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Tax-Smart Planning: How Estate Plans Can Ease Your Tax Burden

Welcome to Episode 30 of The Legacy Talk Podcast! In this episode, we dive deep into tax-smart planning strategies that can significantly ease your tax burden. Estate planning is a critical aspect that none of us can afford to overlook, especially when it involves strategies that can save you a substantial amount of money. Whether it’s federal estate taxes or state-specific taxes like those in Washington, a well-thought-out estate plan can make a world of difference.

 

Understanding Estate Taxes

 

First, let’s talk about the two different kinds of estate taxes: federal and state. Most people are somewhat aware of the federal estate tax, but many are surprised to find out that the state of Washington also has its own estate tax. These taxes are independent of each other. The federal estate tax exemption is quite high, standing at $13.61 million per individual, which doubles to $26.22 million for married couples. On the other hand, the Washington State estate tax exemption is much lower at $2.193 million per person. This stark contrast makes it essential to plan carefully, especially if you’re a Washington resident.

 

Key Strategies to Ease Your Tax Burden

 

  1. Utilize the Lifetime Gift Exemption:  

One of the most effective ways to minimize estate taxes is to use the federal lifetime gift exemption. This allows you to gift up to $13.61 million during your lifetime without incurring gift taxes. While Washington doesn’t have a gift tax, gifting can help reduce the overall value of your estate, thereby lowering the state estate tax liability. However, do consider the impact on capital gains taxes when gifting.

 

  1. Make Annual Gifts:  

You can also make use of the annual gift exclusion, which allows you to gift up to $18,000 per recipient per year without affecting your lifetime gift exemption. This strategy can be particularly beneficial for gradually decreasing the size of your taxable estate over time.

 

  1. Utilize Irrevocable Trusts:  

An irrevocable trust removes assets from your taxable estate because you no longer own them. These trusts are especially useful for long-term care planning and minimizing estate taxes. Options like the irrevocable life insurance trust can hold life insurance policies, ensuring that the death benefit does not add to your taxable estate.

 

  1. Grantor Retained Annuity Trust (GRAT):

A GRAT allows you to transfer appreciating assets out of your estate at a lower value, in exchange for an annuity during your lifetime. The appreciation on these assets is not included in your taxable estate, making this an excellent strategy for assets you expect to grow in value.

 

  1. Charitable Gifting Strategies:

Charitable remainder trusts and donor-advised funds offer avenues to reduce your taxable estate while supporting the causes you care about. Charitable bequests provide unlimited exemptions, making them an effective tax-saving tactic.

 

  1. Family Limited Partnerships (FLP) and Family LLCs: 

These entities allow you to transfer business interests and other assets at a discounted value. By leveraging these structures, you can make the most of annual gift exclusions and significantly reduce your taxable estate.

 

  1. Estate Tax Portability:  

At the federal level, the estate tax exemption is portable between spouses, meaning the surviving spouse can use any unused exemption of the deceased spouse. However, Washington State does not allow for this portability, making it crucial to plan using tools like the credit shelter trust.

 

  1. Roth IRA Conversion:

Converting a traditional IRA to a Roth IRA can help in managing taxable income in retirement. While this strategy doesn’t remove the assets from your taxable estate, it allows for tax-free growth and distributions, which can be beneficial in the long run.

 

Reviewing and Updating Your Estate Plan

 

Tax laws and exemptions change over time. It is essential to review your estate plan every two to three years or following any major life events. This ensures that you are taking advantage of all available tax-saving strategies and that your plan reflects current laws.

 

Conclusion

 

Reducing your tax burden through smart estate planning is crucial for preserving your wealth and ensuring a smooth transfer to your beneficiaries. To dive deeper into these strategies and learn how you can implement them, listen to Episode 30 of The Legacy Talk Podcast

 

Tune in now to make the most of your estate plan and secure your legacy!

[00:00:00] Atty. James Jones: Welcome to Legacy Talk. I’m your host, James Jones. I’m an estate planning and probate attorney in Tacoma, Washington. I’ve been practicing for over 20 years and my main practice areas include estate planning, probate, and estate administration. On Legacy Talk, we discuss topics surrounding families and estates.

[00:00:20] Estate planning is often a confusing and complicated topic. My goal with this podcast is to make it accessible and understandable to those who need it. So if this is something that interests you, I’d appreciate it if you click the subscribe button and like this episode so that you can follow along as we break down the barriers to estate planning.

