Estate Planning Essentials: How Trusts & Gifting Protect Your Legacy with Attorney David Chaves – Ep 091

For many families, estate planning creates a feeling of anxiety, which is a big reason why they put it off for another day. From probate costs to nursing home spend-downs, failing to plan can leave loved ones vulnerable to unnecessary taxes, legal fees, and stress.​

In this episode, SHP’s Laura Russo is joined by returning guest Attorney David Chaves to share actionable tips and strategies for reducing estate taxes. Dave discusses how his real-life experiences shaped his commitment to helping families secure their financial futures and preserve what they’ve worked for.​

Together, they unpack the differences between revocable and irrevocable trusts, how often an estate plan should be updated, and effective ways to reduce your estate’s value through gifting and education savings.​

Whether you’re protecting a family home or simply hoping to pass more to your loved ones, this episode will give you the clarity to take action now—before it’s too late.

In this podcast interview, you’ll learn:

• Why wills often guarantee probate and how trusts can help your family avoid it.
• The key differences between revocable and irrevocable trusts.
• How the Massachusetts estate tax exemption has changed and what it means going forward.
• The benefits of A-B trusts and how they preserve more of your wealth.
• How Charitable Remainder Trusts and gifting strategies can reduce taxes while building your legacy.

Inspiring Quotes

• “We’ve got to make sure that the people that we’re entrusting our fortune and our bloodline wealth know how to treat it.” – Dave Chaves

• “If it’s a life event, even in year one, you should be contacting your attorney and you should be getting an attorney that isn’t hitting the pay button as soon as you call. In my practice, it’s not a business transaction. It’s a relationship. We’re going to have a relationship moving forward that you can call me and you’re not going to be charged every time you pick up the phone.” – Dave Chaves

Interview Resources

• David Chaves on LinkedIn

[INTERVIEW]

Laura Russo: Welcome everybody to this episode of The Retirement Road Map. My name is Laura Russo and I am your host today. We have a really exciting topic and I am so happy to be able to have Attorney David Chaves on the podcast with us today. And I like to say that if I had a dead body, you’d be the first person I would call. And I would like you to explain why I think that.

Dave Chaves: Well, thank you. Laura, thank you for having me, SHP for having me. Every time I walk in the door here, it’s so wonderful because I see so many faces that I just not only have a business relationship with, but a personal relationship with.

Laura Russo: Yes, you are a celebrity when you come in.

Dave Chaves: Oh, it’s wonderful to be back. And you are clearly one of my favorite people in this world.

Laura Russo: Oh, did you hear that everybody? It’s recorded. You can’t take it back.

Dave Chaves: It’s so true. Memorialize it here. But thanks again. And yeah, so my background is in law enforcement. But I was one of the first policemen to also be an attorney in the state. And I was a Detective Sergeant with the Raynham Police, had a wonderful opportunity to grow in law enforcement, then went to the FBI where I was in charge of White Collar in the New York Division. So, I had a few cases under my belt out there. I’m sure you’ve heard a few.

Laura Russo: A couple of pretty famous ones, yeah.

Dave Chaves: So, it was 33 years in law enforcement, retired, and like, what am I going to do now? Although you get to have a federal pension and have all of those wonderful things, it was such a pleasure to serve my community in this country. But then I had to go out to learn to be a lawyer. So, did some real estate, but at that time, I had my grandmother, who had died in a nursing home at 105 years old. And she was shoveling snow and gardening till she was 103. But those last few years, we just couldn’t keep her at home anymore. And ultimately, she lost everything to the government, Medicaid. And of course, the lawyer and families asked, how can this happen? And I’m like, I don’t know. So, one thing led to another. I fully jumped into estate planning to learn all the rules, to see how we can prevent this, my own family and for my clients. That’s where I’m at.

Laura Russo: That’s such a powerful story because so many people we find have a very similar story that they run into where they’re just underprepared or they thought that they had the plan in place, but there’s so many different facets to the law and estate planning that you really do need a professional or you need someone who’s so well versed in it to be able to guide you during that time. So, that’s a huge piece of what we’re going to be talking about today. So, I think that we’re in for a really great podcast today, especially being such an area so near and dear to your heart, I think that there’s a lot that we can really unpack and go through there. So, we are going to be covering all things – estate planning, trusts, Massachusetts estate tax, and some of the pitfalls that people can fall into pretty easily. So, why don’t we just dive right in? And I think one of the questions that we often get is, what types of trust are there? Do I need a trust or is a will enough? So, maybe if you wouldn’t mind unpacking that a little bit.

