Overview

In this episode of the Family Legacy Podcast, Michael Rutkowski, founder of Rutkowski Law Firm, and co-host Kerry Guard discuss how estate planning and tax strategies work together to secure your legacy. Michael covers essential tools like irrevocable trusts, federal and state tax considerations, and practical tips for preserving wealth for future generations.

Episode Summary

Federal and State Tax Thresholds
Michael begins by outlining the federal and state tax thresholds that impact estate planning. He explains that estates valued under $12 million for individuals or $24 million for couples are generally exempt from federal estate tax, while certain states may have additional taxes that require tailored planning.

Using Irrevocable Trusts for Tax Benefits
Michael discusses the benefits of irrevocable trusts, clarifying common misconceptions. He explains that while irrevocable trusts place some restrictions on asset access, they provide robust tax advantages and asset protection, especially useful for preserving appreciating assets such as businesses or real estate.

Why Consider Estate Tax Planning?
Michael highlights key reasons for integrating tax planning into estate plans:

• Reducing Tax Burdens: For high-net-worth individuals, estate tax planning can reduce or eliminate significant tax liabilities.
• Protecting Wealth: Irrevocable trusts can help transfer wealth to heirs without exposure to estate taxes or creditors.
• Handling Retirement Accounts: Michael reminds listeners that taxes will still apply to inherited retirement accounts like IRAs, requiring beneficiaries to plan accordingly.

Common Pitfalls
Michael emphasizes the importance of professional guidance, noting that DIY online tools can lead to costly mistakes, such as misdesignating beneficiaries or trustees, which can disrupt estate intentions.

Looking Ahead
The episode concludes with Michael’s advice on staying proactive about estate plans, particularly in light of potential tax law changes. He suggests consulting an estate planning attorney to keep plans updated and aligned with evolving regulations.

Transcript

Michael Rutkowski 0:00
This week's quick tip. Lean into AI. I hope we talk about it, because this week I've been using a lot of AIS to just help me in my daily life. That's this week's quick tip. Chat. GPT.

Kerry Guard 0:18
Welcome to the family legacy podcast of host cats that goes beyond legal jargon and gets the root of how to ensure your past, present and future are protected. This episode is brought to you by the ratoski Law Firm, Michigan's leading asset protection, estate planning, Medicaid and Elder Law Firm. And here's our host, Michael rotoski. Michael, happy Tuesday. Yeah. Happy Tuesday. Here we are again. Love it. Love to be here. Love having you a quick tip AI. So yeah, it seems to be all the rage right now. In terms of our conversations, you keep bringing it up, it's clearly top of mind. So I figured, why not for everybody? Let's talk about it. So I've actually been reading a great book called AI leadership, which just talks about how to use AI to become a better leader in personal business, everything. But I've been using chatgpt at AI now for probably a year and a half coming, maybe coming out of two years. And the more I use it, the better it becomes. My My tip is for everyone, just lean into it. And, you know, I think we, we get caught up in like, what? What can we use it for? But the cool thing about it is you can ask it, what to what, what you should use it for. You can literally be like, Hey, I'm a dad of three girls, and these are my hobbies, and this is what I like to do. How can you help me? And as and here's a better prompt too. I could give you all the cool prompts. Ask me question by question, so just one question at a time to interview me, to learn how you can better help me. And it will no joke. And we're talking, I use chat. GPT is the one I use. But there's a million of them out there.