[00:00:39] I’m excited to get to today’s topic as always. Maybe we could put it in post production. I don’t think so, though. We’ll see. I’m not that technologically advanced.

[00:00:49] Thankfully, our taxes today are not that high, but do you like to pay taxes? I don’t, I bet that there’s some of you that may like to pay taxes. Maybe nobody listening to this podcast, [00:01:00] but there’s some people out there that probably like to pay taxes. It is our civic duty to pay taxes. We signed up for this when we went to work, right?

[00:01:07] We signed up, we’re going to follow the law, which is to pay your taxes, right? But there’s probably not very many people that really like it. I don’t mind paying what I’m legally obligated to pay, but I don’t want to pay anything more. Right? So when it comes to estate planning, these tax considerations are critical.

[00:01:24] Since I practice in the state of Washington, we really need to plan for estate taxes here, as well as other potential pitfalls that can cause unintended consequences. Unlike most states, Washington has its own estate tax, independent of the federal estate tax. So it’s a big consideration as to how we deal with estate plans here.

[00:01:44] So, today we’re going to discuss how your estate plan can help you plan and hopefully mitigate taxes. And so, to start on this, I wanted to talk about the two different kinds of estate taxes. So, everybody here, well, everybody knows that there’s a federal estate [00:02:00] tax, I think, most people know. Very few know, even people that live in Washington, that there’s also a Washington State estate tax and they’re independent from each other.

[00:02:09] So the federal estate tax is a very large exemption relative to most people. And it allows you to pass $13.61 million during your lifetime without a state tax. If you’re married, that doubles, right? So 13.161 each. Okay?

[00:02:26] Whereas Washington’s estate tax is a low number, which we’ve talked about multiple times. It’s a low exemption, we talk about it all the time, actually. 2.193 million per person passes without tax. So, we’re not as worried in most cases about the federal exemption, just because you need to have 26 million bucks or more to worry about it if you’re a married couple, but statewide, we really worry about the state estate tax cause it’s such a low exemption.

[00:02:52] There’s only four and a half million maybe, not even per couple, right? If you’re single, it’s even less. And so , we’ll talk a little bit about the [00:03:00] differences as we get into this, but just so you know, I’m going to sort of talk about the federal side, and then I’m also going to key in on the Washington side on most of these points that we’re going to talk about. So, just to start off, I just wanted to make sure that that’s okay?

[00:03:15] So, what are some ways that an estate plan can ease your tax burden? So, the first thing to consider, and Washington being a state with an estate tax, this is something that comes up.

[00:03:27] Utilize the lifetime gift exemption. Okay? So, there’s also a gift tax that we need to consider in these estate tax planning schemes. Okay? So there is no gift tax in Washington, we have an estate tax, no gift tax. Federally, there’s a gift tax and an estate tax. These taxes are unified, so they’re the same amount. Okay?

[00:03:50] So you either can pass $13.61 million during your lifetime to someone tax free as gifts, or you can give or, you [00:04:00] know, bequeath $13.61 million to someone or beneficiaries at your death.

[00:04:07] And so, we wanna consider that in lifetime planning as well, Washington, since it doesn’t have an estate tax or a gift tax, strike that gift tax, right? We’re talking about gift tax now. You can gift up to the full federal exemption in Washington without any problems, okay? Against your Washington estate tax as you eat into your federal gift credit, it eats into your estate tax credit. They’re unified. Okay?

[00:04:32] And so, you can’t give 13 million and then die with 13 million and still have an exemption, you’re out of luck there. So oftentimes we consider this as a potential strategy for largest states in Washington. Can we make gifts during our lifetime under the federal gift exemption to mitigate Washington taxes?

[00:04:51] So, Under the federal exemption, which is 13.61 million, you can make significant lifetime gifts. Okay? That doesn’t [00:05:00] affect the Washington side. Okay?

[00:05:01] Here’s the problem, right? So there’s a difference between gifting and having someone inherit assets. So when you’re making a gift plan, you need to consider things like gains, capital gains, right?

[00:05:14] So you either consider gift taxes or estate taxes in most cases versus capital gains. When a gift is made during someone’s lifetime, the amount that you have invested in the property, which is say you bought a house for 300,000 and now it’s worth 500,000. That 300,000 number is called basis.

