Who handles your trust and what happens if the person you appointed leaves or dies? And Has Amazon thrust our country into a depression?

Episode Transcript

Intro:

Welcome to the Practical Tax podcast, with tax attorney Steve Moskowitz. The Practical Tax podcast is brought to you by Moskowitz, LLP, a tax law firm.

Disclaimer:

The information contained in this podcast is based upon information available as of date of recording and will not be updated for changes in law regulation. Any information is not to be considered tax advice or legal advice and does not form an attorney/client relationship. Further, this podcast may be construed as attorney advertising. You should see professional consultation for your individual tax and legal situation.

Chip Franklin:

Welcome to another addition of Practical Tax with tax attorney, Steve Moskowitz. Let's start with a guest that's in your backyard. That would be Michael Davidson, not only a really smart investor, but he has a lot of ideas, and he's nice enough to join us here. Can we talk about wills and trusts for just a second here, because this confuses a lot of people. Steve, how many people do you think, watching this right now, don't have a will or a trust?

Steve Moskowitz:

A lot of them don't have anything. And another thing is, there's a lot of people that have something that's woefully out of date, and if they don't change it, they're leaving everything they have to someone that they now hate, and they will turn over in their graves if they understand that, so this is something... should always be constantly reviewed. What I tell income tax clients is, "Look, we think about your income taxes all year long, we plan all year long, we file a return once a year, and your estate planning, which involves everything you've worked for in a lifetime, everything that you have, whether you got it yourself or if somebody left it for you, why don't you give that the time and respect it deserves?"

Chip Franklin:

Michael, what's your experience? I mean, have you found that, when you try to sell somebody on getting a trust or a will together, it depends on their age, or are they stubborn, or do they usually go right along with your suggestion?

Michael Davidson:

I think one of the questions that isn't expressed out loud or asked out loud is, is the next steward prepared? And I think for a lot of us and for a lot of our clients, there's some uncertainty around that, and that's even a conversation that couples haven't really processed together. And so, as a result, there is this inaction that takes place as it relates to getting a will done, getting a trust done.

All of us have stuff in our families, and kids, and grandkids, and daughter-in-laws, and son-in-laws, and just that whole dynamic adds this element of uncertainty for the future, and I just think that it's tough for couples to come together and be decisive with that. And so, I really think that the good question to ask is, is the next steward prepared? If they're not, then what needs to happen to get there? And I think walking through that series of questioning, I think can help get an estate plan done.

Chip Franklin:

Obviously, there are going to be different stages of life. I know both of you guys can address this. I mean, people start thinking about some of these things when they get to be 50, and it's too late, in some cases, for financial planning. But a trust and a will, those have to be constantly reviewed, but why? And Steve, let me ask you real quick, what is it about a will that would change, or a trust that would change from when the kid is 25 to when the kid is 35, if it's still just my money that I'm passing along?

Steve Moskowitz:

Laws change, taxes change, wants change, relationships change. For example, what if you have a situation where your son marries or divorces, has a child, has six kids, one of them has special needs, somebody's developing differently than somebody else, somebody has a problem, they have an addiction, or something else? It's like life. Life is a constant series of changes. And a lot of people go through life and they wish, or they think, well, something's in stone. It's not. That's just the way life is. This constantly needs reviewing.

Chip Franklin:

Well, Michael, let me ask you something about when you set up administrators for a trust. Again, it might sound really ignorant here, but it occurred to me that if you set up the administrator and it's the same age as, for example, myself, by the time the trust needs to be administered, they might be as old as I am. Do you change administrators along the way?

Michael Davidson:

Well, generally, we're advisors and money managers, and so we have estate planning attorneys that help us with that, and they're thoughtful enough to ask that question, "Is this person really ready to do that?" And obviously, any good estate plan is going to have successor administrators and trustees and executors, so I think that's a part of the process. And that's another question that a great attorney asks, is, "Does this person have the competency and the ability to administer your estate?"

Chip Franklin:

What about tax laws? You mentioned tax laws change. Are some of these grandfathered in? Like, if I start a trust and a will, based on the assumption that the way the law is now and the law changes, do some states or the feds, do they grandfather that old law into your plan?

Steve Moskowitz:

I'm going to quote what I quoted back when I was a law professor. Law is only that which those in power at the times say it is. Our Congress and their infinite wisdom can do whatever they want to do. And there's so many times when they're even thinking about something, you have to be prepared and saying, "Well, for example, right now, there's a very generous exemption from estate taxes. What if that changes?" Well, you have to be prepared for it. And the reason we'd like to tell our clients about it is you don't want to get a call from your lawyer saying, "Hey, there's a new law coming at midnight tonight. Do you want to make a major change? Hurry up and tell me because we have three hours." These are things that you want to think about, plan, and then say, "Well, if this happens, I'm going to go this way. If that happens, I'm going to go that way."

Chip Franklin:

I like the name of your company, Michael, Wealth Wisdom. And the Wisdom part, I think is really important, especially if people get into their sixties and they start thinking about retirement, and now, we have this incredible inflation that's going to eat, at least, hopefully, for a short period of time, into people's pensions and 401ks and savings.

Steve Moskowitz:

Or as we like to call it, turn them into 201k plans.

Chip Franklin:

Well, here's my question for you. If you were going to go back to work, and we had a discussion about that a few episodes back on Practical Tax, if you were going to go back to work, is it better to go into something where you can file a long form to help abate some of those taxes? This is a question for both of you, but I'll start with you, Michael.

Michael Davidson:

Well, I think going back to work, whether you're currently working or not going back to work, you always... We call it walking in wisdom, and another way to say that is just being... We want to be healthy. One of the best ways that I can have longevity in the future is to do my best to be healthy today.

And it's the same way with finances, and with finances, there's really five things you can do with money. You can give it away, you can save it for the future, you can pay taxes, you can pay down debts quickly, or you can spend it. And as it relates to a tax planning, our recommendation to our clients is to do the giving and the saving first. That generally helps with lowering taxes, and if you can do that and live on and develop a lifestyle that allows for giving and saving when you have income in the future, you're more likely to have a lifestyle that works. And so, it isn't necessarily a tail wagging the dog. We want the dog to wag the tail here.

Steve Moskowitz:

And a lot of times, you can put those together where you do have a charitable interest, but the charitable interest will throw off an income tax benefit. For example, if you do a CRT, charitable remainder trust, and you say that you want to live in this house for the rest of your life and your spouse for the rest of their lives, but when the second of you passes, your house is going to go to the charity of your choice, you get an income tax deduction for that now. And physically, everything is the same. You're living in the house the rest of your life and your spouse's life, but you pay less taxes now because of something that's going to happen after you've passed.

Chip Franklin:

Yeah, amazing stuff. Can we get you back, Michael? I really appreciate it. We had a hard time tracking each other down, but I really appreciate you being here. Thank you so much.

Michael Davidson:

No, anytime. Thank you-

Steve Moskowitz:

Thank you.

Chip Franklin:

Thank again. His website will be at the end of the show, but it's called the wisdomindex.com. And I could use some more wisdom. I-

Steve Moskowitz:

We always use more wisdom.

Chip Franklin:

If it was-/p>

Steve Moskowitz:

Only watch out for the guy who says he doesn't need any because he knows all there is to know. That's the guy I want to avoid.

Having nothing to do with pepper, state and local taxes. Here in California, California does follow a lot of the federal law, but not all of it. There's some laws that are just different in California, and other laws, the state will interpret more strictly. For example, with 1031 exchanges, the state interprets things more strictly. Also, California enacted what's called the clawback rule,