Dave Chaves: Sure. And we’ll start at that estate planning isn’t required. So, that’s an odd statement. But if you do nothing in your lifetime, ultimately, that will end up in the probate court in Massachusetts, which is a place you really don’t want to court. So, when you die in test data without a will, the state’s going to determine where your stuff goes, whether or not you wanted to go there. So, if you have a child or a family member that you didn’t want to receive, they’re going to receive. So, then we have a will. And I can’t tell you how many times I hear people say, oh, I want a will so my family doesn’t have to go to court. And I’m like, that’s your ticket to the court or your family’s ticket to the court.

Laura Russo: Yeah, exactly.

Dave Chaves: And we start to look at that situation where that will now becomes a public document once filed. The hearings on that are going to also be public. There’s going to be a publication in the newspaper for passing, inviting creditors to come forward.

Laura Russo: And family members you didn’t know you had.

Dave Chaves: Exactly. They’re coming out of the woodwork here. And it’s just not a good outcome. And it’s going to take several years, in most cases, to be resolved at a cost of between 3% and 7% of the total estate. These are all bad outcomes. The alternative, which I tell people will be the best money they ever spent in their lifetime, is to have some form of trust, whether that’s a revocable grantor trust that says, hey, I’m the trustee or we are the trustees. We get to make all decisions, make any modifications as long as we’re alive well in our lifetime. We can change any of it at any time.

Sometimes people confuse that with an irrevocable trust because they feel perhaps like my grandmother that they have Medicaid protection, meaning nursing home protection. And when you have a revocable living trust, that is not the case. A revocable living trust is going to pass everything to your loved ones without having to go to court. It’s efficient. It’s discreet. No one will know it’s in your trust, except the trustees because that will be recorded at the registry of deeds, but they’re not going to know anything else. And everything passes again with a death certificate to the registry of deeds, to the IRA, 401(k), the bank. And it’s magically in the hands of your beneficiaries within days of your death that they really wanted to pursue that.

So, the irrevocable trust is designed to protect it from the nursing home. You’ve got to do planning five years in advance for that full protection to take place. Of course, every day we get closer to it is less days that we have to privately pay, but a lot of people think that revocable trust takes care of all of that, and it doesn’t.

Laura Russo: That’s such a good point.

Dave Chaves: Yeah. And often in life, we’ll have this foundational trust, this grantor trust, but then we’ll stack on top of it, this irrevocable Medicaid Asset Protection Trust. And again, now, we’re fully preserving the equity in that home for your loved ones. So, there are a lot of strategies because even though we protect the house, you might still have cash over here, IRA, 401(k), and how we treat that is so important as to how much we’ll actually pass to your loved ones one day. So, we do crisis planning for people that are just saying they are going to end up in a nursing home in the next few days. We have to do crisis planning. But then we can do proactive planning as well.

And there are a lot of valuable tools on that side in terms of spend down, how we can qualify for Medicaid, even Medicaid compliant annuities that are so important. But that’s the real biggest or the biggest distinction, revocable versus irrevocable. You probably need one today, but you’re going to need the other down the road while you’re still okay. You don’t want to do this planning when you’ve got a bad diagnosis and you might end up in a nursing home. But even with that, there are steps that we can take to protect the family well.

Laura Russo: Yes, and I think, at least from my experience as well, and I’m sure you see it a lot is that people come in and they say, I want to protect everything from it going to a nursing home, and I have a revocable trust and I should be all set. And it’s so hard to have that conversation, say, well, actually, it’s not all set. It is still considered something that the nursing home could put a lien on, could have access to, and even more so, when people start to really understand how the mechanics of an irrevocable trust work. There’s a lot of reservations there because essentially, you don’t have control over those assets anymore. And that’s a really hard pill to swallow, especially if you’re, let’s say, 60 or 70 and you’re not quite ready to give up all of those assets yet. Yeah, maybe the younger generation’s not as responsible yet or not quite at that point, but that’s a hard conversation to have.

Dave Chaves: I think that’s an excellent point because as we get older, maybe we’re not as trusting as we perhaps once were. And like, what do you mean I’m giving up legal title of my home and now, I could put someone else, not myself as the trustee? Normally, it’s a child that they have a good relationship with, so that makes them feel a little better. But if they understand how all of this works and that they’re going to continue to live here because they’re going to preserve this life estate that says, hey, no one can kick me out. No one can charge me rent or do any of those things. But that trustee does yield some power over them. Let’s say we had a fully preserved house, five years goes by and then that individual wants to sell and they’re going to need the trustee’s permission to do so, because we just had this fully protected home and we’re converting it into an unprotected proceed’s check. And if we’re not careful, what we do with that proceeds check, that could be reachable by the nursing home. So, we’ve got to keep everything within the system. We can put it into another house, if we were downsizing, but we’ve got to keep it all within that irrevocable trust system to make it all work.

Laura Russo: Absolutely.

