Changing Laws to Consider for Year-End Planning with Steven Rausch

Reading Time: 18 Minutes

In this episode, with Steven Rausch you’ll learn about key law changes that you should be prepared to address in your business entities and family trust.

After the Interview:

About Steve Rausch

Steven Rausch is an estate planning and business attorney in his 18th year of practice in Treasure Valley, Idaho. Steve has his own practice based out of Boise with a primary focus on estate planning including trust and will-based planning, and in corporate/business formation, operation, mergers and acquisitions. 

Read the Transcript

This transcript was auto-generated from the original video recording using Otter Voice Meeting Notes. While the transcript has not been human edited, we hope it will still help you to quickly find or reference useful information from the interview

0:05 

Deliberate Leaders. I am your host Allison Dunn, Founder of the Deliberate Leaders podcast, Executive Coach and Owner of Deliberate Directions. I am super excited to introduce the guest that we have with us today we have Steve Rausch. He is the Founder of Capitol City Law Office, which is based right here in Boise. He is an estate planning and business attorney in his 18th year. Steve practice primarily focuses on estate planning, including trusts, and will based planning as well as corporate and business formation. Steve is a dear friend of mine, a client and someone who is going to share the updates on the things that we need to be thinking about in order to protect our legacy as well as our business. Well, Steve, you so much for joining us today.

0:55 

Thanks for having me. I’m excited to be on your podcast.

0:59 

Thank you. I am too, we do a couple of business experts each year and focus around it. And so I just want to make sure that listeners today understand that this is, although leadership, I think is really key. And when we set up our family, as leaders of our family, assuring that we are setting up our business at home as well as an office properly. This really is an expert that we have with us today. So Steve, hoping we can just spend about 20 minutes diving into all the things that are changing right now that we just need to be aware of, and some strategies around how to protect our family, our wealth and our business.

1:36 

Absolutely. Go ahead.

1:40 

So obviously, with every new administration, there are obvious changes that happen to the law at each administration. So what laws have changed, that people should be prepared to address in their business entities?

1:57 

Yeah, so that you’re right, in every administration, change of the, you know, President and bringing in a new executive, and congressional changes and all those things that happen on top of the state changes that we have that happen on a fairly regular basis. With the new administration, there’s been a lot of discussion that has been going on about all the bill back better plan and some of these other infrastructure plan that has come into place. The infrastructure plan was just signed into law this last Friday, I believe it was. And that’s bringing in, you know, over a billion dollar or a trillion dollars, not a billion dollars, over a trillion dollars of investment in the United States into infrastructure, roads, bridges, you know, revitalizing parts of America, all of America that needs you know, that infrastructure injection of capital. So that’s one thing that’s happened, I think what we’re going to see from that, is there’s going to be a lot of opportunities for business owners, I think what’s going to happen is you’re going to see a lot of that trillion dollars that is being pumped into the system, go into our local communities, to and that’s why I think you’re in Idaho in particular, you saw our congressional delegation, for the most part voted for it. And I think they voted for it because they saw that, beyond the politics, there was going to be some opportunities for Idaho to get some of this funding to be able to help to come into Idaho and rebuild some of the infrastructure that is over time just it gets worn, it gets used, and so it needs to be rebuilt, revitalized. So I think that’s a big change. We’ll see coming up here in the next few months, just as that money gets infused into the system, what will, you know, come to small business owners. There has been some changes that this is a law. It’s called the corporate Transparency Act. And so it’s kind of an interesting law. This is one that was actually adopted in the end of 2020. As part of the Defense Authorization Act, it is a bill that requires starting January 2021. And it’s interesting, I’m going to read a little bit of the language here just really quick because it’s interesting and what it covers. And the whole purpose behind it is to It’s another tool to fight money laundering issues that happen across the world and in particular here in the United States. And so what it says is that the corporate Transparency Act broadly defines a reporting company as a corporation, limited liability company or other similar entity. Created by filing a document with the Secretary of State, or similar office in a state or territory or with a federal recognized Indian tribe, are formed under the laws of a foreign country and registered to do business in the United States. Pending implementing the regulations, it is unclear whether limited partnerships are also included.

