0:00 Who are you? [music] And where are you going? What do you want? [music] Hello and welcome to Trust and Estates Weekly. I'm your host, Kevin Bemel, and I'm here every Monday at 10:00 a.m. Pacific time to talk about estate planning and trust and probate administration. Both from the standpoint of professionals like myself and my guest
0:35 Bruce, who I'll introduce in just a moment, u but also for you if you're a lay person, someone who doesn't do this professionally. Maybe you've gotten uh appointed as the executive under a will. you've never done this before. You want to do a good job, but it it's it's all pretty frustrating and mysterious. So, this show will hopefully give you some information so that you can feel more confident in what you're doing as well as speak to your advisors in a more more coherent way. So, today um I'm very happy to introduce to you my my guest
1:13 Bruce Bowski. Uh Bruce is one of my longest standing friends. Um I won't talk about exactly how know how long we've known each other, but uh suffice it to say it's it's it's a it's a long long time. Um Bruce has been a mentor of mine uh for for many many years. And uh shameless plug, Bruce also is my uh business and personal accountant. And so hopefully you will take from that uh the level of esteem uh in in which uh I I hold [laughter]
1:49 I hold Bruce and and yes uh he he teases me in in absolutely mercilessly. It's one of the reasons why I think we've been friends for as long as we have. So So Bruce uh thank you. Thank you for being my guest today on Trust and Estates Weekly. You know the song, girls just like to have fun, boys do, too. [laughter]
2:14 >> My pleasure being with you, Kevin. [laughter]
2:17 >> So So Bruce, aside from my introduction, if if you would tell us at least a little bit about your background so people can can get to know you a bit and and and realize the the depth of your experience.
2:31 >> I was the Zar of Russia in the 1960s. Um, no. Uh, I am a, uh, practicing CPA, uh, tax work and, uh, also a licensed real estate broker. Uh, I don't do financial statements anymore. I do taxes and consulting to clients on their financial well-being and running their businesses and do do their taxes.
2:58 >> Okay. And I I know from various uh clients and friends of yours that I've met at social events and such um you really have a very broad range of knowledge in in this field. Um before we get into the specifics of of trusts and estates, give me an give us an idea of of the different kinds of businesses with which you've worked with your clients. Well, uh, I do a lot of real estate and restaurants, but I I I deal with entrepreneurs. I do not deal largesized
3:34 businesses. I'm a soul practitioner and uh, my people generally start their own businesses. They uh, have multiple entities and they do investments and they need a lot of uh, consultation. And so in regards to how to run those, what to do tax- wise, how to structure them, and I work with them extensively um throughout their careers.
4:02 >> Okay. And so presumably at the point where they start thinking about uh you know, estate planning and and and that that kind of uh forwardlooking planning. um they're looking to you uh for advice. Um not on the legal side of course, but there's so much more to estate planning. I think this this is a issue that does not get discussed in estate planning very much is is how much of it deals with business planning and financial
4:39 planning beyond just the legal aspects.
4:42 >> Well, just getting people to do that is the big hurdle. uh for a lot of people uh [clears throat] I send out regular emails to my clients uh to uh alert them to first of all at the beginning of the year uh about filing their business license, filing their 1099s, etc. I send them reminders throughout the year and if any tax issues come up, but the last couple years I've developed a email uh at the end of the year to remind people to do their estate planning uh
5:18 because a lot people don't like to do this and for some reason they think they want to ignore it. I think it's, you know, something to do with them dying. I don't know if that's the reason, but the reality is they're going to die. And unfortunately, you and I are not going to be here forever, Kevin. And we have to pro and it's just prudent to properly tax plan. It's amazing how many times I talk to professionals who tell me that they've dealt with people who have significant assets and never did any
5:54 estate planning. And it's just bad. bad for you, bad for your family, bad for your descendants, uh bad for anybody around you not to do this. I mean, it starts with um uh the first time you really need to to to have a have a will and have is when you have children because God forbid something happens uh to your you and your spouse while your children are there. You you need to designate who's going to be taking care of those children and where
6:29 the assets are going to go. And as you get older and you start accumulating assets, you want to make sure the assets go to wherever you want them to go. Those grumbling, you know, needy children who are always graveling and and wanting all your money. Well, now you've got they can have it, but you want to have it the right way, and you want to make sure most of it gets to them. So, uh, it's it's not a exciting subject. Uh but it's a necessary subject.