Dave Chaves: And you could even rent it out if you wanted. You don’t have to live there. You can turn it into an Airbnb if you choose, but you can’t just sell it and put the money in your pocket and do something else with it.

Laura Russo: Yeah, exactly. So, there’s a lot of areas we have to be careful on there.

Dave Chaves: No one knows better than me having worked for the government all those years, we like to keep you in the dark. So, there aren’t like seminars going on and this is how you protect yourself, because in the end, between the state and the federal government, they want some of your money, right? Massachusetts is one of the most expensive states to die in. So, we’ve got to be ahead of that.

Laura Russo: Right, exactly. That’s such a good point. And it’s easy to trigger that estate tax threshold. So, it was previously a million dollars in Massachusetts. Maybe you want to unpack where it’s at now that we’ve had a few changes in the law.

Dave Chaves: We have, thankfully. And thankfully for our politicians, who are the ones that benefit a lot from having trust and we get to ride those coattails, we’ll take that trade off. But it used to be a million. And a million, if you were $1,000,001, they’re going to tax you down to the first dollar. Now, January 2023, it’s $2 million and up. So, it really has changed the game in terms of planning. So, we have ways now and flexibility that we didn’t have before. And it’s my hope that we see another change at some point, but I’m very happy to say that this has really helped a lot of people when you consider the Massachusetts death tax over $2 million can run anywhere from 6% to 16%. That’s a big cost.

Laura Russo: That’s a big number.

Dave Chaves: When you couple that with, say, an average of 5% of being in the probate court, that’s a big chunk of change if you didn’t do the planning in a trust. So, we don’t want to leave that to chance. And there are couples that are like, listen, I don’t want all these fancy trusts that are going to protect me against taxes. My kids are getting something. They’re going to have to just take it off the top. And others are like, no, my family, I want you to do everything you can so I don’t have $1 in tax. And so, we try our very best to do that.

Laura Russo: Yes. And there’s a little saying that we like is, we know that you can spend your money better than the government can typically. So, we are very much on the side of let’s save as much for the family, keep it within the bloodline because you’ve worked hard for your money. So, why just willingly give it over to the IRS to have it disappear into the ether, essentially.

Dave Chaves: Right, right. Sure. In the coffers to be spent, who knows recklessly, perhaps.

Laura Russo: Yeah, exactly. So, I think a great segue for us would be to talk about maybe different types of trust that we can use to help kind of take advantage of that exemption and how we go about that.

Dave Chaves: Right. So, when we have a situation, and I know you guys see it here quite often, we have people with great net worth and when we have that $2 million threshold, we’re running into the problems we just discussed. So, how do we mitigate that? Well, in an AB trust, let’s just call it a husband trust and a wife trust, each can capture that $2 million without triggering this tax event. So, now, we have $4 million here that we aren’t having to pay taxes on. But when we have wealth over that amount, we have to start thinking of the resources available to us to make sure that we’ve at least mitigated that tax. And that’s why it’s so important to have an estate planning attorney that has tax experience or works with CPAs, financial advisors, that this is what he or she does. Not to take anything away from firms that do personal injury, divorce, probate, all of these different things, bankruptcy, you want someone that focuses on estate planning.

Laura Russo: Absolutely.

Dave Chaves: You want a specialist in that area because they’re going to be on top of the latest federal regulations, tax codes, Mass law, federal law. You’ve got to get to the right person. Plenty of attorneys, good intention, that would be like, oh, I got a program. I can put your name in here and give me a little more information. And then they regurgitate this document that in the end, you’re not going to know if it worked or not, but your loved one surely will.

Laura Russo: Right, exactly. That’s huge. I have worked with a lot of attorneys over the years, and there is a clear distinction between that boutique style law firm that just solely focuses on estate planning versus those larger firms, which are great. And like you said, we’re not bashing firms here.

Dave Chaves: No, not at all.

Laura Russo: But having a firm that’s really dedicated to estate planning is powerful. It’s going to make a huge impact and difference because when we do some of these administrations, even just the slightest bit of language can cost hundreds of thousands of dollars in taxes.

Dave Chaves: It’s so true. So true. The language is going to be specific. It’s going to be compliant. And understand that there are firms out there, now, I’ll pick on something here, but that will do primarily or push wills in their practice. And people say, well, you’ve told us all these awful things about wills. Why would someone do that? And they do it because it’s money generating for the firm. They know one day when you pass, your loved ones are going to come to that firm that created that will. And now, we need to probate this. That’s where the real money is, at $500 an hour. So, you’ve got to, when you meet with an attorney and I recommend meeting with several attorneys or at least speaking to them on the phone, getting a comfort level, asking these questions that you’re going to learn today. So important. You’ve got to be your own best advocate. You really do.

