The Laws of your Money with Ann-Margaret Episode 14

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. Now it's time for the Laws of
Your Money, a weekly call in show with legal tips
to help you protect your money. Here's your host and
Margaret Caroza.

Speaker 2 (00:21):
Hello and welcome to the Laws of your Money. This
is a show dedicated to protecting you from legal and
financial mayhem when it comes to personal finance. I believe
there is nothing more important than protecting yourself legally, because

(00:44):
what does it matter how diligently I save or how
brilliantly I invest if there is a forty three percent
chance to losing assets in an expensive divorce or long
term care expenses. Taxes This can be a state taxes,

(01:05):
capital gains taxes, and lawsuits. We all know we're living
in a very litigious gotcha society, But do you know
that you are more likely to be involved in a
lawsuit with a former loved one than with a stranger.

(01:27):
I believe we all have legal landmines in our lives.
Are you concerned about an elderly relative losing a home
to a nursing home do you have a special needs
loved one? Are you in a blended family, a second marriage,
and we want to make sure that there's not warfare

(01:50):
later on. All of these issues should require us to
get some information to better protect our families. I am
asset protection attorney and Margaret Carosa joined today by my
co host Paul Slatcus, the Reverend Paul Slatcus here to

(02:12):
share his insights on human behavior and make sure I
don't go too foreign, too legal eese. Welcome to the program,
Paul Niks sam So, I encourage everyone to join the conversation.
Do you have a question. Do you have a grudge

(02:34):
against a family member because they did something you didn't
agree with as it related maybe to an elderly relatives estate?
So those are you know, the backdrop issues that we
should jump right in and discuss how to protect our assets. Now,

(02:59):
for most people, Paul, what do you think is the
asset they are most concerned about protecting They're home? Yeah,
seventy percent of folks over the age of sixty five
own their own homes. If you have a question about

(03:21):
how best to protect your home for your family, please
give us a call eight hundred three two one zero
seventy ten, and you can join the conversation. Before we
get into the home, though, I want to bring up
a topic that was in the news this week. Did

(03:42):
you happen to read about or hear about the proposed
repeal of the estate tax? No, in the House of Representatives.
So you're aware of the estate tax? I sure, am okay,
So you know, without getting political, we're not going to

(04:03):
talk about the right and the wrong of having an
estate tax. We didn't for most of the history of
this country. You were free to earn and save and
bequeath to your loved ones unlimited amounts of assets. And

(04:25):
in the early twentieth century, I think it was like
nineteen sixteen, there was a policy decision, and the debate
in Congress included a discussion about wanting to break up

(04:47):
mega mega generational wealth right. And on the other side
of the argument was, you know, a persuasive argument which
goes something like this. I paid income taxes all along
on the assets as I earned them. I paid sales taxes,

(05:10):
I paid property taxes, and to the extent that I
have managed to safeguard a little nest egg for my
loved ones upon my death. How dare the government want
another piece of it? But it passed and the current
estate tax rate is forty percent, so it's really no joke.

(05:39):
My point in bringing this up is that you want
to be in a situation where if the estate tax
is repealed, you need to re examine your planning because
if you did a state tax planning when the threshold

(06:02):
was let's say it was a million dollars for a
very long time, if you did your estate tax planning
when the threshold was a million dollars, you're going to
have capital gains tax consequences now if you don't reformulate
your estate. So this is one of the inflection points

(06:25):
that should cause us to sit down, evaluate what we
have and assess the exposure from estate taxes and capital
gates tax.

Speaker 3 (06:39):
What do you mean? I think I know a little
bit about this, but because of my mother and inheriting
her home, if you didn't do your planning, in other words,
what planning do you do as of now? And what
are you saying potentially with the change in the estate
tax needs to get done?

Speaker 2 (06:59):
Okay? So I would say there are two definites here,
and one definite is you have to do something right
You can't just sit back and say, well, you know,
maybe this will apply to me, and maybe it won't
apply to me, So why should I go and spend
some money and do legal planning? If the law may

(07:21):
very well change, you need to do something, and you
need to retain the ability to make changes. That is
critically important. No matter what you do in your legal
planning life, you need to make sure that you have

(07:45):
retained a set of handcuff keys, because you need to
be able to reevaluate the plan based on a change
in tax law, based on a change in the long
term care laws. And just because the federal estate tax

(08:10):
may be repealed, there are over twenty states that have
their own estate tax. So New York, where I practice,
the current state tax threshold is seven million dollars. But
it's a very tricky system. And if you hear that

(08:31):
figure seven million and you want to mentally tune out
of the conversation, right because you say this doesn't apply
to you and it has nothing to do with you,
You're nowhere near that what goes up can come back down.
And I can tell you that my former colleagues in

(08:52):
Albany very well may reconsider the advisability of having an
historically high estate tax threshold. So I'm going to give
you a trick question, Paul. Anyone who knows anything about
the New York state estate tax, you know it's very tricky.

