Enhance Your Practice Podcast
Enhance Your Practice Podcast
S15 E69 - Estate Planning and Asset Protection
Hosted by Dr. Yoon-Schwartz with Special Guest Greg Pond
Unlock the secrets to bulletproofing your financial legacy with the wisdom of Greg Pond, a legal maestro in asset protection and estate planning, in our latest episode. We dissect the essential steps for securing a financial fortress, emphasizing the power of proactive planning. From the sturdy shield retirement accounts offer to the strategic positioning of property holdings, Greg illustrates how these measures can repel potential creditor onslaughts. Heeding Greg's advice could be the difference between leaving your heirs a legacy or a labyrinth of legal woes, as he explains why early arrangements are your best defense against future claims.
You're listening to the Enhanced your Practice podcast series brought to you by ASPS University. I'm Diane Ian Schwartz, chair of the Practice Management Committee, and I invite you to check out all of our educational offerings, from professional surgical videos, courses on practice management and much more on ASPS EdNet. Welcome to Enhanced your Practice. In this series, we will explore acid protection and estate planning. We're privileged today to be joined by Greg Pond, who has expertise on these topics. Good morning, Greg. How are you?
Speaker 2:Hi Diana, how are you?
Speaker 1:Good, first, I probably did you some injustice as far as introducing yourself. Can you tell us a little bit about yourself?
Speaker 2:I'm an attorney. I've been admitted to practice in New York, for I can't believe it it's now 40 years. I'm a partner in the Trust in Estates Practice Group at Sir Tillman Valley on Long Island. We specialize in all areas of estate planning, estate administration and estate litigation when the families just can't help but fight about the money. I started my career doing personal injury litigation and even at one time I did some med mal defense, believe it or not. Currently, I also teach business law at St John's University, my alma mater, and I'm still getting over the fact that we didn't get into the NCAA tournament this weekend.
Speaker 1:Oh, my goodness, I didn't realize that's awful In broad terms, just because this area is obviously something that we don't encounter every day, can you give us a very broad description of the two terms, for example acid protection? I know they're interrelated, but if you had to descriptively explain acid protection versus estate planning and then maybe also how they relate to each other, just so we get a broad base of what we're talking about today.
Speaker 2:Acid protection is a very broad category and involves a lot of different types of potential asset protection techniques in order to implement it.
Speaker 2:It could be anything from protecting your assets from creditors to protecting assets when they go to the next generation. It could be a case of a second marriage where one of the spouses from the first marriage is looking to protect assets when the second spouse passes and assets go to the next generation, so it's a pretty broad category. Estate planning most people think of in terms of putting together advanced directives, healthcare proxies and powers of attorney, so they have people who can make decisions for them if they become incapacitated later in life and unable to do so for themselves. And then it's the disposition of assets upon death, currently today, using a combination of revocable trusts and what we call poor over wills, which basically are designed, depending on the size of the client's estate, to minimize estate taxes upon the first spouse to die, or perhaps in the entire estate, and also to better protect the assets when the assets go to the next generation, and a big part of estate planning today is the use of trusts.
Speaker 1:Okay, great. And just getting to the sort of selfish side, because it seems like the way you described it, asset protection may sort of be more pertinent to the living now, whereas estate planning utilizes devices for the next generation. So getting to the here and now with this asset protection. So, as physicians and you had mentioned previously about medical malpractice litigation, but obviously we are open to all different kinds of potential litigation so in terms of asset protection for plastic surgeons in particular, so given that their net worth eventually can be potentially high and their exposure, I guess, could be potentially high as well, at bare minimum let's say you're a starting plastic surgeon what are some of the most important first steps to make sure that we have in place? I know there's obviously a bare minimum, different types of insurances per se, but in terms of the arena that you're in, what kinds of things can maybe somebody start setting up that doesn't have a ton of assets yet, or do you even do that at the very early stages?
