The Laws of your Money with Ann-Margaret Episode 31

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. Program dedicated to keeping you safe from legal and
financial mayhem. When it comes to personal finance, what does
it matter how diligently and brilliantly we save and invest
if there is a greater than forty percent chance of

(00:47):
losing assets to a long term illness, an expensive divorce taxes.
This could be capital gains taxes, estate taxes, not to
mention ordinary lawsuits. We are living in a very litigious society,
and it comes as a surprise that we are more

(01:11):
likely to be involved in a legal skirmish with a
former loved one than with a stranger. When finances and
loved ones intersect, the results can be explosive. They say
that ignorance of the law is no excuse when you're

(01:34):
in a criminal context, but in everyday life, ignorance of
the law can get you steamrolled. So we're going to
break down financial and legal topics that will help you hopefully.
I am and Margaret Carosa and asset protection attorney based

(01:57):
in Bayside, New York. Joined today by my guest host
Laurie Miles, who is an attorney. She's back with the program.
She is also my sister. Welcome back to the program, Laurie.
Thanks Ann. It's great to be here, so I encourage you.
If all of you have legal and financial questions, you

(02:21):
can join the conversation by calling one eight hundred three
two one zero seven ten. All right. The first topic
that I want to get into, and I'm really interested
in your take on it, Laurie, is an article that
I read this past week. A recent experience survey revealed

(02:45):
that four out of five people out there in the
dating world viewed good credit as one of the most
attractive qualities in a prospective partner. What are your like
off the cuff thoughts about that, Lorie, Well, you know,
as someone who is recently back in the dating pool. Congratulations,

(03:08):
thank you lovely to be here. But now that I'm back,
it is absolutely something I would think about when on
a date with another person. You're not one hundred percent
shopping for a husband when you're out there on a date.
But in the back of your mind, the question passes through,
would I buy a house with this person? Would I

(03:32):
tie my wagon to their star? And credit rating is
one hundred percent? The basis of whether or not that's
a viable option, well, I think it's almost like a
little litmus test that reflects what has been going on
in your personal and financial life right up until this point.

(03:55):
Now you know through me that at one point in
time I was a financial train wreck and I had
an abysmal credit score. I mean that was not my
entire money history, because I got it together. But I

(04:16):
think it's a valid discussion why is the credit score low?
So I think it has to be maybe a broader
discussion in terms of what are our financial goals as individuals.
I think that's a valid discussion. What do we spend

(04:38):
our money on? Is it a red flag if the
person I'm dating is an avid car enthusiast and every
cent he makes is going toward car parts and new cars,
and it's a valid topic. And I would courage people.

(05:01):
You know, I'm not out there in the dating world
right now. But I would encourage people to talk about
it sooner rather than later, and not necessarily on the
first date. But topics of finances come up indirectly in

(05:22):
planning activities, right, That's right. So you know, what is
the concern if the person I'm with only wants to
go to high end restaurants or go to activities that
happen to cost a lot of money, and they're putting

(05:46):
it on plastic and we're wondering, you know, is this sustainable?
Is this affordable? Is this person putting themselves in harm's
way with the activities? So you know, can I get
a sense from you? Do you like to mix it
up a little bit in terms of activities with no cost?

(06:10):
That's a great point. I think it's about compatible habits.
You know, we talk a lot about do we like
the same things, do we enjoy the same activities? But
also what are your money habits? What are your spending
habits and your saving habits? And so this afternoon, for example,
I have a date and we'll be doing a walk

(06:32):
in the park. It's a beautiful day. We'll get out
and enjoy the sunshine, and then we'll pop in for
a drink. Later on something not expensive, and you know,
mix it up both ways. Perhaps in the future it
will lead to a nicer meal, but for right now,
it's going to be very low cost. Now. I think
that's incredibly important, and I would all I would also

(06:57):
extend that into the Elma friendships. You know, I have
some friends who like to shop, and they like to
shop big. And I was in Paris this summer, this
spring rather and we were with a friend who God

(07:18):
bless her, you know, is in Airmez Devoute, and spent
countless hours at the Arames store in Paris trying to
beg these people to be able to buy this like
twenty thousand dollars pocketbook. And it was a beautiful day.

