year or after the start of the year really doesn't matter because that should not cause a revaluation or a loss of the homestead valuation caps at all with the property. Since you are simply going from legal title to equitable title, you're moving from where you are the legal title owner to where now you hold the Title in the land trust. And the land trust deed should of course not have language in it that says that the beneficiary's interest is solely personal property on the deed, because that's definitely going to cause a problem with the property appraiser. Because they're going to say, well, yeah, you're the beneficiary of the trust, but now it's personal property, not real property. So therefore, you lose your homestead and you lose that exemption cap and you lose all of those savings that you've had built up over the years in the property.
[00:03:00] Same thing with moving commercial property.
[00:03:03] It can be the same issue. So that's number one, you definitely don't want it on the face of the deed that your interest in the land trust is solely personal property, because that's going to be a red flag to the property appraiser and they're going to remove your caps, whether it's homestead or commercial property. Also, if you're planning on changing the beneficiary of the land trust. So let's say you want it in your individual name and you want to put it into a land trust, and then a Wyoming llc, for instance, is going to be your beneficiary, that you want to add that extra layer of protection between you and the property and you and the tenants or whoever happens to be in the property. That's going to trigger a reassessment of the property, whether you do it before the end of the year or after January 1st. So those are some big issues to think about whenever you're wanting to move the property is are you going to be taking the interest in the trust solely as personal property interest, and are you going to be changing the beneficiary of the trust from the current owner of the property to someone else or some other entity inside the trust once it's inside the trust? Because the property appraiser finds out about all this and they will reassess, revalue the property, regardless of whether you own it on January 1st in the trust or not.
[00:04:15] So those are some things to think about. Now, why do I keep saying January 1st? Because that is the date.
[00:04:20] Whoever or whatever owns the property on January 1st of that calendar year is what affects everything related to that property. That is what the property appraiser looks at. They do not look at subsequent changes in title after January 1st. Those will then affect the property valuation for real property taxes for next year, not for the current year that you're in. So let's say it's December 2025 and you're going, okay, I want to move this property into a land trust. Do I need to do it before the end of the year or can I wait until after January 1st? Well, big thing is, is if you move it before the end of the year, then the new tax issues with the real property tax are going to take effect for 2026 tax year because you now own it in that new trust, not the new entity, but the new trust by January 1st. So on January 1st, it's now owned in the trust. So the property appraiser is going to look.
[00:05:17] And so if you have homestead valuation protections and exemptions, you will have to refile for those before March 1st.
[00:05:25] But you can show the property appraiser that, hey, I'm still the beneficiary, Hey, I still live in the property and it's not personal property interest only defined in the deed. So therefore I am still entitled to carry over my savings that I had from 2025 and prior years into 2026. And going forward, nothing changes. For commercial property, you'll want to be able to show the property appraiser that the beneficiary of the land trust now is the same as the prior owner. So therefore nothing really changed. Just went from legal title to equitable title. So the property appraisal should not be revalued, they should not take off the exemptions, they shouldn't take off the caps and revalue the property for property tax values. So those are your biggest sticking points when it comes to what to do before January 1st or after January 1st. Now, if you do all that after January 1st, let's say you execute the deed on January 3rd or 5th or whatever later in the year, you've now put that off for an entire year. So that argument you're going to have to have with the property appraiser is now pushed into 2027 for that tax year because that's what will own the property on January 1, 2027, and that's what will count for the property appraiser. So whenever you're talking about January 1st, that's one of your big issues to think about there. Now, let's say you want to put the property into an llc.
[00:06:45] Well, an LLC or a corporation. Although I'd never advise putting real estate into a corporation unless it's very specific property, I always recommend holding it in an LLC that is either a disregarded entity or a partnership for taxation purposes. For real estate, if it's going to be a long term hold, if it's going to be a short term hold, of course, yes, you can put it into an LLC that is taxed as a corporation or an S corporation.
[00:07:10] That's a whole other video for another time.
[00:07:12] But again, the same factors come into play. Whoever owned it on January 1st is what's going to count for property evaluation. And I can tell you right now, if you convey the property from anything into an LLC or a corporation, and now an LLC or corporation, a different one, owns the property on January 1st, that will be a change in title that triggers the caps coming off revaluation, bringing it up to market value and all the other things that you typically do not want to see. So for this reason, a lot of times when I have a client who is buying a commercial property, I will try to persuade them if the closing is going to be in December, I try to persuade them. It's like, hey, can we push this into January instead? For many reasons. Now let's say you are the seller of that property. If you can push that into January and you're not doing a 1031 exchange, one of the things you can do is you can push your capital gains recognition as well as your depreciation recapture issues into the next tax year. Because now your closing has happened in the next year, the next tax year, and therefore your capital gains recognition, everything else has happened in that next year. Another thing you can do, I've learned this from some great financial advisors out there. You can take that money. Let's say you didn't want to do a 1031 exchange. So you're not going to defer those taxes indefinitely. You are going to have to pay the capital gains tax. You are going to have to pay the depreciation recapture tax.
