0:14 hello and welcome to trust and Estates weekly I'm your host Kevin bemel and we're here every Monday morning to start off your week at 10:00 a.m. Pacific Time those of you on the East Coast you know it's 1 p.m. and and um we talk about all things related to trusts Estates probate all of the ancillary issues um both from a from an estate planning perspective and also from the perspective of professionals who help with Estate
0:50 Planning and uh to to that end um I'm I'm really happy this morning to have as my guest Roy uh Roy is the director of um trust Estates and gifts at armanino LLP it's one of the top 10 accounting firms here in the United States um uh Roy is the director of their Southern California practice um in in trust and Estates and um you know he's here to talk to us about what's
1:29 coming up from an accounting standpoint in terms of potential changes or things that we need to be looking at um both as you know people concerned with our own trusts and Estates as well as as professionals who were advising people so Roy welcome to trust and Estates weekly thanks for uh joining us here on Monday morning thanks for having me Kevin that was quite an intro um so before we get started um if you don't mind just sharing kind of a
2:04 little bit about your background so you know so viewers you know know who you are and um understand you know I mean you're you're very experienced in this realm but let's you know give a little social proof if if you don't mind yeah I mean like you know like what you said I I am a tax director for you know for Arman you know um you know we we have such a big you know um tax department but I'm more specifically uh doing estate gift and and Trust
2:39 taxation uh I have been practicing for you know I think I want to say 17 18 years uh now um you know I started kind of being a generalist doing all sorts of tax corporate partnership you know individuals and and then I started specializing in in the trust and estate space uh just because I thought it was you know in the beginning it was very interesting you do a lot of you know non-traditional I want to say non-traditional CPA work uh as you know
3:16 Kevin you uh don't really dive too much into financial statements uh and you do get involved in you know sort of you know family Dynamics and you know psychology of uh you know of your clients um which is you know for me is very you know very interesting so I've you know stayed in that space and have really enjoyed um you know doing the work great and and as I understand it um in addition to being a CPA you also have a a master's in in tax accounting is
3:53 that correct that's correct yeah I uh you know I think I want to say a year after I passed my you know my CPA uh you know my CPA license I I took a little bit of break from you know from studying you know the grind of studying and you know have decided to you know pursue uh and further my education so I went to Golden Gate uh University uh to do my Master's in tax and I want to say that's probably one of the best uh Investments I've uh ever done in my
4:28 career excellent so you I mean you really cover the bases in terms of both an academic background but also a a practical background having work for I it's it's it's hard to believe you look so young 17 18 years but um compliment I mean you look at this and you're kind of like wow so um um tell us if you would um you know kind of what is what is what is your typical client if if there is such
5:03 a thing and and what are you know typically the kind of issues um that you know you're dealing with within the you know trust and Estates gifts gift tax realm yeah I mean I you know our our group uh really handles a lot of uh highight net worth individuals and families so we uh we do get involved in you know obviously estate planning and you know and filing their income tax Insurance compliance work uh but you know we don't you know because I think sometimes the misconception is when
5:38 you're doing trust estate and gift is you only step in when you know a family member dies so you know so the patriarch or the matriarch of the family uh and then you now have to administer their state and trust but we actually do a lot of work you know pre- like you know uh like I said a state plan planning U making sure that you know we actually help our clients minimize uh or avoid paying you know a state tax obviously legally um before that incident before
6:13 death happens so you know so we do a lot of you know like I said pre-death planning wealth transfer planning and then we also do get involved of course when our client you know passes away because there's a lot of administra that you have to do uh which you understand Kevin you know being you know doing fiduciary work um and then the postmortem planning as well is making sure that the client's wishes whoever that client who passed away that uh we actually get to deliver and help our
6:51 clients the fiduciary the executive uh to make sure that the wishes are uh are actually satisfied so whether that is you know the inheritance of the children will have to go to a trust or he has to go to charity um you know there's income tax um compliance work that uh is involved in that process uh so we do you know so we we are with our clients from pred death all the way to post Mor and so and interesting point that
7:28 you brought up and and I'm going to sort of tag on it is I I I've been talking to a friend of mine um who's involved in in trust Administration he's actually based in Santa Barbara and he he was telling me that there's and and I you know I hesitate to use this word because you hear it so often but really an unprecedented amount of wealth that's going to be transferred over the next 10 or 20 years I guess in California alone he was saying it's going to be8 trillion doar um so how are how are you and and
8:04 and you know your group there at armanino um looking at that um perhaps preparing for it what are some of the um issues that that you see you know coming up as you know my generation I I think it's it's really it's us it's the Baby Boomers and and maybe you know some of our parents you know that are are going to be transferring that wealth what what are what are some of the issues that that you're looking at um as you know as as that you know approaches maybe even is upon us yeah I think the the biggest