Michael Rutkowski 2:02
It will one question at a time, ask you a bunch of questions, and then give you a bunch of suggestions on how you can how you can use it. Perfect example is my wife was going on a girls trip this last weekend, and I was like, Honey, let me show you how cool. This is, like, I just type in there. I said, my wife is going on a trip to Nashville with three other girls. Here's kind of, you know what they like to do. Give me an itinerary. They leave on a Thursday and come back Sunday. And in seconds, it's like, hour by hour. Here's all the things you should do. Here's the top rated hotels. Here's, you know, what restaurants you should eat at with with, like, phone numbers to make reservations. It was wild in in seconds. It's just, I think it's like the Google of the future, like we all Google things now. I think there's going to be a day where we just chat GPT things to find out what's, you know, like our answers to whatever

Kerry Guard 3:01
all the things, I mean, it is happening on Google. So if you Google something, then the answer comes to you. It's not quite as conversational yet, but they do have Gemini that they're working on behind the scenes, that I think you can get. You can get the beta of, yeah, but yeah, I use, I use chat GBT too. I'm a big fan. I like to use it for recipes, because I have a weird diet, so I'll ask it for you know, my daughter loves chili, so I'm like, Alright, give me a good, gluten free, vegan chili recipe. And there it is. And

Michael Rutkowski 3:36
the cool thing is, like your your recipe, example, you can ask it questions, because sometimes you're reading a recipe and you're a little confused, of like, the order of something, or whatever you can after it gives you the recipe, you can be like, how in advance should I turn on the oven? Like, if there's simple things like that that you don't understand, or, like, you know, do I need to let this sit out? Or there's could be a million questions you have, but you can ask the recipe questions or chat GPT questions about the recipe that you're not going to find if you just Google the recipe. So it's just so cool. And I think there's a lot of nervousness about using it, about like, you know, what is it tracking? All of that to me and everyone is obviously can have their own opinions on all this, but if you keep it simple like that, who cares if they know your favorite chili recipe? That's my

Kerry Guard 4:28
I mean, if you're using Google to ask these questions, you're training Google. You're training something in one way or another. Your behavior online is training something. So unless you have proprietary information, like we're a digital marketing agency, and so we have client information that we can't share, so we've actually bought the product, right? So that, and it says, because we are a paying customer, this does not train GPT, right? So there are, there are ways to make sure of that, but you really don't. Don't need it unless it's really for business use cases. Everything else, everything, everything we do online, is being tracked and trading.

Michael Rutkowski 5:06
Yeah, yeah. So, like, what's the big deal? So my thing for this week is try it out. You know, instead of Googling something, chat, GPT it, you know, maybe let's throw the link to the one you or I use in in below. It's just such a good tool.

Kerry Guard 5:22
I just and you can download the app so you have the app on your phone and just pull it up whenever you need it, to have it at your fingertips.

Michael Rutkowski 5:27
Yeah, it has to be seen as a tool that enhances us, not replaces us. True

Kerry Guard 5:32
story. It is not AI. Is not coming for us all. It is, is a parrot, if you think about it that way, it is literally just taking what our uses on the internet and regurgitating it back to us in a conversational manner that she has no emotions. It doesn't understand context. It's a tool, yeah, love it. Love it. All right. Speaking of tools, when we're estate planning, we put together, we have a new landing page launching here soon. Maybe it's live by the time you're listening to this, and it's got this whole wonderful list of all that go into estate planning, and one of them is tax planning. And so I wanted to take a minute to really understand how, like, how estate planning can help us with our taxes, because that seems like an opportunity for us to, you know, we got, it's October our year. We got few months left here in the year, and then April will be here before we know it. So how can we get I've ahead of state plan. You know? How can estate planning help with tax planning? So can you just help us understand, Michael, from a very high level of why these two things, how these two things work together, tax planning and estate planning?