7:04 >> So So aside from um you know emails and reminders and such um I mean [laughter] knowing you as I do, what what other steps do you take to convince your clients to to do this this needed part of their planning? I mean, I know for me, you know, it would be like, you know, throw, you know, get your last sew out, throw, you know, throw a rope around my legs, hog tie me, and say, "Okay, Kevin, now we're going to do it." But I'm not sure you deal with your other clients quite quite the same way. So,
7:38 >> I I do I I do I I'm I'm very invasive that way. And uh I will say to them, you know, I'll bring up in conversation or bring up in conversation and they'll be somewhat hostile if they haven't done what they need to do because, you know, sometimes I have to bully my clients into doing this because it's for their own good. You know, it's like when mom made you eat eat broccoli, you know, it's or green beans. It's uh it's something that needs to be done and and they like to avoid it. you know, if I got any idea that they're they're thinking about it, I you know, I
8:14 call a num. Have you done this? Have you have you called the estate planning attorney? And by the way, you know, the the interesting thing about the email I I now send out at the end of the year, I say, I'm not making any money on this. Just go do it. I can refer people to you. I'm not making any money. [laughter] I'm doing this for your own good.
8:37 >> So, Go ahead. Yeah. Yeah. No, go ahead.
8:40 >> No, I'm done.
8:41 >> Oh, okay. So, when when you you know, when you're talking with them about an estate plan, um what do you see as being the crucial parts of it and specifically the crucial parts of it where an accountant like you can really add value to the process?
9:04 >> Well, there's two two aspects of this. getting them to do the state planning and then dealing with it. You mentioned earlier when people when they have to deal with the issue uh now I'm dealing with a lot of people whose parents have passed away and uh someone has to handle the estate and you know what their experience typically is in handling estate zero. [laughter] and I've never done this before and I say, "Really? You haven't?" I'm shocked,
9:39 [laughter] right? But I have and I'm here to help. So I give them advice and uh but you know, you just walking them through the basic things depending on the level of assets that they have, you know, whether they should they have obviously starts with the will. you want uh if they got enough assets, you look at still look at doing a trust there's some a things that you can do that will uh when I say a trust what what is referred to as an AB trust and what that
10:14 means I don't talk in lingo that means a husband and wife A and B you can say whoever's A and whoever's B uh but the fact is that you know and that uh a good AB truss will automatically transfer upon the first deceased spouse to the to the uh remaining spouse and everything will go to that one. But you want to make sure if you got enough assets, you're not paying state taxes. Nobody wants to pay estate taxes. Now, God has blessed us with government lately that
10:51 has said, you know, we don't want to give you a lot of money for us out of our state when you pass away. level is now at $15 million for a person uh where they're exempt from state taxes if they pass away.
11:10 >> But there's a lot of hitches in between there, you know. So, you got to do state planning. If you have a house, how much and it's appreciated. If you own real estate property, it's appreciated. If you own stocks and it's appreciated, there's a lot of planning in between to do that. and to structure it right up front. And by the way, you know, I I thought about this when I was thinking about our our conversation. Uh doing a will and trust is not done on on AI. It's done with the real attorney understanding what his story. And a lot
11:45 of people think today they can go to go to AI, whichever format you're using, and get and put together a will or a trust and not spend any money. and you and you get what you pay for in that regard as I always do in life. You don't necessarily kn know the nuances etc. I've seen some excellent products in various different situations come out of an AI uh uh putting together a form on a legal form through AI. But still, you know, you're talking about
12:20 protecting your assets and your family and and what you want to do with it. uh uh when you eventually are no longer with us, you're you're sleeping somewhere with with uh another wife, you know. [laughter] So, uh up up there, you know, with God. And so, uh we uh the uh you have to make sure that whatever you want to do is protected and they they end up with this the stuff and they're in good preparation. The other thing is
12:55 obviously a lot of people don't aren't really good where documents are [snorts] uh obviously in my house everything in master guard goes through me. Uh, I I remember when I I was uh uh when when my wife and I just recently got married and my my uh friend of hers, she she alerted a friend that I had taken over all the money in the household and and she said,
13:30 "You're letting him control your money?" She he she said to her, "Yes, he gets paid to do it for other people." [laughter] I'm getting it for free. But it's my responsibility to make sure that whatever is documents are there, any insurance, any uh any trust documents, anything that is that she needs to know is readily available and she knows where that is. It's in a drawer at my office or it's in our it's in our safety deposit box. The originals being a lot
14:07 of the originals being the safety deposits box. for example, wills and trusts. So that's that's really what you gota counel people on to make sure that one, they follow through on this, and two, they keep the documents in a place where whoever is participating in this in in this is uh the the eventual recipient knows where it is and and is not totally befuddled. and who to speak to, who the insurance agent is that they need to talk to to get the proceeds from the insurance, who the who who uh who drew up the the the trusts and will and
14:43 trusts so that you can go back to them and make sure that they have the documents that you might want them to uh to go over and they have it signed docu They should have signed documents and you have signed documents and and to make it as easy as possible after you no longer are with us on this planet.