[00:05:35] When you gift that house to anyone, right? Beneficiary, they get the same basis as you had in the property. So if you have a $300,000 basis in the property, they do. And that basis is used to calculate whatever gains there are if that property is later sold. Okay? So say the property is worth 500,000 when you gift it, the gift recipient only gets a basis of [00:06:00] 300,000.

[00:06:01] So if they sell it, they could potentially have a capital gain of 200,000. So you need to consider that, whereas with a inherited asset, if you gave that house to someone or a child or beneficiary at the time of your death, and it was worth 500,000 at the time of your death, the beneficiary would receive what’s called a carryover basis.

[00:06:20] And so, their basis in the property would be 500,000. So if they sold it, they wouldn’t have any capital gains. So, you gotta consider capital gains versus estate taxes, which one’s better? And we’ll talk a little bit more about this later in the episode.

[00:06:35] The other thing to consider when you’re gifting something during your lifetime is you’re gifting it, you lose ownership. So that’s a negative potentially, especially if it’s your house or it’s your money that you need to live, you know, you’re giving up control to someone. Otherwise, it’s not a gift.

[00:06:51] Washington does not impose a gift tax, right? So sometimes we use the strategy if it makes sense, if we do the math right, [00:07:00] to reduce someone’s taxable estate, okay?

[00:07:02] Number two, is to make annual gifts utilizing the annual gift exclusion. Everybody comes in, a lot of people come in, particularly when they’re planning for longterm care as well. Can’t we give a certain amount every year and have it not count against our gifting amount? And the answer to that is yes, it doesn’t have anything to do with Medicaid gifting though. So don’t get it confused with that.

[00:07:24] As of now in 2024, each individual can gift up to $18,000 per recipient per year without eating into that federal gift tax credit, okay? So 18,000 per person per year, it doesn’t eat into that 13.61 million, which most people are not worried about in the first place, but if they were, and if that exemption goes down federally, which it could they’re not going to worry about it with those $18,000 annual exclusion gifts, okay?

[00:07:51] And because we don’t have an estate tax in Washington, that money is not taxed here either. And so what the benefit of those gifts can [00:08:00] be is that you can take small pieces of your estate on an annual basis and gift it to your children or other beneficiaries without having any tax implications. And so the goal is long time gifting over your lifetime, basically.

[00:08:18] You could gift a lot of your estate away in small increments, maintaining control for your lifetime, mostly and potentially reduce the amount of your taxable state federally. And in Washington.

[00:08:29] Number three way that an estate plan can reduce or mitigate taxes is the utilization of irrevocable trusts. Okay?

[00:08:38] Irrevocable trusts are trusts where when you put something in them, it is no longer yours. Okay? Assets transferred to irrevocable trust are removed from your taxable estate. Okay?

[00:08:49] These can be done for long term care planning. These can be done for a state tax minimization. Basically, what you’re doing is you’re taking an asset and like say a piece of real [00:09:00] estate because that’s easy to comprehend, right?

[00:09:02] We’re taking a piece of real estate that you have, maybe it’s a second home or a rental property. And you gift it or place it into this irrevocable trust for the benefit of someone else, not you. Which is also managed by someone else, not you. And that transfer removes that asset from your taxable estate. Okay?

[00:09:22] It would count as a taxable gift potentially or eat into that gift tax exemption. But that’s not the main concern. Okay? We’d have to track it probably for federal estate and gift tax purposes. But, considering the value of that exemption. We’re not worried about it usually.

[00:09:37] Another kind of irrevocable trust to use the people use is an irrevocable life insurance trust that can be a specific trust designed to hold life insurance so that the life insurance doesn’t count against your taxable estate when you die, there’s ways to fund those and we won’t get into those best practices, right?

[00:09:53] We won’t get into that today, that’s too complicated, but you can do a life insurance trust. You can do irrevocable trust to move money out [00:10:00] of your estate. These irrevocable trusts can be used to receive annual exclusion gifts, too, that we just talked about. So the annual gifts can be given into these irrevocable trusts if you set them up right.

[00:10:10] And so, these irrevocable trusts, whether they’re for your kids, or they’re for major assets that you use, you know, or have, that you want to transfer, these can be set up to hold those assets, most of the time they’re protected from creditors, and they’re structured so that the assets are protected for your beneficiaries, And so there’s sometimes a really good option. Okay?

