The Laws of your Money with Ann-Margaret Episode 7

Episode Transcript

Speaker 1 (00:00):
The following is a paid podcast. iHeartRadio's hosting of this
podcast constitutes neither an endorsement of the products offered or
the ideas expressed. The following program is sponsored by New
York Priority Medical Care. Now it's time for the Laws
of Your Money, a weekly call in show with legal

(00:20):
tips to help you protect your money. Here's your host
and Margaret Caroza.

Speaker 2 (00:25):
Hello, and welcome to the Laws of your Money, a
program dedicated to keeping you safe from legal and financial
mayhem when it comes to personal finance. I think that
legal protections are the single most important things to think about.

(00:46):
What does it matter what my rate of return in
the market is or how diligently I'm saving if there
is a greater than forty percent chance of losing assets
to a long term illness, an expensive breakup, taxes, capital
gains taxes, estate taxes, or ordinary lawsuits. We're living in

(01:10):
a very litigious society, but it comes as a surprise
that we are actually more likely to be involved in
a lawsuit with former loved ones than with a stranger.
So I welcome all of you to join the conversation

(01:34):
by calling in one eight hundred three to one zero
seventy ten. I am asset protection attorney and Margaret Carosa
joined today by my good friend and interfaith minister to
put a human spin on some of these legal issues.
Paul Slatkus, Welcome back to the program. Paul, good morning.

(02:00):
Oh let's talk about you know, I frame a lot
of these topics with when it comes to a state planning.
I want to change the conversation from who we're leaving
stuff to to how are we going to leave them things?

(02:23):
So one category that we really haven't focused on a
lot before is loved ones with special needs. This can
be developmentally disabled loved one or someone with substance abuse issues,
gambling issues. How do we provide for these folks within

(02:50):
the estate plan? And you know, the old school, kind
of primitive way of going about it us to simply
ignore that person. Right, If I have three children and
one of them is developmentally disabled and likely to rely

(03:11):
on government programs during their lives, the thought is that
we don't want to leave them assets in the estate
because we could jeopardize their eligibility for these government programs.
So what do we do? And again, the old school
way of trying to protect this person and enable them

(03:35):
to keep their program benefits was to simply cut them
out of the will or cut them out of the
trust and say, I'm going to leave everything equally to
the other two kids, and I know that they're going
to do the right thing by their sister, or I
know they're going to do the right thing by their brother.

(03:57):
You know, they may have all of the best intentions
in the world. But if I cut a child out
because they have special needs and I'm relying on her
brother to do the right thing, what happens if her
brother is involved in his own lawsuit, or is going

(04:19):
through a divorce, or his kids are applying for college
financial aid. You know, these assets are legally the property
of the person I left them to, so they are
subject to being lost to all of that person's legal liabilities.

(04:41):
So what we want to think about doing, and I
know people say I want to keep it simple, The
idea of a trust gives me a headache. I really
encourage everyone to get over that and educate yourselves a
little bit about how a trust can protect your family.

(05:05):
Because if I have, let's say, a child with down
syndrome or is on the autism spectrum, I can say
I leave one third of my estate into the Supplemental
Needs Trust for the lifetime benefit of Mary Smith. Now,

(05:29):
because the money is originating with me, I am free
within that trust to direct what happens to the monies
that are left after her death, as opposed to what
we call a first party supplemental needs trust, which is

(05:51):
typically funded with the proceeds of a lawsuit, and that
is the person's own money that is going to fund
that trust. So the government says, upon that person's death,
government programs get paid back, and then we're free to

(06:12):
direct where the assets go. So this is a trust
that I would do during my life. I don't necessarily
have to put anything in it now, but because I've
created the trust, now it has its own tax ID number.
This little empty trust can be a recognized beneficiary of

(06:37):
my will, of my lifetime trust that I create. It
can also be a recognized beneficiary on financial accounts, on
life insurance, on an IRA on a four to oh
one K. So you know, I keep coming back to
the metaphor that I view a state planning like little

(06:59):
les go building blocks, This supplemental needs trust that I
create in advance functions like a little snap on lego
building block that I can put as a recognized beneficiary.
Does that make sense?

Speaker 3 (07:16):
This is all very very important. I've dealt with disabilities,
vice presidents disabled. I think there's eighty million people in
America with disabilities. So this is not a simple subject.
There's a lot of disabilities.

