December 2024
Here are some key takeaways from their conversation:
- The tax law that was put in place in 2017(Tax Cuts and Jobs Act) could revert by the end of 2025.
- If the estate tax exemption reverts from the doubled limit (currently $13.6 million) to its previous level (around $6.8 million), many more estates would be subject to estate taxes. While the risks of this happening are lower since the election, families with large estates may need to consider accelerating certain planning actions now.
- More highlights of the 2017 Tax Cuts and Jobs Act included lowered individual tax rates, limitations on mortgage and SALT deductions, and an increased standard deduction, set to revert if laws are not updated.
- Structures like SLATs (Spousal Lifetime Access Trusts) allow tax-efficient transfers. It is an irrevocable trust created by one spouse for the benefit of the other. By transferring their assets to a SLAT, the donor spouse removes their assets from their taxable estate while the beneficiary spouse retains access to them.
- Strategies like charitable remainder trusts and donor-advised funds also offer tax benefits while allowing clients to direct funds toward philanthropic goals over time.
- Inflation can increase asset values, potentially creating estate tax issues for families whose assets exceed exemption limits.
Watch previous episodes here:
The Financial Side of Parenthood: IVF, Birth and Beyond
Creative Investments Beyond Stocks and Bonds
For those of you who don't know me or didn't see the presentation on the main stage. My name is Stacey McKinnon. I'm the chief operating officer and chief marketing officer at Morton Wealth and I am joined by Brian Standing, who's the founder of Via Law, and Scott Gilmore of Ascend Advisors, to talk about nobody's favorite topics- death and taxes.
Yeah I trust you both to make this invigorating, exciting dialog. And the reason that we're doing this session today is because oftentimes when we're working with our clients, two main goals come up for them. One of those goals being, how do I take care of my family? How do I have my values passed on to generations? And the second goal is how do I pay less in taxes?
So these are really common topics that we talk about. And we work with Brian and his team often to figure out how do we actually build estate plans that are a reflection of our clients values. And then we work with Scott and his team often to figure out how to put more money back in your pocket. And I think these are like fairly common goals when you say.
I think so.
So, one of the things that's happening is at the end of next year, we have some potential tax law changes coming down the pipeline that often impact both personal income tax planning, but then also, affect estate tax planning. And so that's why we wanted to have this session with Brian and Scott today. And in preparation for this discussion, Brian and I were chatting about how does tax law get created?
Like, what's the background? How are these policies put in place? Because the last time we had permanent tax law implemented was in the 1980s, I believe. Yeah. And there you go. Someone in the we should play jeopardy! Sorry. Oh, there you go. So, but this last tax law is set to sunset, meaning set to expire at the end of next year.
And so it's a temporary law. And Brian did a really good job of taking me back to high school history class. And so I'd like him to do that for you. Just as a starting point, let's just set the parameter. How is tax law made in the United States.
This is not in general. So I'll use as a specific example the 2017 Tax Cuts and Jobs Act, which is the one that's expiring that we'll talk about today. And I think it it may sound boring, but it's instructive to look at this because our job is to attempt to predict, well, what's going to happen with future laws.
Obviously we don't know. But if you understand how these things come about and you understand maybe the challenges structurally in Congress, it might inform your decisions. And maybe we need to think about this and protect ourselves. So typically, in order to pass a law right, you have Congress. One of the houses will propose some law. And you need to have what would be considered like a filibuster proof majority.
This is hard to do in the Senate. That means at least 60 votes. Well, we haven't had either party with 60 votes in quite a while. And so if you don't want to have any agreement from the other side, but you want to make sweeping changes to tax law, you just throw it into the budget and it's something called budget reconciliation.
And so they got together. This was in 2017 because there was, Republican House, Senate and then a new president at the time. And they said, well, let's just go ahead and make the budget so that the tax laws change and we'll double the estate tax exemptions and we'll do all the things. Scott's going to talk about. The only caveat is that they say it has to be revenue neutral.
Right. So as long as you're not really changing the law because the deficit will stay the same, it's okay. Well, what's funny is every year they're supposed to then check up on that and say, was it really revenue neutral? Well, the first year they checked up on it and of course the government spent far more than it collected.