[00:08:45] One of the things you may want to do instead is instead of closing in December, let's close in January. Now we can take that money and we can put it like into a hedge fund or some other tax loss recognizing entity that will gather together tax losses while also growing your money, growing the value of your money. And it will harvest a lot of tax losses through that year. So you can actually harvest a lot of tax losses for the next 12 months, January through December of the following year and take some of those tax losses that you harvest and use those against the capital gains tax that you may owe on this sale of this property. Also depreciation recapture, again, you don't want to talk to your CPA about that. You won't talk to your financial advisor about that because they're going to have to be the One, they're going to be the one who gets you into that tax harvesting vehicle that you're going to want to put that money into. But your financial advisor working with your cpa, working with your lawyer to try to move that closing into January, maybe that's an opportunity just by moving it to the next month that you can do that now if you are the buyer also, it may behoove you to, instead of closing on December 27, let's close on January 6. We just push that, you know, a couple of weeks over. Simply by doing that, you have now gained yourself an entire year of taxes for the real property taxation from the property appraiser and the county tax collector that will match pretty much what the taxes were the year before.
[00:10:22] So you're going to have a whole year to plan and get income off that property and everything before you have to worry about the property being revalued, the caps coming off and everything else rising in value so that the tax taxes likewise rise. I have been involved in commercial, multifamily warehouses, whatever, shopping centers, office buildings where they close and those taxes double or even triple. Because commercial property taxes, depending on how long the seller has held the property, they could have built up a great amount of caps over the years. Because commercial property, real property taxes are also capped.
[00:11:05] Like homestead taxes, they're just capped at 10% rise a year. So if you've had property that's been rising in value 15 to 20% a year, some years you're going to be capped at 10. So the value that the property is being taxed on is much lower than the actual market value. We've had them where they are being taxed. Maybe it's a multifamily. They're being taxed at 500,000 and now they're going to sell the property at three and a half million.
[00:11:30] So that extra three million is truly the market value the very next year. If you close in December, by November of the next year, that new buyer, as a buyer, you are going to have to be taxed on $3 million more than what your seller was. So all your cash flow calculations and everything, you need to be taking that into account.
[00:11:50] And I've had a lot of clients where we have this discussion. If you're closing, sometimes even in November, we're going, hey, can we just push this into January just to push it now? There are a lot of other reasons, sometimes that the buyer just has to close. Maybe they're in a 1031 exchange situation and they have to close on A replacement property within a certain time, and that just doesn't allow them to go into January.
[00:12:11] But these are some things to definitely keep in mind as you are buying and selling property around the end of the year that you should think about for capital gains taxes, depreciation recapture and real property valuations and real property taxes and how that's all going to be affected by simply by who owns that property on January 1st versus who doesn't own that property on January 1st. So that's real estate for businesses, business sales. We also have the same question come up. Maybe you're going through a merger and acquisition, you're going through a liquidity event and that buyer really wants to close in December. Well, same analysis that you would really have with the real estate, you're going to have capital gains tax, maybe on that. If it's a stock sale, you're going to have other taxes. If it's an asset sale, you're going to have depreciation, recapture, all these other things as well. So you have to keep all that in mind. So again, if we're closing in December, the, the seller may go, well, let's close in January instead, just push it over the line again, that liquidity event, that money can come in, go to the financial advisor, go into a hedge fund that has a lot of tax harvesting, tax loss harvesting that it can do. And whereas you may be facing a lot of capital gains tax, maybe that that harvesting of tax losses in the investment vehicle that you put that money into from your liquidity event can be used to offset some of those capital gains taxes. But in the meantime, that money is also growing because the hedge fund is still growing. The example I've had put to me was a hedge fund and it goes out and it buys stock in Home Depot and it buys stock in Lowe's, for instance.
[00:13:57] Well, let's say the Lowe's stock drops and is just really getting killed or and the Home Depot stock's going through the roof or vice versa. They go, okay, fine, sell the stock that's losing money. We're going to keep hanging on to the stock that's rising in value. So your money is still growing inside that investment vehicle that you have. But over time, they are selling off the ones that are losing money at a loss. So you can take those losses against your gain because that's going to pass right through that investment vehicle that you've put your money into, through to your tax return on a K1 to help you out. So again, I'm not a tax professional I'm a lawyer, but I deal with this a lot and work with some great CPAs out there. Definitely recommend you talk to your tax advisor, who should be a CPA to make sure that it fits your situation to a T, along with your financial advisor to make sure you get into a really good investment vehicle to make that happen.
[00:14:53] And there are some great investment advisors out there who understand how all this works and can make it work for you as well to help mitigate those taxes.