Michael Rutkowski 6:42
Yeah, yeah, great, great question, and it's something that's top of mind for almost every client that we meet with. You're talking about estate planning. Taxes is always an issue we're discussing right now. A lot of people don't have to worry about taxes, and we'll talk about why. But either way, estate planning is a very effective tool if you have an inheritance tax to be paid after you pass away, to transfer wealth from one generation to the next without having to pay those taxes, because those taxes can be heavy, 40% plus, if you're subject to estate tax. So let's, let's dive into a couple rules and and so like, I know people are going to be listening to this all over the place, so we're going to go high level. We're going to talk about federal state tax. We're going to talk about state attack, estate tax. Here's something that's really important. Back in 2017 there was the tax cuts and Jobs Act that made federal estate tax. Right now, it adjusts every year with inflation, but let's just call it for round numbers. It's $12 million for an individual, or 24 million for a joint couple. So what that means is, if your estate as a married couple is less than 24 million, you are not going to pay any federal estate tax as a single individual, it's 12 million. So if your assets are less than 12 million as a single individual, you will pay no federal estate tax. So I know what you're thinking right now. That probably doesn't apply to most of the of the population, but everyone's worried about taxes. That being said, though, that tax cut and Jobs Act of 2017 is going to sunset in 20 at the end of 2025 so we're getting into that year. At the end of the year, it could potentially sunset because it was only supposed to go till the end of 2025 who knows what Congress is going to do? We're financial advisors and state planning attorneys. We're all tracking this to see where this is going. Are they going to increase it? Are they going to keep it the same? Are they going to just let it sunset? Because if it's sunset, it goes back to half, and then now more people are going to be affected by federal estate tax. So stay tuned to this podcast. We'll probably be talking about it all next year, because I'm sure there's going to be stuff that's going to be coming out, but unless you're over those amounts, you currently don't need to be planning for for taxes, for inheritance purposes. Now you still have all of this year to take advantage of those high numbers if you are subject to estate tax. And maybe we'll get into today. Maybe it might be the next podcast of the actual strategies to do this, but at least let's set the groundwork for what tax we need to worry about. Does that make sense? Kerry, yeah,

Kerry Guard 9:32
I have a couple questions, just for clarifying reasons when we're talking about so in terms of tax planning, you don't need to do any sort of tax planning with estate planning. Or does estate planning at any level help in terms of reducing your potential? Yeah, need to pay taxes. Yeah. Great

Michael Rutkowski 9:53
question. So your standard revocable living trust for tax purposes, it's as though you own. Things personally. So that helps nothing when it comes to tax, it doesn't minimize tax. It does nothing for tax. There are certain irrevocable trusts that take assets outside of the taxable estate, okay? So that's when we get into more comprehensive planning. If here's a great example, there's something called an island, an irrevocable life insurance trust, the sole purpose of this type of trust. Again, remember, there's like 60 types of trust, so this is just one we're talking about. This type of trust holds life insurance so that that asset is not countable for estate tax purposes, because otherwise it is. If you had a $5 million policy term. It could be a term policy that pays out to your children if you pass away, that is part of your estate. Okay, so it could be five that that bumps up someone's estate quite a bit, even though you don't realize it, during your life you have this huge asset. So it's very simple to put something like that in a irrevocable trust, because you don't need access to it anyways. There's only a death benefit. So that's just one tool when it comes to estate tax, but that could be very beneficial, but we don't even need to look at those things unless you total up all of your assets, life insurance, retirement accounts, homes, properties, you name it, all that stuff. If it doesn't go above 12 million as an individual, 24 as a married couple, you don't have to worry about federal estate tax. So you're

Kerry Guard 11:31
not going to be taxed at all, even if it goes into a trust and then your and then your kids or grandkids want to take a matter? Yeah,

Michael Rutkowski 11:42
federal level, you're not going to be taxed. Now, there are a bunch of states, so let me, let me list through all those that have some type of inheritance or state tax. So I'm just looking at another screen. I'm just gonna read them off to you guys, because I'm a Michigan Attorney. But it's Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, Washington. Okay, so know that those states have state estate tax, so you need to meet with your estate planner in that state to see if there's some type of planning you can do to reduce your taxable estate Does that make sense? But otherwise, on the federal level, and if you're not one of those states, there's no estate tax to be paid when you pass.

Kerry Guard 12:29
Okay, that's helpful. I was thinking that. That

Michael Rutkowski 12:33
being said, I can just keep going all day. That being said, though, there is something that we always get asked where I'm like, people are like, Mike, okay, I get it. There's no estate tax. What other taxes do I have to worry about? If there is an account like an IRA or a 401, K that you have not paid taxes on yet, your beneficiaries are going to have to pay tax when they inherit the money. So that's just normal if, if you didn't pay tax, someone's got to pay tax at some point in time. That has nothing to do with federal estate tax, state estate tax, inheritance, nothing like that. That's just normal taxes that if you didn't pay them, someone's got to pay them. That makes sense.