8:41 right now is um you know the estate tax exemption is now I believe at you know 13 million and some change and that is um you know scheduled to sunset at the end of 2025 and so what that really means is you know if you have a client that is worth above that uh 13 point you know the $1 13 million lifetime exemption um you know when they pass your their estate is subject to a estate tax and so you know whatever is
9:16 in excess of that you pay you know 40% estate tax and at the end of 2025 that sunsets back to probably somewhere between five and 7 million doll so that's you know that's kind of a big amount of exemption that can be sheltered when you know when you pass away after you know 2025 so there's been a a huge uh planning opportunity to uh do wealth transfer planning to make use of that big lifetime exemption so you know
9:53 during the the pre Trump Administration it was it was at $5 million and when you know the Trump Administration came in he actually doubled that exemption from Five Point something million to you know 10 close to 11 million uh but that only is effective like I said until uh 2025 um so there's a lot of you know like I said there's a lot of planning opportunities we've been helping a lot of our clients you know transfer their wealth over to the next Generation
10:28 because once that expires you know you you can potentially lose that opportunity to to use that and gift you know to your to the Next Generation but you know we always you know when when you're doing planning it's not just the numbers that you take into consideration you know we we do have clients who are adamant about you know giving you know assets over to the next generation for you know for various reasons could be because you know maybe they don't trust their kids to be you
11:03 know financially responsible um you know they want to make you know they want to make sure that their assets are protected in case you know their child gets divorced for example so you know so there's a lot of uh I guess um income tax and estate tax driven and more family Dynamic uh you know type of planning and that's all part of what we do for our clients so and you mentioned that um you think it it may go back down to maybe you know around the five million or
11:38 perhaps $7 million range so in essence the um additional taxable amount could be somewhere between six6 and8 million at a 40% tax rate you're looking at an addition or we're looking at additional perhaps two and a half to more than $3 million in taxes payable so and that that's a you know a tremendous additional um you know tax payment that's that's in the offing here um and you said that expires the end of 2025 is that it that's that's correct okay so um
12:14 what are what are you seeing I just want to kind of wrap up this this one little thing about the tax exemp the or the uh lifetime exemption potentially changing what are you seeing if anything about um whether it's it's like to be extended not likely to be extended you know th those kind of things I you know I have been asked that um you know so many times and you know I I really don't have the crystal ball to say you know this is you know what's really going to happen I think even at the end of uh 2020 if I
12:51 remember um there were you know there were a lot of discussion about you know it might actually change earlier in 2021 which you know drove you know a lot of our clients to you know to make some transfer of real estates and other assets um you know way earlier than 2025 so you know I think just you know with our the political landscape it's it's hard to tell what's going to happen um so we're proactive like I said we're proactive in letting our clients know
13:26 that you know this is the situation and we have to we have to plan for it so if a client were to make a a transfer let's say you know this year or next year um and then um you know for you know it turns out that the extension is extended or I mean the not the extension the uh the exemption exemption is extended um how you know how permanent are you know those planning things that
14:02 you're doing and and can they be reversed can they be done in a contingent way other words how much flexibility does someone have in in planning for things in in what is unfortunately and probably always at least somewhat a fluid um you know regulatory or legal environment yeah I mean there's you know there's certainly some you know some planning and strategies that can be implemented around you know around that change and you know we work with a lot of you know
14:38 estate planning attorneys too and you know we we discuss you know really what the what the clients uh goals are because I mean some you know some of our clients are um willing to you know to actually make that transfer and you know maybe put that in a trust because I think some of them would be concerned about you know I I don't don't want to give out all my wealth anyway to outright to my kids and there are ways to where you can you know put that in you know in in the trust for the benefit of your kids and they don't have access to it um you know or whatever you know
15:16 time frame um but you know there's also other you know strategies I guess said around uh you know that change in the lifetime exemption and we you know we're we're always you know getting a lot of um we we get to have a lot of conversations with the trusted advisers of our clients uh to plan for that okay so um in in addition to um the the the change potential change in the
15:52 lifetime exemption what other issues are you seeing you know from from an an accounting estate planning perspective that that you think we need to be aware of as as we move forward yeah I mean there's a there's actually a new law um that was passed in I want to say July of this year uh that's very specific to California and I don't know if you have heard of uh what they called the Ning uh trust uh the incomplete uh or actually
16:28 it's Intrust Ing and it's uh very specific to California it's an incomplete non uh non-grantor trust that is that you know that was it's usually set up in you know in states that do not have state income tax like Nevada uh Delaware it's why I called ning and dings and uh you know California recently passed a law uh that basically Al says that these in trust are going to be