(09:15):
If we have seven million ten dollars in the estate,
there is what's called a clawback and we go back
to dollar one. So you have to be very careful.
And a lot of my clients are well advised to

(09:36):
build we call them Santa Claus provisions that say, if
any portion of my estate would otherwise be subject to
federal or state estate taxes, I hereby direct that it
be given to Saint Jude Children's Hospital. So there's a

(09:58):
pivot there to a avoid the whole ball of wax
from being taxed. But my trick question for you, if
you know, I want your smart guy, I want to
see if this is, you know, readily deducible. If every
individual has a credit of seven million dollars before a

(10:22):
state tax is levied, what is the combined credit for
a husband and wife.

Speaker 3 (10:30):
I might be semi smart every once in a while,
I have no idea what would be the combined I mean,
is it? I would say it's just the one because
it's you're married and your two assets. Depending on how
you do how you file your taxes as a married you're.

Speaker 2 (10:52):
You're actually right in New York State if you don't
do any estate tax planning and you are part of
a married couple, and the married couple, let's say has
ten million dollars, and you hear that every individual has
a credit of seven million dollars, you would think, we

(11:14):
don't need to do any planning because you have a
credit of seven. I have a credit of seven. We
can pass the ten million to our kids, no problem.
But you end up losing the first credit if you
don't do some planning. And that's because of something in
the tax code called the unlimited marital deduction. A married

(11:39):
couple is considered one economic unit, so I can if
I'm the first to die, I can leave my spouse
one hundred million dollars and there's no tax. But upon
his later death he is relegated to that single seven
million dollar credit. So without special planning, we end up

(12:02):
losing the credit of the first person to die. So
at a minimum, we want to consider having what's called
credit shelter trusts. And who knows what my estate is
going to be worth later. Who knows what the estate
tax credits are going to be. But if I want

(12:24):
to preserve the ability to double those credits, I need
to have credit shelter trusts in place that we may
or may not use later. So I will fund them
with a flexible formula that says I leave everything to
my surviving spouse with the exception of what they choose

(12:50):
to disclaim or to spit back into my estate, and
it would be picked up with this waiting catcher in
the form of the credit shelter trust. The Internal Revenue
Code gives us nine months from the date of death
to make that election, whether the surviving spouse chooses to

(13:14):
keep everything or to disclaim some of it to save
the next generation from taxes, so super important. We have
a caller high Eugene, thank you, Thank you for calling.
Is this about a state taxes?

Speaker 4 (13:33):
Well, it's it's a little bit off that subject, okay,
But I'm sort of that my wits end, and I
don't know. I thought you might be able to help.
I've been listening to your show the last couple of weeks.
I love it. Thank you. Shout out to Paul. All Right,
So here's the situation. My grandfather, my mother still lives

(13:55):
in the family home we grew up at, me and
my sister. She's a widow and she's getting up there.
She's in her late eighties. She's pretty frail. She was
hospitalized recently, but she's back home. We kept her out
of the nursing home now. My sister is actually, ever
since she went through a divorce a couple of years ago,

(14:18):
has been living in my mother's house with her two kids.
And I've found out talking to my mother that my
sister asked my mother to put the house in her
name at least to share the deed. And you know,

(14:40):
this upsets me. I don't know how to approach it because, A,
you know, I've done pretty well, but my kids are
going to be going to college in the near future,
and I, you know, my mother's not going to be
with us. How much long I'm going to keep her
out of the nursing home. I wanted to say it all,
but you know, my sister seems to be wanted to

(15:01):
take over the house herself, Okay, And from your show also,
I was wondering is that the best way to do it? Anyway? Well,
can you help me on this. How do I approach
my sister? What would you suggest?

Speaker 2 (15:13):
Well, it depends on a number of things, but I
just want to point out for our listeners this is
a very very common situation. It's part of a larger trend.
I think, because of the high divorce rate and the
economy and the difficulty in getting a mortgage these days,

(15:39):
a lot of adult children are moving home. And this
is another example of a time that should cause us
to reevaluate the planning. When we have one of our
children living at home and the others don't, we need

(15:59):
to do something to ensure that there's not going to
be World War three later on. So may I ask you,
what do you think the house is worth?