15:05 >> Yeah. I I I think you know, you bring up a a a good point and I think this is a mistake that some people make and that is well if one spouse is going to be handling something, it's as if the other spouse has been completely, you know, separated from it or they're completely in the dark about it. Whereas you and I, I think you would probably agree with this. As professionals, one of the things we do is we keep our clients informed. And that's no different for a spouse than it would be for anybody else.
15:36 >> Yes. Exactly. And when I'm doing people's taxes, u I kind of sensed if there's a couple that there be one contact. Okay. Because if they're both asking you questions similar, it drives you crazy. And they're giving you both going over documents, etc. But there's a primary contact. But when it comes to this issue, I make sure that they understand when somebody becomes a client, when I'm if I'm dealing with somebody, I make sure that other person I have all their their information and they have my information and I I tell
16:12 the primary contact. I say, "By the way, the other spouse is awesome. my client and make sure that she knows or he knows that they can call me at any time so that they feel comfortable in doing that. You and and and they're familiar with doing that if they have direct questions instead of running it through the other person because you know how those questions get befuddled when you know that's why we talk about telephone you know
16:42 >> things get lost in the in the communication. So,
16:45 >> very good. Let's take a quick break and we'll come back for more.
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17:30 or visit magnumprops.com. So, so Bruce, talk to talk to us if you will. What do you see as being maybe the two or three issues that are most often overlooked when someone is doing their estate plan? Um perhaps particularly from an accounting or financial uh aspect as opposed to a legal aspect.
18:02 >> Well, they don't First of all, the the primary asset of most people is their home and how they're properly holding that huh that house and the title of the house and uh the uh it should be held uh jointly with the right of survivorship and and they don't necessarily have it held that way. So that needs to be checked and a good if you're working with an attorney they will make sure that is held that way in the proper
18:38 manner and or if if you create trust it's held in the trust but it's still with the right of survivorship of the surviving spouse. So those title things uh are not necessarily looked at because some people will acquire um a a home and not necessarily consult a professional as to how it should be recorded. Uh so that's right there is very important. Uh and then the idea of what you do thereafter on the home if
19:14 someone is deceased, you need to get an appraisal and you need to be able to go to somebody and get an appraisal because there's what we call at the time of of uh what is called I should say uh at the time of after the person is deceased, you get a step up in basis. So say say you bought the house for a million dollars, it's now worth $2 million. You can get a step up so that when the second spouse is deceased, the value going to the going to the kids, let's say, is $2
19:51 million, not $1 million. So you keep doing dealing with those things and making it sure it's properly held and they're not thinking about that while they're doing it because who do they consult when they're buying their house? Uh they're real estate agent who knows Zippo about tax law and shouldn't be giving any tax advice. I used to give speeches to uh real estate offices because I'm a licensed real estate broker. It was a good way to, hey, I'm I'm I'm in this I'm licensed like you are. And I say to them, but the only
20:28 thing is I'm the only person in this room who should be giving tax advice, you know, but they I get calls all the time. My my real estate broker or my my friend Charlie says, uh, I should do this. And I say, well, that's nice, but I really don't care what they had to say. Now, what is your question? [laughter] I shouldn't be giving that. call your real estate broker and tell they shouldn't be giving tax advice. It's not a good idea. So anyway, that's that's the big since that's the biggest asset for almost
20:59 >> uh for the majority of of people in the United States, that's the biggest concern. But then there's the other aspect of how you hold uh uh the next thing would be how they properly hold and uh their other assets like pensions etc. and making sure that there's the right of survivorship on that and then and people don't think about that.
