Tax Warrior Perspectives
Tax Warrior Perspectives

Episode 6 · 5 months ago

Tax Warrior Rewind: Estate Planning Updates & Conversations with Your Family


On this month's Tax Warrior Rewind episode, we review Jane's conversation with Rachel Kieser, CPA, MT, about changes in tax law. A current hot topic, especially around estate planning, the implications of these changes for high net worth families are significant. Rachel’s expertise in guiding her clients to sustain and grow their wealth proves invaluable, as she shares insights from retirement account management, to how to use trusts and estates to minimise tax liability and taxable appreciation, to the impact of Covid-19.

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... Scachetti. Tax and financial planning is all about one thing really. It's about building legacies, legacies for you, for Your Business and for your family. Approaching each year end, we review changes to our families and businesses and how our investments and plans have performed to see if there are any adjustments that are warranted. This month's podcast episode is a rewind to this summer, when we discussed building legacies through your wealth transfer planning and key changes in the law that you need to be aware of. Please enjoy this episode and May you and your family have a safe and joyous holiday season and a prosperous new year. Welcome to tax warrior perspectives, where our goal is to bring you insights for building, sustaining and growing your wealth. Join our expert discussion of the most crucial ideas and strategies for including tax in your financial plans. And now here's your host, Jane's Ketchetty. Hello, this is Jane Sketchetti and welcome to tax warrior perspectives. Today we'll be talking to my business partner, Rachel Kaiser, on some of the nuances and changes in the law that we can anticipate that would impact estate planning for high net worth families. We hope at the end of this podcast you can say that was a great podcast. I now know what I need to do. So before I introduce Rachel, let me tell you a little bit about her. Rachel, a shareholder, a drucker and Sketchetti, is a CPA. Rachel holds a master's degree in taxation from Villa Nova law school and she's been with our firm for over ten years. Rachel leads our wealth transfer planning practice group and focuses on guiding families who value taxes a business strategy to sustain and grow their wealth for the next generation and beyond. Rachel and her husband live in Philadelphia with their two golden retrievers,...

...and in her spare time she likes to hike, travel and is an avid ballet dancer. Welcome, Rachel. Thanks, Jane for having me. Oh, I'm so excited. So, Rachel, let's dig right in. State planning discussions are difficult to have. People sense their vulnerability, their loss of control, and I'm thinking of so many of the business leaders and athletes in the last couple of years where we've read that they've died without a will and the complications that that causes. How do you start the conversation with our wealthy clients? Typically, we would normally start the conversation with you know what would happen to your wealth if you're not here tomorrow? And that goes for anyone at any net worth level. Right, not even you know, fifty million, but we're talking about a hundred thousand dollars, even less than that's very important for everyone to have their affairs in order. But recently most of our lines have been really focused on the estate tax implications because of you know what they're saying in the news and Washington with proposals that the exemption could could be reduced back down to five million dollars soon. So it's been a little bit easier the last year and a half or so to start the conversation. Before that it seemed like more of a well, I'm not I'm not going to die tomorrow, so I'm not going to deal with my mortality. But now I think people are really focused because they can put a dollar dollars to their worries. Yea. So it's been a little bit easier to broach the topic for sure. Why? I also think with real estate values skyrocketing, and I'm not talking about the insanity of the last six months, but over the last ten years real estate values have gone up. The market has at various times gone up and over that time period definitely has increased. I think people are seeing there, for one case, go up in value. They're seeing their investment accounts go up in value. They're seeing the one or two homes they may own, they may own three homes, that vacation home. They're all seeing that wealth is growing. So let's back up and just give a...