Kerry Guard 13:15
Yeah, that makes sense. That makes sense. And so is there anything that we should be thinking about? What about what about from a business standpoint, you know, for business owners, and we're, you know, and the part of our business, you know, part of the half we like, I own a business, right? And so I'm a 50% owner, and let's say, you know, my half of the business goes to my kids or my husband or whoever, fail my my beneficiaries, what happens to that side of the house in terms of taxes? Do I Yeah,

Michael Rutkowski 13:48
and I might lump that into just appreciating assets. So if you know that's all going to be counted, what's your the value of your business, that's all going to be counted in your estate, you know? So if maybe you're just you're not taking a lot from the business, but it's growing, and it has a significant value that could be part of the estate that if you pass down to your kids, could be taxable. There's a lot of different really cool trusts out there to hold these interests. One of them is called a slat a spousal lifetime access trust. So if you have a spouse, you can transfer an asset to this trust that your spouse still has access to. So the big key here, when doing tax planning or any type of irrevocable trust planning is what access do I have to the assets? And you know, a lot of people get really scared by irrevocable trust, because if you start Googling, maybe this is where people should be using chat GPT, they'll get better answers. But if you start Googling irrevocable trusts, you're going to read all about these trusts that you can't be the trustee of. You have to you don't have access to the. Assets anymore, but yes, it avoids that huge estate tax. Well, there's some newer types of trust, like the slat that your spouse can have access to it, so that's almost as good as you having access to it, right? Problem could be if your spouse passes away now, it's, it's kind of locked up in this asset, in this trust. But there are some newer trust, you know, because we're always fighting that balance of, how do we give? Our clients still have access to the asset, but it has all these cool features as well, lawsuit protection, bankruptcy, creditors, taxes, you know, what are we trying to accomplish? So it's always this balance of, can we give you know, can we accomplish the goal with still allowing some type of access to the asset if we need it?

Kerry Guard 15:47
Yeah, yeah, but we covered that in our last podcast, so go check that out about irrevocable trust. Hey, I

Unknown Speaker 15:52
did it. Yeah,

Kerry Guard 15:53
look at that. Let's assume that folks are listening that generally, I we understand that most people don't have 12 million sitting around. Yeah, but maybe you're on your way there. Maybe you're younger, maybe you're planning, maybe you have maybe you're an engineer working for a big company who's looking for, you know, a happy pay day to come. So in thinking futuristically of what this can mean for you. Let's talk about some strategies of why you might want to consider so you reach that 12 million, million as an individual, or 24 million as a family, like, what do you need to be considering? Yeah, in terms of,

Michael Rutkowski 16:32
if you're on a if you have a really good growth path going, you know, you're you got a startup that's starting to really take off, or something, transferring ownership to a trust like that slack could be very beneficial, because the growth of the asset doesn't matter, it's the value at the time of the transfer. So here's a more relatable one for people in the state of Michigan, a lot of people have cottages or second vacation homes, and maybe you buy it today with no intention to sell it. Well, if we transfer it into one of these trusts that the value would, let's just say we bought it today for or 30 years ago, we bought it for 100,000 and now it's worth a million. It the countable part of your estate is only going to be that 100,000 if it's in this certain type of trust. Does that make sense? So the appreciation, the appreciation on the asset in the trust, is not countable for your estate. So something like that can be very beneficial for someone who's on a huge growth path for acquiring assets their business is taking off. The value at the time we transfer their ownership. To the trust is what counts. So it could, it could be worth, you know, 20,000,030 years from now, but all that matters is, what was the value at the time to the trust? Does that

Kerry Guard 17:53
mean you could have multiple does that mean you could have multiple trusts in your name? Then that