[00:10:34] Number four, there’s a trust called a grantor retained annuity trust and a grantor retained annuity trust allows you to transfer appreciating assets. So say, for example, you have, say you have some stock and the company’s right on the come right there. They’re moving fast value wise. Right?

[00:10:54] And you say, well, I’ve got a thousand shares of Amazon or whatever in the early days. Right? And I want to [00:11:00] get rid of that money out of my estate. So, a grantor retained annuity trust allows you to gift that asset at the value of the gift and it’s a calculation but at the value of the gift in return for an annuity that you take for your lifetime, but the appreciation of that asset stays in the trust so it’s not part of your taxable estate that allows you to move assets that you know are going to go up right and this is kind of a crystal ball thing but you can do it with real estate too but assets you know are going to go up and most stocks hopefully over a long period of time are going to go up, you can get those stocks out of your estate at a lower value than what they would count against your estate later if you would have left them in.

[00:11:37] And this is also a good play for Washington, right? It works the same way in Washington as it does federally. Once the asset is out of the estate, it’s out of the estate. Okay? So that reduces your taxable state for Washington purposes.

[00:11:49] Number five, charitable gifting strategies. So when you think about your estate plan and we’ve talked about charitable giving quite a few times on this podcast.

[00:11:58] There’s other kinds of [00:12:00] trust that you can make, which are charitable remainder trust, which are similar to the grantor retained annuity trust, they’re similar, but they’re for charitable purposes. There’s also things called donor advised funds that you can create. There’s private foundations that you can create.

[00:12:16] The most complicated of the three is probably the private foundation. Donor advised funds are basically funds that you can create in many places to sort of, you know, make a group of charities that you’d like to benefit, okay, that you can put money into. And so these provide income taxation reductions during your lifetime, and they can also reduce the amount of your taxable estate later if you put money into these charitable bequests, right, or charitable entities.

[00:12:45] When you die, charitable bequests have an unlimited exemption. So, you can give a million dollars, you’re going to get a million dollars, an exemption back, right. For simple math purposes. So that’s a really good thing if you have charitable [00:13:00] wishes, you know, and want to support charitable organizations with your estate.

[00:13:06] So there’s a dual benefit, right? It reduces your estate, but it also helps causes that you like. Right? And so we’ve talked about this. If you’re not around, one of the reasons we do estate planning, especially even if we don’t have kids or families or whatever. If you’re charitably involved, you know, philanthropic enterprises, you want to make sure that those places get some more money when you’re gone.

[00:13:26] And so if you don’t, if you’re not around, they don’t get that money anymore, right? So leaving them something benefits them and it benefits you.

[00:13:33] Number six, family limited partnerships or family LLCs is what I use nowadays, are a way to help transfer business interests or other assets over time to beneficiaries. Okay? The goal and the idea, I guess, is you put an asset in an LLC, which is a limited liability company or a family limited partnership, which is limited partnership for liability purposes.

[00:13:58] These are kind of magical [00:14:00] entities, they’re not as great as they used to be, but they’re pretty good still.

[00:14:03] They’re closely held entities. So potentially you can gift these assets at a discounted value because they’re in an entity that is qualified for certain discounts at the federal level, as far as the value goes.

[00:14:16] So say, for example, you put $100,000 in this limited liability company or family LLC, and the federal treatment of this or valuation of this would say maybe you get a 10% discount, so that 100,000 is worth 90,000.

[00:14:31] So the goal is you can, or the point is, I guess, is you can gift that 100,000 at a 90,000 value. And you can use that under the annual exclusion gifts, like giving shares of these entities to your beneficiaries in trust. So you’re sort of using this LLC family limited partnership in conjunction with the irrevocable trust in conjunction with the annual exclusion gifts, and so it sort of mixes all things [00:15:00] together.

[00:15:00] And so basically you’re leveraging, you know, this entity and its capacity to be valued lower than what it would be as if you would have gifted this asset from yourself directly. Okay?

[00:15:12] And so they can significantly reduce these taxes potentially during your lifetime and maximize the effect of that annual exclusion gift.

[00:15:22] Number seven, so this is something that if you’re at the federal level, if you’re taxable at the federal level, this is something that is meaningful to you. The tax exemption at the federal level, the estate tax exemption is considered portable. Which means that the portability means that the surviving spouse can use the deceased spouse’s unused federal tax exemption in their estate.