21:26 >> Okay. So going back to the you know the personal residence the step up in basis uh I I think a lot of people especially lay people they don't understand why that's important. So why is it important or why is it such a good thing that you know let's say again to use your example I bought a house for a million dollar and then when the first spouse passes away it's now worth $2 million and so um why is it so important to document that it's now worth $2 million
22:01 >> and and pay
22:03 >> and to pay get and pay someone to do an appraisal right at the time it's very important Because when you when the uh now let's say that a year after uh the husband has passed away since uh the husband is usually first and you don't understand that go watch look up Allen King on the on YouTube and he'll tell you all about husbands passing away before wives. Right. So
22:34 >> because they want to [laughter]
22:40 >> So [laughter] So now if you do the now let's say the wife is so grieved a year later she passes away that the house goes to their loving children. Well instead of having they have that house has a new what what was the value of that house at the time of the of the passing? Well, if you haven't got the appraisal at the time of the first one, you you've lost some of the stop up in basis. So, you need to it's extremely
23:15 important to do that. And now the kids turn around and sell the house because they don't need to live in the house. They've got their own house. They aren't paying any any capital gain tax if they've got the appraisal. And that saves them a ton of money. If they haven't done the appraisal, they could be paying uh capital gains on a million dollars.
23:37 >> Right? And again, I think this is an area and I'm going to I'm going to kind of dig down in this because this is I I talked to people about this and I think there's a lot of misconceptions that if I sell a house, you know, I I I can, you know, I'm essentially exempt from uh capital gains because I'm selling a house, right? And there's more to it than just, you know, I'm selling some random house, right?
24:03 >> That is true. I mean, if you personally sell a home and you've bought the home that, for example, uh my wife and I have lived in our home now for 35 years and it's appreciated a good bit. We're in the state of California and we the only exclusion you get as an individual uh if in normally selling a home is that you as long as you've lived in the home for two of the last five years, you each get $250,000 exemption from paying any taxes. After
24:40 that, you capital gains tax. So, let's say you bought the house for a million dollar. It's now worth $3 million. You sell it for $3 million net. Instead of paying taxes on $2 million, you're paying taxes on a million and a half because you each get that step up of $250, $500 combined,
25:01 >> and that saves you a lot of money. But that's the only exclusion you get. But you get a bigger exclusion if you do the you handle the the asset correctly upon someone passing away because then you get the step up in basis to the full value at the time of death.
25:21 >> Right. And so and this is this is true of a personal residence. What about other real estate assets? Um does does the same rule apply there or are they treated different? Let's say somebody owns you know an apartment building or a shopping center or something.
25:39 >> All assets get stepped up.
25:41 >> Okay,
25:42 >> at the time of death for example um the big one of the biggest challenges we face is when someone passes away and they have a stock portfolio.
25:56 >> Okay. uh and you have to go to the broker that whoever is handling the uh uh the investment the financial advisor all right and get them to give you a list of the value of the stocks at the date of death because when they give you when you get let's say you sell a bunch of the stocks the next year
26:24 >> you've gotten this step up in basis, but that doesn't reflect on the statement that Meil Lynch or Morgan Stanley is going to or LPL is going to send you. They aren't going to do that. So you have to have your independent list uh that you've generated at the date of death of the the the spouse and so that you don't pay taxes on that either because then otherwise you're going to pay capital gains based on the original purchase price. So, so again there's a tremendous potentially a tremendous savings of
27:00 money by taking advantage of the step up in basis for the securities uh at the
27:06 >> absolutely a and what this means is you have to when you have to when you are uh dealing with this issue you have to be organized. That's why whoever is a point person has to let have have a list of the people they're dealing with. My wife personally knows our insurance agent. She knows the attorney that they will walk them through it. They knows the financial advisor and all knows all these people personally and
27:41 uh and then they are so she knows how to contact them. She knows where every document is that that would be important. The wills, the trust, the insurance, the insurance, the life insurance policies, etc. All that stuff that would be available, she has she knows where that is so that she knows that the time that that gets stepped up and that who to who to talk to about what she needs to do. And a good good attorney. Uh and I also have friends in my business who she can talk to who will
28:17 help would advise her uh on something if something happened to me in in tax planning who would help her in on the other side. Make sure from you got at least more than more than two eyes looking at it. You got more than one set you got two or three sets of eyes.
28:34 >> Right. So, um, you you mentioned, um, earlier in the show that we we now have a $15 million per person exemption from estate tax, right? Um but I know in in you know in earlier times the exemption was much lower and and so um there was there was kind of a tradeoff to the step up in basis whereby you got the step up in basis but because the estate tax exemption was so low an
29:11 estate would essentially pay uh taxes on that amount. amount that that uh was calculated to be the step up in basis. Now, because the exemption is so high, it's it's really tax-free that that people are getting this step up in basis. Am I am I remembering this correctly or am I off?