Michael Rutkowski 17:57
is such a great question, because we get that one all the time, absolutely. So usually, once you start getting into more complex estate planning, you're going to have multiple trusts, because they all have different goals. You'll probably have some type of foundational revocable living trust for your just your family assets. Then you might have some type of trust for tax planning, trust for asset protection. You know, at the end of the day, you might even have a cottage trust, because you want it to stay in the family, and you want to set the rules on who's paying the taxes, doing the upkeep, you know, how does this all work? Let this stay in the family. So, yes, once we get into more comprehensive estate plan, you're just going to start layering on trust. You can add as many as you need.

Kerry Guard 18:40
Fascinating. I guess that helps too, from a tax standpoint, when you're into that 12, 24, million piece, because you can lock up those assets, not touch them.

Michael Rutkowski 18:50
And I know we're getting short on time here, but we could dive deep into there's all these awesome trusts too, for tax planning that you can give away your exemption so your 12 million, you can give that away, and then you can start getting it back through crap. It's called a crack. It's an annuity trust, but essentially, you give away your 12 million, you gift it away, so you use your lifetime exemption, and then over time, you get it back and you can use it again. So many cool tools,

Kerry Guard 19:20
wow. I think we have to hold you a whole podcast on gifting that sounds intense but awesome, the fact that you can give it away and then keep you what doesn't make any sense, look at you planting all these seeds. We're definitely gonna circle back on that last piece of advice for people who are thinking, who haven't really, maybe considered this as meeting estate planning, and maybe they're on their trajectory for this, or they have it already. What sort of like the one gotcha with this, or the mistakes people make more most often when, yeah,

Michael Rutkowski 19:53
yeah, I think one of the biggest mistakes is one. Scared about, you know, nervous about using irrevocable trusts. I think they're more flexible than people think. We've just learned over time about the IRS version, so just getting educated about it. Another big no no is, you know, if you have complex situations or planning that you want to do, you can't accomplish this through an online service. It just, it doesn't work. There's too many moving parts. The drafting needs to be very specific if you want to maintain access to the assets. So just working with a professional who, who knows, you know, knows this stuff in and out. It's really important.

Kerry Guard 20:39
When you say in on there's online tools that there are scary, yeah,

Michael Rutkowski 20:43
yeah, there's yeah, there's trust and will first and foundational estate planning. There's Legal Zoom. We've probably all heard of that one. Oh, yeah, and they're popping up left and right. The problem we find is that when we work with clients who have tried those services, there's no guidance there. So we saw a trust just a month ago where someone actually that accidentally made the beneficiary the trustee, and they cut out their kids from being inherited under the trust, because they just put them in the wrong spot, which that would have played. I'm glad we caught that, because otherwise they just, you know, disinherited all their kids from their estate. That was wild news

Kerry Guard 21:24
bears. That's terrifying. Okay, good to know. Well, if you've been listening to this episode, please like subscribe and share. You can contact us at MLR or ski law firm.com to share any questions you have that maybe we could answer for you. Michael, before we close out here next seven days, what are you most looking forward to?

Michael Rutkowski 21:46
Good question. I think I'm going out surfing one more time. This. This on a surpa One more time. Um, you know, we're right in the middle of, like, football season for our kids, which is cool. My daughter's on the dance team, so we're going to the homecoming game on Friday and just spending time with the girls. They're at such a great age. That's it. It's real simple.

Kerry Guard 22:04
Oh, I love that. I love that, yes, the fall season is the best time to get outside with the kids for the one last one last hurrah. So you looking forward to hearing what you all got up to this weekend.

Kerry Guard 22:18
Well, thank you to our listeners like I mentioned, if you liked this episode, please like, subscribe and share this episode was brought to you by the ratoski Law Firm, Michigan's leading asset protection estate planning, Medicaid and Elder Law Firm. And if you'd like help with your estate planning or asset protection needs, please call 248-955-2842, that's 248-955-2842, see you. Next time see you guys, take care. Bye.