The Laws of your Money with Ann-Margaret Episode 22

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 welcomed to the Laws of your Money. This
is a show dedicated to protecting you and your families
from legal and financial mayhem. When it comes to personal finance,
I believe there's nothing more important than protecting yourself legally.

(00:49):
What does it matter how diligently I save and how
brilliantly I invest if there's a greater than forty percent
chance of losing assets to a long term illness and
expensive breakup taxes. This can be capital gains taxes, estate taxes,

(01:12):
not to mention ordinary lawsuits. We all know that we're
living in a very litigious society, but it comes as
a surprise that we are more likely to be involved
in a legal dust up with a former loved one

(01:35):
than with a stranger. Legal protections are increasingly important to
keep other people's myths off of our money. I am
asset protection attorney and Margaret Carosa joined today again by

(01:55):
my esteemed colleague, the Reverend Paul slatkis Welcome to the program.

Speaker 3 (02:01):
Paul, Hello Ann.

Speaker 2 (02:03):
So I think Paul, that we all have legal landminds
in our lives. Are we in a second marriage concerned
about the possibility of blended family warfare? Later? Do we
have an elderly relative and we're concerned about a nursing

(02:26):
home possibly gaining access to their home. So these are
all of the things that we want to talk about
and give people some easy to use protections to keep
themselves safe. I encourage everyone to join our discussion. I

(02:51):
think we have some shy listeners because people are not calling.
But I do get emailed questions. So you can give
us a fake name, but the call in number is
eight hundred three to one zero seven ten. Join our conversation.

(03:13):
So have you been following the news this week?

Speaker 3 (03:17):
Ball sometimes unfortunately?

Speaker 1 (03:20):
Yeah.

Speaker 2 (03:22):
On Friday, House Republicans rolled out the first pieces of
a roughly four trillion in tax cuts that they hope
to pass in the coming weeks. It is expected to
include extensions of the twenty seventeen tax cuts schedule to

(03:46):
expire at the end of this year. Among the extensions
is they want to extend the estate tax threshold, which
is currently thirteen point nine to nine million dollars. Now,

(04:07):
a lot of folks who are below this asset threshold
incorrectly think this has nothing to do with me. You know,
these numbers are so high that's never going to be
my situation. But it's very important for everyone to know

(04:27):
how these estate tax laws work because not so long ago,
the estate tax threshold was one million dollars, and that
is a very easy number to achieve because included in
your estate tax base is the death benefit on retirement accounts,

(04:53):
your real estate, all of your other assets. So back
when the estate tax the threshold was one million, people
were furiously trying to remove assets from their gross taxable estate.
So imagine someone who had one million, five hundred thousand

(05:15):
dollars and the estate tax threshold was at one million.
They were properly advised at the time to remove five
hundred thousand dollars from what would be their gross taxable estate.
And they did that either by making gifts directly to

(05:35):
their loved ones or transferring assets into a so called
estate tax trust. Fast forward to twenty twenty five, and
that can result in capital gains taxes for loved ones

(05:56):
because what I push overboard outside of my gross taxable
estate has a built in poison pill of deferred capital gains.
So it's super important to be aware of the current
planning thresholds and take action accordingly. So the federal thirteen

(06:25):
point ninety nine million credit is what we call a
unified credit. It pertains to both gift and estate taxes.
So if I were to gift you, Paul one hundred
thousand dollars, there's a big myth out there that when

(06:47):
we make a gift in excess of ten thousand dollars
that we have to pay taxes. That is not correct.
The current gift tax threshold is nineteen thousand, But if
I go over that in one year again, it does
not mean that I have to pay gift taxes. It

(07:11):
simply means that I have to file an informational gift
tax return where I apply part of my lifetime unified credit,
which is currently thirteen point nine nine million. So a
lot of people who want to transfer assets, let's say,

(07:32):
to a child as a down payment on a house.
They become unnecessarily creative by dolling out the nineteen thousand
dollars allowable gifts to the daughter, the son in law, grandchildren.
You don't have to do that, but what you pull

(07:55):
from the lifetime credit to wash out what would otherwise
be a taxable gift is gone forever. Okay. So this
is the backdrop to a possible change in the federal
estate tax law. If you are if you do have
assets close to or over thirteen point nine nine million,