Speaker 2 (07:32):
There, really really is, and I think it's a disservice
to everyone involved to ignore the special needs loved one
and punt and say I'm going to give it all
to her brother, and he is somehow magically going to know,
you know, to do the right thing, and you know,

(07:53):
there are gift tax issues. Even if he does the
right thing and he buys things for her from the
money that is technically in his name, it is legally
his money, and if he goes over the threshold this
year's eighteen thousand per year, there are gift tax consequences.

(08:18):
So we really need to get over the thought that
we're going to keep it simple and we don't have
to get into the intricacies of trust planning, and that
somehow trusts are only for wealthy people.

Speaker 3 (08:34):
I was given a question, what's the difference between a
trust and an LLC?

Speaker 2 (08:40):
An LLC? We're hearing an awful lot about these structures,
which typically hold investments. The LLC holds real estate. It
differs from a trust. Well, let's start with what they
have in common. Both a prop early drawn asset protection

(09:02):
trust and an LLC will give you a level of
liability protection against a slip and fall claim or you know,
a tenant hurting themselves on the property. You're going to
have a certain level of protection. The LLC, which stands

(09:25):
for a limited liability company, will give you some asset protection,
but it will not in and of itself avoid probate.
And it also is in effective vis a v long
term care. So if I have an LLC that owns

(09:47):
investment property and I have the bad luck to need
a nursing home, that LLC is a totally countable and
available asset. And you know that long term care facilities
in our area were lucky enough in the New York
metro area to have some of the best rehabs and

(10:10):
nursing homes in the country. But they're also the most expensively. Yeah,
sixteen thousand a month, so you know, it's very common
to blow through cash, and once we do, they can
put a lien on real estate, and again they can
also count the LLC. So if you have an LLC

(10:34):
on your investment property, and as a general rule, I
would encourage folks not to put their primary residence into
an LLC because you will lose in all likelihood your
star real estate property tax exemptions in New York State.

(10:55):
So if you have investment property in an LLC, that's terrific,
But I want you to think about recapitalizing that LLC
so that you can put the underlying membership units of
the LLC into a trust. So now we have double
duty asset protection because the underlying piece of real estate

(11:21):
is first owned by the LLC, and now we have
the LLC membership units owned by this trust, which is
going to avoid probate and it's also going to get
that magical five year clock ticking. That's a federal law,

(11:42):
and assets must be in this trust for five years
before they're totally invisible to long term care claims.

Speaker 3 (11:52):
Because I think an LLC is strictly a business deal,
that's it. But what you're saying is another whole level.

Speaker 2 (12:00):
Yeah, So let's say that you and a partner go
in on a piece of investment real estate together and
you are given the advice to purchase it in the
name of the LLC. You own fifty percent of the
membership units. Your partner owns the other fifty percent of
the membership units. You would be free to take your

(12:22):
units and transfer them into your trust. And it has
absolutely no negative effect or bearing whatsoever on what your
partner chooses or chooses not to do with his or
her shares. So you know, again it's not one size
fits all. If you have an LLC, if you have

(12:45):
an LLP a limited liability partnership, if you have an
s corporation that owns investment real estate, you really want
to think about going to the next step, which is
to protect the underlying membership units or shares in the
case of a corporation by transferring them into a trust.

Speaker 3 (13:07):
So I'm an entrepreneur. I have my own company. It's
going to be forty years.

Speaker 2 (13:11):
This congratulate you.

Speaker 3 (13:14):
So I'm an escorp and so all I think is business.
You know what you're talking about is actually something I
have no idea. I don't know if anybody has.

Speaker 2 (13:23):
Yeah, So you know, we think one and done. I
went to the attorney or some accountants set these structures up,
and you think you're good to go, but there can
be a better way to do it. So you have
an s corporation, It may come as a surprise to
you that that that the shares do not transfer automatically

(13:48):
to whoever it is that you wish to benefit later on.
So you know, again you should think about an asset protection.
I am so, what's the difference between this type of
trust and a revocable trust. We've all heard of a

(14:09):
living revocable trust. I'm sure you know with your fancy
addrests on the Upper West Side, you get invited to
these living revocable trust seminars. People go there, I think
often for the free snacks, and you know, we hear
all about the wonderful benefits of a living revocable trust.

(14:32):
You can buy them online. They sell them on QVC.
You know, financial personalities sell these living revocable trusts. At
the end of the day, what does this trust do
for us? It does exactly one thing. It will avoid probate.

(14:54):
But does a living revocable trust protect any of the
assets it contains from my liabilities?

Speaker 3 (15:04):
I recollect this is not a good thing to serve.