Speaker 2:I think it's always a good idea to do it at the early stages, and a big part of asset protection maybe it's the first banner or first rule asset protection only works if the planning is done before the claim arises and so you become aware of the fact that let's just use a car accident, you have a really bad car accident and you don't have a lot of insurance. The time to transfer assets is not after that lawsuit happened, because there's a or that claim arose, because there's a very good possibility then that any transfers that somebody might make from one spouse to another or to trust for the benefit of children, that's not going to work. There's a very good chance that those kinds of transfers could be set aside as being deemed to be in fraud of creditors. So it's important to emphasize that good planning starts early. I think that's a very important consideration. The first thing I would talk about first is that there are some there's some creditor protection in the law, and I'll give two examples, and then we could talk about two more sophisticated planning devices and concepts to get into. First of all, retirement assets are actually exempt from creditors. So to the extent that you're contributing to IRAs, 401ks, 403bs, whatever it may be qualified monies or qualified accounts. Those are actually protected from creditors in the event of a lawsuit in most states anyway. Secondly, if you take title, for instance, to a house, as husband and wife, that's what's called a tendency by the entirety and there's actually some asset protection built into that as well.
Speaker 2:If I get a judgment against and here's where trust and state planning start to merge if I get a judgment against a, let's say, the husband, that judgment could be a lien or is a lien filed against the property that's owned by the husband and wife. But I can't force a sale as the creditor. I can't force a sale of that house because it's owned as husband and wife. I have to wait and I have to see who dies first.
Speaker 2:If the husband, who has the judgment against him, if he dies first, his half goes by operation of law to the spouse surviving spouse and I as the creditor get nothing. If, on the other hand, the innocent spouse, who the judgment is not against, dies first, his or her half goes to the husband. Now, as the creditor, I'm able to not only force a sale of the house, I can get back, I can collect on my judgment, and with interest. I just had this case, actually last week, where two physicians came in to do their estate planning. One of the things they had done was emphasize the estate planning over asset protection. Unwittingly, actually, they put their house into their respective revocable trusts, which is a very good thing for estate planning, but they blew up the asset protection that they had in their house by transferring the house into those two revocable trusts.
Speaker 1:Can you elaborate on that? At a far distance, that seems like a good idea.
Speaker 2:So their estate planning lawyer said you know, if you put your houses into your revocable trusts, which were drafted for them, that avoids the need to have to probate the will upon your will upon death. That can save expenses, that can save time. It's a good estate planning notion, generally speaking. But two trusts can't own real estate as tenants by the entirety. It turns the ownership as tenants by the entirety to what's called tenants in common. And now if you get a judgment against either spouse now you can force a sale of the house because you've changed the form of ownership. So what we would tell clients is either leave the house in the tendency by the entirety or you might wanna transfer it into an LLC, a limited liability company, something we're gonna talk about next. But don't put it into two revocable trusts if you're concerned about asset protection.
Speaker 1:That's very important. Now, what about the concept of putting everything in the, let's say, non-potentially malpractice or other litigation partner, assuming that the divorce rate in this country is not really 50%?
Speaker 2:So we have a better idea. We suggest that the spouse with the risks, the surgeon with the risks, rather than transferring assets to the spouse, that they create what's called an intervivos QTIP trust. This is a it's an irrevocable trust. It's QTIP stands for Qualified Terminal Interest Property. It's a special kind of trust that is eligible for what's called the unlimited marital deduction, and so there's no state tax consequences or gift tax consequences when you transfer the assets to this kind of trust. So one of the main rule of an intervivos QTIP trust is that the spouse must be the only recipient of income from that trust and must be able to receive that income for life. There can be no other beneficiaries to the trust and there should be, and we need to have somebody be an independent trustee. By doing that, you've now created asset protection on both sides.
Speaker 2:This the surgeon has transferred assets again before a claim arises. Transferred assets before a claim arises. Transferred it out of the spouses, out of the surgeon's name. The hasn't really given it away because it's a transfer to the spouse. And again, you wanna do this in a case where there's a potentially where there's a good marriage, but even more importantly, there's the state tax benefits to having transferred it to this trust, when the spouse dies A the assets can come back to the surgeon who just contributed the assets in the first place and secondly, you get the surgeon gets what's called a stepped up basis equal to the fair market value of the assets that were transferred at the time of death. So it's a really good type of trust to create and to transfer assets to and it eliminates the possibility that, say, the other spouse who you transferred, who the surgeon transferred all the assets to, has a bad car accident, hurts a lot of people and has a lot of claims brought against him or her and now has all these assets in his or her name.
Speaker 1:Oh, okay, and can you just that was a little bit above my level.