And they said, well, let's waive it. Right. And the next year there was some kind of recession, and then there was an emergency. And so ultimately, it's never revenue neutral, even though it's supposed to be. But that means that it only last nine years, because that's the limit. If you don't pass a brand new law. And so that nine years is coming up in not the end of this year, but the end of next year.
So that's when all of this goes away. Unless, of course, there's another, majority of each house.
Okay. So let's actually talk about what happened in 2017. I want to hear from both of you. We had this kind of sweeping tax reform. Give us the highlights. And these are the things that may or may not be here when we wake up, you know, 18 months from now.
Sure. So on the income tax side, some of the individual provisions, some of them are business provisions. Right. And they affect everybody differently depending on how you earn your income. Some of the most prominent ones were on the individual side in particular with itemized deductions. But let's start with the easy one. They lowered the top rate from 39.6% to 37%.
That's scheduled to go back to 39.6, absent any change. Of course, as Brian said, all of this is contingent upon new laws passing. What we're talking about is if no new laws passed in terms of the itemized deductions, I think we all know the mortgage went from $1 million limitation to a $750,000 limitation for some people in certain areas of the country.
It didn't matter as much for us here in California. That was a real hit. If you took a dollar out of your refi, you all of a sudden were sunsetting from this million dollar exemption down to 750. Probably the biggest one was what we call the Salt deduction, state and local income taxes. It's capped at $10,000 under this new law, where we all used to deduct all our taxes.
And hey California's high tax state highest. We lost a large deduction. If you weren't in the what's called the AMT. And I won't go into that amount of detail. Obviously. The other thing is the standard deduction. If you don't itemize, most people that don't have a mortgage or aren't extremely charitably inclined, don't have them, don't itemize. They up the standard deduction.
They doubled it from like I think going back to 2017 here about 12 5 to $25,000. So a lot of people got it and got a larger standard deduction. If they weren't itemize. That's going to retract back to 12 five 13,000. These are indexed for inflation. So I don't know the exact numbers. But that changes your strategy about how you handle it.
One of the biggest ones that I was that I deal with all the time, what's called 2% itemized deductions. And I don't want to make anybody in the room upset. But those are your employee business expenses. Those are your investment advisory fees. You know, things that we'd like to deduct. And the best part about this is none of this applied to California.
California didn't change any of the rules. So these are all federal rules you were dealing with on the business side. There is one important law that is permanent and is not sunsetting. And that is the corporate tax rate at 21%. I think a lot of us have heard of that. That is scheduled to stay the same in not going to sunset.
Some of the provisions that are going to sunset, what's called QBI qualified business income pass-through income K1s that you receive. It can be eligible for QBI, which means up to 20% of that income is nontaxable. REIT dividends fall into that category and are 20. You get 20% of it. Nontaxable will never pay tax on it that's scheduled to go away.
Bonus depreciation for those of us in the real estate investment. This is a huge opportunity. It goes down 20% every year. It's currently going to be 60% 40%. By the end of 26. It goes down to 0%. Occasionally we have a bad year and we have losses. There's something called an excess business loss that went into play, which basically limited your models.
That said, okay, if you lose $1 million, you can only use up to 80% of that and the rest is suspended to the following year. So you could no longer offset all of your income. So people that didn't think they had a tax liability now have a tax liability. All these things are scheduled to go away, which completely changes how we would do our planning.
And maybe just a comment on that. And to summarize, it sounds like if you're somebody who took the standard deduction, you're pretty happy because the standard deduction has been bigger for the last few years. If you are somebody who itemizes, there's probably, you probably have a lot of conflict around that. Your SALT provisions have gone away.
Maybe you want them back, but there's also some pros and cons. If you're a business owner, you've had a lot of interesting deductions that you couldn't take previously that you have been able to take for the last few years. And so there's a lot of conflict, you know, embedded in all of the different provisions and how whether or not we want to keep them or change them.
What I would say is everybody's situation is going to be different. So what you do for one person, you might not do for another. And that's why you need to work on an individualized plan, because these provisions are in conflict. And there's different strokes for different folks.
Yeah. And you had asked us how is this law change going to impact that? So after you spend your life dealing with what Scott just mentioned, have you pass away and the IRS may say, we just want a little bit more. So just give us some. So what occurred at with the law in 2017 was effectively a doubling of the amount that you may give away.