...little bit of a state planning one hundred and one. You've used the word exemption. Can you just explain what you mean by they see the exemption could shrink. What are we talking about there? Right now, the current law is that someone one packs of a hair can transfer eleven point seven million dollars out of their estate either during life or upon their passing, which means that I'm married. Couple can transfer twenty three point four million dollars. This is as of started in two thousand and eighteen under the tax cuts and jobs act. Prior to that, the exemption was five million dollars index for insulation and that tax cuts and jobs act law with the increased exemption is set to reduce back to the five million dollar number into two thousand and twenty six. So if no laws are passed in in Washington today and everything just ticks on no one does anything, this twenty three point four million dollar exemption for a married couple will drop down to about eleven and a half million dollars in two thousand and twenty six. That's right. Okay. Yeah, so we've been seeing more clients to be concerned about that and you raise a good point about real estate. That's included in your taxable state and it's a not it's not really a liquid asset. So someone. We've had clients who the majority of their state was real estate. And then you have a liquidity issue if you don't have life in turns and things like that, let alone closely held business is let alone. Right. Yeah, we've had people that have had farm land, income, producing land, things like that all count as part of this estate. It's everything in your name, correct. Yes, yes, everything in your name. Typically what we see for people to transfer assets out of their state is usually they will use trusts don't. Either, you know, gift highly appreciating asset to a trust, or you can sell it to the trust and take back a note, so at least the appreciation will be out...

...of your estate. But those are just two strategies that can be used to transfer wealth out of your state to hopefully reduce that number that would be over the whatever the exemption maybe when when you pass away. You know, I chuckle a little bit because I think as professionals we use the term like transferred to as a trust, and we know that setting up trust are not overly complicated. Right. So there are things that you can do and I hope our listeners understand that some of these ideas are relatively not simple, but they're not overwhelming and they're used by many, many wealthy tax pairs. So you've been attending a lot of estate planning seminars. Know there's articles daily both in the General Press and in the tax press. So assume you're trying to either convince your client to talk to you or your client sophisticated enough to be panicked about this and cares enough about their family and raises issues. Why is two thousand and twenty one an important year. Two Thousand and twenty one is an important year, I think, because of there's so much uncertainty in Washington. There are several proposals out there that really could impact one's ability to transfer or to gift dath that's out of their estate, the first being Bernie standers, has introduced a bill that would actually reduce that eleven point seven million dollars actually down to three point five million, but it would only allow you to gift one million dollars during your life, so it's actually not three and a half, it's only one million. So that would substant like significantly impact one's ability to gift assets out of the estate. Obviously it's not law yet, but there's just one proposal. There's other proposals out there where there could be deemed realization events upon gifts, which means that if I transfer a closely held business and the fair market value is a one million dollars but my basis is only five hundred thousand dollars, this proposal would be that I would have to pay tax on that five hundred thou gain. That can create a liquidity issues.

Yeah, and let's do a different example. I bought my Jersey home. I paid, you know, three hundred thousand. I put another two hundred thousand in it, but I did that fifteen years ago and it's now worth two and a half million. That two million dollar gain, assuming it's not your primary residence, and even there, that two million dollar gain would be taxed at death under some of these proposals. Yeah, talk about liquidity. Yeah, so, yeah, major liquidity issues. So what we're seeing is a lot of clients and what we've been hearing in the estate planning conferences is to the extent that you will have an attaxable state, regardless of the exemption being twenty three million or six or ten, it's probably an opportune time to take advantage of that what they're calling the use it or lose it exemption. That amount over that six million dollars per person. But then we've also been seeing people use spousal lifetime time access trusts for people that, you know, they might not be at that higher net worth amount. So maybe they have between ten and twenty million. One spouse creates the spousal lifetime access trust or slat funds it, and then what happens is the beneficiary, spouse, would retain access to the assets during their life. So the spouse that made the trust would have indirect access. So you're seeing two different things. I assume that it's not a bright line. But for those clients that have twenty three point four million or more an assets, they're trying to give away as close to that twenty three million dollars now because we have some clarification that they're not going to go back and pull that excess in, so you have this chance to use it right now. And for those clients whose estates are between ten and twenty three and a half million, where they may still need their assets to build and allow for their lifestyle, to use these slats that you just described exactly. Yes, it really depends. Like you at first you have to figure out how much money you will need, you know, to live.