[00:15:46] So that basically says that at the federal level, the spouse can say if they didn’t plan for it, well, the spouse still has access to the 26 million. Okay?

[00:15:57] This is different, the treatment for this is different [00:16:00] in Washington. Washington does not allow a deceased spouse’s state tax exemption to be portable. Okay? And so, it’s critical to properly plan to exempt and shelter a deceased spouse’s share of a taxable state in order to get their exemption amount, okay?

[00:16:22] And so we use irrevocable trust for that, and it’s called a bypass trust, which we’ve talked about. A credit shelter trust is the type of trust it is.

[00:16:31] And so the basically, what we do is we place the deceased spouse’s share into a credit shelter trust or a bypass trust, they’re the same thing. In order to protect that money from being includable in the surviving spouse’s taxable estate. So you have to do that in Washington. You can’t come back later and say, Hey I forgot to do it when my spouse died.

[00:16:51] Can I use it now? You can do that federally, but most people don’t need it federally. You can’t do it in Washington. So it’s a use it or lose it here, so proper planning [00:17:00] is super important, which is why, you know, in Washington, and I’ve said this before, and I’m going to tell you here, because we’re talking about tax planning, the amount of money that you should have.

[00:17:09] When you’re thinking about tax planning is probably if you’re over a million, you should definitely, you know, state tax wise or state value wise. You should be thinking about a state tax planning. If you’re over one and a half, you definitely need it because things happen, right? What happens is if we live in a functional society where the economy is okay, our assets increase in value. They appreciate, right?

[00:17:31] Our house goes up, our investments go up. You know, we keep saving and our money goes into the bank and it keeps making more money. And so, if you’re at the one and a half million, you’re going to be at two million before you know it. And if you don’t properly plan for it, you’re going to have to end up paying estate taxes. So, it’s really important.

[00:17:49] So, if you say, well, what, James, what number should I think, you know, about estate tax planning at? I’d say if you’re at a million dollars, you should be thinking about it. Because that [00:18:00] million is going to go up, right? If you’re one and a half, you definitely should do it.

[00:18:05] If you’re a two, you need to be in, right? You need to be doing this. So, there’s the answer to that question. Maybe it came late. If you were looking for that answer, there it is. Anyway, this estate tax portability is important in Washington because it’s not portable, okay? So, planning is essential.

[00:18:20] Number eight, thing that we can do to reduce our overall tax burden through our estate plan. And this isn’t really something that an estate planning attorney is going to help you with. It’s something maybe that we talk about with your CPA, definitely with your financial advisor. It’s a Roth IRA conversion.

[00:18:38] And we talked about this a couple episodes ago. I think episode 28, we talked about how retirement accounts interact with your estate plan. IRAs, traditional IRAs are deferred money, right? That means you put money in and they pay the tax when it comes out, right? So you put pre tax money in and then you When you reach a certain age, you have to start taking it out in required [00:19:00] minimum distributions.

[00:19:01] And at that point, they’re taxed as income to you, okay? And so, you’re getting deferred growth, but you’re having to pay tax later, okay? A Roth IRA is the opposite, you put after tax money into a Roth IRA, and you get tax free growth, but you also get tax free distributions, right?

[00:19:23] And so, I guess tax free, I should say, you get tax free distributions.

[00:19:28] The IRA and the Roth IRA are both part of your taxable estate though, okay? So you want to make sure that you don’t think, Okay, I’m going to put this in a Roth IRA so it’s not part of my taxable estate. That is not true. But what it does is if you say, Okay, I’ve got this IRA and I’ve, I want to convert it to a Roth.

[00:19:49] And the reason why you would do that is so that your income goes down, right? Say you’re going to have a larger income in retirement than you would like. Right? And then taking these RMDs would just increase that income to a [00:20:00] point where you’re paying way too much in taxes converting some of that traditional IRA to a Roth IRA and paying the tax now, you know, at the time of conversion rather than later, sometimes can make a lot of sense.

[00:20:12] This is something that you’re going to want to talk to your CPA about, and it’s something that you’re, you’re going to work with your financial advisor about. They’re the ones that are probably going to initiate this discussion unless you initiate it yourself. So maybe ask them. This is not something that I typically bring up unless there’s a major income tax problem.

[00:20:31] And we’re working through like a, a problem where, well, how can we reduce our income? But it is part of an effective estate plan is to consider your retirement accounts as we discussed in last week’s episode, two weeks ago. So consider that. And then finally, as with anything, estate planning wise, you want to make sure that you’re reviewing these things regularly in the retirement account episode that just came out.