And so I, I phrase it that way specifically as not like a death tax, because it's really the amount you can give to third parties without the government saying, okay, that's enough. We're going to take a little bit, because whether you give it away while you're living or you pass away and you have it in your estate, it's effectively the same exemption, the same amount before tax comes in.
And so today it's 13.6 million per person. So for a couple it's a pretty large number. And with some other details we don't have to get into now with discounting. If you have illiquid assets it's actually even a bigger number. What that means is that the exemption would have been about 6.8 million per person right now, which captures quite a few more people.
I think last year, 0.02% of the population was subject to estate tax. So this is a very small amount of people actually pay a state tax at these, current figures. So if the law does not change, then by January of 2026, the exemption will go from roughly 14 million to roughly 7 million, something like that.
So if you are a family who has more than $14 million in assets, this might be a big change for you, correct?
That is correct, because you will go from potentially an estate where no estate tax is due to in a state where within nine months we have to write a big check.
So tell us a little bit. I mean, we heard from Grant Williams on like politics in the election earlier today. We won't repeat the same session. But I want I want to hear your both of your perspective on how the elections are influencing some of these changes. On both sides, we hear different commentary on what they expect to do.
What have you heard? What do you think is likely to happen? Can you just give us some, you know, crystal ball predictions around here?
You want me to go first on this? So maybe I'll give you an example. So I, I there's been one debate, between the presidential candidates, and I was waiting for one question, which I think is an important question, which is how are we going to address deficits and ultimately our growing debt. Just did anyone see that question?
I didn't even ask it. So that concerns me because I, you know, I have to take some kind of a position, even though we can't guarantee what's going to happen. If the answer is that we don't care about deficits or debt, then that amount, that amount that we owe every year will continue to increase. And if it continues to increase, we would need to outgrow that sort of debt and its accumulation in order to, basically not end up who knows.
Right. And so you would look and say, well, there's different ways we can address this. What we can reduce spending, right? That's a joke. That's when we're supposed to laugh about, you can't reduce your debt costs and then entitlements are literally called entitlements. So what? You can't take those away. And there's there's not much left after that in order to reduce, what we spend as far as the federal government.
So you can increase revenue. Okay. Well, let's collect more. You can do that by raising tax rates, or you can create growth, which if there's more commerce maybe creates more tax. I believe it could be wrong that we are at the limit of where we can just raise tax rates and increase growth, and that the debt will go up faster than our ability to do that.
So then there's a sneaky third way that you can get at this, and that is with inflation, right? If your assets are worth more, even though they're the same asset, right. It's the same buildings, the same business, then more tax will be due on that same asset. And no one had to pass a law. And no one had to tell you they're taxing you more.
And I don't mean to be political here, I'm just looking out for my clients, by the way. But that is why in in my in my position, I'm thinking if there will be asset inflation, then I could have an estate tax problem even if my client is not there. Now, what if their assets go up in value?
It seems like a great thing. We might have an estate tax problem later. So sorry that all my answers are so long, but there we go.
So you might have 12 million today, but if asset prices continue to increase, then you could end up in a situation where you do have a taxable estate. And the question is should you plan now or should you wait.
Exactly. And I even have a slide which that we don't have to just say hypothetical numbers. We'll go through it. It shows the effect of simply inflation on estate tax. So we'll go through that. And I'll let Scott talk about the income tax piece here.
It's one of the questions we get a lot is what's going to change. What do we do. And one of the worst answers I hate to give people that I have to is I don't know. Right. It's not just who wins a presidential election, it's who wins the House. It's as Brian went through in his examples. They have to pass a new law.
Budget. Reconciliation doesn't always work. Sometimes it does. But to piggyback off of this, asset prices go up. So does usually income. Right. And if your income is going up, let's say it's a minimum wage increase. Let's say you got a raise. Guess what. Your tax liability went up to. But your spending power did not. Right. It's the old adage it's not what you make, it's what you keep.
And if you make 100 and it goes to 110, but the cost of goods were 50 and now it's 60, and you paid a little bit more tax. At the end of the day, are you really better off. So you have to look at the situation holistically and really look at the bottom line, the net net, whether it's on the income tax side or the estate tax side, what do you truly have as these numbers and move?