You don't want to give it away funds that you will need. Once you've done that, and it's important to work with typically your investment of Isisor can help with that. Run analysis of what you're spending, habits are and what they will be in the future, figure out what you know the capital is that you need, and then you're what's your you could call your surplus capital. And what you can gift away into a trust. But yeah, for those that are, you know, they won't need that. Those funds we've been seeing them use. We've helped client calculate how much of their exemption they have remaining and then they've been gifting, you know, up to almost nearly up to that twenty three million. Yeah, I've seen the same thing. So let's assume that you get this conversation started right. Clients are making that call saying, you know what, I I don't know what's going to happen in my assets if anything happens to me tomorrow. Right, like, I don't know. I know there's a marital exemption and but maybe I need to care about this. Right. I've spent my lifetime building up these assets, or I had heard it some of them, and I need to be a good steward for the next generation. Whatever motivates you to try and do something to sustain or increase that wealth for future generations. Where do you start? So the clients is let's do it. What do you tell them the next steps are? Yeah, so we think the first step is really getting handle on your balance sheet. So, you know, either doing it on your own or working with your account and as a good way to have that done, but listening out your assets and all your debts and liabilities, not just your investment accounts, but your real estate. If you have art, collectible art, jewelry, cars, all those things would be included in your taxable estate. And then think about what you'd want to happen to those assets if you're not here tomorrow, and then call your your trusted pack of visor and your attorney so everyone can work together as a team to, you know, help you achieve the goals that you're looking to achieve. You know,...

Rachel, there's two things to that. One was a blog that we posted recently talking about and advising our clients to make sure they know they're beneficiaries for their retirement plans. And it always surprises me how someone will say no, am I will, I left it too, and your will doesn't matter on a retirement plan. It's your beneficiary designation. So there's all the little estate planning that people need to think through. What happens to my assets if I'm not here? The other thing is I actually was talking to someone and they said, oh no, you know, we've split the assets between my wife and I am our will and some are going to my children from a different marriage and then my marriage with my wife. With this is and as they go through, they tell us that all the assets are held jointly the like. Your will's not going to matter. Then the assets are held jointly like. So these are really not easy questions and you do need someone to help you think through the ramifications, and I agree with you starting with the balance sheet and who owns the asset, and that's the other thing. Please don't guess. Go look at your real estate bill, go look at your investment account. It's amazing to me how many people have that wrong. We're all busy, we forget what we did. Yep, all great points. I agree. So, Rachel, I think you know we try to keep these podcast relatively short so we can get to the point that we're trying to make, which is this is an important issue. You need to pay attention to it if you really care about what happens to your wealth and if you want to grow and sustain it for the good of either the next generation or for a time when you're not here. That's really the fundamental piece that we want to get across to everyone. But I love with my guests to ask them a question so people can get to know you a little bit better. Here's my question. So, Rachel, when did you realize that you could make a difference in this world? So it wasn't that long ago. It was in the last, I guess, eighteen months, and I think it has to do with covid and I have to do with our clients. So I...

...think when covid hit, I personally, you know, helped clients with their PPPA, their paycheck protection program applications. Also, I had one client who worked with a large bank that wasn't even accepting applications. So worked like we actually introduce them to a couple different banks to help get them the funds that they needed. So I think at that point in my career, at least in work wise, that was the moment that I realized that I really make a difference in my clients business and help them and it made me really proud to be a CPA, very happy to help them and, you know, I think it really strengthened my relationship with those clients. Yeah, I think there's going to be a lot of us that realize that we can make a difference in that time when things felt so uncertain and maybe, unfortunately, might be headed back there. So we're going to need to stay on our toes. So before I leave, yeah, let's hope not before we leave. Where can our listeners find you if they wish to have more information or ideas? We can visit us at tax warriorscom. My bio is on the website to off and my email addresses there if you'd like to again touch Yep. And if you do go to tax warriorscom and you want to either see this podcast or other information about wealth planning, once you get to our website, tax warriorscom, just search for wealth planning. Rachel, I loved having this opportunity to interview you. I know the care, the capabilities and the passion that you bring to our clients and I'm glad that we got a chance to introduce you to them, and I'm hoping that many of them will take you up on your offer. Thank you so much, and thank you everyone for listening. This is tax warriors perspectives. Thank you for joining us today. We hope we've shared our expertise in a way. The positions you to discover the best strategies and ideas to build, sustain and grow your wealth. If you like to listen to more episodes, you can subscribe on your preferred podcasting amp or visit our website, where you will also find show notes and important...

...disclosures. Tax Warriorscoma podcast. This has been a production of twin flame studios.

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