Speaker 2:So the simplest way to think of it is this a revocable trust is an alternative to a will for purposes of transferring assets upon death. When a person does a will, people think well, I have a will, it's in place. It's actually just pieces of paper stapled together which can be changed or modified at any time during lifetime and then, upon death, those pieces of paper have to be filed with the surrogates court and a decree has to be issued declaring those pieces of paper to be a person's last will and testament. That whole process is called probate. Probate's a Latin word. It means to prove You're proving that these pieces of paper are somebody's will.
Speaker 2:If you do a revocable trust, you can avoid the need to have to probate the will upon death and to the extent that you put assets I should say to the extent that you put assets into the trust during lifetime.
Speaker 2:The other aspect of it is that if you become incapacitated during your lifetime developed dementia, for instance your successor trustees can continue to manage and stay on top of your assets and have access to them without having to go to court and be appointed as a guardian or rely on a power of attorney.
Speaker 2:So with revocable trust, it's really an alternative to device for leaving assets to the next generation and avoiding probate. With irrevocable trusts, you're giving something away. Whenever you create an irrevocable trust, you're giving something away, whether it be a life insurance trust, where you're gonna have a life insurance policy owned by the trust, or whether you transfer your house into your residence into a trust something that's called a Cupert. In each of those cases with irrevocable trusts, you've given an asset away or you've given up control of that asset for some period of time. You might be doing that for Medicaid eligibility purposes, or you might be doing it for estate tax planning purposes, or and that's usually that's the main reason or to protect assets when they go, like we've just been talking about, to protect your assets during lifetime.
Speaker 1:And if, for whatever reason, you decide to make changes along the way, let's say, as life changes for irrevocable, is that sort of a permanent entity or can you, other than legal costs, go back and make some changes to that?
Speaker 2:There are certain things that you can do with in terms of changing irrevocable trusts. One of the things that you know we kind of it's pretty standard for the trust that we draft is the ability to change the trustee during lifetime. So the person who creates the trust is called the grantor and the trustee is obviously the person who is the grantor's assets are being transferred to who's gonna be responsible for managing and or investing those assets. So you, we very often provide that the grantor, at the very least, can change the trustees during lifetime, and we often even build in the fact that spouses can change trustees during lifetime. The trusts are drafted in most cases a good trust is drafted with maximum flexibility to contemplate a lot of different scenarios that may occur during lifetime.
Speaker 2:But there are a couple of mechanisms for changing the irrevocable trust during lifetime. One of them is if everybody gets together and agrees to amend or revoke the trust, that would be the trustee and all beneficiaries. That, if everybody gets together and agrees to that, that's one way of terminating an irrevocable trust. A second way is by use of what's called trust decanting. So, just like the word sounds, you pour wine out of a bottle into a beautiful crystal decanter. So the trust in a state's lawyer prepares a new and improved, better trust that more accurately reflects the grantor's wishes or the change of circumstances or perhaps even change in tax laws, and so you create a new and improved trust. So you create a new and improved, better trust, and then the trustees of the old trust transfer the assets into the new trust that says what we want it to say. There's restrictions on that, there's guidelines that need to be followed, but that's become a very flexible way of being able to, as we like to say, fix the broken trust today.
Speaker 1:So, as you had mentioned, you practice in the state of New York and, as I had remembered, I also reside in practice in New York and this is one of the states that has state estate taxes in addition to some federal liabilities. My question to you is let's say you practice all your life in one state and you retire and you kind of liquidate all your assets in, let's say, maybe an unfavorable state, what kind of tax implications and things do people have with regard to state residents?
Speaker 2:So that's also. That's a good question. New York is one of maybe only somewhere between 12 and 15 states that has an estate tax. The federal estate tax obviously applies to all 50 states.
Speaker 2:The federal estate tax exemption currently for this year for people dying this year is $13,600,000. To the extent assets go from one spouse to a surviving spouse, you don't use any of that exemption and that the unused exemption is transferable to the surviving spouse. So a married couple today can pass on $27 million free of any federal estate tax. The estate tax on assets above $27 million is 40% and that exemption expires or is set to expire if Congress does not act on December 31st of 2025 and is going to go back to a number of somewhere around 7.5 million per person. So I talk about the federal estate tax to illustrate, for instance, what happens in New York that also has an estate tax. The New York state estate tax exempt amount is $6,900,000 per person, but if you have more than 105% of that amount, so roughly $7.3 million of assets, the exemption disappears and New York taxes you on $1.