[00:20:57] Actually, as I’m recording this this week, [00:21:00] so it’s two weeks ago for you listening to this today, episode 28. This today is episode 30, by the way. So that’s pretty good. Review your stuff, right? Review your estate plan, because here’s what happens. Estate tax amounts, exemptions change throughout my career.

[00:21:18] When I started practicing the federal estate tax exemption was $600,000 and it’s gone up and down and it’s gone away and it’s come back and it’s gone up and down. Through this 21 years that I’ve been practicing, it’s gone up and down, and we worry about it sometimes more than we worry about it other times.

[00:21:33] We’re worried less about it now than we have been in a few years. But it changes, right? The Washington state estate tax has also changed. I think it’s pretty much in there now, but you want to make sure that you’re reviewing it and seeing what the exemption is.

[00:21:47] Is it going up? Are they increasing it for Inflation like they should, which is questionable, but you want to make sure that this stuff is right.

[00:21:55] So major life events, look at your estate plan every two to three years, you should be looking at [00:22:00] it. If you hear something about a state tax, call your estate planning attorney or call me and we can talk about it, right?

[00:22:06] If you’re worried about, Hey, am I doing the right thing with regard to planning for my estate tax burden? Call an estate planning attorney. Okay? So discuss this. And if that’s me, great. If it’s somebody else also good.

[00:22:19] So this brings us to our story time for this episode, and this is a pretty recent story. So it’s actually very timely with regard to today’s episode and involves the father and his children, Dad was recently diagnosed with a terminal disease and given only a few weeks to live which is super sad and it’s a very difficult experience this family’s going through and you know, it’s not something anybody wants to have to go through But we’re working in this kind of a realm as estate planning attorneys, and we deal with this, right?

[00:22:51] So my goal would be to sort of review this thing, sometimes take a longer approach, but in this case we didn’t have a lot of time. [00:23:00] So what I could do is clarify the process and simplify the process of distribution. There wasn’t a lot of exempting we could do, there’s not any big plans we could make because we don’t have the time.

[00:23:10] One of his issues is, his estate is over the taxable level. Okay? For a state tax in Washington. And as part of an estate analysis, every time that you meet with me or anyone in my firm, we review your assets, right? We want to know how much you have so that we can provide the right plan.

[00:23:30] And so as part of this estate analysis, we always go through, you know, what’s your house worth, what’s your retirement accounts worth, what’s your investments worth, that kind of thing. So that we know, okay, do you have a taxable state or not? Are you on the verge or way over? So we want to make sure that that’s dialed in.

[00:23:48] And oftentimes when you have a taxable estate in Washington, we consider, well, because there’s no Washington gift tax, does it make sense to make lifetime gifts or a large gift to [00:24:00] reduce the potential estate tax burden and not have to go through the process of filing an estate tax return? I think I’ve mentioned this before where Washington, if you file a tax return for an estate tax, it’s a bear of a form.

[00:24:13] It’s a big return. And it’s also one that in most cases are audited every time when someone makes a claim or files a return. Right?

[00:24:23] And so it’s a long process and it’s expensive to do. And so a lot of times it’s better just to opt out of it, but it’s not always advantageous to pay or to avoid the estate tax.

[00:24:34] And that goes back to that first thing I talked about the lifetime gifting. Where your basis when you make gifts is the carryover basis, which is what it was worth when you bought it versus what it’s worth now when you inherit it. So if you inherit something, you get the basis as to what it’s worth now, so there’s no capital gains.

[00:24:50] And this man’s estate mostly consisted of very low basis investments that he had. And so we took, we did some math, right? And [00:25:00] we determined, well, if he gave the assets away to his children before death, they’d get this carryover basis, which is very low. And so they’d be paying capital gains on a pretty large number. Okay?

[00:25:13] And capital gains, even if it’s a 15%, turned out to be higher than what his estate tax in Washington would be. And the reason why is his estate was over the taxable limit wasn’t super far over. It was over a million over, but not too much over a million. And the way it works is there’s a tiered tax rate in Washington.

[00:25:32] And so he was only paying 10% on that first million rather than 15%, potentially on a larger number. Okay. And so it made sense. Okay. We decided, well, we’re not going to make any lifetime gifts. We’re just going to pay the estate tax later. And in the long run, that’s going to be better because his family’s going to inherit these other assets at a stepped up basis.