(07:39):
And I would have preferred to be anywhere on Earth
rather than Aarmez in Paris. I mean, it was something
funny to see for five minutes, but for the hours
you know that it took to be there, It's just
something I was not interested in. And I think we
need to be honest. And maybe I would say to

(08:03):
a friend who wants to go to some like obscenely
expensive restaurant, I would say, well, I have a little
bit of a financial hangover right now, you know, because
I've been spending money like a drunken salor. I'm trying
to get it together a little bit. How about we
go to the deli, get some sandwiches, and go have

(08:26):
a picnic. It's a nice stay out. It's the same.
It's are your habits compatible? Is that for friendship? Is
that for dating and being able to mix it up
and do things that you both enjoy doing. I think
that should be the foundation of a friendship. So as
we're here today in the iHeart Studio, we are within

(08:49):
walking distance of many beautiful, beautiful stores and Laurie, you
and I. After the program, we could be going to Bloomingdale's.
We could be going to some fancy brunch at the Plaza.
Not that we're dressed for it, but what are we doing.

(09:09):
We are going for a very low cost jog in
Central Park. That's what we're doing. Riceless. And then you
have another active engagement later on. So you're going to
be iron woman today, that's right. But not spending the
money and not even paying for a gym membership. Gym membership,
I am so glad you mentioned that this is a

(09:31):
pet peeve of mine. Do you know that sixty seven
percent of Americans who have gym memberships do not use them.
Sounds like I should open a gym. I think they
have a pretty high rate of failure as businesses. I well,

(09:53):
I can imagine because if people stop coming back if
they're not using it. Yeah, So the gym topic is
a little bit of a double headed problem for me
because the contract that you sign that no one reads.

(10:13):
You know, I didn't read my gym contract, and when
I went to the desk and told them that I
would like to quit, said Jim, I was told that
the contract I signed had a two month tail to it,
so I needed to give them sixty days advance notice.

(10:35):
So that was there, you know, terrible way of extracting
two extra months from me. So, you know, we are
creative about getting our exercise. So we're very good about
utilizing nice weather to get our cardio, but there are

(10:56):
creative ways to get resistance training. And you're going to
laugh at me, Laurie, But one of the things that
I've been doing whenever I go into a CVS or
a target, they sell free weights. I will drop my

(11:16):
pocketbook and do some free weights in the aisle at
Target or at CVS. Why does that not surprise me?
There is a sign saying I must wear shoes, I
must wear a shirt. There is no sign saying I
can't lift the free weights. That's right, And I can

(11:37):
now picture you at home in front of the refrigerator
lifting jugs of juice to get in the extra Absolutely,
you have to be creative. And I'm really not kidding
about the Target and CVS. I guess it would be
different if I was organizing a class there and I
was trying to charge, and they probably draw a line.

(11:59):
They would probably draw line, although that would be a
funny joke, right if we did almost like the equivalent
of a dance mob thing, and we all agreed to
meet in the exercise aisle at Target in College Point
at three pm for example today, and we just like
organized a class exercise mob. I'm in you' there the

(12:21):
mats and do a yoga class. Anyway, you know, financial
habits are strengthened there, they're learned. And I think we
need to get out of you know, judgment. And it
goes back to the credit score. You may have a
low credit score for a noble reason. You helped a

(12:44):
relative you know, who was having financial difficulties, or you
had health bills that your insurance didn't cover. So your
credit may be temporarily dinged, but you're on the road
back and you can be open and forthright about it
with the people around you. And if you can't, then

(13:07):
that's a sign that you are spending time with the
wrong people. But that goes back to the survey, right,
four out of five people care about a credit score,
but I doubt for out of five people are having
that conversation. I think you're so right, and you know,
we need to demystify and destigmatize all of these financial topics.

(13:29):
And I strongly encourage people to read the book How
to Money, written by Gene Chatsky, who was great enough
to be on this program a couple of months ago,
and she was the financial contributor to the Today Show
for twenty five years, a New York Times best selling author,

(13:52):
and How to Money, I think is just the best title.
It's like how to wind surf, how to croche. It's
a skill. And if you didn't happen to grow up
in a home where you learned healthy financial habits a

(14:13):
big deal. You don't need a therapist to talk about
your crummy childhood. You need a book to learn about
developing healthy habits, so check out How to Money by
Gene Chatsky, and she gives a lot of tips for
saying no to your child who wants one hundred and

(14:34):
fifteen dollar sneakers. For example, we have a caller. Hello,
welcome to the program. What's your name?

Speaker 3 (14:45):
Hi, I'm Paul.