Speaker 4 (16:14):
I would say eight hundred nine hundred thousand perhaps, Okay.

Speaker 2 (16:20):
Now, if your mother had a lot of other assets,
the planning becomes easy. She can say within her will,
or preferably within her trust. She can say, sister gets
the house, and you get the dollar amount. We call

(16:42):
it the pecuniary amount equal to the appraised value of
the home as of your mother's date of death. So
if that's eight hundred thousand, sister gets the house, you
get eight hundred thousand. Now you're equal monetarily coming out

(17:02):
of the starting gate, and the estate documents would go
on to say that you equally split what's left, it
becomes a little murkier.

Speaker 4 (17:13):
I'm sorry, Well I started in terrupt. For the most part,
I think the house is pretty much all she has
in terms of assets.

Speaker 2 (17:21):
Okay, that's super common. You know, for most people, the
house is the single biggest asset. So there are you know,
a couple of sort of compromise strategies here. Your mother,
within the will, or again preferably within the trust, may

(17:43):
say that the house goes equally to the two of you,
subject to your sisters retained ability to stay there for
a period of you know, fill in the blank. What
would make sense in that situation. Maybe your sister would

(18:06):
need a couple of years to get herself together. Are
their children who are attending school in that geographic area,
and we don't want to disrupt them. We have a
caller joining the program. Welcome to the program.

Speaker 4 (18:24):
Thank you. My wife died almost eleven years ago, and
I still live in our family home two sons who
are grown now, although their rooms are still in the house.
It's a nice house. I don't know. After several years,
I was pretty depressed, but I not a lovely woman.

(18:48):
Over time, the relationship has grown to the point now
where we actually we're engaged. We're engaged.

Speaker 2 (18:57):
And how does she get along with your sons?

Speaker 4 (19:00):
Well? Up till recently, I thought they were getting along
very well. I think they were very happy for my happiness.
They saw me down for a long time. She has
asked me to put her name on the deed to
the house. She promised me, and I believe her. I
trust her that she'll be fair and take care of

(19:21):
my boys. But my sons are very upset with this situation,
and even now to the point where they're refusing my
holiday invitation. Okay, I don't know what to do.

Speaker 2 (19:33):
Listen, Obviously, legally this is your decision. You own the home.
I would imagine it was jointly owned with your late wife. Yes, okay,
so when she passed away, the home went to you,
quote unquote by operation of law. You are the owner
of the home. Your kids don't own the home. They

(19:58):
hope to one day, imagine, and I understand that we
have joining us. Is one of your sons, Hi? Hi, Yes, Aman,
have your name?

Speaker 5 (20:10):
Welcome?

Speaker 2 (20:11):
To the program.

Speaker 5 (20:12):
Hi, thank you so much for having me. You know,
I just have to say I've been listening, and Dad,
I have to say, I think you really sort of
mischaracterized the situation. We're completely happy for you. My younger
brother Mike and I are very happy for this journey
that my father's on. But frankly, we personally do not

(20:33):
get along with his fiance, Erica. She's great for him,
we personally do not like her. And what we're more
concerned about, Dad, is that she the wedding hasn't even
happened yet, and she already wants the house to be
in her name too. And you know what, and this
is about so much more than the legalities of things.

(20:55):
For my brother and I. This is the last home
that my mother lived in. I'm not willing to let
somebody come into our homes, come into our lives that
we haven't known yet for all that long, and make
demands like this. And I don't know what the.

Speaker 2 (21:10):
Options all right, Randall, listen, Hon, I appreciate where you're
coming from, and you know, I view my job here.
Obviously I don't know all of the legal and emotional backstory,
but I want to give you both some things to
think about, Joel, Have you done a prenup with Erica?

Speaker 4 (21:35):
No, I haven't done that.

Speaker 2 (21:36):
Have you brought it up?

Speaker 4 (21:38):
Well, she has assets of her own that are about
the same as you know, roughly as okay, my total assets,
So I really think it was necessary.

Speaker 2 (21:49):
So I would imagine that, you know, you love Erica,
you want her to have a roof over her head
down the road in the event that you predecease her, right, right,
But what would happen? You know, play it out worst
case scenario, And that's what I think we should all

(22:11):
do when we have complications in our lives that could
result in warfare between our loved ones later.

Speaker 4 (22:22):
So Eric, she does have two she does have two
daughters from her previous marriage.

