Legacy Planning Strategies to Secure Your Wealth with Matthew Karr, Esq – Ep 62

[INTERVIEW]

Matthew Peck: Welcome, everyone, to another edition of SHP Financial’s Retirement Roadmap podcast. I’ll be your host today, Mathew Peck. Now, you might have a lot of questions about estate taxes, gift taxes, one of the five areas that we talk about for our clients because we often mention income planning, investment planning, tax planning, health care planning, and legacy planning. And very often these topics will blend into each other. Your income obviously is directly tied to how you invest the assets. And the taxes that you pay is also important when it comes to how you’re investing in IRAs and whatnot.

But legacy planning is also one of those five pillars. And people have so many questions about it because not just areas on things like probate and how to avoid probate and some of the delays and costs that are there but also things like estate tax, gift tax, how can I successfully transfer what we’ve been able to accumulate on to the next generation? How does that work? What can I gift now while I’m living, and how does that work? What happens when I pass away? What happens if I pass away but my wife is still living? To discuss all those issues, we are joined by Atty. Matt Karr of the Heritage Law Center on the North Shore, although he is licensed in New Hampshire.

So, he used to be the Massachusetts Heritage Law Center but now since we have almost all of New England covered, we’re on our way. But Atty. Karr and SHP has been working together for close to ten years, although he himself has been in the field since 2008 and founded the Heritage Law Center back in 2011. He is also named Matt so now, ladies and gentlemen, you have two Matt’s going back and forth. So, there might be a little bit of confusion but I’ll be the financial planning Matt and then we’ll bring on the Atty. Matt just now. So, without further ado, Atty. Matt or Matt Karr, thanks so much for joining the podcast.

Matthew Karr: Thanks so much for the introduction. Matt Esquire is fine if you like. I think we’ll be able to figure that out.

Matthew Peck: Yeah. So, before we start talking about gift taxes and the legacy planning and just because, again, it’s a big universe there but we really try to focus on estate tax and gift tax today as well as any other updates that people should be aware of. How did you get into the field? I mean, did you originally want to get into estate planning and legacy planning or did it more kind of just evolve into it after the fact?

Matthew Karr: I’d say it was kind of an evolving pursuit. I actually studied for real estate development planning when I was in law school. Unfortunately, graduating in 2008, that wasn’t a good area to be in, if you recall how things were back then. So, after a few years of working at big firms, I picked up additional skills in estate planning, having partnered with some people that had been in that world. My wife coincidentally works in estate planning, and that was always her goal. So, when I wanted to go off and create my own business, which was always my plan, estate planning really allows for that personal connection, dealing with people and the community, like my own family. And that was really attractive to me. So, I just kind of moved full-bore into that area and haven’t looked back.

Matthew Peck: And so, again, for all of our listeners as well, your practice is all types of estate planning or how would you normally describe it? Because when I think in terms of estate planning, I think of wills and trusts and whatnot. But as we’ll be talking about today, it also brings in things like gift taxes and estate taxes and obviously helping people avoid that. But there’s also things like Medicaid planning and business planning. And so, I guess how in general do you describe your firm and what are the range of topics that you help families with?

Matthew Karr: Sure. So, we are an estate planning law firm but that does encompass a lot of things. And generally, I point to three main areas kind of traditional estate planning, which is usually utilizing wills, trusts, powers of attorney, health care proxies, making sure that family members can help each other if necessary, and then create that legacy plan for next generations. Then we have probate. When something does need to go through that court process, we can help assist there, although usually, the goal is trying to avoid probate by planning ahead of time. And then long-term care planning, how do we pay for long-term care costs? Should that be coming part of our lives?

Planning ahead gives you the most options. And so, we help clients using trusts or Medicaid applications, annuities, other things of that nature. And in all of those areas, there’s a bit of tax implications. So, really, I think we deal with taxes in several different ways, whether it’s income, estate, gift capital gains, they all kind of come into that one big picture of how can I take care of what’s mine and who I care about.