29:35 >> It's it's a it's estate taxree. It's not capital gains tax-free because remember once those assets transfer to the recipient the beneficiary the technical term is the beneficiary that that that's when they're now have the asset at a new level this it's here okay and then God willing it will start going up in value and the difference between here once they've received it and here they paid capital gains tax. But if the
30:10 new value is set up here by because of the fact that the valuing is state of death state of death and it goes and it goes up to here then you're dealing with a new base. Not you're not down here. up here and you got less capital gains tax to pay at the time the person who's the recipient uh receives the asset.
30:39 >> Okay. So,
30:40 >> it it's it's really important because quite often homes are sold, condos are sold after someone's passed away, but also it's really important with trust with with with stock too because quite often stocks are sold, right? they're more fluid,
30:59 >> right? So the the nonetheless that the the the IRS is like they're they're always looking for opportunities to collect more revenue. So let's say that an estate when the assets were bought, let's say the total value of all the assets, house, um stocks, let's just say it was $2 million. Okay? And here it is now many years later and and a spouse dies and the value of those assets are $5 million. So there's a $3 million difference between what those what was
31:36 paid for those assets and what they're worth now as of the date of death. That $3 million because of the estate tax exemption essentially it's taxfree. No one's going to pay any taxes on that gain in value. Right.
31:53 >> It's tax-free at the date of death.
31:55 >> At the date of death. Right.
31:57 >> Right.
31:57 >> Right. But you don't want it transferring. You're going to I think you're going to go ahead. You don't want transferring at that $2 million. You want to make sure it goes up to that $5 million for the beneficiary because then because you're avoiding the capital gains rate on that $3 million in your example, which is a lot of tax,
32:18 >> right? Right. For sure. What would happen? Let's take that same exact that same example. $2 million cost of of acquisition, $5 million value at date of death. So there's a $3 million gap there. What would be the situation if the estate tax exemption were dropped to say, you know, a million and a half dollars? What would happen to that $3 million gain within the estate?
32:46 >> Why do you say things like that? That's so nasty.
32:49 >> I want people to understand.
32:51 >> Oh my god, that's so why would they ever do such a thing?
32:56 >> [laughter]
32:56 >> I want people to understand how important it is to have this $50 million estate tax.
33:03 >> Oh, it's huge. It's huge. This is the the fact is well, first of all, it was it was it was at lower levels for a long time. uh 600,000 then raised to a million and but it wasn't reality and I think a lot of there there is a a significant amount of people who think that you know people who have 68 $10 million $15 million they should be able to transfer that to their their family they've earned that they've collected it they haven't spent the assets they could have gone out wild
33:39 they could have been chasing wine women in long and it could have been gambling. Instead of enjoying it instead, they saved it for their for their beneficiaries, their children, their grandchildren, etc. And they shouldn't be hurt by the government shouldn't take that away from them. So for quite fortunate when it was a million dollars, first of all, you had to do a lot more estate planning. There's a lot more tricks that we don't want to get into. It's too complicated to to even begin to discuss on on a show like this, but it was estate planning was a lot more
34:14 costly.
34:15 >> It doesn't mean you still don't need to do estate planning e even if you've only got two $3 million of assets, but versus, you know, this exemption. Oh, well, why would I need to worry at $15 million? Well, you do need to worry. You need to worry who it's going to. So, um, and you need to worry that if your children, if your children are still minors, that they're properly taken care of. So, um, but it's not as important as it was say 20 years ago or 25 years ago, but it's still highly
34:50 important. and the cost the fact that they've the the government has basically said at least federal government and most state governments said if you die we don't want to penalize you for that
35:04 >> if you saved your assets because there are people as you may know Kevin who go out and spend all their money [laughter]
35:12 >> well yeah you know and you know I I know people who make a lot of money and end up with nothing at the end of the which is crazy to me. But you know the responsible people are you they shouldn't be hurt by the fact that they were responsible and and and provided for their own retirement and anything that was left over is then goes to their beneficiaries. They shouldn't be hurt and I think most people feel that way. So the federal government has eliminated significantly raised that that level uh
35:49 to 15 now $15 million this year and I think it is uh uh inflationbased every year going forward. So it will increase by a factor of inflation every year.
36:01 >> Very good. Let's take another break and we'll come back. Probate and Trust TV, your curated source for the most useful and insightful content on estate planning and trust and probate administration. Featuring standout professionals like Bill Gross, Paul Bralet, James Cunningham, and yours truly. Whether you're a lawyer, accountant, real estate professional, or working on your own succession plan, this channel helps you quickly find the clearest, most practical content YouTube has to offer.