Speaker 1:So not on the excess of that amount, but starting at the first dollar, at whatever percentage.
Speaker 2:Exactly, and so rates start at 8% and max out at 16%. So it's become for us a reality that there's. A lot of people have moved to other states, especially Florida, because Florida does not have an estate tax and again is one of 30 something 35 states at least that do not have an estate tax. So for many clients the move out of New York is the move.
Speaker 1:Does that mean that, regardless of having spent most of your life here? I guess my question is what if you still have assets here, but your permanent residence is somewhere else?
Speaker 2:So if you're, it's all about where your permanent residence is or where your domicile is, where you're considered to be domiciled. If you became a resident of New Mexico, I'm just guessing. If they don't have it.
Speaker 1:And I think it's actually I had already looked it up it's an exempt state.
Speaker 2:Right. So let's say you held on to a house here in New York and moved to New Mexico. New York could only tax your New York residents unless you found yourself here back here in New York more than 183 days a year. So what many clients will do is transfer the New York residents into a limited liability company, for instance, and then when you own, when a limited liability company owns real estate, you, as the owner of the limited liability company, own personal property, not real property, and that's not then subject to the New York tax.
Speaker 1:Do you encounter that a lot?
Speaker 2:Domicile and clients moving. A lot of people think that it's just a question of 183 days, but it's really. The test for whether you're still subject to New York state income tax or estate tax is broader than that. It depends on a lot of different factors. Do you still have New York source income? Do you have real property located in New York? And then, if you're taking the position that you're someplace else, that you're a domicile in another state, the analysis is somewhat subjective and then the question becomes where are the things that are nearest and dearest to you? And so you know, just showing up in Florida and voting, you know, and signing up, registering to vote and changing your driver's license. That's not enough. You really need to be able to show that this new residence in this other state that you've moved to is where you really intend to live and that's really your home base, if you will.
Speaker 1:And they actually have mechanisms to validate that.
Speaker 2:So cell phone records and they do audit. I had a client tell me I know this is very local geographic, but the UBS arena is kind of on the Queens Nassau border. He goes to a lot of games at the UBS arena but doesn't want to be taxed as a New York City resident and so he goes a different way to UBS arena every day, whenever he goes to games there, because if he goes on the Cross Island Parkway he's in Queens, which means he's in New York City for a day. They obtain the subpoena cell phone records in order to see what the 182, 183 days looks like. If you're in New York for an hour, you're in for a day.
Speaker 1:Oh goodness. Okay, these are all very important specific things to know as we're planning for this. Okay, that was very interesting. And in terms of other than vehicles, such as trust and different ways to transfer, are we missing anything with sort of basic asset protection for, let's say, both the early surgeon, the mid surgeon and the one who's retiring soon? Are there any key things that you just want to mention that each of those categories needs to pay attention to?
Speaker 2:For sure. The other thing that we need to explore a little bit is the use of the limited liability company. So LLCs are very common today. It's actually the most newly formed entity today, in terms of when somebody starts a business or acquires real estate, we use the limited liability company. It's an outgrowth of both the benefits of partnership law and the benefits of corporate law. There's limited liability in terms of the entity itself. If you do business as a limited liability company, you can only get to the assets that are in that limited liability company. And there's the benefit of the LLC being what's called a pass through entity, which means for income tax purposes it doesn't pay tax. The income passes through to the individual owners that are, who are called members of the LLC.
Speaker 2:So what many clients will do is prepare, will create what we call an investment LLC and if they have liquid assets, brokerage assets, stocks, bonds, securities, they may put those types of assets into a limited liability company that might be a Delaware LLC, for instance, and then they'll open up their brokerage account in the name of that LLC and then transfer the securities into the LLC. That LLC, or one of the advantages of an LLC is if now, if I get a judgment against one of the members of the LLC. Unlike in the case of if you own shares of stock of a company, a creditor can take the shares of stock of a company to satisfy a judgment. A creditor can't become a member or an owner of an LLC in order to satisfy a judgment. The only thing that a creditor can get is what's called a charging order, which is the right to receive distributions from the LLC whenever the manager of the LLC decides to make distributions to its owners.