Laura Russo: Absolutely. Someone that you feel, if your children or your spouse has to call this person, that you have no question in your mind that they’re a good person, that they’re someone who’s going to take care of your family and not be that large firm style that’s just billing, billing, billing. I had my background, one of my first jobs was being an estate administration paralegal, and even my billing rate was like $200 an hour. And it would be shocking that families would come in and they’d have these huge bins of paperwork receipts, and it’s like you’re paying someone $200 an hour just to sort through paperwork. And it’s like, you could have saved so much money just by being proactive and getting ahead of it. No.

Dave Chaves: Something I didn’t know about you. I didn’t know that.

Laura Russo: Just a little tidbit.

Dave Chaves: You’ve sort [inaudible 16:36] me.

Laura Russo: Yes, that’s probably why I am a little bit cuckoo when it comes to the estate planning with my clients because I’ve seen it. I’ve seen some kind of crazy stories out there. And it’s a lot more common than people realize is how quickly things can go wrong in an estate. So, having an attorney and then also having a financial advisor who actually knows this stuff is so crucial. It’s so important because even on the flip side, now looking at other large firms that are just working on investments, but they have no idea the difference between a revocable/irrevocable life insurance trust, a charitable remainder trust, it’s going to make a big difference when you have that plan.

Dave Chaves: I think that’s such a good point because I have come across this since I opened my office in Raynham. I deal a lot with your folks, but then I deal with folks that don’t have the experience and they’re calling me, well, how do I connect this asset to the trust? And I’m like, don’t you do this for a living? Or what is a revocable versus an irrevocable? And I’ll have clients that say, oh, I’m so happy with Joe, or whatever it may be. And he’s made me some good money. And I’m like, well, did Joe recommend you to come in here to get a trust? Oh, no, he never mentioned anything about that.

Laura Russo: That’s crazy, yeah.

Dave Chaves: And then, eventually, when I speak to Joe, Joe doesn’t know what he’s doing. Now, he’s making them money, but he’s only fulfilling half the promise there. So, we’ve got to make sure that the people that we’re entrusting our fortune to and our bloodline wealth know how to treat it.

Laura Russo: Now, if you have an advisor that can, say I make 10%, 15% returns, maybe they’re really aggressive, but they have no idea how to handle your estate, I would much rather go to a firm that can actually handle an estate and save you hundreds of thousands of dollars in estate tax.

Dave Chaves: Exactly. They can make you hundreds of thousands of dollars, but you can lose most of it if we don’t have proper estate planning to back that up as well.

Laura Russo: Right, absolutely.

Dave Chaves: So very important piece.

Laura Russo: So, maybe what we can do is talk a little bit about the AB style trust. So, what we’ve seen specifically after we’ve had the massive changes in January of 2023, right?

Dave Chaves: It’s a great year.

Laura Russo: 2023, where we are no longer under the old estate tax. Now, we’re under the new system. Well, what I find with a lot of my clients is that they haven’t updated or they still are maybe using an outdated type of trust. And I like to say that a trust in an estate plan is kind of like a car, right, where you buy it, it’s reliable, it’s there, but it needs maintenance and sometimes you might need to go in and get that maintenance. I usually would recommend for my clients every 5 years, 10 years if you want to be stingy and if you want to really push it. But those changes, every five years is typically a good way to go about it. So, what are some areas that you have seen between maybe the old style trust and now, newer style that are more tax advantage for Massachusetts?

Dave Chaves: Yeah. And the reviews are so important because laws do change. As we can see here, they changed in 2023. And now, we have greater flexibility, greater options. But I think it’s really important that you come in and speak to your attorney, you speak with your financial advisor, asking them if there are any changes or updates. The AB trusts are great because now we can contain this $4 million, that we otherwise didn’t have the ability to do before outside of setting up irrevocable trust to remove some money from the balance sheet. But having this available to us is just so wonderful.

And to talk about how it can work, sometimes when we have a joint trust, like we’ve had for many years, again, we’re capped previously at a million, now, we’re capped at $2 million. But sometimes when you have a blended family, it’s not always the best choice to have one single family trust because that ultimately could invite, when the Lord calls one of the spouses home, the estate’s passing to the other spouse, with the ability to do what they want with the money, as opposed to the AB where we can kind of control what’s going to happen when A dies and what’s going to happen when B dies. So, that would really taking care of our children and the wealth that maybe you had before you got into the marriage. And it’s always, we want to believe that our spouse is going to do the right thing. But as an attorney, I’m not going to leave that to chance. I’m going to give you assurance that when you leave this world one day, your money’s going to go where you want to go.

Laura Russo: Yes. That’s so important.