5:20 

As the corporate transparency, corporate transparency acts focuses on shell companies and other entities with no limited or with limited or no operations. So the point behind this here, corporate transparency, what we’re trying to get here is we’re trying to get to those entities, that their purpose is specifically to shield from governmental agencies, but also from other businesses, as well as state agencies, what their operations are. And interestingly, it says significantly, there is also an exception from the reporting requirement for entities that employ more than 20 employees. File and previous tax year demonstrating more than 5 million in gross receipts or sales has an operating presence at a physical office in the United States. And moreover, entities that are subsidiaries of such excluded companies are also exempt from the reporting requirements. So those are the ones that are exempt from the reporting requirements. But everybody else is required to report who their beneficial owner is. And beneficial owner is defined as an entity as an individual who directly or indirectly exercises substantial control over the entity, or owns or controls not less than 25% of equity in the entity. So I think this is something that we haven’t seen all the regulations on, it’s something that is going to be coming out that we as business owners need to be aware of, it’s reporting directly to the Treasury. We don’t know what that means whether that means it’s going to be part of our tax return filings or what that means, or it’s a filing that has to be done through your bank. We just don’t know what that means. But it’s something that business owners be aware of. Let’s see, there’s been a lot of discussion about the proposed tax legislation, that’s part of the build back better plan. That is, we don’t know what that’s going to be at this point. Right now, that is been, you know, started out as a $3.5 trillion proposal, it’s now down to I think, 1.5 trillion, maybe 1.7 5 trillion. So they have cut out a major amount of what they were talking about doing. I know some of the concerns were, for example, the capital gain tax rate. That would go from its traditional 15 to 1015, or 20%, up to as high as 25%, depending on your income level. It would be retroactive, back to September 13 of this year. So any transactions that happened, it would be retroactive. Back to that. We’re still waiting, we don’t know whether it’s going to end up in the bill or not. This is just proposals. The other thing is they were talking about reducing the estate tax exemption amount, we can talk a little bit about that. That’d be great. Actually, basically, in federal law, every estate in excess of a certain dollar amount has a tax that is assessed to them. It’s 40% of the amount over a specific dollar amount right now that is 11. Point 7 million for an individual with a well structured estate plan, it can bump up to 23 point 4 million for a married couple. They were talking about reducing those exemption back to a $6 million per person or a 12 million for a married couple, that’s a substantial decrease bringing that back down, which means there would be a increase in the amount of people that would be subject to that tax. The last I’ve heard is that is probably not going to end up in the bill, that they’re probably going to cut that out. Okay. Yeah, they’re there. We’re also talking about getting rid of what’s called step up and cost basis at the death of an individual. So we eliminate that as a step away.

9:33 

Yeah, that’s one of the things they talked about. So what that means is so when an individual passes away, the value of their assets gets to step up, we get to take the value of what it was when they were alive up to their date of death value, whatever the value is at the date of death. So whoever inherits it does not pay a capital gain tax on those, those that that those assets if they’re liquidated. Congress has talked about for a long time getting rid of that. They’ve tried it one other time back in the mid 70s. It was such a disaster that they retro actively changed the law back to what it was because it’ll just create chaos. And so I think what we’re seeing is these broad, progressive proposals have been brought back under. And you’ve had at least two senators that have been instrumental in bringing that back under control, bringing those back to someplace where it makes more sense. And again, we don’t know what that law is going to look like, right now we have, I’ve seen the language to the proposed law, a lot of these things are not included in it. I would suspect we’ll see passage of whatever they’re going to pass, it’ll probably be sometime mid December, maybe even right before Christmas. Like they always do this. Yeah.

10:58 

Okay. So, so, but until it passes, we just really don’t know what’s in there. And that’s the that’s the scary part is that you would hope that you would know what legislation is being put in there before we they actually pass it, and then we find out about it was such a moving target. So I think what we just need to be prepared for is that there will be some changes, but I don’t think it’s going to be as radical as what they were proposing.

11:23 

Okay. And I just want to clarify, because I think on a personal side, all too aware of what step up means when we’re talking about like, an individual, a family, does the same up law apply to businesses as well as an asset that they’re passing?