Matthew Peck: Interesting. So, let me ask this too because we’ll be talking about, again, obviously, on the taxes front of it. How often are things changing? I mean, would you say the legal field is constantly changing, or is it one of the ones where things are pretty much steady, and then a law changes, and then it’s like a new chapter begins? I guess, how rapidly does it change? Or is it just more of a sudden shift and then “Ooh” and everything catches up, settles down, and then another big sort of acceleration in the future?

Matthew Karr: Well, the law itself generally doesn’t change dramatically. It does change from time to time and we need to keep our clients aware of those things. But a trust that was created ten years ago is still going to be useful for us today. There might be some changes or updates needed, but the general idea of the general structure is still going to be valid. Taxes change much more frequently because that’s really tied to a lot of political issues. And so, with different political regimes come different ideas about how these taxes should be structured. And so, we need to keep an eye on that. Luckily, it doesn’t change every year but it’s possible every four, every eight years to see something moving in that regard.

Matthew Peck: Okay. So, now, let’s dive into that. So, let’s begin at the beginning, right? What is the estate tax? What is the spirit behind it? How does that structure work? And you can even go so far as a little bit of a history about how it’s evolved over time but I’ll be very curious if you could just start at the beginning on how that system works, how it’s been evolving, and then eventually we’ll get to where it’s going and some ways of mitigating taxes. But just for all of our listeners, why don’t you start at the beginning?

Matthew Karr: Sure. Well, the estate tax is a tax on whatever you own when you pass away. And its history I believe was because we used to have a lot of families in the early 1900s that were creating massive wealth, leaving it all to generation after generation and the public benefit was kind of minimal. And so, I guess there was a move towards making some of that wealth come back to the public, which any wealth creator relies on to a certain degree to create that wealth. And so, it is a tax to kind of give back to the benefits that you have of working in the public sphere. People have different views on it, of course, and some would say that the tax has been on assets that were much lower than were originally expected to be.

So, it does affect more people than you might think. But in general, there are two estate taxes. There’s a federal tax that affects all people in the country. And then there are sometimes estate taxes. Not all states impose their own estate tax, but Massachusetts does. New Hampshire does not. So, it definitely depends on where you live or where your assets are, rather, because you can be a non-Massachusetts resident but if you have Massachusetts property, you can be subject to the estate tax.

So, when someone passes, basically there’s an assessment of how much you own in assets and whether or not you’re above or below a certain exemption. And that exemption does change from time to time. Things that they’re looking at, as far as what you own, includes the equity in any real estate, all of your investable assets, all of your cash assets, even life insurance, although the proceeds are likely going to someone else. The policy that you own when you pass is considered part of that net worth that they’re trying to tax. So, all that needs to be taken into consideration.

The federal estate tax is very large right now. And so, I’m sorry, the exemption for the federal estate tax, I should say. So, each person in 2024 has a $13.6 million exemption, meaning you can have up to $13.6 million and not pay any federal estate tax. You can automatically double that up with your spouse. So, married couples can have just over 27 million before they would be facing any federal estate taxes. So, that’s a pretty good amount of wiggle room. Of course, when you get above that, the tax is a flat rate of 40%. So, that’s quite a haircut for those that are affected but most of us are not. Massachusetts, conversely, has a pretty low exemption.

It’s better than it was. Just last year, it was only $1 million. And how it worked was if you had a dollar over a million, you could be subject to the estate tax all the way back to dollar one. Now, in 2024, they changed the limits. So, we have a $2 million exemption and they change how that exemption applies. So, now only assets over 2 million would be subject to taxes. So, the first 2 million are tax-free. Anything above that would be subject to the estate tax. And in Massachusetts, we use a sliding tax rate of between 7% and 16%. So, the more money the higher the tax rate but you could fall somewhere between that range once you get over 2 million in assets.

Matthew Peck: Okay. So, let me clarify a couple of things because that’s obviously just a great foundation for all of our listeners and, in fact, for me personally. Well, I’ve taken my notes through. But let’s go back to the life insurance because that’s something that I think people are surprised about because if my understanding is correct, if I have a $500,000 death benefit, it’s income tax-free, like that 500,000 would go to my child or whomever, my beneficiary, income tax-free. However, that 500,000 is lumped into this sort of catalog of assets.