Dave Chaves: So, having that flexibility, again, is vital to peace of mind. Again, estate planning is nothing you ever have to do. It’s just if you don’t do it, you can create so much in terms of conflict, whether it’s in the court or what have you. So, we’ve got to put it all in line and you can have peace of mind knowing that your loved ones one day are going to be provided for. That’s what the estate planning’s all about. Again, it’s not helping you so much in your lifetime, but gosh, that peace of mind it gives you is off the chart.

Laura Russo: Yeah, huge. And sometimes I tell people it’s like a Band-Aid, right? You just got to rip it off. No offense. Nobody really wants to go and do estate plan. But when you find the right person, it isn’t a painful process, but it’s sometimes, that mental hurdle, you have to get over it. You have to just say, all right, I’m going to have to talk about my inevitable doom, my end, and go to an attorney and meet with them. But I promise you, like Dave’s saying, it’s huge. It’s going to make a huge difference as far as peace of mind and knowing that your assets are going where they should.

Now, so I guess a quick recap on that for our listeners would be, maybe if you’re looking at your estate plan, and it is more than, I would say, definitely more than 10 years old, please call your attorney or find an attorney that you really like, that you want to go to. And then if you have perhaps maybe a family trust, so if you see a singular trust, that might not be the most efficient way to pass assets, especially if you have assets over $2 million in Massachusetts. And it’s easy with Massachusetts. I mean, it’s the price of real estate alone. It’s easy to get to that threshold.

So, a big piece of also understanding is actually funding your trust. You could spend a couple thousand dollars on this trust. And then if you don’t fund it, well, congratulations, you have the world’s most expensive paperweight and you’re not going to do anything with it. It’s not going to help you. So, you need to make sure that it’s funded.

Now, at SHP, that’s something that’s part of our process. And we would work specifically. We’ve had many times where we have clients together and I’ll say, “Hey Dave, this is what we’re thinking as far as the breakdown for how these trusts should be funded. Can we get your thoughts on that? Do you agree? Any thoughts?” So, we use that team approach where we’re not attorneys and we know that, but we also are dangerous in the game. They know enough that we can really cause some damage there for the IRS. So, we’ll loop someone like Dave in, and we’ll say, “Hey, what are your thoughts here?” And then you might come back and say, “Actually, I might make a slight tweak here. If the real estate is in one trust, that could fill up a good chunk of one bucket.” So, knowing where assets are going is going to be really important too, and actually funding it.

Dave Chaves: It’s all so important. And we talked about the reviews 5, 10 years, but if it’s a life event, even in year one, you should be contacting your attorney and you should be getting an attorney that isn’t hitting the pay button as soon as you call. You should be able to speak and ask questions, email, phone call. In my practice, it’s not a business transaction. It’s a relationship. We’re going to have a relationship moving forward that you can call me and you’re not going to be charged every time you pick up the phone. If it’s a new project that we need to do, I would say this is the cost of it, but other than that, we want to have a relationship with the client. You don’t want to just have this one and done transaction because that’s not what an estate planning is.

Laura Russo: I’m so glad you said that. And that’s kind of what we joke around, like the unicorn of the business, right, where finding an attorney that’s not going to immediately hit that. Okay, we’re billing, the second I answer the phone is huge. And I have so many clients that I’ve spoken with that are like, I’m scared to call my attorney. And it’s like, you should never be scared to call your attorney. It’s definitely an area where I just wish we had more attorneys who are willing to just have that conversation. We have some great people that we work with. They’ve included that, that aren’t like that. So, definitely, want to make sure that your attorney isn’t someone that is causing you any anxiety to pick up the phone. That’s a no-no in my books as well.

Dave Chaves: And that’s right. If you have anxiety calling your attorney, then…

Laura Russo: There’s a problem.

Dave Chaves: You should continue searching.

Laura Russo: Yeah, there’s a problem. All right, so I think we’ve covered pretty well as far as AB trust, so essentially, just knowing that having two separate trusts so that you can take advantage of the estate tax exemption amounts. We didn’t mention it, but we have lost what’s called portability with that change in the law. So, before we had portability where you could transfer the unused share over to a spouse, that’s no longer part of the equation anymore. Tax-wise, we are looking to also make sure that we’re not overfunding one trust versus the other.

Dave Chaves: Right. You don’t want to be overweight on one over the other.

Laura Russo: Exactly. So, I think we’ve covered that pretty well. Now, maybe we can move into an area of trust. I always like kind of that fun, little, what you don’t know. So, I was thinking maybe we could talk a little bit about maybe charitable remainder trust.

Dave Chaves: Oh, yeah.

Laura Russo: So, yes, this is something that most people probably aren’t as familiar with, but can be a pretty powerful tool when used correctly. So, if you wouldn’t mind, maybe you could explain to our audience what a charitable remainder trust is.