17:03 treated as uh grantor trust for California purposes because the way this Intrust is set up is you have a trustee in like I said in a non uh in a state that doesn't have a state income tax which is for example Nevada and what happens is because you have a trustee that is domiciled in Nevada whatever assets are uh you know are put into that trust uh it doesn't pay any state income tax on the income that's generated because it is domiciled in Nevada for
17:41 example uh but California uh in July of this year passed a law saying that you can you can no longer do that uh so what happens is because it's a grantor trust now for California on your purposes whatever assets you put into to that um Nevada incomplete non-grantor trust is now going to be taxable in California so that one is uh you know because we we have uh a few clients who
18:16 actually did uh that strategy because it's essentially you're saving you know whatever assets you invested or put into this trust it's not paying state income tax so it's it's growing you know state income California taxfree right um but you know now that you can't do that anymore we're doing a lot of planning around that as well and you know so it's it's it's it's a big it's a big issue because California as you know at the top tax rate is 12.3% with trust and so there's you know
18:55 there's you have to talk to your clients and you you know and explain to them that you know this is the situation we got to plan uh we got to plan around that so and let me make sure that that I understand it so in this case in the in the case of these ing trusts it's not where the granters grantors are domiciled or even for that matter where the property is located they it's where the truste the fiduciary is domiciled that determines the state of Taxation is is is that correct so yeah so that's correct but but if you
19:31 have uh and this applies to really uh to to any trust is if you have a a California Source income then you're always going to be taxed in California so for example you set up this ink Trust in Nevada uh but you put in a California rental real estate then you know you're always going to pay California tax because you know the rent is coming from California sort okay so it's more applicable when you have you know let's say you just open a you know a $5
20:07 million brokerage account you know with you know with a you know a trust that the trustee is a Nevada uh resident uh or or or Nevada corporate trustee then all these dividends and interest in capital gains that avoids paying California tax so that's and that's usually the mechanics of um of ink trust is you want to avoid putting in uh an asset that has a California Source right so so if you
20:42 owned a pro if the in trust owned a property in Nevada so then that would in before this new law that would have been um exempt from California taxes as well it sounds like that's correct yes so um have you read any discussions about how this might um you know violate um federal law in the sense that it's it's essenti it it at least on to appearances appears to be you know California saying California controlling interstate
21:17 commerce discussions about that that you've seen yeah well I mean for for federal income tax law purposes I mean they you know you you still you know still treated as if it's just a regular trust so you know so this is really more of a you know of a California issue and you know it's still kind of developing I think I'm actually attending tomorrow um you know a seminar that is geared towards you know planning for this incrust um so you know I'm going to
21:52 learn more about you know other strategies to you know to uh you know as a workr to that new law and you know hopefully we'll have another discussion about it yeah yeah I I would love to I I think it's interesting because I can imagine that um Nevada based fiduciaries are are not happy about this law because I I you know again as the closest state with no income tax I I I would think they get quite a bit of um quite a number of Californians setting up in trusts there that at least the face of
22:28 it now would no longer benefit Californians presumably California is doing this because they want the tax dollars yeah and and New York actually has a similar um you know law and you know I think a lot of practitioners are even surprised that California had uh let this go on for you know for a very long time I think it it might have been challenged twice already and and California um for some reason they they said you know that's this is you know this is fine until you know I said recently that the law was path that you
23:04 can't do that anymore wow oh so this so there there so New York is already doing this I see so maybe whatever constitutional challenges there might be have already been tried and yeah interesting interesting wow I feel bad for my Nevada you know cohorts so um so um so we we've we've got two main issues um the the change in the lifetime exemption um the the more local California issue of the in trust
23:41 um and anything else that you're seeing kind of you know coming down the pike as they say um in terms of issues that we should have on our radar or you know should be you know addressing to our our our you know estate planning team or should be talking to our clients about yeah I mean we we constantly and you know not just with you know really with a state you know with estate planning but you know even with income tax uh planning as you know it's uh you there's always changes going on um you know and
24:18 especially with you know election coming up you know next year uh there's probably going to be you know more changes so you know I just you know tell clients to always reach out when you have some you know some new transactions that you're uh you know planning on doing uh whether that's you know real estate uh estate planning or you know retirement planning you know reached out to us and you know we'd be happy to you know to uh to assist them and um obviously we have need to do
24:53 our tax returns every year how frequently are you reviewing your client's estate plans uh you know once they're set up um I mean it kind of depends really uh you know obviously when you know when there's a a death uh when there's you know um like life events you know marriage uh you know having kids um you know because those are you know situations where you or change in