Matthew Karr: Exactly. So, you might have $2 million in assets and be feeling like you’re just under the exemption amount. No taxes will apply but you have that $500,000 life insurance policy that you’re not including in that 2 million. People often talk about life insurance as being tax-free, and that is true to the recipient. They don’t pay any taxes on that 500,000 that goes to them. But for you, the 500 is included in your net worth. So, although you only have 2 million in assets, physically, you’d be taxed as though you had $2.5 million in net worth.

Matthew Peck: That’s interesting. Okay. So, actually, even before we talk about steps to mitigate that and how people will just some of the estate planning techniques that people use to help lower their estate tax or their potential sort of liability there, okay, I pass away. So, then who is gathering? Is it attorneys like yourself? I mean, who sort of catalogs all of those assets? And then the estate has to file taxes, right? Like, walk through that step of I think it’s within nine months, they have to then file or nine months of a person’s death. I mean, I know it’s a little bit logistics and whatnot but what happens after someone passes away, and how is the tax actually applied?

Matthew Karr: Yeah. That’s a good question. So, it depends on how the estate was structured ahead of time to a certain degree because people who are planning with a trust, they’re naming somebody who’s going to be the trustee and they’re in charge of handling a lot of that process privately, meaning they don’t have to go through court, which is what you would need to do if you have a will-based plan or no plan at all. So, a will or no plan are made for probate court, and then your personal representative that would be named needs to work through that process through the courts. With a trust, you’d be handling it private.

In either case, though, your personal representative or your trustee, they don’t need to know how to do everything themselves. Most don’t. And so, they don’t have to be a tax professional. They are the person who’s in charge of the estate and therefore able to bring in the necessary professionals to assist them in whatever they need. And they can pay those people from the estate so they’re not out-of-pocket either. So, typically, the trustee working with the professionals like yourself who have been managing the finances of the estate are getting date-of-death valuations on assets. Sometimes there’s an appraisal needed for real estate.

Once all those numbers are together, then there is a particular tax form called the Form 706 but that’s the estate tax. And so, that tax return is usually prepared by an attorney or a CPA. And that’s filed with the state. And so, for someone who’s passing that has a taxable estate, there are two returns. They need to file their final income tax return as normal through the date of death but then they also have to file this separate estate tax return.

Matthew Peck: And pretty much everybody. Is everyone having to file? So, let’s say we use an example of me, you know, $2 million but I have a life insurance. It’s over 2.5 or whatever. Let’s say at 1.5, I mean, is the Form 706 only, is it always filed?

Matthew Karr: Only those that are subject to the estate. And so, if you do your calculation, you’ll see that clearly in the exemption, there’s no need to file that return.

Matthew Peck: Okay. That’s interesting. All right. And let me actually go back to you mentioned the trustee, right? Because I often hear that when drafting legal documents, who you name as a trustee is one of the bigger decisions that people make. What type of advice do you have for people when it comes to naming a trustee, especially in light of some of their responsibilities?

Matthew Karr: Well, it’s always good to choose somebody who you implicitly trust hence the word trustee, right? But they need to be somewhat responsible. They need to have knowledge and access of your general affairs. So, knowing where your assets are. Of course, you can leave them this information in a will or an estate plan. They don’t need to be privy to all that information while you’re still alive, but they need to have access. I wouldn’t say that having someone local is necessary, although it can be more convenient.

If you have a person who might be a good trustee that lives in the town two towns over, and then you have another one who would be just as good but they live in California, I’d usually say, “Make their lives a little easier and choose the local person,” because sometimes going to banks, selling real estate, that is something that happens locally. A lot of that can be accomplished online or on the phone these days but it is a nice situation where everything can be tidied up seamlessly.

Some people want to name multiple trustees, which you can do. You can have a single trustee. You can have co-trustees. You can even have more than two trustees. I usually am a little wary of the multiple trustee scenario because every bank’s going to want multiple people showing up and signing every document, so there can be a little bit more administrative hurdles for those people. Again, how would they get along and where they live can be a factor there. But in general, you’re just looking for someone with a good head on their shoulders that’s going to be able to pick up the phone and call their financial advisor, their lawyer, their accountant, their realtor, and direct the process. They’re the quarterback pulling together the team that your estate requires.