Dave Chaves: Yeah. And people often they’re like, what? What’s a CRT? And most of the world doesn’t know, but our estate planning clients are going to know. And they’re going to understand that if we are over that $4 million threshold, if we’ve got the AB trust going on and we want to protect our family from having to pay this death tax, again, Massachusetts is the most expensive state to die in, or number two, we want to protect them against that, one of the best ways is to set up a charitable remainder trust. What does that do? It has so many wonderful benefits, right? We look at you, you’re funding the trust, perhaps with stock, AT&T stock from 1943.

Laura Russo: Nvidia.

Dave Chaves: Yeah.

Laura Russo: Nvidia, something that has a lot of potential, that has a lot of growth there that you don’t even want to sell anymore because it’s such big gains on it.

Dave Chaves: Big gains are like the Netflix boom, whatever it may have been. Amazon, you’ve got all this stock that is appreciated. You’re going to get crushed on capital gains tax. But what if we took that and we stick that into your charitable remainder trust with a benefit that says I can take money out for myself every year, whether it’s 5%, 10%, whatever it is, pay no capital gains, stick it into this irrevocable style trust. So, we’re not pulling it back out at any time, but we’re reaping the benefits of how that investment continues to grow. And we’re taking out, say, 5% a year. We have to, in the end, preserve 10% that goes to your favorite charity. So, you can take out 90% through various fixed and variable rate types of withdrawals and you get the benefit of no capital gains, you get the benefit of money going to your favorite charity, and you can take a tax deduction for what that 10% looks like in the year that you do it. Incredible. It really is incredible that we can do this and the government allows for it, because the government wants to promote monies to charity, of course, and they want to give you a mechanism, a conduit to be able to do that. But it really is, like I said, between receiving income, selling assets tax free, it’s like, why don’t people do this? I guess not everyone has the means that has money over $4 million, but I think even to them, they’re like, I’ve never heard of this term. So, this is…

Laura Russo: So, how would you know if it’s a good fit for you if you don’t even know about it, right? So, absolutely, it’s a huge area where it’s like just having that knowledge is power. So, I guess some areas where we could talk about was where it might not be a good fit, and a big one would be it’s irrevocable and you’re designating, let’s say you put the money in there, and if you pass away because you go out skydiving, go out in a blaze of glory, well, that money is not going to your heir, that is going to the charity of choice. So, that’s probably one downfall. What’s another area that it might not be a good fit for some people?

Dave Chaves: We have to manage this properly. This is not the average grantor trust. This is a highly sophisticated instrument with a lot of rules and compliance that needs to be seen through the entire length of the life of the trust. So, we’ve got to have your attorney, we’ve got to have your CPA, we’ve got to have your financial advisor all in unison, making sure that we’re compliant with every aspect of charitable remainder trust. And they’re expensive. But of course, if you’ve got the means and you’ve got over $4 million, it’s not, I guess, as pertinent, but we’re talking, could be anywhere from like $5,000 to $25,000 or more, depending on the sophistication of the charitable remainder trust. And again, you want the attorney that deals in this to be setting this up. We can have this CRT shell and it looks great and we’re assuming that it’s working, but it doesn’t always work. We’ve got to make sure that everything is accounted for. But in terms of people with means, this is such a significant tool.

Laura Russo: Definitely. And we spoke offline a little earlier, but there are people out there who try to use these types of trusts to avoid taxes, but not necessarily use it. They kind of abuse the way that it’s used. So, some examples would be, you create your own charity and it’s a charity that goes to your family members maybe. And I’ve run into that situation before where we’ve set that up, because I think in the 80s more so, this is in the situation I ran into in the 80s, they’re more prevalent of trying to be, again, flying under the radar. Not necessarily as much visibility back then. So, what happens is that you can now have these assets stuck in this trust.

And in this case, this charity didn’t even exist anymore because the family had never even done any of the filings for the charity. And now, it’s a little bit of a knot that needs to be untangled and something that needs to be figured out. So, an area that it’s like, you got to use it specifically what it’s designed for. If you’re charitably inclined, then this is huge. And if it’s avoiding, let’s say you have in large cases, maybe you have $150,000 in capital gains on a stock, then this is going to be a powerful tool for you to use.

Dave Chaves: Absolutely. And philanthropically, just knowing that you’re taking care of your favorite charity, like this is win-win for most people. But you are right, there are going to be people that look to say, how can I take advantage of this? But the government is pretty keen.

Laura Russo: They’re pretty savvy now.

Dave Chaves: You’re really not going to get away with a whole lot.

Laura Russo: Exactly, exactly.

Dave Chaves: So, you can do it right.