Speaker 2 (15:07):
Yeah, well, it doesn't protect anything. The psychological appeal of
the living revocable trust is that I am my own trustee.
I can put the assets in, I can take the
assets out. No one is the boss of me, but
to the extent that I can get my hot little

(15:29):
hands on the assets whenever I want. So can my creditors.
So can the slip and fall guy on my front steps.
So can my nursing home, so can my soon to
be uh expouse. All of these assets are totally available.
So if your only goal is to avoid probate, then okay,

(15:54):
a living revocable trust is the thing for you. But
if in addition to avoiding probate, we also wish to
protect assets from liabilities such as long term care or
estate taxes. Let's say we wish for our life insurance

(16:17):
death benefit to not be included in our gross taxable estate.
Now that comes as a surprise to a lot of people,
because we hear that life insurance is tax free. It
is free from income tax. It's not free from a
state tax, which is the ultimate irony because so many

(16:41):
people buy life insurance to pay for a state tax burdens.
But this life insurance death benefit in and of itself
is further contributing to to our tax burden, our tax liability.

(17:05):
So we want to think about having a stronger type
of trust and that is the asset protection trust. Again,
I invite everyone to join our conversation by calling eight
hundred three two one zero seventy ten. Okay, we have

(17:27):
a caller Frank from Yonkers with us.

Speaker 4 (17:33):
Yes, Hi, good morning, Hi Frank, how are you?

Speaker 2 (17:36):
Thanks for calling.

Speaker 4 (17:37):
Hi. I'm good. I'm doing well. I've listened to your
show before and you know I have I have here's
my question. I have a thirty two year old son.
I'm divorced, and you know he lives with me even
though he's an adult. And you know my will is
going to leave my house to him, the condo that
we live in together, and you know he has a

(17:58):
friend that came up with an idea basically said, Dan,
why don't you just put me on the d now
in this way? You know, I want to live a
long time and everything, but this way, you know it
already be go to be automatically in the future if
something happens to you, and so you know, I wanted
to get your thought on that, if that would be
a wise thing to do. You know, what you thought

(18:22):
about it.

Speaker 2 (18:23):
So it's a very very common question, and I get
that it has you know, intuitive appeal. I can put
Paul on the deed to my house with me, and
upon my death it goes automatically to Paul. The problem

(18:43):
with doing this is twofold. The half that I kept
in my name is fully available to my long term
care claims right, and the half that I have given
to the other person. In your case, the half that

(19:04):
you're giving to your son, even though you're probably not
thinking of it in those terms. You're thinking you're simply
adding his name onto the deed. Whether it's real estate
or a condo or adding the child's name to a
co op stock certificate. Whichever way you go, you're giving

(19:28):
that other person a capital gains tax problem. If I
bought my house for fifty thousand dollars and it's now
worth eight hundred and fifty thousand dollars, if I were
to gift the entire house to the child, they would

(19:49):
take what we call carryover basis, so the fifty thousand
purchase price becomes their floor to measure gain later on
when they sell. But in the case where we add
someone to the deed, so that we each own fifty
percent of it. I am giving them a capital gains

(20:11):
hit on the fifty percent that I've gifted to them
during my life at number one, number two. If they
get divorced, now half the house is going to be
the property of my soon to be ex daughter in law,
and it's going to count against college financial aid eligibility

(20:32):
if the other party has college age students looking for
financial aid. So I understand again the intuitive appeal. You
can have an attorney down the block, do that new
deed and it's not a big deal. It's going to
be cheap, but it's going to be cheap on the
front end and it's going to be eye popping on

(20:56):
the other end in terms of tax liability. Does that
make any sense?

Speaker 4 (21:02):
So penny wise pound foolish basically.

Speaker 2 (21:05):
Any wise pound foolish kind of what you say. Yeah,
jump onto my website and it's my Asset protection Attorney
dot com. I have some videos, some materials really getting
into the nuts and bolts of the asset protection trust

(21:25):
and I think you know, once you familiarize yourself a
little bit with it, it's going to seem much more
comfortable and less off putting. Does that make sense?

Speaker 4 (21:38):
All right? Yeah, well I'm gonna check it out. I
mean it sounds, you know, pretty pretty smart. What you're
saying about Capital games wasn't something I thought about, but
now it makes sense.

Speaker 2 (21:47):
All right, Franks, Thanks, thanks for calling you so much.

Speaker 4 (21:52):
Take great by bye. Yeah.