Yeah, that's a really good perspective. So one of the things that happens as we have these discussions with clients on estate planning, they sometimes get roadblocks to the fact that a lot of advance estate planning is are irrevocable decisions, meaning many of us have a revocable trust, meaning we can change it in any time. But a lot of decisions that need to be made if you want to, avoid estate tax are irrevocable decisions.
And so I wanted Brian to just share a little bit about how he navigates making permanent decisions when it comes to essentially giving some of your money away.
Yeah, I think we really need to start with estate planning and financial planning. And that's not self-serving because I want you to do an estate plan with me, and I'll explain why this actually makes sense. So whether you need to worry about estate taxes is not just a numbers problem. It doesn't. It's not about what's my net worth and what's the tax rate.
It depends on your goals for your estate. If you are charitable, well, you probably significantly you probably don't have an estate tax problem. If maybe you think my kids are going to be fine, pay the tax. Maybe you don't care about taxes. Okay, maybe you are planning to go crazy in retirement. You're going to spend more than than you're making at that point, and you won't have an estate tax problem.
That'd be great.
Future me should go crazy if you don't, if you don't want to pay estate tax. So there is a trend of like leaving your kids with nothing, by the way, now, and it's a whole thing.
Is it because your kids spent too much and now you're bitter?
I think it's supposed to make them proud of the things that they do accomplish. So. But that's why I say if someone says I, I want to save estate tax. Well, when we do estate tax planning, we're just accelerating estate planning. We're moving wealth from generation to generation, for example, that's the same thing that happens in your estate plan.
And so unless I know where we are going, meaning how much do you actually want to leave your kids? How much is too much? How much will you have based on financial planning? I have no idea whether we should be transferring assets out of your name and starting to make your life complicated with all these crazy structures.
Some of which, if we have time, we'll talk about. So that's kind of the threshold question. Do you even need to worry about estate tax? And then once you do, then we get into which this issue of these trade offs. Right.
And, and these trade offs are how do you give away money to maybe future generations but make it have some flexibility in it.
Right. And so there's places that are not flexible, although there's caveats to all this stuff because that's what we do. Typically just so generally speaking, if you give something away, you give away its benefits. Right? So many people start first meeting with us is, okay, I want to give away this building because it's going up in value.
Okay, great. But I want the income. Well, that's not giving it away. We're just changing the title. You're still benefiting from all the income coming in. So you can't do that. So it gets complicated. And so while you may still exercise some control over the management, you're not getting those rents anymore. So you're truly giving away the benefits.
So you also can't change the beneficiaries maybe if they consent. But most people don't want to call their children and grandchildren and say, hey, can I change my trust? So when we set up planning in advance while someone is living to save estate tax, we have to look at these trade offs. And there again, there are caveats on benefiting.
And if you have a spouse, you can do certain things or charitable things. But, those are the kind of threshold questions, that you need to answer right away.
So let's just say that I have an apartment building that produces a lot of income and I live off the income from the apartment building. You're going to say to me what, when it comes to whether or not I should transfer those assets.
I'm going to start with, does it have debt? Because if it does, you can't transfer it unless you want the bank to call you and ask for all their money. Let's assume it doesn't. I'm going to then ask questions like, okay, if you were to give up this much income, where does that leave you? Maybe that allows you to then start spending down some of your other money, which it doesn't sound like you spent your whole life growing your estate.
We actually want your estate to go down. You know, at this point if we're doing estate tax planning. So it's a new way of thinking. And then of course, it gets even more complicated. Which is do you think the kids are going to keep it or sell it? Well, if they sell it, they're going to have a huge capital gain.
It's not quite 40% estate tax, but it's not far off. And if you hold that asset and you pass away, they get a new basis. And so you could sell it. And so the the listing of all the assets, your intentions with each one, what we want to do, this is all necessary to even figure out should we give something away, what should it be.
And then what we do is we take all these different recommendations, like the different levers, and we put it into our financial planning software, and then we can actually make those these projections. You can see if I give away this asset and I no longer have this income, do I still have other assets that I could. Yeah.