Speaker 2 (22:27):
Okay, all right, So what would happen? And how would
you feel in the event that you predecease Erica? And
now the house would belong to Erica upon your death,
right the way that it went to you when your
first wife died. Now the house would go to Erica.

(22:50):
And how would you feel if she then had the
locks changed and your kids couldn't even enter the house
to acccess you know, family memorabilia and their late mother's
you know, possessions.

Speaker 4 (23:07):
She's promised me that that wouldn't happen.

Speaker 2 (23:09):
Okay, but okay, so all right, what if, playing Devil's advocate,
she dies two weeks after you die? Okay, what do
you think Erica's will says? Do you think Erica's will
is leaving anything to your two kids? I highly doubt it,

(23:31):
and I don't think so. Okay, So imagine a scenario.
You know, any crazy thing could happen, and maybe Erica
has the best of intentions. But what happens if you
die she's living in the house. Let's let's say she's
great to the kids. They can come and go as
they please, but then she develops dementia and now her

(23:55):
daughters are making decisions for Erica. And if they sold
the house at that point, your kids walk away with
absolutely nothing. So, you know, have you considered that as
a possibility.

Speaker 4 (24:14):
No, I haven't thought that far into it. It's sort
of morbid to think about all those.

Speaker 2 (24:19):
Times, I know, I know, but it's important to do that.
You're blending two families and you want to iron out
what could be you know, sharp objects in the blending
of the two families. So here's what I want you
to think about, and I encourage you to read my book.

(24:40):
It's called Love and Money, Protecting Yourself from Angry Ex's,
Wacky Relatives, con Artists and Inner Demons. You could get
it on Amazon, but also jump onto my website my
Asset Protection Attorney dot com. I have a lot of
information on all of these topics. And you know, the

(25:04):
sort of compromised solution that I would love you to
think about is to provide legally that in the event
you predecease Erica, that she can stay there for a
period of time. And I urge you not to say

(25:26):
that she has lifetime rights to the house, because I've
seen this in my practice, when a widow or widower
has lifetime rights to the house, that means that your
kids can't get at it if she's technically alive. But
she could be in a nursing home for four years,

(25:47):
or she could have moved out and she could be
renting the house out and she would be getting all
of the income.

Speaker 4 (25:54):
So I haven't thought about that possibility at all.

Speaker 2 (25:58):
Yeah, So what I would want you to do, and
you know, a compromise like this could solve all of
the problems. Is to say that in the event Erica
survives me, and if no marital dissolution proceedings had been
commenced as of the date of death, then she has

(26:21):
the quote unquote right to occupy the property until the
earlier of her voluntary departure, her death, her permanent stay
in a nursing facility. Or how would you feel if
she had a new special friend residing in the home.

(26:44):
Would you want to say that if she gets remarried
or is cohabiting with it?

Speaker 4 (26:49):
No?

Speaker 2 (26:51):
Okay, all right, so I think you have something to
work with there. And Randy, are you still with us?

Speaker 5 (27:00):
Yes, I'm still here.

Speaker 2 (27:01):
Okay. So I mean, is that something that sounds reasonable
to you that Erica, you know, should have a roof
over her head in the event that she and your
dad are happily married and he passes away.

Speaker 5 (27:16):
You know what, Yes, at the end of the day,
if dad loves her, then then we could get behind that.
We just want to feel safe that our mother's home
is not going to be gone from us in the
blink of an eye. If one of these scenarios that
you're mentioning, one of these worst case scenarios.

Speaker 2 (27:34):
Happened Okay, listen, I really respect you for being open
minded about it. I'm sure it's still not going to
be easy someone else living in the home, you know,
But this is what family compromise is all about.

Speaker 4 (27:51):
And you know, Janny, you and I are going to
need to talk. Would you give me your website again? Please?

Speaker 2 (27:58):
Yeah? Before I do, I'm going to put Randy on
the spot a little bit and ask you how old
are you. I'm twenty six, okay, And without getting into
your personal life, are you prepared to get a prenup
in the event that you married.

Speaker 5 (28:19):
Absolutely? And I think that's what my mom would have wanted,
and I think that is what my mom would want
for my younger brother as well.

Speaker 2 (28:26):
Yeah, listen, I think you know. One of the things
that I talk to people about is trying to destigmatize
the notion of getting a prenup. And Joel, I think
not only should you have a sit down with Randy
and your other son, but also with Erica and talk

(28:49):
about a prenup. A prenup is not only to protect
the wealthier party. A good prenup gives protection to both
And Joel is Erica older, younger, the same age as you.

Speaker 4 (29:08):
She's a little bit younger than I.