[00:25:55] So they’re not going to have. Capital gains if they go and turn [00:26:00] those around and sell them after they inherit those assets. So, in the long run, there was a significant savings saving estate taxes versus capital gains.

[00:26:10] So, we opted to take the step up in basis, and that’s what we’re gonna do. And so, in the long run, it’s a much better strategy.

[00:26:17] So, it’s something that you wanna, it’s not always the best thing to say, Okay, I’m gonna avoid estate tax, I gotta avoid estate tax, I gotta avoid estate tax. The unintended consequence sometimes is, you end up paying the capital gains tax, which might even be more.

[00:26:30] And so, and especially lately with these increased chatter about increasing the capital gains tax, which hopefully doesn’t happen.

[00:26:38] It might always be better in certain situations to pay the estate tax, at least if it’s like the Washington estate tax, where it’s the max rate is 20%.

[00:26:46] So, that’s the story, interesting little tidbit there. I hope that we want to make sure, I guess the bottom line is You want to look at each, each situation, you know, independently and you want to make sure [00:27:00] that analysis is right and sort of you can project what it’s going to be tax wise to do one versus the other, right? To make gifts during your lifetime or do estate taxes under the exemption. So, that’s it.

[00:27:12] So that brings us to our something good in the news segment. There’s nothing in the news as I’ve talked about before, estate planning is a slow mover, oftentimes. You know, we’re not going to get weekly estate planning stories, unfortunately, but I found something good. Interesting.

[00:27:27] Something to look forward to, right? Because summer is coming up, it’s May. We’re getting toward the end of May. This will come out in June, probably. So we may be in June when you’re listening to this, but summer travel is coming up, right? And I found a little study recent study done or survey done, which talks about summer travel and basically the difference between a vacation and a trip and for most Americans, 80% in this study, there was a distinct [00:28:00] difference between a trip and a vacation. And that’s what based on a survey of 2000 us adults with travel plans this summer. And most people agree that vacation is considered travel for the relaxation.

[00:28:12] So I know that I go on a lot of trips, I go on trips for business and I go on trips that are just short hops. And then there’s vacation, right? And so vacation is a time, for me at least, where you can relax and sort of disconnect and it takes a couple days to get into that vacation mode for me because I’m busy and it’s just not where I’m always at. My wife tells me it takes a couple days.

[00:28:36] But here’s some interesting things. So the respondents were defined a trip as traveling for purpose or for a purpose or event like going to a wedding or going to a family reunion, probably or a business trip. 32% thought that was a trip.

[00:28:50] Getting out of my city or town 30% somewhere that I can drive to was 18% that they would call that a trip and 15% said that when [00:29:00] they would only be gone two days or less that was not a vacation, that was a trip. Okay?

[00:29:04] Alternatively for people that called a vacation, traveling for the relaxation was 53% . More than three days away from home 36% said that was a vacation, completely disconnecting from work 25% said that was a vacation and 17% said getting out of my town or city. So that’s interesting, right?

[00:29:23] How people view this, I think getting away from work is a vacation. Getting somewhere different as a vacation. You know, getting somewhere where you can just sit away versus somewhere you always are. That’s a vacation to me, and it’s not something you have to go to a conference for. I go to a lot of conferences and those aren’t vacation, that’s for sure.

[00:29:43] And so, how do you define a vacation versus a trip? That’s curious, like, put it in the comments section. It’d be interesting to see if anybody comments on that.

[00:29:51] What’s your ideal vacation? What’s a trip just a trip to you? And so hopefully those summer travel plans are coming together.

[00:29:59] Hopefully you guys [00:30:00] have great summer travel this summer. But that’s it. That’s something good. Let’s start thinking about moving a little bit slower paced this summer, maybe. And getting out of town, hopefully. And getting some relaxation because I think that’s important.

[00:30:15] Leisure is the basis of culture. That I read in law school. That’s about that, which is super interesting, actually. It’s having downtime to sort of bring your brain to work. Think creatively is important.

[00:30:27] Anyway, that’s it, that’s our episode for today. I’d like to thank you for listening to today’s episode of legacy talk.

[00:30:36] If you liked today’s episode and would like to learn more, please like and subscribe for more great content.

[00:30:41] I’ve been your host, James Jones, to your legacy.