Speaker 2:So very often we will structure these what we call investment LLCs as a multi-member LLC. The each of the spouses will own some percentage of the LLC and then very often and here's where we come back to a state, a state planning and a state tax planning very often they'll also create trusts for the benefit of each of their children and then transfer some of the ownership of the LLC to those trusts for the benefit of the children. So now you have a multi-member LLC, say you have two kids, each spouse owns 49% of the LLC and each of the trusts owns 1% of the LLC, for a total of 100. You've got the creditor protection in the form of the charging order and now you have a vehicle for future estate planning gifting where you can over time gift the grantor trusts, the kids trusts, additional ownership interests in that LLC in order to move assets out of your state for state tax purposes, and that's a very viable strategy for protecting assets going forward. But again, you wanna set this stuff up before there's a claim.
Speaker 1:So are you saying like when you first either gained the real estate asset or start the business, it should already sort of be set up as an LLC, if possible, if?
Speaker 2:you're starting a business. I mean professional, like surgeons. They may set up, they do business under other kinds of like a PL Like an S-Corp or something. Or, yeah, the PCs used to be prominent Not usually S-Corps today, but when that surgeon or that client has started to accumulate liquid assets and wants to be able to potentially protect those assets from creditors, that's and again, before a claim has arisen wants to protect those assets. Creating an LLC and transferring those assets into an LLC can be a very effective credit or asset protection tool.
Speaker 1:Other than real estate are you talking about? What kind of other liquid assets are you talking?
Speaker 2:about Security stocks and bonds. Yeah, you might move some part of your portfolio into that kind of LLC.
Speaker 1:And I think you had mentioned previously. I just wanted to get back to the state residents really quick. Let's say you're living life and you've acquired assets from a spouse which again does not go through the inheritance tax or the estate taxes and but then you get like really sick and you know you're gonna die and they've given you a set period of time. What's the look back on the estate tax in terms of getting care or moving to a different state? I know that sounds like a crazy question, but I'm just curious.
Speaker 2:So when you use the term look back, now we're starting to and we say somebody getting really sick? Now we're kind of moving more into the area of Medicaid planning, more so than estate tax planning, when, if someone doesn't have long-term care insurance and is in need of it, gets really sick and is possibly in need of being cared for in a nursing home, some clients will transfer assets from one spouse from the sixth spouse to the healthy spouse and basically, in order to impoverish that spouse and become eligible for Medicaid to pay for the nursing home. When you do that, when you transfer assets from one spouse to the from the sixth spouse healthy spouse, there's no look back period.
Speaker 1:Oh, okay.
Speaker 2:When, when they say there's only one spouse and that spouse trance the surviving spouse, if that spouse then say, creates a trust and transfers assets into that trust, now there's a five year look back period before those assets would be exempt from Medicaid.
Speaker 1:For the like spouse to spouse, when they're both living. There's not even like a days look back.
Speaker 2:No, for Medicaid purpose there's no look back period.
Speaker 1:That's good to know for, I guess, people who have elderly parents or planning for other family members as well. I think that's probably an important part, as we all have, like, different generations.
Speaker 2:That's very true and that's the other part of really of what we do, and in our practice group, for instance, is Medicaid planning and actually, you know, medicaid applications for that purpose, totally unrelated to New York, to estate taxes.
Speaker 1:And that would be both for your clients and their family members. You'd be able to assist on a broad range of like I guess, generational issues.
Speaker 2:Absolutely. You know the clients, clients, every client is different, every client's resources are different and you know we've talked about some topics here. In general terms there is no one size fits all. It's not like everybody should have an intervivo Qtip trust. Sometimes, you know, different trusts make more sense, absolutely.
Speaker 1:And when you had mentioned the LLC, you mentioned the state of Delaware. Can you get a little bit into like setting up LLCs not in the state that you reside in?
Speaker 2:So each LLCs are a creation of state law. So each state has its own law concerning concerning LLCs and there are some differences from from state to state. So Delaware, as a general rule, the Delaware laws and the Delaware courts are technically not technically, but I guess by reputation is a more debtor friendly state or states law and is a more corporate governance friendly type of place. New York, by reputation, is more of a business oriented state, or at least its law is and, for instance, a New York LLC. There needs to be, or it seems to be written into the law that there be a business purpose. If you're the sole member of an LLC, that's called a single member LLC and that is, for tax purposes, a what's called a disregarded entity.