Matthew Peck: And, I mean, you would tell the person that you plan on naming the trustee. I mean, how many people in your experience say, like, “I’m going to name my sister,” and then the sister finds out after the fact? Or the trustees, obviously, they should be notified. I’m just curious how often you’ve seen people almost taken by surprise where it’s like, “Oh, you’re the trustee.” Like, “What?”

Matthew Karr: It does happen. I’d say it’s more rare. Certainly, I always advise people letting know who their backup is, where these documents could be found. Otherwise, what’s the point of putting a good plan together if no one knows about it? So, it is something that should be communicated. But things happen sometimes. It doesn’t always work out that way. That’s another reason why in a trust or in a will, you want to name multiple backups. And so, you can name the person who should be trustee but you can also name your second, third, fourth choice. Just in case that first person isn’t up for the job, you have somebody else to fall back on.

Matthew Peck: Can they decline it, you know, think about it?

Matthew Karr: Yeah. So, let’s say you take nominations. You can’t force somebody to serve as your trustee. So, they could say no or they could just not be in a position to. Maybe they moved out of the country. Maybe they’re in the hospital. Maybe they’re not healthy and can’t take on that responsibility. So, there are a lot of scenarios where somebody might not be available that you expect would otherwise be.

Matthew Peck: That’s interesting. Yeah. Because I know we were talking offline about disclaiming about beneficiaries and whatnot. I mean, that’s a whole other subject. So, I’ll stop us from going down that rabbit hole. But I get a kick out of, well, it’s just back to this podcast. Everything we do, I mean, there’s always something to learn and always something to perspective to gain on how it actually plays out. I think it’s like you talk about textbook and, “Oh, that’s academic,” and then it’s great in practice, but not really in theory or vice versa or great in theory, but not really in practice and whatnot. And I love sort of parsing out all of that.

All right. So, back to the main topic at hand. As I mentioned, gift tax, estate tax, both on the federal as well as the state level. When people come into the office or into your office, I mean, obviously if they come to our office, we’re aware of those levels and we’re making sure they have a good estate plan in place. But again, in general, do people realize the estate tax and do they realize the estate tax and when do you walk them through it, do you then, what type of tactics do you talk about or potential strategies for clients that will help with that process?

Matthew Karr: Yeah. So, some people are very aware of the estate tax. And that’s one of the motivating factors and putting together a trust-based plan. And others aren’t aware and that’s something that we talk about in our initial meeting. Ahead of our meetings, we send out a questionnaire to clients to try and gather some of that information so we can kind of point them in the right direction from the get-go. But usually, we’re looking for two main scenarios. “Tell me about your family. Tell me about your assets.” And so, we kind of assess where you are on that scale. “Are taxes something that you should be concerned about or not?” And ultimately, “Who’s involved in the plan and how do you want things to be designed?” And then using those two stories, we kind of put together the right roadmap for their plan.

For estate taxes, one of the big questions is, “Are you married?” Because the tax applies a little differently if you’re single or if you’re married. And what I mean by that is we have this 2 million exemption, right? But spouses are able to double up their exemption with proper planning. A single person if you have more than 2 million, there are some ways to reduce your exposure, but all you have is that $2 million exemption. So, this type of strategy is really aimed at married couples because the federal estate tax, we have about 13.5 million per person, you’re able to automatically by right use your spouse’s exemption. It’s called portability. And so, essentially if you’re married, you automatically get that full 26 million protection from federal estate taxes. Massachusetts doesn’t have portability, so we don’t get that ability to double up the exemption from 2 to 4 without doing something on our own.

So, what normally happens for spouses that don’t do this type of planning is when one spouse passes away, there’s never any taxes due because what’s called the unlimited marital deduction. You can leave your spouse as much as you like and not owe taxes at that point in time. But the scenario we then have is the surviving spouse has all the assets in their own name and only their own $2 million exemption. So, it’s at the death of the second spouse that everything above $2 million is subject to tax reducing what gets to the kids or your other plan beneficiaries.