11:40 

It does, okay. across the spectrum, okay, all assets of the deceased get to step up basis, the only assets that do not get to step up basis are retirement accounts, such as an IRA or a 401k. Because those are going to be taxable, whatever the ordinary income level is. And there are certain types of annuities that also do not get a step up in basis. Generally, they are what we call non qualified annuities. They, they are taxable very similar to a retirement account, so they don’t get the step up on cost basis. But generally, across the board, all other assets, get that step up in basis. And it’s kind of a complicated, the complicated understanding, I remember sitting in law school, and then talking about this and me not getting what they were talking about, I just couldn’t get my head around it, it took me actually getting into practice, and understanding what we were, you know, actually dealing with before I understood what it meant. So, you know, if any of your listeners are out there, and they’re going, I don’t even understand what he’s talking about. It’s so it’s okay. So it’s tax complicated tax stuff that, you know, your CPA and your attorney should understand what needs to happen.

12:55 

Okay, good. Thank you. I know that you’ve kind of just addressed a blend of kind of both business, business as well as some personal Are there any other laws that have changed, that people should be prepared for on like, the trust and wills side of things.

13:10 

So right now, they’re, you know, each state, because each state gets to dictate their trust and will laws, and Idaho trusts and wills are governed by the uniform probate code, the Idaho version of it. The State of Idaho makes tweaks and changes periodically, all the time, but it’s oftentimes not sufficient enough for us to worry about what it’s doing to your estate plan. Right now, the only thing that we see on the horizon is that the Idaho legislature is going to take up a bill, they’ve made it very clear that they will take up legislation as it applies to electronic wills. As so when we’re talking about electronic wills, that means a will that would not be in paper form. This would be a will that is entirely electronic. I actually sit on the bar committee for reviewing the legislation for that. Interest. Interesting. I think it’s going to create some interesting scenarios that the courts are going to have to sort out. I think that, unfortunately, what’s driving the this is there’s a lot of lobbying money that is coming from tech companies that is pushing this because they want to, they want to be able to push something that they can generate revenue from. And so I think, you know, as with any law, oftentimes it gets passed. It’s not great. We come back and have to do changes to it over time. I think this is the same thing. Will there’ll be a version that’ll get passed? Hopefully, we as the reviewing attorneys, Can get in there and really make it as tight as we possibly can so that it will minimize the amount of chaos that it may create. But I think it’s, it’s, it’s in an effort to make things, what they want us to believe anyway, more accessible to the public, giving the public the ability to maybe do some of this on their own without having to necessarily come to an attorney. The downside is, is that there’s a reason that you go to an attorney. And it’s, it’s not, why not marketing mice for myself here. But there’s a reason that you should go to an attorney and have an attorney help you draft these documents, because there’s a lot of complicated things that happen when you pass away. That just is do not get addressed in basic, basic terms. And so that’s where we can come in and really shine to help clients be able to navigate that process.

16:01 

One of the common questions that I get, and maybe you can just give us like a high overview answer. Yep. That law, like I do feel like people should be able to do some of their planning on their own. However, there is a gigantic value in going through an attorney because that way you’re secure in the law and what needs to happen. Obviously, a will is a very appropriate thing to have, like everyone should have one across the board. Yep. Everyone should have fun. At what point should someone consider a trust instead of?

 

16:34 

That’s a great question. So the way I approach that is, I don’t look at it necessarily from strictly assets, assets, assets are a consideration when we’re trying to decide to move from doing a will to doing a trust. And really the difference between a will and a trust is both of them are a set of instructions. One is a set of instructions to a court and to an executor. And the other one is a set of instructions to a trustee that is outside of a court that you don’t have to deal with a court. That’s the trust. And so the decision to do one over the other assets come into play, we talk about those we find out what your net worth is, and what asset what type of assets you have. And sometimes, depending on what type of assets it lends itself more favorably to doing a trust versus doing a will. But it also really comes back to what is your goal? What are you trying to accomplish? What are you trying to impart to your family when you die. And if you are trying to impart family values, if you’re trying to impart to them some benefits, like maybe protecting assets for them, or structuring things so that they have wealth long term. And a trust is a better tool to do it. A will is a default document, it is designed to take care of things when you die, but it has to go through a court system. And the court system generally is not super efficient. And so the will although everybody should have some form of a state document in place. wills are important for people who have minimal amounts of assets. And also for minor or for parents who have no children. Because in the will is where you name guardians for your children. And so if you have children, and they’re minors, you’re going to have a will no matter whether we do a trust or not. So it’s where you have to name that. So these documents are all important. But whether or not you do a will or a trust is really kind of factoring depending on your circumstance. So I wouldn’t say that it’s necessarily $1 amount. Although that if you know, I can tell you if you have a house, if you own a piece of real property in Idaho, you cannot go wrong with a trust because the trust is going to keep you out of having to do a probate process at somebody’s death. Right and real property. There’s no other way to transfer it at somebody’s death other than going through a probate or using a trust. So that’s good litmus marker of if you must, you really should have a Will you must have some real property at home, you should consider a trust. Yeah. One of the things that I found very relieving in working through the process with was that it became really clear to me that it was very easy to make decisions where I feel when people think that you have to outline a trust or a will or you know, your wishes for what would happen and so the process would I think is really scary for a lot of people was enlightening and actually like a huge like relief off my shoulders. Because it was scary. I knew where to have to decide on and there aren’t that many things you need to decide on?