Laura Russo: Yeah. And there’s a lot that goes into, as far as taking income off of these trusts, so there’s two different ways that you could do it, crap versus recruit. They’re not to be confused with a crouton, recruit. So, there’s different ways where you’re taking maybe like an annuity style income stream that’s a set amount that it’s going to go for the rest of your life, whereas there might be some variability on the other end that you could figure, but there are pros and cons to both. So, definitely, would want you to speak with an attorney if that’s another area that you’re saying, you know, I’d love that because I can guarantee myself income, and then when I pass away, let’s say I don’t have kids and I want to put my money towards a charity, well, now I have a really great vehicle to do that. I can take my income, I can take what I need from it, and then I can give the rest to charity. So, depending on which one’s a better fit, whether it’s a fixed or variable amount that you’re taking out, that’s going to be the conversation with your attorney and your financial advisor. Just like you’re saying, it’s a team, where you want to have both on your side kind of figuring out what the right magic number is, if you will.

Dave Chaves: What do you need me for? You’ve got the stuff pretty well.

Laura Russo: Oh, gosh, no. All right, so we’ve covered a good amount as far as we’ve talked about AB trust, we’ve talked about irrevocable trust, we’ve talked about the charitable remainder trust. So, maybe we’ll give everyone a little break. Maybe we can just close this out by talking about a couple areas as far as maybe quick types of tax savings that we can do that might not necessarily even involve a trust.

Dave Chaves: Right. And I think for people, when they hear estate planning, it gives them anxiety. So, I want you to know, the more you hear about this, the better you’re going to feel about it and you’re going to say, wow, I didn’t understand that. And all of a sudden, it starts to make sense. It’s logical. It’s commonsensical, and I know there are a lot of rules, but you don’t need to know all of it. You just need to know that it can work for you. And we’ve got to look at different strategies to reduce that $4 million or that $2 million, depending if you’re an individual. And one key strategy, of course, is gifting. So, gifting is important, $19,000 as an individual, $38,000. And these numbers are always changing, but what people get confused is, what if I want to gift my son $100,000?

Laura Russo: Or down payment, something like that.

Dave Chaves: Or down payment, we can do all of that. Even if it exceeds the $19,000 of $38,000 because we’re just making a filing with the IRS dipping into our lifetime exclusion of $13 million as an individual, $26 million, again, it’s always a moving number that we just file and say, hey, we’re giving more than our usual $19,000, no gift tax due by federal government to you or to them and no estate tax due. This is a wonderful thing.

Laura Russo: Yes. And it’s effectively drawing down the estate too. So, let’s say you have five kids or you have 10 grandchildren and you really want to get your estate down, because maybe you’re at that threshold. Maybe you’re on the $4 million brink right there. But if you can do a couple years of gifting and you’re really strategic about it, you can get under that level and you don’t have any estate tax due at that point.

Dave Chaves: Yeah. And you’re seeing your kids in your lifetime or your grandkids or whoever it is with the joy of being able to receive that money. And yes, when we’re gone and the money goes to them, that’s wonderful. But sometimes, there’s such a joy in knowing to see them, like, here’s the money for that down payment on the house. Or you’re getting married, here’s the– that’s special. It really is. Understand, like we’ve got to think about this long term as well, when we start gifting, it’s going to be subject to the five-year look back if we end up in a nursing home. So, we’ve always got to be aware of this.

Laura Russo: Do it now.

Dave Chaves: Yeah. Do it while you can and with the kids can enjoy it and you can enjoy it, those beautiful moments.

Laura Russo: Definitely. I’m a huge proponent of that. It’s an area where it’s just, I 100% agree. It’s like, don’t you want to see your kids enjoy it? And it’s hard being young, it’s hard living in Massachusetts where childcare costs. I mean, you’re looking at an average childcare cost of $30,000 a year for a couple that doesn’t have that support. You’re looking at a housing. It’s essentially a housing crisis right now. We have people who, you just can’t afford to get into a house, these younger kids, like they’re saving up, they’re working hard, but they can’t get into homes. So, being able to see that where you’re really helping to propel and get your kids ahead of the game is huge. And yes, they might not get as much at the end of the day, but they’re getting it now, you’re seeing it, and it’s so appreciated.

And you can have some say in it, you can have some control over it. It’s not necessarily like, here’s the money. You have to trust that they’re going to do what you want them to do with it, but you give them that guidance and tell them specifically maybe what it’s for. So, if you have a young family, let’s say you have a son who’s 35, 40 and they really have a bathroom that has never been updated, you could give to them and say, “Hey, I want you to update your bathroom. I want to do this for you.” And it’s a big gift, yes.

Dave Chaves: You can as, like that person say, wow, look at this new bathroom, look at this new kitchen I helped them with.

Laura Russo: Right, right. And then it’s like, now that kid realizes, okay, well, mom, dad, whoever, they were really generous with me. And when I’m older, I want to pay that forward to my kids too. So, it’s just like, it creates that beautiful balance of teaching your kids to be generous and really seeing them take advantage and utilize and bring them that joy and…

Dave Chaves: I like that.