Speaker 2 (29:11):
Okay, how would Erica feel if you start racking up
a lot of nursing home bills? You know, if she
is married to you, she is legally responsible for your
nursing home bills. I don't know where you are, but
where I live in the New York metro area, nursing

(29:32):
homes can be sixteen thousand a month. Right, So why
don't you talk to Erica about sitting down hammering out
a good prenup that gives both of you some protection.

Speaker 4 (29:49):
All right, that sounds like a good idea.

Speaker 2 (29:52):
But you know, definitely check out my website, my Asset
Protection Attorney dot com. And you know what, if you
send me your addresses, message me on Instagram at my lawyer,
and I will send both of you a copy of
Love and Money as a little wedding gift. Joel, all right,

(30:17):
thank you so much for calling in.

Speaker 3 (30:20):
That's a lot of good advice. And I mean you
really one. You cared about everybody on that call and
thought through things that most people don't think through days
on the road.

Speaker 2 (30:34):
Listen, I know you must be inundated. As an interfaith minister,
I would imagine you have friends, you have neighbors who
come to you as a sounding board. And I think
it's important, you know, in both of our respective professions

(30:56):
to you know, take judgment out of it and really
try and come up with a compromise solution.

Speaker 3 (31:05):
And in the legal world, which is even more important.
You know, we can have a conversation. But it's I've
learned through in writing is a good thing.

Speaker 2 (31:15):
In writing is a very good thing. And you can
unwittingly saddle your loved ones with humongous capital gains problems
if you ill advisedly put the house, or put your
co op, or put your condo into your loved ones' names.

(31:39):
So a lot of people don't want to think about
a trust. It gives them a headache. They don't want to,
you know, hear about paying a few dollars in legal
fees to do a trust. So they say, let me
just quote unquote turn the house over to the kids. Well,
if I put my house in the three kids' name

(32:00):
right off the bat, I've saddled them with my original
purchase price, as they're what we call cost basis to
measure capital gains. Later, if I put the house in
the kids' names, what do you think happens to my
property tax exemptions? You lose them, lose them out the window.

(32:24):
And if I have the house in the kids' names
and one of them gets divorced, now my soon to
be ex daughter in law would have an interest in
my son's one third of the house. Right, So no,
it's a total disaster. The only thing we should think

(32:46):
about doing with the primary residence is putting it into
a properly drafted trust. Right, we can avoid the capital gains,
we can protect the property from future long term care costs.
And under federal law, there is a time period, so

(33:11):
the home and any other assets that you wish to
protect must be in the trust for a minimum period
of five years before it's totally protected. So even people
who are not necessarily elderly, you want to think about

(33:32):
getting started with a trust to get this five year
clock under your belts. So do you think we're talking
about a revocable trust or an irrevocable trust?

Speaker 3 (33:49):
I sometimes get this little confused, but I think.

Speaker 2 (33:51):
Revocable, Well, a revocable trust is very appealing psychologically. Right,
I can be my own trustee, I can put the
assets in, I can take the assets out no one
is the boss of me. A revocable trust, you know,
contrary to the claims of a lot of promoters out there,

(34:16):
a revocable trust does only one thing for us. It
will avoid probate. And yes, it's a very good idea
to avoid probate. But to the extent that I, as
my own trustee, can get my hot little hands on
the asset whenever I want, then so can my nursing

(34:38):
home or you know, trip and fall claims the mail
carrier broke his head on my front steps. They consume
me and they can get at the property that is
in a revocable trust. On the other side of the spectrum,
a totally irrevocable trust is bananas. You know, there's no

(35:01):
reason ever to do a totally irrevocable trust. The art
form with the drafting process is to be somewhere in
the middle, and what we call it is not dispositive.
I can call it a family trust, an asset protection trust,

(35:22):
a hybrid trust. To illustrate the point that it has
elements of revocability, I have to appoint another person. I
appoint you, Paul, to be my trustee. But if the
trust is properly drafted, you have no power to do
anything with the assets during my life. I appoint my

(35:46):
three kids as the beneficiaries, and I retain the ability
to make changes because life can and will change, and
we want a set of handcuff keys later on. So
with that, I thank all of you for listening, reach
out to me during the week at my lawyerand dot com,

(36:09):
and I hope that you will tune in next week
ten thirty on Sunday, the Laws of your Money. Have
a great week everyone.

Speaker 1 (36:34):
The proceeding was a paid podcast. iHeartRadio's hosting of this
podcast constitutes neither an endorsement of the products offered or
the ideas expressed.