(08:21):
there is a very real possibility that the threshold will expire,
which it's currently scheduled to do at the end of
twenty twenty five, and if it is not extended, it's
scheduled to come down to approximately seven million dollars. But

(08:42):
between now and then, folks would be well advised to
sit down with someone who knows what they're talking about
and utilize part of what may be a temporary thirteen
point nine nine million dollar credit. So to give some
concrete numbers, if I have thirteen point nine to nine

(09:05):
million and the tax threshold is possibly going to go
down to six point nine nine million or seven million,
I need to get rid of approximately six million exactly
so we can make a gift because this threshold is

(09:28):
a unified credit, so I can take advantage of what
the credit is to push assets outside of my gross
taxable estate. And when we're looking at what type of
assets to cherry pick to push outside of the estate,

(09:49):
we want to look at cash, We want to look
at bonds. We don't want to push out things that
have a lot of appreciation, such as real estate or
appreciated stocks, because avoiding what is likely a forty percent

(10:10):
estate tax will saddle the folks with a carryover basis
for capital gains. So I know this is very detailed
and a little bit loopy, but it's important to know
that there is a clock ticking now. Even if the

(10:31):
threshold is extended, there is nothing permanent when it comes
to the tax code, because at some point there will
be another administration coming in and nothing is permanent. They
can reverse all of these tax cuts, so folks have

(10:53):
to take some planning action. Now, what do we do
to ensure that our loved ones are not going to
overpay taxes? Because paying taxes is mandatory, but overpaying taxes
is not so smart, not so smart, And those of

(11:17):
us who live in states such as New York, we
have an independent a state tax that we need to
also be worried about. The current New York state a
state tax exemption is approximately seven million dollars. So the
trick question is, if I have a credit of seven

(11:40):
million and my spouse has a credit of seven million,
how much can the two of us together leave to
our kids without taxes.

Speaker 3 (11:52):
Well, it's I guess fourteenion.

Speaker 2 (11:55):
You would think it should be right. I don't know
if it is designed to lose the first credit, but
without some special planning in New York State, you will
lose that first credit. If my spouse and I have
a simple you know, mom and pop will and we

(12:19):
leave everything to each other and then the remainder to
children upon the death of the second spouse. Well, now,
if I die first, there's never a tax between spouses
because of something called the unlimited marital deduction. I can
leave one hundred million to my spouse and there are

(12:40):
no taxes. But because there was no tax liability, we
lost the benefit of my credit. So now upon the
death of my spouse he seeks to leave everything to
the kids, they are relegated to his single seven million

(13:02):
dollar credit. So if you are a couple in New
York State and you have a hair more than seven million,
you need to consider doing a credit shelter trust. And again,
we have no idea what the thresholds are going to
be in the year of death. We have no idea

(13:24):
how much we're going to have in the year of
our death. But we want to build this structure in
case the surviving spouse needs to use it. And the
Internal Revenue Code gives us nine months from that first
death for the surviving spouse to make that election.

Speaker 3 (13:49):
Someone asked me a question, and I don't know the answer,
but life insurance is life insurance and an opportunity, I'll
even say, or a benefit in protecting your money.

Speaker 2 (14:01):
Yeah, so life insurance. You know, there are life insurance fans,
and there are people who are not really fans of
life insurance. And you know, I know Susie Orman is
a proponent of term life insurance. So if you are

(14:23):
the primary wage earner in your family and you realize
that upon your death, if your surviving spouse or partner
and children would have a very difficult time continuing life
as they know it today, then it makes a great

(14:44):
deal of sense to investigate the options of life insurance
to replace the wages that you are currently earning. A
lot of people buy life insurance to create liquidity with
which to pay estate taxes at death. Now, life insurance,

(15:11):
we hear that it's tax free. That's a little bit correct.
Life insurance is income tax free. It is not in
and of itself a state tax free. So ironically, you know,
the million or two million dollar policy that I buy

(15:31):
to help my loved ones deal with the estate tax
at my death, in turn is adding to the amount
of the estate taxes. So someone who has life insurance,
whether it's whole, life term, universal, you want that policy

(15:52):
to be owned by a life insurance trust so that
it does not count toward the estate tax base. This way,
the family can have its cake and eat it too.