25:29 tax law as well too is that's when you know that's when the time you have to um you know revisit their estate plan um and and involve an attorney too because if they have to you know amend you know a trust instrument um you know you obviously need to you know engage an attorney to do that uh but yeah but normally when there are you know major you know life events or possibly uh a transaction that they're thinking of uh we do you know we do kind of review that with our clients and say well you know this is uh what your
26:05 existing plan is maybe it's no longer applicable now that you have you know remarried for example so you know I I don't want to say it's like every every year but for the most part at the least when there's major life events okay and um when it comes to other issues so you mentioned things like you know changes in tax laws or other laws Etc um you know can can we rely on our you know advisors to reach
26:40 out to us or sh do we need to be proactive what what is your sense about that yeah I mean when when there are especially when there are uh changes in tax law uh we are very proactive in letting you know our clients know that you know this is you know this is upand coming or this has been uh you know this law has passed already and this is going to affect uh your estate plan uh you know then maybe we should revisit you know one thing I I do remember all of a
27:15 sudden is back in 200 I think 2010 2011 when uh dep portability um you know came to law when you you know when you have a spouse who passed away with less than their lifetime exemption that the unused lifetime exemption can Port over to you know to the surviving spouse uh I I just remember when that was put into law that we had a lot of clients you know amending their trust
27:51 instrument uh so that you know that strategy can be available for their surviving spouse to elect to so I think that's you know that's one example because typically in a state plan is you know an a the ab and ABC trust uh but now you know you can elect for you know like I said your your unused lifetime exemption to be ported over to your surviving spouse so when they pass away they not only have their you know they $
28:27 13 million but they also get their spouse their decedent spouse aused exclusion so you know so when like I said when there are tax law changes like that it's you know it's definitely something that should be discussed with your client because that might be very helpful for them for their estate plan sure sure and and you know assuming it does drop back down to the5 to7 million dollar range presumably the portability aspect will remain or or is that going
29:04 to be going away as well uh I mean right now that's not scheduled to you know to go away uh and that actually has um you know that has increased a lot of you know this 706 the state tax uh compliance work because you know like I said with that lifetime exemption scale to expire you do want to you know if you have a client who passed away even if they're less than the $13 million uh you want to consider filing an estate tax return because that unused
29:40 exemption can be ported over to the surviving SP so you know so for for example you know there's a client pass away um you know today when the lifetime exemption is still at 13 million and they only have you know let's say 5 million so you have an unused you know ex exemption amount of 8 million dollar if you don't file you know if you don't elect the portability your survi and your surviving spouse passes away in let's say
30:16 2027 when the exemption is only at 5 million they can only shelter $5 million but if you file the portability your surviv spouse not only gets 5 million he or she also gets the $8 million that you elect to Port over so in return you're still back to having $13 million of Lifetime exemption so that's why it's you know it's it's it's still important to consider filing you know an estate tax return even if you're below the filing
30:52 threshold wow and and that's that's huge because you you in essence re like you said retain that that higher exemption amount even even if the law were to change so oh wow that's yeah that that's absolutely huge well I'm I'm sorry to say that we're out of we're out of time we're actually we're a couple minutes overtime so uh I I try and be prompt but um I definitely would would love to have you back um when you get um you know more information on the change in California
31:27 law regarding in trusts and and how that that might be dealt with because I I can I do see that as potentially being a big issue going forward um I I I was in a a seminar um it's a few weeks ago now with uh given by a woman who owns a Nevada based Trust Company um I'm it's interesting I don't recall her bringing that up and uh um it's it's it's something I would think that nevadan um or at least nevadans in in the trust and estate world are as aware of as as we
32:02 hear in California so um look look look forward to like I said hearing more about that um yeah absolutely well Roy thank thanks so much for joining us so I'm going to have you um hang tight here while I wrap things up and um that way we can say goodbye offline so um that that's it for today on trust and Estates weekly um just real quickly tomorrow at 10:00 a.m. is um business lessons from the military that's at our new time we we we switched that a week or two ago and then on uh
32:38 Wednesday at 12:30 pm Pacific time is people making money and my guest is Aaron Holtzman also an accountant it's accounting week here on the way to wow shows um and and uh Aaron is going to talk about his career as as as what he calls an entrepreneurial accountant um and and so I think you will you will get a a different perspective on on the accounting business um than than you might otherwise hear although like a lot of CPAs or probably most CPAs he he does
33:14 come out of public accounting first and now he's he and a partner has his own firm so I I invite you to um join me and Aaron on Wednesday and then of course a week from today we'll be back on Monday morning for the next edition of trusts and Estates weekly so thanks very much for tuning in I look forward to seeing you later this week and wishing you a wonderful rest of the day all the best