[00:15:01] Another thing that we've been hearing a lot about is the One Big Beautiful Bill Act. A lot of those were passed in 2025. They don't go into effect until 2026.
[00:15:13] One big thing there is for gifting, the amount that you can gift to any one person in a year goes up in 2026. So you will be able to gift more money without having to worry about filing a gift tax return.
[00:15:27] Also, your recipients can just get the money and it's a gift and it's not going to require a gift tax return on their end that they're going to have to pay any gift tax on if they've, if you've not already exceeded the amount. For most people, I tell them, you know, if you're, if you're worth 19 million or less or as a couple, as a married couple, if you're worth 39, $38 million or less, it's really not a big deal. The one big beautiful bill act is not that big, big of a, an effect on you.
[00:15:57] Most of the tax cuts, most of the tax benefits from the obbb, A, whatever it is, really go to the super, super wealthy. I'm talking about people who own jets, people who have horses and yachts. And also it goes to corporations, very, very large corporations, small businesses may feel a little bit of it. People who invest in opportunity zones, real estate investors who help you do opportunities on investing, they may see some benefit from it. But from a timing standpoint, yeah, things that you do in 2026 going forward, you'll probably get a little bit bigger bang for your buck on those investments that you make and the income you make off those investments. Because it's really, those changes were really designed to reward people who are investors and, and people at the top and people who make money passively. It wasn't really designed to really help a lot of people who are out there working day to day. That's not what a lot of the tax changes were designed at. Of course, there are some overtime tax rules and taxes on tips that may help some People, those will phase out after a couple of years, but everything else is pretty well permanent as well as the estate tax.
[00:17:15] So if you die and your estate is worth more than 39 million as a couple or 19 million as a single person, those will, the bill will help you, your estate, your heirs as well there. But the big thing is the gifting. So yeah, if you've got an estate that's large enough, or let's say you have children or grandchildren or friends or family, whoever, they need money, you definitely want to be thinking of gifting in December because what you can do is you can gift a big chunk of money in December and then turn right around and in January gift money to the same people again. So let's say you've got a grandchild or grand, great grandchild or whoever, they need money, they're hurting for money or even children, you can give, your, you, your spouse can each give the maximum amount you're allowed to give under the gift for that year, under the gift exclusionary amount for that year. And then let's say your grandchild is married, you can give, each of you can give your gifts to the grandchild and then each of you can give the same gift to the grandchild's spouse. Then let's say you do that. December 24th, Christmas Eve, on January 2nd, you can give them a New Year's gift of exactly the same amounts or actually more because it goes up on January 1, that amount goes up on January 1 each year it's tracked to inflation. So gifting is very important. If you've got a gift you want to make, that's it, that's a good time to do it. Charitable giving is another giving that you definitely want to be thinking of. Coming up on the end of the year, you'll want to look at it in terms of your taxation, saving some money on taxes. However, charitable donations are not as helpful as they used to be. You can only take a certain percentage of that taxable donation and apply it as a deduction to your taxes. It's not 100%, it's not a one to one.
[00:19:11] So if you give $100,000, you can only take, I believe 40% of that. So 40,000 doll can be counted towards your taxes. And as your income level goes up, as your net worth goes up, that becomes less and less helpful to you. So what we see is a lot of more wealthy people, they use different tax, different charitable giving methods to take more advantage of that while they're alive. But really where the charity comes in is upon death because at that point on death you get a one to one. So if you give $100,000 in your wage will or in your trust to a charity, your estate gets a $100,000 exclusion from the value of the estate. So that's a good way to quickly reduce the value of your estate down below the exclusionary amount.
[00:20:02] So let's say you were dying, you had $25 million. You could leave $6 million to charity and the other 20, the other 18, 19 million would pass to your heirs without having to worry about a gift or estate tax.
[00:20:17] So those are just some things to think about.
[00:20:19] Unfortunately, we can't plan our dying well, I guess some people can. But you, you typically can't do that and your date of death for estate planning. But as far as the end of the year versus start of the year, but those are definitely some things to keep in mind when you are doing charitable giving and giving to your family whenever you start coming up on the end of the year. So those are just some considerations to have as you're coming up on the end of the and at soon after the start of the year, whenever you're doing gifting, selling your business or transferring real estate into a new entity name.
[00:20:55] I hope this helped everybody.
[00:20:58] If you ever have any questions, please go to our website www.aspirelegal.com. there you can book an appointment either with me or a discovery call with one of our legal services coordinators and we're happy to talk with you to see if we're a good fit, see if we're there's anything we can do to help you and take care of you as well as we can and that should do it here for the end of the year. If you ever have any questions, please don't hesitate to let us know. Thanks for listening to this edition of Trust this if you got something out of it, please press like and subscribe and give us a five star review to help us reach others who can benefit from this series. Until next time, keep aspiring to a better life.