Speaker 2 (21:54):
So, I mean that was a very common question that's
out there. And let's go go to a segment in
the news. Hardly a day goes by, Paul where I
am not reading about these topics that we talk about
on a weekly basis. The stuff is in the news

(22:15):
every day. And we've talked briefly about the Rupert Murdoch
case before. He's in court again appealing a lower court
decision saying that he is unable to alter a trust
that he put in place decades ago to hold the

(22:38):
majority of the family business. And you know, obviously a
case involving Rupert Murdoch has a few extra zeros involved,
right in terms of the numbers. But the takeaway that
I have from a surface analysis of this case is

(23:01):
why should the grandeur, Why should the person who put
this trust together have to ask anyone's permission to make
a change. Now, obviously you're dealing with very complex a
state tax planning in his case that the average person

(23:25):
is not dealing with. But the average person should take
a lesson from the Rupert Murdock case and say, whatever
I do to streamline estate taxes and make things better
and easier for the next generation should not be at

(23:46):
my own expense. Right, I should not throw away the
handcuff keys when I do trust planning. We always want
to leave ourselves with some flexibility with which to deal
with future life curve balls. If I leave everything equally

(24:10):
to my three children and I have a falling out
with one, or one develop some problem later in life,
they have a stroke, they have a dementia related illness,
and I want to restructure how I wish for them
to benefit in the estate plan. If I do not

(24:32):
leave myself with some flexibility, I will be absolutely unable
to make some changes. So within this asset protection trust
that we're talking about, we want to retain something called
a special power of appointment. That sounds like a complex,

(24:55):
off putting term, but it simply means I retain control
of the puppet strings. I determine who gets what later,
I retain the luxury of getting mad at the world
and you know, leaving everything to the ASPCA. If you know,

(25:15):
all of my loved ones drive me nuts and I
want to disinherit them, I still can. And what this
flexibility also does. It prevents the transfer of assets going
into the trust from being completed gifts. So if I

(25:36):
retain the ability to change who gets what later on,
and I put my house into this trust, it's not
a completed gift, so I don't have to do a
gift tax return if any of my children have their
own liabilities, the real estate and whatever else I have

(25:59):
in the trust is totally protected. Does that make sense?

Speaker 3 (26:03):
It makes sense. But I'm smiling And this might be
not correct, But I heard that didn't Miss Helmsley leave
everything to her dog?

Speaker 2 (26:12):
The dog's name. I remember the dog's name. Do you
remember the dog's name. It was a little Maltese called Trouble.
And yeah, she left, maybe not the whole estate, but many,
many millions went to this little dog. And in every
state in the United States, you cannot leave assets directly

(26:38):
to a pet. And this is a huge issue because
seventy percent of Americans have pets. Do you have a pet?

Speaker 3 (26:49):
I don't, but you know.

Speaker 2 (26:51):
You should get a pet. Poll very good for your.

Speaker 3 (26:57):
The time.

Speaker 4 (26:59):
It's no joke.

Speaker 2 (27:01):
But when we have a pet, we need to give
some thought to what's going to happen to that pet
after we're gone. And I think for so many seniors
that I work with, they feel like it would be
irresponsible to get a new pet because of the possibility

(27:21):
of the pet living longer than they will, and they
don't want to, you know, leave this little furry loved
one as an orphan. So they make the decision not
to have a pet, even though doing so would improve
their quality of life. Studies show that we have lower

(27:43):
blood pressure, we're happier, we live longer if we have
a pet. So I encourage people to do something called
a pet care appointee trust, and we can do that
within the will. We can do it within a trust
and we say that I name Paul Slatkis as my

(28:06):
pet care appointee. It does not mean that you have
to take custody of the pet, but you are responsible
for putting into motion the instructions that I have laid out.
And I will typically put a little money in this transaction,

(28:27):
and I will say that there's twenty five thousand dollars
that you will oversee. So I kind of do a
projection analysis of the pet's life expectancy and what their food,
they're grooming care, their vet bills are going to be
and we project that out and that is your money

(28:49):
to make sure that the pet has the quality of
life that they did under my care.

Speaker 3 (28:57):
Yeah, that should be a real response. It's a just
like children. I mean, you should have a responsible approach.

Speaker 2 (29:03):
You should have a responsible approach. So these are some
of the many issues that I hope folks give some
thought to. Please reach out to me during the week
at my lawyer and on Instagram or through the website
my Asset Protection Attorney dot com. Thanks so much for listening,

(29:25):
and Paul, thanks for being here. Have a great day.

Speaker 5 (29:28):
Nice.

Speaker 1 (29:40):
The preceding program was sponsored by New York Priority Medical Care.
The proceeding was a paid podcast. iHeartRadio's hosting of this
podcast constitutes neither an endorsement of the products offered or
the ideas expressed.