So the funniest part about that is, is I'll, I'll, you know, come up at my law firm and I will come up with some tax plan. And, you know, it's a nice fee we make charge a little money and it saves like $14 million. And we're like, wait a minute, what are we doing here? We appreciate you, but no, those projections are, very helpful.
On the tax planning side, Scott, I'd love for you to just comment on how you think about marrying financial planning and tax planning, because a lot of what Brian just, outlined is giving assets away versus keeping them. How do we create structures that are efficient in that way? How does that impact on the what's the impact on the tax side, and how do you collaborate to make sure you're making the right decision?'
So if you look at your financial plan, depending on where your money's coming from, you may not realize that the largest expense item is Uncle Sam, right? If you look at how much you gross versus how much you net that biggest line item, if you're in the top bracket and you live in California, it's over 50%. And so it's important to think about how do you create a tax efficient financial plan.
Right. And so sometimes it's simple. Sometimes you have W-2 earnings. And maybe the plan doesn't have to be overly complex. And then what you can do is a bit limited. But in other situations you have investment income. And whether you're income from dividends, interest, real estate, private equity, alternatives, there is a different strategy for each one because at the end of the day, you need to mirror these strategies together to as we said earlier, it's not what you make, it's what you keep.
How do we lower that income tax line on the PNL, on our financial plan to keep more wealth so we can estate plan with Ryan and figure out what we want to do with the money? At the end of the day. And so it's not only looking at where your money comes from, it's looking at if you're a business owner, how do you structure your business?
It's looking at your tax return and working with a professional and working with your financial advisor to make sure you're capturing all the benefits you should get, right. The state has certain rules, the fed has certain rules, and you want to look, and you want to make sure that you know that you are maximizing every dollar and probably not giving the government any more than you have to.
I think something that you pointed out is really important, which is that all three of our professions work together. I've worked with many clients where the estate attorney won't speak to me or the CPA won't speak to me. And that's really, I think, not in the best interest of all of you in the audience. You want your advisor or your CPA, your estate attorney to be talking together.
Because just in the simple example we just gave, we all kind of tugged at different, recommendations. And we said, what if this happens? Then that happens. If this happens and that happens and it's incredibly valuable to kind of bring these things all together.
I think we each kind of specialize in our own area. I'd say I'll get clients that will call me and ask me questions about specific stocks and allocations. And I and I chuckle and say, man, I wish I knew. But the answer is I focus on the tax side of things. My role in the financial plan, my role in the wealth building strategy is to minimize the taxes.
That's what I focus on. Brian focuses on the estate side, and our friends at Morton focus on the investment strategy, focus on the financial plan, and it's amazing what you can do if you put all three sides together. But if you have one person or a lack of collaboration, there's a decent chance you're missing out on something. The jack of all trades is the master of none.
This is a true statement when you're looking at financial planning, I agree.
Okay, we want to bring this to life a little bit. And Brian has prepared just a case study to actually show you the impact of the potential changes that are going to happen next year. So, Brian, I'm going to hand it over to you. It's time.
For math. It's not really it's it's not really math. So this is just to demonstrate the effect of inflation on a state tax. So this year, if you have a 10 million net worth client, the exemption is 13.6 million. And so there is no estate tax if you pass away. I hope that does not happen.
So don't take advantage of this. If you just hold on ten years and live your life. This is an estimate of 6% growth of assets and a 3% official sort of statement of what inflation is, right, which is even high for what it typically would be. So what happens is the estate exemption goes back down to seven and then it will increase, but slower than your net worth up to nine.
And so you now pay a state tax of 3.6 million. Let's say this is just one apartment building. Nothing has changed with your wealth. Right? The if you were to sell that building, you still get probably the same type of exchange for another building. It still buys the same things in the world. If you were to just sell it and go out and, you know, spend it.
But by simply allowing inflation to be a little bit higher, then the official sort of a projection or, acknowledgment of that inflation, there's a state tax. So now I can show you and then that'll be it for the math part of this, what would happen if you make a gift prior to this occurring. So here you give $2 million away now and you can give it to a trust.
You don't have to hand it to someone, right. It can be restricted and you can have some controls. Maybe we'll talk about that if we have time. If you pass away later this year, let's say you gave it away at the end of the year. There's no estate tax. Still, your net worth is eight. You gave away two.