20:14 

Yeah, I think that is one of the biggest hurdles that I see from clients coming in to do estate planning is exactly what you said. And that is in their mind, they’ve built up a, somewhat of a construct of what it’s going to be. And then they find out as they sit down with me, or any quality, you know, quality professional, that we’re, that’s another benefit of working with is that we can help you because we have all these years of experience. make those decisions as to what needs to happen. And we can really help you short circuit, maybe the complexity that you think is there.

20:56 

I just felt like the navigation process was just so much easier than I had built it up in my mind to be so Thanks, Steve. I appreciate it.

 

21:03 

Well, and I think that, you know, using a trust versus using a will, you know, when we have to deal with the court process, a lot of the court process is driven by a statute, right. It’s driven by laws that were adopted 50 years ago. And so that can be somewhat daunting and complicated. And, and most people probably shouldn’t go through that process without using an attorney. The trust is different. The trust is really it’s just a set of instructions. And then it’s just a matter of click, you know, making sure you check the boxes, did we do this, that we do this, that we do this? And we can make it simplified?

21:41 

Awesome. Once, once a family has created a trust, how often should it be reviewed, and changed.

21:50 

So my, this is just my opinion game. But there’s a lot of opinions out there by attorneys. But in my opinion, when you do a trust, you should touch base with the with your estate planning attorney at least once a year. And the reason for that is, it may not be so much needing to make changes to the actual trust document. So much as it is you acquire new things that need to be titled to the trust. So one of the things that we talked about when we do a trust is doing the trust documents. One thing, that’s the set of instructions, but the next step we have to do is making sure that all of your assets, and accounts and everything are somehow someway tied to the trust. And that may be a change of ownership like it was the home, we go from you to the to the name of the trust, bank accounts, investment accounts, same things. Sometimes it’s beneficiary designations, certain accounts have beneficiary designations, we may name the trust, or we may not. But it’s lining up all those things. And so as you acquire new things, on a on an annual basis, we just want to touch base so that we know those get tied to the trust, that’s the key to keeping it out of probate. To make changes to the trust, and my experience, I would say most people come back within the first five years and make some change, whether that be who their trustee is going to be or who or how their beneficiaries are going to receive assets. There’s usually some minor tweak or change that happens within that first five years. But again, it’s just fact driven. It depends on the clients, I have some clients that we did it 20 years ago, or 18 years ago, because I’ve only been in practice that long. And we haven’t changed that sense. But there’s a lot of people that will come back within the first five years and make at least a small change. And so sometimes that’s driven by the law, you know, if the law changes, we have to come back and make changes. And so that’s usually where we let you know that there needs to be some we need to address the law, the change of the law and within the language of the document.

24:10 

Fantastic. Could you just kind of do an overview of the type of information that someone should be prepared to compile to be able to make some decisions about trusts?