Laura Russo: Yeah, it’s huge. So, that’s a big one. So, pretty much the gifting. What else can we do that kind of avoid some taxes for us?

Dave Chaves: Yeah. So, the irrevocable life insurance trust is another way that we can set aside money to take it out of our estate and off the bottom line and have a million-dollar policy somewhere. That is big. Some families won’t go the irrevocable life insurance trust method. But they will get a second-to-die policy. When the second of them passes, they’ve got this $250,000 life insurance policy that’s used to pay for the taxes for the estate.

Laura Russo: Right. That’s huge.

Dave Chaves: So, there are ways to get around this, but it’s all about education. It’s all about following up. It’s so funny. I get a lot of older couples come in. We’ve been wanting to do this for 40 years and we haven’t done anything. And they’re finally at the table and it’s usually the wife is like, we got to do something. And the dads, the husbands are just like, oh…

Laura Russo: Finally gave in.

Dave Chaves: Right. And I find that people with stories that have seen their loved ones and what they’ve gone through in the probate court are very inclined to want to get something done.

Laura Russo: Oh, definitely. Yeah, definitely.

Dave Chaves: But when irrevocable life insurance trusts are great, the giftings that we’ve talked about, even the payment of medical bills on someone’s behalf are paid directly to the hospital, these are all things that can be used to lessen your estate. Even a 529 superfunding, and that’s like, okay, wow, you mean I can put $60,000, $95,000 into my grandchild’s 529 plan and reduce my estate, I’m in.

Laura Russo: Right. And imagine if that grandchild is two, three years old, how much time that money has to grow for them. And now, we have a little more flexibility as well with how that 529 could be treated because we’ve had that change now where we can convert some of the 529 into a Roth of unused funds. So, that’s huge because a lot of the hesitation there is, well, what if my kid doesn’t go to school? What if they don’t use it? And you had that limitation. So, now, we can start actually converting a little bit into a Roth if it’s unused or you can move it to another child that’s another heir, essentially. So, there’s a lot of great work there that you can do is just getting that out of your estate, putting it towards education, and creating almost like an education fund for your family.

Dave Chaves: I like those options.

Laura Russo: Oh, yeah. Yeah, that’s good stuff, right? What about paying directly to a college on behalf of maybe an older kid who’s already in college?

Dave Chaves: Yes. Again, another great example of like how we can gift money, right? And again, these numbers, these $19,000 numbers, $38,000 numbers, these aren’t hard and fast numbers.

Laura Russo: They change.

Dave Chaves: We can go beyond that, because the government’s given us the ability to go into certain things like college, right, and take care of these things right there for these folks. Can you imagine your grandchild or your own children knowing that you’ve taken care and provided for them? What a gift. And that’s the mark we want to leave in life, right, that our legacy is like one of generosity if we’re able to the extent we are. But if you do have the means to be able to provide for the people in their lifetime, they talk about there’s no U-Haul attached to the hearse on the day of your funeral, right? You can’t take it with you. But what you can leave this world with is, is just a beautiful joy in your heart knowing that you’ve done your best in taking care of as many.

Laura Russo: That’s so good. Yeah, you can get me choked up all over here. It takes a lot to do that. Okay, so I think that’s huge. And remember, for the education gifts, those are directly from a grandparent. It has to be a grandparent. So, we’ve had a lot of good tips, tricks, different techniques and tactics we can use. So, my question, final question to close out with is if you could share one vital piece of information with our audience on something either you wish you did sooner or that you wish your clients did sooner, what would it be?

Dave Chaves: You know, great question. We could probably be here for a while on that one. I wish that I had entered the estate planning field as soon as I retired because there’s such a need and demand and people don’t understand that they need all of this. Estate planning is so important to our family legacy and our bloodline that we have ways of protecting it against a future spouse or a bankruptcy or being sued. All of this is a beautiful way of practicing law. It’s not adversarial, it’s not controversial. You’re really helping people along.

But what I want people to understand is pick up the phone and call that first attorney and just ask questions. You’re going to find it’s going to provoke thinking for you and your spouse or you as an individual that you weren’t considering. And now is the time to do it. As we get older, it becomes more and more difficult. We have to do crisis planning as opposed to proactive planning. So, just taking the initiative, let me make the phone call, and make that first phone call and go from there.

Laura Russo: Yeah, that’s huge. That’s amazing. So, hopefully, you guys gleaned some good information from us. It takes a couple of nuts to really be really interested in this type of stuff. So, thanks for bearing with us because we had a great conversation.

Dave Chaves: We had a great conversation. I hope you all please do, too.

Laura Russo: So, thanks for joining us this week. We’ll see you next time and stay well.

Dave Chaves: Thank you.

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