Your exemption is 11.6 because you used 2 million of it. And remember it's the same number. It goes down together. But there's no estate tax. Same ten years goes by. Same sort of growth estimate which is now that 8 million that you kept goes up 6%. It's not perfect. But I wanted the math to be roughly, round numbers.
So your state is 14.5 million. Why is your exemption seven instead of nine? In the last example? Because you used to. So we still carry that over. And so now we have 3 million of a state tax. So if you remember in the last example the estate tax was 3.6 million. And so now it's 3 million. And so you have an extra 600,000 that goes to your heirs, or 600,000 less to the government simply by shifting that growth out of your estate.
And this is actually modest in the sense of we're taking discounts, we're using assets that might go up faster than that. There are other income tax strategies. This is the minimum savings that would occur under these conditions. So the reason for this is just to understand that you may even if you're close today, you may want to look at this and say, well, and should I be shifting some of this growth to structures that are not in my name anymore, with the understanding that there's some limitations now on what you can do?
So that's what I wanted to share. We switched.
Brian, I'd love for you to actually maybe switching into some of these structures. And just so you know, even in the last 20 minutes, if anybody has a question, please feel free to raise your hand. We can take audience questions on these topics, but okay, there's $2 million you're shifting to. Ere's a lot of different ways you can do that.
I would love for you to go through a few different strategies just so people can start thinking about it, if it applies to them. So let's start by talking about slats.
So that's one of our sort of caveats right. Remember our general rule is if you give something away you can't benefit from it anymore. But what if you gave things to your spouse? Well technically you can't benefit anymore. You probably should be nice to them now because they have control of all the money you just put into their trust.
And you, you could say, hey, maybe we'll go on a vacation, maybe we'll buy a new car. Who knows? So you would have indirect access. But what you have done in that example is take some amount of money and it may not be two. Two is fine, but typically people who are doing this kind of planning would do more than this.
And you would shift that from your account to one person who becomes their property, and then they gift it to the other one into a trust. And so now we have this special bucket which is outside of the estate. We use that 13 million or 7 million or whatever it is. We use it now to create this special account that now grows outside of your net worth, knowing that only your spouse can get to it, you indirectly benefit.
Of course, there are risks here. You might go your separate ways. Let's hope not. You would not have access to that anymore. And more, more practically, they might pass away. And if that happens, if the spouse who received that gift passes away, you no longer have indirect to access. It has to go to the kids or the remainder beneficiaries, whoever you want to leave things to.
And so you you may be accelerating a transition of wealth to the next generation, to the first of you passing instead of the second. We would want to financially plan that and.
Yeah. So so this is, this is why everyone's talking about slats right now. Because they're feeling like the exemption is going from 14 to 7. I don't want to put my head in the sand, but I'm not ready to give my kids millions of dollars. What do I do? And so this is a potential middle ground to get something out of your estate.
With all these caveats that we mentioned, about indirect access, no basis step up upon someone's passing. So these assets that go in there, they don't get a new income tax basis. So if you have two spouses and they are older, let's say a lot of low basis assets, you would be want to be very careful to go gifting now because if one were to pass in the next year, well all of those all of those gains would be wiped out.
Right. And so that might not be great planning. This is again, this is why we have to look at the whole picture. There's no like perfect answer okay.
So that's I'm giving to your spouse. Let's talk about giving to children. What types of structures do you usually explore when somebody comes and says, I'm comfortable putting $2 million in a trust for my child, but I want to know the parameters here. Can you just walk through maybe a few examples?
Sure. I mean, there's the easiest thing to do, which is just give them money outright. It's theirs. They do what they want. Maybe you get to see, like, how responsible are they? If they go crazy, you might call me and change your estate plan at that point. Right. So there's some benefit to trying that sometimes it's more practically for like a home, right, where they're buying a house and you're helping with a down payment, something like that.
More commonly, clients want some kind of a trust structure. So this is not like a revocable living trust that you have. This is a special trust that's irrevocable. It has a tax ID number. It files a silly tax return every year. And by doing that you get to set the rules for the trust. So you get to say who is in charge.