So, with a trust plan, what we can do is we can manufacture the ability to use each spouse’s exemption. And sometimes, this kind of trust is called a credit sheltered trust. Sometimes, it’s called an A-B trust because we’re trying to shelter the tax credit of the first spouse. And to do so, we’re really creating a pot for each spouse, pot A for spouse A, pot B for spouse B. And what we’re doing is we’re saying while we’re both alive, this is just one big pot. But when one of us passes, instead of adding everything to the survivor’s taxable estate, we can break off up to $2 million and segregate it into a pot for that predeceasing spouse. Okay?

The survivor can still be in control and can still have access to all the money, but they’re no longer responsible from an estate tax perspective for that first $2 million. So, now, we have $2 million tax-free in the predeceasing spouse’s pot. And the survivor has their own $2 million exemption. So, we could protect up to 4. And if you’re over 4, only what’s over the $2 million in that second spouse’s estate would be subject to the tax.

Matthew Peck: Okay. So, it’s in other words, by good trust planning, we can make sure that portability happens, or that if each husband and wife have the $2 million in Massachusetts now by the trust planning, we can make sure we’re now up to $4 million by using the credit shelter or the A-B trust.

Matthew Karr: Exactly. If you’re married, if you live in Massachusetts and your asset is over $2 million, it’s a great strategy to investigate because it can really save some big dollars on the estate tax.

Matthew Peck: Okay. So, by understanding this, to take it one step further, that ends up being the foundational plan for 9 out of 10 people, would you say? I mean, I don’t know, obviously, I know there’s some leeway there, but in general, that ends up being the foundation for a majority of households.

Matthew Karr: Yeah, I mean, certainly not everyone has a taxable estate, but those that do, that usually fills the foundation. And it can be a revocable trust, so that in order to create that structure, the people creating it don’t have to give up any access or control. We just need that structure to be in place before anyone passes. Otherwise, it’s too late and we lose that opportunity. So, having that structure in place in your trust, even though it doesn’t do anything until some point in the future, is very beneficial to the family.

Matthew Peck: Because then you can always build on that, whether it’s irrevocable trust and I’m not about to get into gifting right now, but whether it’s irrevocable trust or whatnot, that you can always do in addition to that foundation of that revocable credit shelter A-B trust. Is that right?

Matthew Karr: That’s the home base. And then we can build off that depending on a client’s needs or desires.

Matthew Peck: Okay. Because interesting enough, to bring in the gift tax about it, I always talk about for clients that, for anyone that is listening and you’re happy in the tax area, I think, hey, congratulations. Your estate is over $4 million. Congratulations. But your tax, it’s going to be a taxable issue here.

Matthew Karr: More money, more problems.

Matthew Peck: Well, yeah, and I try to tell people that too. Hey, taxes are a form of success. You don’t like it. Not exactly the best award for your success, whether it’s saving, working hard, not spending, etc., but they are a mark of success. And so, it’s good to recognize that, but at the same time, it’s good to address it and see if we can mitigate it and minimize it up to a client’s preferences, right?

Matthew Karr: Yeah. I mean, they write the tax law, and we make sure our clients pay their fair share, but no more than they’re required to. And so, sometimes, that requires some knowledge and action because otherwise, you’re just leaving it up to the government to take as much as they can.

Matthew Peck: Yeah. Period, right? So, when clients come into SHP’s office and they are over and above that $4 million, sometimes we’ll talk about the– when it comes to legacy planning, specifically, we’ll talk about the spectrum, which is (a) obviously, how important is legacy planning to you? Is it high priority, low priority, etc.? But we also talk about gifting and we talk about things of like, okay, when eventually you do pass, and this is specifically for people who have very, very high net worth, but we say, “Okay, how much of the legacy do you want to gift now? Or how much of the legacy is sort of a lifetime importance to you, where you get to see the kids and whomever enjoy it now versus how much for later, where they have passed away, and now they are filing estate tax?” And so, that’s a spectrum where some people say, “Nope, nope, out of my cold dead fingers. They’ll get it then, but nothing now.” And we have other people that say, “No. Well, the kids are just starting out, so I’d like to do a little bit now.” So, how does gifting work? As I mentioned at the very beginning, we have tons of questions about gifting. So, how does gifting work in the frame of everything we’re talking about today?