Speaker 2:Florida, florida's LLC law, for instance, says that a single member LLCs will not work for asset protection. So you have a Florida surgeon who says, well, I'm going to create an LLC because I heard on a podcast that you know there's only charging order remedy. It's not, but I'm going to be the sole member of my LLC. I'm not giving my wife anything and I'm not giving my, or I'm not giving my husband anything and I'm not giving my kids anything and I'm just, I'm just gonna be a single member, llc. Florida law says no, sorry, that won't work. So there is. There is, we think, maximum flexibility in the Delaware statute and, interestingly enough, some other states have copied Delaware's law. Typos included in those states, so there is some that goes into the right state.
Speaker 1:And I guess that's the same with trusts as well. You certainly don't have to set up the trust in the state that you reside in as well.
Speaker 2:That's very true. So New York, for instance, again, trusts are a creature of state law as well. New York, for instance, you cannot create what's called a self-settled, spendthrift trust. You can't create a trust for your benefit and expect it to be insulated from creditors. You can't be a beneficiary of a trust and, under New York law, expect it to be a exempt from creditors.
Speaker 2:Some other states, however, have adopted laws and have created what are called domestic asset protection trusts, dapts and those are basically self-settled trusts, meaning trusts that the grantor created where the grantor is the beneficiary and, again, if created under that state's law at a time before there's a claim that trust may be effective, in the event a creditor comes after the assets that are in the trust.
Speaker 1:And as far as you know, because you you keep highlighting before there is a claim made again. Let's say somebody's listening to this podcast now and decides to you know sort of giddy up and really start their planning. Is there any look back on that as well? Let's say they find all the papers, everything's in order, everything's filed within each of the states and different entities, as soon as that is in order. If then something tragic happens, are they protected? Like, what's the time frame on these things?
Speaker 2:So it's really having made or completed a transfer to an entity, whether it be a newly created entity or an existing entity, before a claim arises, or certainly before knowledge of that there could be. A claim arises Once you get a letter from a lawyer. That's way too late. Once you get you know handed a summons and complaint at the front door, that's way too late. If you've done it well in advance, you can sleep at night knowing that those assets are more than likely protected.
Speaker 1:And in terms of both timing and you know just the nitty-gritty. Let's say again you're listening to this podcast and you sort of started things and you know you have some like reasonable amount of assets, you have a home, you have your practice and you have some you know equities and investments. How long would you say that the planning phase and execution in a reasonable amount, with you know being able to think about things, how long should that usually take approximately? I mean, this is broad range.
Speaker 2:To first start things off. It usually and again, a lot of this depends on the. The clients focus on the on the subject matter. Within three, four weeks we can have a basic comprehensive plan in place. It takes a day or two to create LLCs. Today. If we're doing deed transfers into those LLCs, that's a relatively easy thing to set up.
Speaker 2:It's really a question of the, the priority that the client gives and, as you know, as a busy surgeon you don't always have time for us. We feel very neglected too, because we sometimes only see you twice Once for an initial meeting and then again for the signing meeting, you know, to put the documents in place. You see your accountant a couple times a year. You see your financial advisor three, four times a year usually, and you might not think of us again for five years after we do it. And then for other clients who are more, you know, more concerned about it, especially as they get older. It's an ongoing process. That is something that we're doing a little bit over over years time. I have some clients I'm doing planning state tax planning for over ten years.
Speaker 1:And in terms of like things that a physician, as time, you know, as time goes on, can be doing for themselves, you know, just in terms of saving both you or actually ourselves, time and money, what are some basic sort of record keeping or things that we could be doing that could help us along the way with all of this planning?
Speaker 2:The main thing is to, I think, is to know your assets, to break them, break your assets down by. You know categories real estate, ownership, business interests, bank and brokerage accounts, retirement accounts and life insurance somebody ought to have, there should be somewhere, something that a couple of sheets of paper with that information on it that can guide whoever's going to handle your estate if, god forbid, something happens and actually you know this is kind of an aside, but it's very important somewhere. Somebody needs to know where the passwords are. That's. That's very often a real challenge, for when there's an unexpected passing, he, he, he, she did everything online. I don't know where anything is, I can't get to anything and could be then months before you can really get information.