36:39 Subscribe now to Probate and Trust TV. Spend more time learning, less time searching. So, we we've been talking about estate planning. We've we've dug into a a couple of issues pretty deeply. Let's go to the other side. Now, you mentioned briefly that
37:00 >> You mean the the other side? You mean that other side?
37:03 >> The other side. [laughter]
37:06 >> I don't want to go there yet, Kevin. I'm happy.
37:09 >> Literally go there. Let's talk about [laughter] so you mentioned earlier that you've you know you've got clients who have you know passed away and and their children are now you know the executive or they're the successor trustee um and they're like ah what do I so talk about um how you help the how you help these clients uh deal with the you know the tax and accounting side of administrating a trust or or a probate
37:44 um you know now that you know their their parent has unfortunately passed away.
37:50 >> Well, we previously in the broadcast had talked about the fact that got contacted and I've never done this before really. I know you know we gone through that stuff and I said I have hundreds of times. So I'm here for you. Okay. No question is too small. I'm always available and don't do anything without asking me first. I'm happy to help you. And I start asking the basic questions. Do you know who did the will? Do you have a copy of the will? Do you know do
38:25 you have did you have trust? Do you have copies of the trust? Is there life insurance? Do you know where the copy of the life insurance policy is? Who is your life insurance agent? Where are where do you have stock? Do you have uh stocks? Do you have pension funds which are in your names? What's in your see spouse names? Do you know who holds those? And we go through all those things and make sure that they know that the and to talk to them uh and and what they need to do with that to make sure that they mitigate not only what tax situation they have now, but the tax
39:02 situation they may have in the future. Right. So, and I'm I'm glad you mentioned life insurance because I I I had this question in the back of my head and it dropped out. Not not an un, you know, usual occurrence for me. Proceeds from tax insurance. From a tax standpoint, how are those treated?
39:25 >> Well, life insurance is not taxable to to the recipient. uh you know it we're talking about as long as it's going directly to a the spouse or or the beneficiary children it's it's not taxable. So it's not a taxable event. It's typically a lot of times the particularly if you don't have a policy if you've got a whole life policy or or a policy like that it's there in bigger states to to create liquidity. Mhm.
39:58 >> Um quite often people will will acquire life insurance so that they get cold hard ca cash at the time of uh of of the the person is deceased mainly to make sure that any assets don't have to be prematurely sold. You don't want to have forced sales of assets. Now for example in the situation um well and the other thing is you get immediate cash whereas you don't have immediate cash necessarily in the other
40:33 assets. So you don't want to necess if you own a as part of your investments you own a 16 unit apartment building you don't want to be forced to sell that building. So if you have cash brought in by the for the insurance that is very good particularly if you know I if you're at a at a younger age let's say 40 or 45 or whatever you really might need cash uh you won't have as many cash assets saved as if you're in 70 or 75. So uh so that
41:10 is the real benefit of life insurance more than anything else is for the asset liquidity for the person who survived plus making sure you don't have to get be forced to sell any asset that is not commonly traded like stock. So for an insurance policy where the beneficiary is essentially the estate or the trust, how is that treated from a tax standpoint as opposed to when the the beneficiary is is the spouse or or children or something like that?
41:45 >> It's still the same. It's not taxable.
41:48 >> Okay. And is that is that because of the estate tax exemption or is it because it's inherently not taxable? Well, typically it typically real people, the the live people uh not Casper the friendly ghost is named in the on the uh uh uh not and the and the proceeds may go to the trust, but the trust is just what we call a see-through trust. It's not really there. The trust never exists unless you until somebody is deceased.
42:26 So it's still going flowing through to the to the uh uh descendants's right uh uh beneficiary that being the spouse or the children.
42:39 >> Okay. Um so other other uh tax and accounting issues that occur after someone has passed away is are there tax returns that need to be filed? You know what do people need to be concerned about in that regard from a again a tax and and financial standpoint?
42:59 >> Well, a simple you're you're filing a tax return. Let's say the husband dies on May 12th. Well, you're you still file a joint tax return for that year. He dies on May 12th, 2002 26. I'm not making any predictions for anybody, you know. Uh don't be looking at your calendar that way and not saying anything about May 12th and somebody died. Okay? So, but if somebody died on May 12th, 2026 and the wife was still uh still around obviously they she would
43:34 file a joint tax return in that year and then in 2027 she would file as a single individual. So, uh, anything that still comes into the surviving spouse, any of their income, any pension distributions, whatever may have occurred will all be reported on a joint tax return, which is more beneficial than filing as a single anyway. [clears throat]
43:59 >> Tax wise,
44:00 >> and and would the same thing be true if her her husband died on January 1st?