Matthew Karr: Yeah. So, gifting can play an important role in creating a legacy plan obviously. Gift taxes are something that are wildly misunderstood, I’d say, by most people because most people are aware that there’s a certain amount you can give away each year. That’s the gift exemption. Okay? Right now, in 2024, the gift exemption each year is $18,000. For couples, that’s doubled. So, you can give $18,000 per individual or $36,000 per couple each year to as many different people as you like.

So, if you have four kids, you and your spouse can give each child $36,000. You can give each of their spouses $36,000. You can give each of your friends $36,000. There’s no tax and there’s no reporting requirement if you stay under that limit. When you give somebody more than $18,000 as an individual or $36,000 as a couple in a given year, you’re supposed to report it. And I talked about how there’s the federal tax and the Massachusetts tax for estate taxes.

Well, in the gift world, there’s only the federal tax. Massachusetts actually doesn’t have a gift tax, one of the few taxes we don’t impose here. And so, when you give somebody a large gift, let’s say I gave you $100,000 this year, I’m supposed to report that gift with my taxes. So, I gave Matt $100,000, which was $82,000 more than my annual exemption. Well, that goes on my tax file, but it doesn’t result in any taxes to me. There’s no gift tax until you’re over the federal estate exemption because that exemption is truly an estate and gift tax exemption. They’re combined in the federal regime.

So, what that means is me as an individual, I have $13.6 million in federal estate and gift tax exemption. Now, if my estate is $5 million and I give you one, when I pass away, they look at my estate. Now, I have $4 million. They’re going to add back the gifts that I’ve reported. So, they add back that $1 million. So, now, it still looks like I have $5 million, but I’m not over the federal exemption, so it results in no taxes. Okay? So, most people can give quite freely in their lifetime without ever paying any gift taxes because they’re not at risk of getting over that $13 million exemption or 26 per couple.

Matthew Peck: That’s it. And I just love how just the differences between the fed system and the state system. So, to kind of go back to where we’re talking about, Massachusetts does not have portability. So, you kind of have to boogie and make sure you have a good foundational estate plan in place to capture the exemption off of Massachusetts. So, it does not have portability, which means you’re subject to higher taxes without action, but it does not have the gift tax. So, technically, when you’re gifting, I mean, that is something for people that are over the $4 million to consider because you can take advantage of that difference between the $4 million exemption and the $13 million exemption on the federal level.

Matthew Karr: Exactly, yeah. I mean, it’s a great opportunity because when you’re giving away assets and making that gift, naturally, you’re reducing the amount of assets that you’ll own at your death to be subject to that estate tax. So, for people that are above what we can protect naturally using those exemption amounts, it makes a lot of sense. And I should also mention, in January 1, 2026, that’s going to be a big date for taxes because right now, we’re under this large tax exemption of $27 million per couple.

Well, the federal regime is set to sunset on that date, and it’s going to come back to about half of that. So, now, it’ll be about $5.5 million per person or $11 million-some-odd dollars per couple, something to be aware of for people in that net worth bracket, but also important for people who are thinking of gifting because gifts made under the current exemption will be grandfathered in. And so, if you make a gift now when you have your $13 million exemption, you’re not going to be penalized when those exemptions go down. So, it’s a particularly good time to make large gifts if people need to do that.

Matthew Peck: Yeah. So, if I understand the math correctly, I mean there’s almost like a $7 million, the difference between the $13 million and the $5, $7 or $8 million, depending on average year of an exemption that’s going away in less than two years.

Matthew Karr: That’s right. Now, not many of us have $7 million that we need to gift, but if it’s a problem you have, it’s something to know about, right?