Speaker 2 (14:47):
How can we help you.

Speaker 3 (14:49):
I'm a longtime listener and I really enjoy your show.

Speaker 2 (14:53):
Thank you.

Speaker 3 (14:53):
It's very instructive, but sometimes things get a little confusing,
so I just wanted to ask you question. You said
that one of the advantages of opening a trust is
to avoid probate. Yes, is a long and complicated process,
and that sounded pretty simple to me. But I was

(15:14):
in my bank the other day and my banker told
me that that I can name my children beneficiaries on
my bank account and that would also avoid probate. So
I'm confused as what the best way to proceed is.

Speaker 2 (15:32):
Okay, So the benefits of the trust are a to
avoid probate. It will also protect assets, on and on
and on. But if your goal is simply to avoid probate,
then yes, naming beneficiaries on a bank account will accomplish that.

(15:55):
These are your children that are the beneficiaries.

Speaker 3 (16:00):
Yeah, I have three kids.

Speaker 2 (16:01):
And what may I ask are their ages?

Speaker 3 (16:05):
Well, the oldest is nineteen, and then one is seventeen
and one is spenteen.

Speaker 2 (16:12):
Okay, I'm going to answer your question with a question.
Would I run into a burning building for my children? Yes?
Would I take a bullet for my children? Yes?

Speaker 3 (16:33):
Absolutely.

Speaker 2 (16:35):
Would I name a fifteen year old as a beneficiary
of my bank account, No way in the world. The
laws of all fifty states prevent a child from directly
inheriting an asset. A court will point a overseer of

(17:03):
the child's money called a guardian ad litem. And these
gigs are not volunteer jobs. They get paid from your
child's money. So far better to do a trust for
the child. You don't have to put any money in it.

(17:25):
You can put a ceremonial ten dollars in it. But
because it is created now and has its own tax
ID number, it can be a recognized beneficiary of your
bank account. And then we want to be creative, we

(17:46):
want to talk about at what ages should the child
get the asset. So again, do not name a child
as a direct beneficiary. Can I ask a quick question,
does each child get a trust and then each child
is named as a beneficiary or each trust is named

(18:06):
as a beneficiary for the bank account. Yes, so, anyone
who has a will, and you remember when we did
your will a couple of years ago. In the will,
we built trusts for your kids, where just like the
trusts for my kids, they get one third at twenty five,
they get half of what's left at thirty and the

(18:27):
full distribution at thirty five. And you and I, as
each other's trustee, have the authorization to make monies available
to them long before those ages. But the default trusts
that we build into a will cannot be used now

(18:49):
because we are alive, so they don't exist yet. They
are like tulip bulbs below the earth, and they will
only spring up upon our death. So we want to
do what's called an intervivos trust. That's a trust that
is legally active during our lives. This can be a

(19:13):
revocable trust. I am my own trustee of this trust
during my life. Again, it doesn't have anything really in it.
We cite a ceremonial ten dollars, but because it has
its own tax id number. Think of it like a
little lego snap on building block that can be the

(19:36):
beneficiary on an account at a bank or a brokerage house,
or a life insurance policy. And it's sort of interesting
from an historical perspective, courts can oversee children's monies since
the debacle with the actor from the nineteen thirties, Jack Coogan.

(20:02):
He was at one time the most famous actor in
the United States, and when he reached adulthood, he looked
for all of his money, but his parents had squandered it.
Oh my god. So the law does not assume that
the parents are going to do the right thing for

(20:23):
the child and their money. So they will interpose a
buffer between the parents and the child's money, and that
person is this guardian ad litem. So if we want
to keep the government out of our family finances, and

(20:44):
we want to keep the government away from our children,
we really need to take matters into our own hands
and educate ourselves and build these documents. Does that make sense.
It sounds like it's worth planting the tulip bulbs in
case of a rainy day. Yeah. Absolutely, you plant the

(21:05):
tulip bulbs in case of a rainy day. And you
also have some flowers that already exist that they can
be the direct beneficiaries, because again, you can't name the
trust that you've built into the will as a direct
beneficiary or a contingent beneficiary on financial accounts. Let's segue

(21:29):
now to the Big Beautiful Tax Act, which is now law,
and how it affects the financial and legal issues that
we talk about. The first big change for the clients
that I work with is that the estate tax threshold

(21:51):
has been increased to fifteen million. So most people who
do not have teen million say, Okay, that has nothing
to do with me. I don't need to pay attention
to it. Well, I think you do need to pay
attention to it if you have done any estate tax

(22:14):
planning within the past twenty years. So let's take a
time machine back to two thousand and two, when the
estate tax threshold on New York State and the federal
government was one million. If a person had one point
five million, their goal was to reduce the gross taxable

(22:39):
estate buy five hundred thousand dollars, right, So they, with
their estate planning council surgically removed five hundred thousand from
the gross taxable estate hopefully they put it into an
estate tax trust rather than giving it directly to the children.