Speaker 3 (16:10):
So you can really take that in life insurance policy
and put it into a trust.

Speaker 2 (16:14):
You absolutely should do that, And that's especially true if
the policy has a built in cash value. Because if
I have the bad luck to develop a long term
illness and my family is contemplating a Medicaid application to

(16:37):
cover the cost of long term care in our area,
which is amongst the best in the country, but it's
also the most expensive. We're looking at approximately sixteen thousand
a month, So we want to get that cash value
off the radar screen if we think that medicaid is

(17:00):
a possibility in the future. You know, another planning technique
to reduce what would be the gross taxable estate is
again to make use of those nineteen thousand dollars gift
tax exemptions. So that's a nice technique to shave down

(17:22):
the estate. Now, what is the best way to gift
nineteen thousand dollars to the next generation. I am not
a big fan of putting a lot of assets into
children's names. Right, you want to think about creating an

(17:45):
estate tax trust and you can make those gifts into
the trust. Now, today is Mother's Day, and you know
that I really view all of this estate planning as
our last act as a parent. Right, are we going

(18:08):
to leave a tangled mess? Or are we really going
to put a little bit of thought, sensitivity and creativity
into these legal structures to protect our surviving children and
grandchildren to the greatest extent possible. Now you are, if

(18:34):
I'm not mistaken, paul a baby boomer, right, Okay, I
am gen X. Now the baby boomers. The youngest of
the baby boomers are I think, turning seventy right about now,
and we are on the precipice of the greatest intergenerational

(18:58):
wealth transfer that the world has ever seen. So I
think people are going to be thinking a lot more
about all of these issues.

Speaker 1 (19:09):
Now.

Speaker 2 (19:10):
We've talked about the number one a state planning mistake
when it comes to transferring wealth between generations, and the
number one mistake is leaving assets to someone who is
a minor. Now, this goes against every visceral thought and

(19:36):
feeling that we as parents and grandparents have. There's no
one that you love more than your grandson, right, But
we want to we want to avoid the temptation of
naming a child directly as a beneficiary. When someone is

(19:59):
under a age, a court comes into the mix and
appoints someone called a guardian at LTEM to oversee the
child's money. So again, if you want grandchildren to benefit,
better to do a little trust. You only have to
fund it with a ceremonial ten dollars. But because that

(20:23):
trust is created now and funded now, it is a
recognizable beneficiary of your life insurance, of your four oh
one K, your IRA and it's really great if that
trust can stagger the distribution so that in the year

(20:45):
of my death, the child gets maybe a third of
what's there. Five years later they get the second one third,
and so on, so that the monies are not all
at once subject to inexperienced decision making or a young,

(21:05):
dopey marriage that doesn't work out. Now, you know, when
it comes to leaving assets to gen Z heirs, I
think we can't be too careful because this generation is
truly different and people can't see the air quotes that

(21:26):
I'm making gen Z folks, and I'm starting to see
the first of them come into my office. You know,
they are of working age now, and you know, God
bless them. I think they're going to live longer because
they're very concerned about what's going to make them happy.

(21:46):
And you know, I've had more than one of them
tell me that the receptionist job was not in fact
the thing for them, and they kind of just pick
up and leave again. Lower blood pressure, but a very
different species. Now, when you were younger, did you have

(22:11):
a job in your teens and early.

Speaker 3 (22:14):
Twenties, Well, I started work well at twenty one. I
guess that's CBS early on. But prior to that, I
played in rock and roll bands, so we got paid
of every little money. But I did all kinds of things.
I helped my dad in the shoe store, yah, newspapers, whatever.