Maybe it's the child, but maybe it's not. You get to determine for what purposes can money come out and help them. Now this is a little tricky because you are not allowed to direct the benefits anymore. The IRS would pull that back into your estate because it would be the same as just gifting when you want to from your bank account.
So the trust has to state that you don't control if and when the kids get the money. But some third party does, and they're probably going to listen to what you have to say if you call them up.
So pick a good friend, is what you're saying, right?
So you can then set the rules for distributions for any purpose. It can be very restricted. And in the, in the case where we want the child to ultimately control these assets and hopefully that's what we have, we don't have the trust end. We let them take it over because assets that you receive an address from someone are are far more beneficial than your own.
Unfortunately, your own are subject to creditors. If you're in some sort of a car accident or something, they're in your own estate that you're growing that will be subject to estate taxes. Maybe a spouse might ask why they're not on that bank account. And that's a tough conversation. Whereas if you have a special trust, the answer is have a trust.
It's there if we need it. And it's protected from creditors. And so we would set them up to have, these preferred assets that are beneficial.
And something I really love about this structure is that you can give assets to a trust. It's protected, like you mentioned, from a liability standpoint. But then in addition, when we think about divorce and divorce rates for our children, having them receive money in a trust where they can say, sorry, no access, I think is actually a really valuable thing.
And so even when we're doing regular revocable trust estate planning, oftentimes we have our clients, put the inheritance into separate property trusts for their kids. Honestly, just to make the conversation easier for them because it's easier for them to say, this is the way my parents set it up than it is for them to have to get an inheritance.
And now they have to talk to their spouse about who gets to keep that exactly right.
And these are just built into your estate plan. They don't exist today unless you're gifting. And so there's no additional complication to you. They just sort of spring into life, when you pass away. And then they have the protection if they're in charge and they decide they don't want it, maybe there's no one there can stop them from taking it out.
But at least you've done your best to to set them up for success.
So what about okay we talked about spousal gifting. We talked about gifting to children. Let's talk a little bit about charitable strategies. What are some different types of charitable strategies that you're exploring.
And Scott feel free to grab the microphone at any time here if you want to talk. Because you're doing this annually with clients. So there are I mean, again, simple structures where you just give assets either to qualified charities, to donor advised funds, which for most tax purposes count as qualified charities. Right. And this is discretionary.
When you give that money in or assets in you can't get them back right. Fair enough. There are other types of strategies that you might want if there are really specific circumstances. Things like charitable remainder trusts. So a common example would be, let's take a piece of real estate that's appreciated significantly. You don't want it anymore, but you're stuck with this thing because there's tax.
It doesn't have debt. And you say, you know, I, I would like to just turn this into income to me. I don't want to pay the capital gain and whatever I don't need, I'll give to charity when I'm gone. Well then you can fund that piece of real estate into this trust, and you get to set how much you get back for your lifetime.
And the IRS kind of depressingly, has like, life tables. They tell you how long you're going to live. And so you plug in the numbers and they say, all right, if you take 5% from this $5 million and you're 56 years old, here's the value of that remainder interest, right. The amount that's likely to go to charity will give you a deduction for that.
So you keep the entire sales proceeds. And then you get to have 5% for life on that 5 million. Again the key here is are you okay directing this away from your beneficiaries.
Yeah. So you have to be comfortable giving the asset to charities. But you get the benefit of keeping the income. So it's a nice kind of win win scenario right. One thing you mentioned with donor advised funds, some of you may have heard of these in the audience. One thing that's nice about donor advised funds that I like a you have the flexibility to donate money into a donor advised plan on maybe like a big income year, but then you don't have to use it all that year for charities you can give to charities whenever you want to.
In addition, I like to think about donor advised funds as, you having the opportunity to give your children charitable dollars as an inheritance, meaning you can set up donor advised funds where at the end of your life, whatever's left in the donor advised funds just essentially becomes mini donor advised funds for your kids.
Disclosure: Information presented herein is for discussion and illustrative purposes only. The views and opinions expressed by the speakers are as of the date of the recording and are subject to change. These views are not intended as a recommendation to buy or sell any securities, and should not be relied on as financial, tax or legal advice. You should consult with your attorney, finance professional or accountant before implementing any transactions and/or strategies concerning your finances