Matthew Peck: Right, yeah. Well, you also mentioned too, I do want to sort of caution people not only when it comes to obviously having the asset level, but gifts are a matter of control as well. I mean, once it’s gifted, it’s generally not coming back to you, right? So, I am assuming you kind of walk people through the good and the bad. Obviously, it’s good for taxes for some reason, capturing that exemption. Massachusetts doesn’t have that gift tax. So, you can really, aggressively do that and help mitigate taxes. However, there is a lack of control or relinquishing of control.

Matthew Karr: Yes, absolutely. I mean, you have to go into a gift with eyes wide open. Certainly, when you give something away, it needs to be irrevocable. Otherwise, the government isn’t going to say that’s really not yours anymore. If you can just pull it back whenever you like, it’s still yours. So, you can just write a check to somebody and say, “Have fun. This is yours now.” Or if you’re concerned about controlling, you can do it through a structured plan. And so, we create types of gifting trusts that are irrevocable. Your money is no longer yours. You are giving it away. But instead of giving it outright to an individual, you give it to a trust. And you can write the rules on what that trust does with that money. And so, the trust could hold it for a period of time and distribute it when someone reaches a particular age or the money could stay in the trust for someone’s lifetime and be doled out by a trustee of your choosing. So, there are ways that people can structure gifts to make sure it’s well managed and protected from creditors, divorces, etc.

Matthew Peck: Yeah. And I think that’s what I was saying earlier, right? I mean, foundational called the credit shelter trust, A-B trust for spouses. And this is specifically high net worth folks that will have so called the $4 million or above. So, here comes that foundational plan, the credit shelter, get that $4 million here in Massachusetts. I should specify two. And then think over and above that, now we’re talking things like gift trusts and whatnot. So, that’s where you can build upon that foundation.

Matthew Karr: Yes, that can be a secondary component for people that want that. And sometimes people want to gift trusts not for tax reasons. Maybe you don’t have more than $4 million, but you want to structure a gift for your grandkids when they get out of college. That’s a way to do it, where you’re still avoiding the Massachusetts estate tax. If you have $3 million, you still have $1 million that’s going to be taxed here. If you’re able and willing to give some of that away for a particular cause, the gift trusts can still make sense.

Matthew Peck: Well, that’s what I love about kind of our business in our field, in general, I mean, because not only– I mean, I know it’s a little cliche, like, oh, everyone’s unique, but everyone is unique. I mean, in regards to their family situation and in regards to what their priorities are, but just sorry about the family situation, grandkids and not grandkids and legacy or no legacy, or married or second marriage or whatever that is, and then you take that element of everyone’s family situation being different, everyone’s financial situation being different. And then that sort of mix all that up together in a cocktail and it just shows that, even though the tools that we use, let’s say on our end, it’s an ETF or it’s an annuity or it’s an income plan and Social Security and whatnot, the combination of them are just really specific to each individual family. And I’m sure the same kind of applies for you, Matt, where it’s like, okay, yeah, I might be using credit shelter trust for similar families, but I’m sure each one has its own little component in how you kind of put the puzzle pieces together, must be very client specific.

Matthew Karr: Oh, definitely. Everyone has their own motivating factors, concerns, goals, what they want their plan to achieve. And that’s really what drives the bus forward. We take that information from the get-go, figure out what’s important to a client, and then put the tools in their hands to help accomplish that.

Matthew Peck: And we’re talking, as you mentioned, about the significant amount of savings. I mean, not just tax savings. I mean, clearly, it helps with the– especially on the trust planning, helps with avoidance of probate, and all of that heartache and difficulty sort of mitigated and addressed, but significant amount of tax savings, too. I mean, that’s something that it’s just the option and the opportunity that clients have to do that because another thing we tell people is like, taxes, obviously, we know they’re going to change, right? Or it takes an act of Congress. Now, who knows what’s going to happen with the election and whatnot? And will they grandfather in things? We shall see. But it doesn’t require any speculation as to what the future holds. It’s like, you know exactly we’re all going to die, like, sorry, Matt, sorry to break to all of our listeners, it’s a fact. And it’s like, I don’t get people not addressing it because the benefits of having a good estate plan is endless for all clients.