Speaker 2 (22:34):
I don't know. I think there's just a different work
ethic today, and again maybe it's a good thing, but
I think my first job on the books was Duncan Donuts,
and that was a lot of fun because one of
the perks was you were not allowed to bring the

(22:56):
donuts home at the end of the day, but you
were to eat as many as you wanted. So I
guess I'm lucky that that job didn't last too long.
And then I had a job after undergrad I took
some time off to earn money to pay back my
student loans, and it ended up being a couple of

(23:20):
years off. And I didn't type. I never took typing
in high school, so I had a little bit of
slim pickings. You know, what kind of job would be
suitable for me. I took a job paul in an
orthodontist's office in Albany, and I was supposed to be

(23:42):
training to be the assistant to the orthodontist. So the
person who had to keep the tools straight and hand
the right tool to the orthodontist. And I thought, I
can deal with this. So the first two days they
put me in a room with a binder and I

(24:02):
simply had to read the binder and I guess learn
about orthodontter. But then the third day I was expected
to shadow the orthodontist and Paul these kids when they
opened their mouths, it was so disgusting, like a lot

(24:22):
of them didn't brush their teeth, and I didn't know
which way to run. And then there was lunchtime, and
I got into my car at lunchtime and I said
to myself, I can simply not go back there. So I,
you know, was like one of these gen Z people.

(24:43):
I simply didn't go back. But that story gets worse,
because it gets worse. A couple of months later, I
was so incredibly broke and I'm thinking about where can
I get some money? And then it hit me, you
know what, they were technically responsible to pay me for

(25:08):
those two and a half days that I worked, and
you know, I had the nerve to call them and
I asked, you may not remember me. I'm a Margaret
Carosa and I was a trainee, and they said, yeah,
we wondered what happened to you? And then I asked, well,
you know, I never did get paid for my time there,

(25:32):
and I had the nerve to go back and they did. Yeah,
I picked up a paycheck and I had occasion to
be in Albany two weeks ago. I have an office
up there, and I actually passed the orthodontre office and
it's the office of Mark Bagosian. And yeah, I feel like,

(25:55):
to this day I owe them an apology.

Speaker 3 (25:58):
You just mentioned them.

Speaker 2 (25:59):
They were honorable, Yes, and they did a very good
job straightening the teeth of all of those little kids.
But I told you how I had my teeth straightened, right.

Speaker 3 (26:13):
I don't recollect that.

Speaker 2 (26:14):
Well, I had braces. That's how the teeth got straightened.
But it was one of my grandmother's trip and fall
lawsuits that paid the money for the braces.

Speaker 3 (26:27):
Grandmother is something else.

Speaker 2 (26:29):
Yeah, it's amazing how often she appears.

Speaker 3 (26:33):
On this show.

Speaker 2 (26:35):
Now, let's go back a little bit to protecting children
within the estate plan. We want to give some thought
to this. If we have a child who comes back
home and they're living with us. Now, when my Will
says everything gets split even Stephen, who is going to

(27:00):
to ensure that Sarah, who lives in the house, is
not chased out right away. So we want to think
about saying everything is split even Stephen, subject to Sarah's
right to continue to live in the house for a
period of blank months or blank years. That's an example

(27:26):
of a situation that should require us to customize. Now again,
we want to change the conversation when it comes to
a state planning from who gets my stuff to how
do they get it? Because I think ten out of

(27:46):
ten people I see, you talk to them, you get
to know them, they can be doing something a little
bit better to protect their surviving loved life from being
pitted against each other. You know, imagine a second marriage
and I'm concerned that my new younger husband might not

(28:11):
let the kids come in to collect, you know, their
high school trophies and family photos. We want to think
about customizing the estate planning for the best result.

Speaker 3 (28:27):
I have a question, yes, okay, this is from someone.
My daughter in law is a compulsive spender. How can
I keep her away from what my sons inherits upon
my death?

Speaker 2 (28:42):
Well, you know what, let's get into that next time
in a deeper way. But there are ways that I,
as a parent can protect my son and grandchildren from
this daughter in law, you know, quote unquote, who is
angling to maybe get my money and go shopping. We

(29:05):
want to say that the assets go to Mary, Susie
and Johnny quote as their separate property, not to be
co mingled with a spouse or partner. But we're gonna
dive into that more next week, and I hope that
you will join us next Sunday ten thirty am on

(29:28):
WOOR seven ten, the Voice of New York. And in
the meantime, please visit me through my website my Asset
Protection Attorney dot com.

Speaker 1 (29:45):
The preceding program was sponsored by New York Priority Medical Care.
The preceeding was a paid podcast. iHeartRadio's hosting of this
podcast constitutes neither an endorsement of the products offered or
the ideas expressed.