Speaker 2:So to me, the main thing is to stay on top of the assets and check in. I usually tell clients check in at least every four years. I have some clients that come in for annual physicals, if you will. Here's what's happened in the past year. This is what my son's doing now. He's graduating from, you know, holy Cross or whatever I, we, I'm thinking of retiring next year one of the tax exempt exemptions now and they kind of they approach it as a once-a-year check-in kind of thing, and that's good plan okay and you know, obviously a lot of the clients with considerable assets probably also have, you know, maybe a financial advisor helping them, and I'm assuming that you probably also work closely with their financial advisors.
Speaker 1:Is that helpful for you, or do you generally not involve them, like we're very much part of a team and that that team is almost always headed by the financial advisor.
Speaker 2:You know clients. The financial advisor, like I mentioned, talks to you possibly more so than then even your accountant, and which might only be a once-a-year type meeting, and knows more about you than than almost anybody in in most cases. So we view it as being part of a team that, the very least, consists of the financial advisor and and the person's accountant and in terms of seeking help, you know, I I would think that some people think that this is some.
Speaker 1:You know, potentially you know exorbitant amount of money to undertake one of these ventures. What, what's the sort of general range you give people? I mean, you know not exact dollars and cents or time, because I'm sure it depends on each scenario, but are these sort of like affordable things for people to do? Well?
Speaker 2:I think, so some people think our fees are outrageous, but not for the most part. Where we, you know, when you're talking about, let's say, basic planning, you're talking about advanced directives. So healthcare proxies, living wills, hipaa authorizations which I know you guys know about and powers of attorney, revocable trusts and and wills, those that package, depending on the firm, depending on your location, between five and ten thousand dollars. We're probably right around, right close to the middle as far as our firms and most firms on Long Island, the. If you start to get involved, then in the next, next generic, next step in planning, which is whether it be creating life insurance trusts or grantor trusts for the kids or doing this asset protection, you know the intervivos, q-tip trusts or something what are called slats. A lot of clients are doing spousal lifetime access trusts. Then you start to get into, you know, additional fees, but again, I would urge a client to try to get flat fee quotes as much as possible for you know and make it clear what steps are actually going to be, you know, implemented.
Speaker 1:That's great. Okay, so I'm going to move on to some basics of estate planning, and I know that this is a very like broad topic. I think you've already mentioned things that were relatively familiar with with the healthcare proxies and you know sort of the basic package that you described. I think some of the additional, more complicated strategies may be very applicable to members in our field. So if you could just go over I think you had mentioned it these trusts or different vehicles that don't undergo inheritance taxes, estate taxes, just like basic, simple vehicles that you could describe to us, that may be something that we should consider for people in our profession and our field.
Speaker 2:So I think that any conversation along these lines before we get into trust should spend a little time talking about gifting strategies. So clients, every person can give this year $18,000 per person per year. That's called the annual gift tax exclusion amount. There's no tax consequences to that. You can give away $18,000 per person per year. A married couple can give away $36,000 to any one person or child using what's called gift splitting. That's something when a client has assets near where there could be a taxable estate where they should start to consider that kind of gifting. You could contribute, for instance, to a 529 plan and you can front load that with. You know a grandchild is born. You can front load that with up to $90,000 in the first year, $18,000 times 5. You can't give $18,000 again to that grandchild for five years but you have that $90,000 working, you know, hopefully growing and appreciating that much earlier. The last part spouses can, or taxpayers can, also make unlimited payments to to schools of higher education, be it high school or college. As long as the payments are made directly to the institution, they can pay for room and board and books without that $18,000 limitation. So that's one important estate tax planning strategy, if you will. That's pretty straightforward, pretty simple and, can you know, help, can help get a grandchild through college, for instance.
Speaker 2:In terms of estate tax planning strategies using trusts, the first one is, and probably the simplest one is, using what we call irrevocable life insurance trusts, or IELTS.
Speaker 2:The idea being is, if you're going to be taking out life insurance, if you, if you die, and you have, say, a $5 million life insurance policy and that puts you over the estate tax exempt amount, now, part of that, those policy proceeds are just going to pay estate taxes, and so what clients will often do is have their life insurance owned separately, owned by an irrevocable life insurance trust that they create, the idea being that you then have, you know, your estate assets subject to estate tax on in one hand and you have the death benefit from life insurance owned by a separate entity, by this trust and those death, that death benefit is not subject to estate tax and can be the source of liquidity to pay the estate tax on in an estate that has less liquid assets or, you know, less cash.