(23:01):
But the poison pill with doing that was that assets
removed from the gross taxable estate during life have what's
called carryover basis for capital gains. So at that point
in time, it was pick your poison. Like at a

(23:22):
carnival playing whack a mole. You said, okay, well, the
capital gains hit to my kids for removing the five
hundred thousand is eighteen percent long term capital gain when
the estate tax would have been forty percent. Okay, fine,
we transferred five hundred thousand into an estate tax trust

(23:48):
knowing that it had built in capital gains. But now
fast forward to an environment where we can leave up
to fifteen million dollars with no federal estate tax. We
want to get that five hundred thousand back into the
gross taxable estate so that upon death it's going to

(24:08):
go to the named beneficiaries with what we call a
step up in basis for capital gains tax purposes, that's
section ten fourteen of the Internal Revenue Code, and assets
that pass directly from us or from a properly structured

(24:29):
grand tour asset protection trust, it will go to the
named beneficiaries with no capital gains or estate taxes. So
the point is we want to unwind some of the
planning that's been done. Moreover, something like sixteen states, including

(24:50):
New York where I practice, have their own a state
tax system. So in New York we can leave seven
milli million dollars free from a state taxes. So we
need to do specific planning to obviate the hit of
state estate taxes. So, Laurie, you are an attorney. I

(25:13):
know you don't practice in this area, So I'm just
going to lob a question at you to get a
sense of your thought. In New York State, if every
individual has a seven million dollar credit, how much can
a husband and wife together leave to their kids without

(25:34):
New York State a state taxes. So I would say
fourteen million. Do we get it as a household or
do we get it as individuals. You would think if
the system were fairly designed, that every individual gets full
use of their seven million dollar credit and the kids

(25:56):
would have the benefit of up to fourteen million free
from New York state estate taxes. But it does not
automatically happen that you get to double your credits. So
if my spouse and I. Let's say we have fourteen million,
or let's say we have eight million. To make it easier,

(26:20):
our simple mom and pop wills that we downloaded off
the internet or we bought off of QVC from a
financial spokesperson. These fill in the blank wills say husband
and wife leave everything to each other, and then the
surviving spouse leaves everything to the kids equally. What happens

(26:43):
here is we lose the first credit if my spouse
leaves me eight million dollars. Today, there's never a tax
between a husband and wife that is in the Internal
Revenue Code, the unlimited marital deduction. But because there was

(27:06):
no estate tax upon his passing, there was no opportunity
to make full use of his credit, so we end
up losing that first credit. Let's say I live my
widowhood on interest income, and upon my death, I wish

(27:28):
to leave everything three ways to the kids. They are
relegated to my single seven million dollar credit, leaving one
million subject to my former colleagues in Albany getting a
cut of it in terms of state a state tax.

(27:48):
So what you're saying is a will sounds simple, but
they're going to get you on the taxes one hundred percent.
I hear people coming into my office. I hear people
in our family saying a trust gives me a headache.
I want to keep it simple. I'm just going to
do a simple will. Do you know the thousands it

(28:09):
could be millions that that simple will is going to
cost the kids later, not to mention the eight month
delay in a probate proceeding. So if you have any
financial complexity, any significant savings, if you own real estate,
you want to avoid probate. You want to avoid taxes.

(28:32):
And we have a very simple solution called a credit
shelter trust, which allows a couple to make maximum use
of both New York State a state tax credit. So
it's important to review these documents regularly. This stuff is

(28:54):
not one and done. So in my office, people leave
after they sign their documents and I tell them I
want to see you here next year to review and
know this is not a billable service to review the documents.

(29:16):
So if you have a relationship with an estate planning attorney,
you want to make sure that a periodic review is
complementary with that. I want to thank my esteemed co host,
Lorie Miles, and I hope you all visit me on
Instagram at my lawyer ann See you next week everyone.

Speaker 1 (29:44):
The preceeding 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