24:24 

Yeah, absolutely. So when you come in to do any kind of estate planning that we’re going to need to number one, get personal information. So that’s name, address, birth date, names of your children, birth dates, and that doesn’t, you know, doesn’t matter the age, we need that information because if you’re going to leave stuff to them, whether they’re five years old or 50 We need that information. Okay. Personal Information number one, number two, we need to know who You want to act as your trustee or your executor, we need to know who you want to act as power of attorney documents for you both financial and health care. And so those are what we call your agents or your fiduciaries, those are the people that are going to step in, and either take care of you if you’re incapacitated, or administer your estate if you’re if your deceased no longer here with us. So that becomes important. Matter of fact, probably the single most important decision you make in an estate plan is who you choose to be your executor slash trustee, because I can have a document that’s terribly written. But if I have the right trustee, we can make it happen. But I can have the most perfect document. But if we have the wrong trustee, it’s a mess. So it just really that that decision is huge. And so it’s one that you need to really think through and be comfortable with. And then the third thing that we need to know is we need to know your assets. So we need to know what real property you own, what bank accounts you have, what investment accounts you have, what retirement accounts you have, what life insurance you have, what business interests you have what vehicles, you know, we just go through this whole list of the assets that we need to know. And we need to know all of it, we need to know holistically what exists, and then values so that we can then advise you whether or not we have an estate tax potential issue that we have to address. And we can’t do that unless we know everything. What I have found is that most people will come in to the attorney, and oftentimes will divulge most everything, because they know or they’ve watched on TV. And they’ve seen that there’s attorney client privilege that attaches when they have a relationship with an attorney. And that attorney client privilege by most attorneys and felt very sacred, because we do not have an we do not want to be bulging other clients secrets. Because number one, we could lose our license by doing that. But for attorneys that take it seriously, it’s a calling, we feel a responsibility to our clients. And so if we can get them and build that relationship, then they’ll divulge all that information to us. And then we can advise them the best possible way of what type of planning is going to work best. And so those are the three main areas personal information, who your fiduciaries are going to be, and your assets. So that’s what I would be tell people that they need to be prepared to, to come in, if they’re going to sit down with me or any practitioner, that information gets us a long ways. And then as we’ll work through with them as to how that plan gets designed through the process.

27:58 

Awesome. In in kind of wrapping up, Steve, I just want to I know that, you know, you’re I’m positioning you as the expert, but I also having had a year that has required significant leaning on the things that we had established in a trust and whatnot that, so glad I did that planning. First off. And so my urge is, is that regardless of whether you have a coach, but regardless of whether you have an estate attorney, regardless of whether you have a CPA, I’m looking to our local as experts to make sure that we’re doing the best things that we can for our families, is our obligation. And so I challenge all of you that if you don’t have any family planning, you reach out to someone who can help you with that, and that you just never know when you’ll need it. So

28:49 

it’s so true. And there are there are lots of very, very good qualified professionals in our community. You know, I’m one of, you know, probably at least 25 that are a little more experienced estate planning attorneys. But there are there are a lot of good professionals out there, they can help you. Now, there’s only really one good business coach. So that’s Allison, so thank.

 

29:20 

I just want to give people as they as they’re thinking about their budgets, something like this, could you just give me like a like a general range and kind of a median of what you would expect to establish a will or a trust generally in Idaho? Yeah.

29:38 

So typically when we’re doing like we’ll base planning will base planning is you’re doing a will for each well for an individual or a couple you’re doing a will for each of them. financial power of attorney health care directives, all that is part of a package really. On the will base plan it usually ranges somewhere between 1000 to $2,000, depending on What kind of complexity we’re getting into, especially when we’re dealing with minor children, there’s some complexity that comes with that. So that would, I would say, would be a normal range in Idaho for wills, a wheel base plan, a trust base plan, you’re talking in the range of probably. And mind you, the reason that there’s more cost to a trust is we’re not only drafting the documents, doing wills, doing Power return documents, health care directives, we’re also taking in retitling, the assets. So there’s more involved with that. I would say starting at 3500, to depending on the complexity, depending on whether we’re dealing with a state tax issues can run up to, you know, 7500, even I’ve seen plans in the $10,000 range, depending on, you know, all the working parts and pieces that we’re working with. So that would be arranged, although I do have I mean, I have a colleague that works for one of the big firms downtown that he’s charging 10 times what I charge to do the same thing using the same software. So you know, it just depends on the law, but their overhead is right.

31:12 

Surely, I like to dispel that kind of put it straight out there. Because I think that part of what stuff is doing is to not know how much it costs to actually execute on getting it done.

31:23 

I think that’s important for people to know that there is a broad range. There’s a broad range out there of what different attorneys will charge, you might find an attorney that charges less for a trust. But just be aware, it goes back to that old adage that sometimes when you pay more, you’re actually getting what you pay for. Right. And if you pay less, you’re generally getting what you pay for so

31:50 

Well, Steve, I so appreciate you being on my advisory board for my world and sharing your expertise and insights today, our community.

32:01 

Well, thank you for having me. I appreciate being on. Thanks, Steve.

 

Transcribed by https://otter.ai

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