44:06 >> Yes.
44:07 >> Okay. with January 1st to December 31st. They're all in the same year. They all filed jointly that year.
44:15 >> Okay. So, so if it's a matter of he's looking terminal on December 31st, keep
44:22 >> him alive, baby. Keep him alive. [laughter]
44:28 >> No, NO, DON'T LET HIM GO. A FEW MORE [laughter] minutes past midnight.
44:32 >> Make sure that death certificate says January 1 is going to save you a good bit of money. There [laughter] you go. because in the end that's really what it's all about [laughter] now. [laughter]
44:51 >> Oh man, I'm I'm I think I'm going to hell.
44:53 >> That's a little morbid, but I'm going to hell. You know, money's money, baby. [laughter]
44:57 >> Yeah, exactly. Now, now does the estate itself or the trust does do do you know do do tax returns need to be filed on behalf of any of these these entities? You know, you mentioned the trust is more of a sort of a a pass through entity, but um do we need do do people need to be concerned about filing, you know, a a tax return for the trust or the estate?
45:27 >> Okay, a trust tax return. If you're below the limit, some people think that you may need you need to file what the form the estate tax reform was form which is 706 form. You need to file that return to establish the new basis if you're below the $15,000. Okay, $15 million I should say.
45:51 >> U but others feel it's not necessary. Now the trust only be is is needs to be activated and file tax return if you rem keep the assets and you have a reason to keep the assets in the separate person's trust. Then you would file a a trust return. You would at that point you get a federal ID number and you'd have to file a trust return
46:26 because then for example in that trust some of the assets are kept because it's large enough it makes sense to keep them in there and that trust is getting some dividends and interest and then it would have to be reported to the trust and then a trust return would would occur and then the money then that's when the income would flow through to the beneficiary, the surviving spouse, let's say.
46:54 >> Okay. And and and while we're talking about need to file tax returns, etc., let's take an example. This is actually something that that you're helping me with on one of the estates that I'm administrating. What is the situation if for whatever reason um the taxpayer did not file tax returns for periods when he was still alive but but for whatever reason, you know, maybe he died, you know, in February of of a year,
47:28 >> [snorts]
47:28 >> um and he didn't get around to filing his tax return for the prior year, nor obviously did he file it for the year in which he died. What you and let's say he's single. So in this case, there's no spouse left behind to, you know, to be concerned about this on his behalf. What is the situation with with with, you know, filing tax returns in in in that context?
47:52 >> Well, I think it really depends on the level of money you there is. First of all, does a tax return if there's enough income, does the tax return have to be filed? Okay. A and the situation you're talking about is the exact situation we have. I I we're waiting to get transcripts from the IRS to see how much income was recorded because we couldn't you couldn't find it otherwise uh through other documentation and we'll see how much income there was. Now the question then becomes do you really need
48:29 to report all this thing? you know, file the the the first tax return. You make a decision to be to be you you're required to uh file the previous year's tax return if there's enough income. If you don't, what happens? I you know I mean to I you know I could insist upon the fact that you do it or you can make a decision because you have a administrator's duty to file a tax return but will they see it? Will they do it? Well, is it enough income to be concerned about? That's a good question.
49:05 Okay, that's a judgment call. uh and and the stop period most likely unless there's a lot of income, you don't need to file the tax return on the date of death in the f if you file early in the year and they're single because they don't have enough income to qualify to file the tax return in the first place.
49:24 >> Sure. Okay. Makes sense. Makes sense. Okay. So, um we're we're um almost out of time. So, um, kind of final question, um, and and maybe you already answered this, but but I I think it's if if so, it's important to emphasize. So, from an accounting and tax standpoint, what what do you find to be the most frustrating part of dealing with, you know, trusts, estates, etc. that if you could, I don't know, wave your magic wand, you would,
49:59 you know, you would make go away and and live a, you know, a a a happier, less aggravated life.