Matthew Karr: Yeah, I mean, the fees we charge to get started with a well-balanced estate plan are so minimal in comparison with the savings that these plans can achieve. You think of, if you’re hitting that 16% tax rate on $1 million, that’s $160,000. That can be ameliorated with a good plan that’s going to cost you a few thousand at most. And that doesn’t even take into account when people need to go through probate because they don’t have a plan. Not only is that expensive, thousands of dollars lost, but it’s the time and headaches and red tape that people have to go through after just suffering what can be an emotional loss, someone died, but now we have to spend our time going through this tedious court process for sometimes over a year. So, there are a lot of reasons people use trusts, and taxes are just one of them, but it can be a big savings vehicle for sure.

Matthew Peck: Absolutely. So, Matt, okay, so before I let you go, any other big updates that our listeners should know about, changes to the law or anything else that’s kind of hot topic for estate planning attorneys?

Matthew Karr: Yeah. So, we talked about the new $2 million estate tax exemption and doubling that up for couples. We talked about the new gift exemption, which is $18,000 this year or 36 per couple and how that’s only a reporting requirement. The other big thing I would just mention is the new Transparency Act, the Corporate Transparency Act, put new requirements in place for people who have LLCs. So, if you have a limited liability company, whether it’s for your business or for your rental property or anything really, you’re required now to make a BOI report, a beneficial ownership information report. It’s simple. It’s fairly fast, but you have to file with the government certain information about who’s truly the owner of this LLC. That information is not published, but the government is trying to avoid a lot of shenanigans that sometimes go on with opaque corporate entities.

So, if you created your LLC before 2024, you have until the end of the year to make this filing. If you’ve created your LLC in 2024, you have three months to make the filing. And failure to do so can result in some pretty aggressive fines. I believe it’s $500 a day at some point until you get up to $10,000. So, definitely, if you have an LLC, it’s something to talk to your lawyer about or look online. And yeah, we could help you through that.

Matthew Peck: Excellent. Well, just the amount of information that we just crammed in here, that’s the beauty of podcast. People can listen to them once, and they can listen to it again, as we sort of navigate through what is complex, I mean, within, I would say, but also changing too. We know there’s a big change happening, as you said, for the estate tax on January 1, 2026. You mentioned the business ownership interest that’s fresh for 2024.

And so, having people in your corner to, as I said, navigate through all of this and to make sure that you’re not missing opportunities or you are not really avoiding dumb mistakes. I mean, not to be so rude when it comes to dumb mistakes, but I sometimes joke around about estate planning and what we do is just damage control. And it’s like my golf game, like, all I’m trying to do is just not hit into the water. So, it doesn’t have to be– yeah, I mean, these are avoidable mistakes.

There are things that happen to you that you cannot avoid, but when it comes to having a good estate plan, having a good attorney in your corner, having that foundational documents in place to, as you were saying, not just the emotional aspect of it for the ones that we leave behind, but the amount of taxes that we can save by not only planning now, but then planning throughout. It is it, I mean, you get that foundational plan in place and then, okay, hey, if we’re still above those levels and we’re at that level of success, let’s talk about gifting. Let’s talk about things like irrevocable trusts. Let’s make sure that we don’t lose these exemptions that are on the table right now, obviously, if it’s in the client’s better interests and what they’re looking to do.

So, again, just thank you so much for coming aboard or coming onto the show. I know that you also help out with things like Medicaid planning and nursing home planning. So, if you don’t mind, I’d love to have you back for a future podcast, if that’s all right, Matt.

Matthew Karr: Yeah, absolutely. A pleasure to be with you and talk about these things. They can be complex. They can be things that people don’t want to focus on sometimes, but I think at the end of the day, we see a lot of peace of mind. People are just happy when the process has been completed. And for a lot of families, it can really be the most valuable gift you ever give your family from a financial and just well-being standpoint.

Matthew Peck: Absolutely. So, thank you so much, Matt, and thank you for all of our listeners for joining us again and lending us your ears for the Retirement Road Map podcast. Hope everyone has a wonderful day, time, night, wherever you may be, and be well.

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