Speaker 2:Basically, that's probably one of the the most basic strategies. Very often, clients that are, you know, doing well have insurance trust, and there's a second advantage to that, even if it's not a taxable estate. It's not a bad idea for life insurance to be owned by a trust because, again, the surviving spouse and or children are usually the beneficiaries of that life insurance trust and if they get the policy proceeds in trust, now that cash, that those, that death benefit is protected from creditors that they may have.
Speaker 1:Right, so double protection.
Speaker 2:So it's double advantage. Number one it's out of the estate for estate tax purposes and number two it's it's creditor protected. You now have asset protection as to that asset as well. There's a whole lot of other strategies, probably beyond the scope of this, where it gets complicated, involving other kinds of trusts and sales to trust and use of valuation, discounts and things along those lines. There's charitable trusts, and you know the different strategies that can be employed there. That's a deep conversation.
Speaker 1:And you know, as far as charitable giving, you know, just because as time goes on you have more, I guess, requests for donations I did start a charitable I guess donor advice fund, which means that the money that I put in like day to day, if it accrues, I'm not taxed on it and can give like larger amounts. So that's like one thing that I've started.
Speaker 2:But and you don't have to decide right away who you want to the charities that you want to leave it to or give it to.
Speaker 2:You can make the contribution, get the deduction and then your decision making is down the road. I had a client who died without children, without grandchildren, no spouse. Closest relatives were more well off than she was. She made some generous gifts to people that were close to her at the end of her life and the rest, which is roughly about five million dollars, she put it into a charitable trust and we're the trustee of the trust. Our job is basically, every year, to give away five percent of what's in the trust at the end of every year to seven charities that she picked, one of them being the school where she went to college and so and the largest, the largest amount going to that school. So, rather than I like to say rather than five million dollars going to you know some institution to pay for sheet rock in a new room or building or whatever, she puts three kids to college through college every year and helps a whole bunch of other organizations in their day-to-day activities. So it's great to be part of that.
Speaker 1:Yeah, and you know, in terms of, I guess the five percent portion of it is that trust, sort of like reinvested, and it makes that five percent. Or is that off the principle? Just for curiosity's sake.
Speaker 2:Yeah, well, most of the time the goal is to generate that five percent and so far we haven't had to go into principle. Oh, okay, great, good with our financial advisor has been successful. But it could go into principle if they were only able to generate four percent in a given year. Five percent is the IRS required minimum Right oh okay.
Speaker 1:So the IRS for these charitable I guess trusts or funds requires you to actually get that away.
Speaker 2:There's a recognition that more than five percent a trust will ultimately fail, eat itself up and die. Less than five percent or less, it can go on. It's considered to be able to go on and perpetuate oh okay, so that I guess that's where that number comes from.
Speaker 1:All right, and you know, I mean today has been an intense discussion, I think, all things very important for all of us, regardless of what assets you have or what you're thinking about, just in terms of being careful, responsible and also, as you had stated, sleeping well at night. I think, for those of us who have either used yours or other services relating to both asset protection and estate planning, we work very hard and I think it's important to spend a little time, as well as money, and utilize professional help, not try and do it on your own. As you know, we encourage our patients to seek professional help. I think sometimes we think we can do things on our own, and maybe I think this discussion has spurred some people to being a little bit more responsible about their financial health and well-being.
Speaker 1:So I want to congratulate you on all your, I guess adventures with this area, your perseverance with teaching and for spending the time with us today Any sort of last minute thoughts in sharing this with our plastic surgery audience.
Speaker 2:Well, first of all, it has been a pleasure, and your advice at the very end is as important as anything that I've said in the last hour. You've worked hard, protected.
Speaker 1:Right. I think that's a great slogan. Maybe You've worked hard, definitely protected. Thank you so much, Greg. Thank you, have a great day. We hope you enjoyed this episode of the Enhance your Practice Podcast series brought to you by ASPS University. You can listen to our other episodes on other podcast platforms or you can download recordings directly from ASPS Ednet. New episodes coming soon.