50:07 >> Well, there's there's no question about that. We started with that earlier, but it's worth repeating. The thing that not only aggravates me, well, there's two things that aggravate me. All right, we're going to talk about the small thing that aggravates me. when he's talking to state attorneys, they don't speak English and then they got that I have to translate it into common common English. Well, I called my state attorney and he told me this. I said, "Well, let me explain it to you in plain English." Well, why couldn't HE SAY THAT? I don't know. You know, [laughter] I like to pay I like to speak English
50:44 that people understand. They like to go. Okay. They're they're of the breed of attorneys. They they're really problematic along that way. The other thing is a simple thing that that permeates the entire uh industry of estate planning. the the the attorneys, CPAs, the administrators is people doing the planning, people having plans, you know, and you know, finding people who have
51:21 $50 million and don't have a will. What is that? What are you nuts? [laughter] You know, WHAT [clears throat] ARE YOU CRAZY? WHY WOULD YOU DO THAT? YOU'RE SMART enough to make all this money. you should be able smart enough to do a will and some [clears throat] estate planning and just having people sit down and do it, you know, talk to people and they'll say, "Yeah, I'm going to take care of that." Then six months later, every No, I haven't. Well, why not? You know, I guess you're not dying ever. You know, [laughter]
51:52 >> you're gonna be the first one who never died.
51:54 >> Yes. You're the 2,000y old man, right? [laughter] Carl Reiner and Mel Brooks.
52:05 >> Mel Brooks. Yes. [laughter]
52:09 >> Very good. Well, well, Bruce, I really appreciate you coming on the show today and and and talking about these issues and [laughter] brightening up, frankly, a day that did not start so so bright. Well, you might as well enjoy this stuff even if it's not the the most enjoyable subject. But, you know, it's responsibilities in life and it's nice to you're much better taking care of your responsibilities, especially if you love the people who are around you. So,
52:42 >> this actually I'm gonna ask you one last question. just this just occurs to me and you're you're the ideal person uh to to ask for the clients who you know they take your advice they they absorb your cajoling and they finally uh you know do their estate plan what is the response you get now that it's done oh my well that was a pain in the butt, but I got it over with and I'm glad.
53:21 >> Okay.
53:21 >> All right. Well, I would say, aren't you happy that you've actually done this? Okay. It's a good thing you've done this. This is something good for you, your spouse, your your kids, your grandchildren. Thank God you've done this. And they say, "You're right."
53:37 >> Okay.
53:38 >> They're grateful.
53:39 >> Okay. I I I I suspected that was the case, but you know, you know, people are funny. You never know, right? That's our link letter. I think people are funny. We we fit three of the biggies here today. [laughter]
53:50 >> That doesn't mean they don't complain about, well, I had to spend all this money. Well, you know what? That's life. [laughter]
53:57 >> You know, the fact of the matter is they can pay it to for their estate plan or they can end up paying it to someone like me who then ends up being appointed to administer their estate and it costs a lot more. So,
54:07 >> Right. Exactly. Always do it forward, not backwards. It costs more money going backwards than it does forward.
54:15 >> Always. Absolutely. I'm gonna have you hang tight while I quickly wrap up the show. We'll we'll talk offline for a minute. So, folks, thank you very much for joining us today. Uh, you know, uh, just, you know, Bruce has such long experience. You wouldn't know by looking at him. Such a such, you know, he's younger looking than me, [laughter] but a tremendous amount of I'm going to catch it afterwards. I can see [laughter] Bruce has a tremendous amount of experience. He really knows these issues inside and out. As you can see, we
54:50 really dove down deeply on some of them. And you can see that he he had the answers at the tips of his fingers. So, uh, you know, this is always the time I give a a shameless plug for my guests, or at least the ones who, uh, you know, deserve a shameless plug. But, you know, again, uh, you know, Bruce is my personal accountant. So, [laughter] I don't know what what bigger, uh, you know, accolades I could give than I I trust Bruce with advising me on all of these matters, both in my business and in my personal life. Um, and and as I've also noted, Bruce helps me with the various estate matters um that that I
55:27 have to handle as well. So, I can give my absolute unqualified recommendation. Um, Bruce's contact information will be in the show notes after this episode posts on YouTube. So, if you want to get in touch with him, you'll be able to do so. The information will be there. Uh, real quickly, tomorrow at 10:00 a.m. Pacific time. Tuesday is my show, Business Lessons from the Military. On Wednesday at 10:00 a.m. Pacific time is my show, People Making Money. And then remember, every other Thursday at 5:00 p.m. uh, Pacific time. Join me at
56:03 Jiggers's Place for a cocktail and a schmoo. We'll talk about stuff completely unrelated to finances, relationships, books, values, interests, all of those kind of things as we relax and head to the end of the week. So, Bruce, thanks again for for joining me. I really appreciate you coming on the show. And that just leaves me to sign off and tell you, Marie darling, you are my bell.