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Title: “Tax Law Changes That Business Owners Need To Be Ready For”
Guest: David Appel – Appel Advisors
Interviewer: Jeffrey Davis – MAGE LLC

Click here to read the transcript

Jeffrey (2s):
Well, welcome back to Radio Entrepreneurs. The show that’s always streaming every day. Stories of entrepreneurship. Over seven years, over a million people have listened to our stories. And I think this next one could be the one that pushes us over 10 million, because it’s a really critical topic to all people with assets, all people with businesses and our tax laws are changing dramatically. As of December 31st, David Appel managing partner at Appel Advisors. Welcome David.

David (28s):
Thank you very much, Jeffrey. Appreciate the invitation. Wow.

Jeffrey (32s):
And what an introduction. Jeez, not just an invitation, David. It is a big time. And I’ll even say some of my clients are scrambling to say the least things that they thought they were going to be holding off for years doing. They’ve got to do it now or else, and it’s not just, or else it’s that there’s going to be major consequences of money they’re going to lose.

David (55s):
Yes. You know, it’s, it’s one of these things where, you know, there’s certain laws in place and you know, we’ve known since I’ve been in the insurance business for the last 29 years, you know, a state tax law changes have changed like seven times to the point where as we were discussing earlier, you know, where a state taxes even went to zero at one point and they’ve gone up and they’re at the highest levels they’ve ever been. The estate tax exemptions right now, a married couple in the United States can protect $23.4 million that expires under Trump’s tax law. In 2025 in a president, Biden gets his way that 11.7 million per person could drop to three and a half million, you know, under his budget reconciliation act, which means a married couple can only protect $7 million, which in the Northeast, when houses are worth two, three, $4 million that can put a lot of people over the tax threshold relatively quickly in planning needs to be done.

David (1m 54s):
When they start realizing that 40 cents of every dollar over 7 million could be taxed on a dime on every dollar.

Jeffrey (2m 3s):
Wow. Tell me more.

David (2m 6s):
Well, I mean, one of the things that, you know, we’re scrambling a little bit on the life insurance industry and we have legislators and lobbyists fighting in Washington right now dealing with, you know, with senators and their staff is, you know, they’re talking about now grand tour trusts have always been a very key player in the estate planning side and grant grantor trusts are typically what are irrevocable life insurance trusts, where there’s trust that hold life insurance, where you gift premiums to and anything held inside a grant or trust is typically outside of someone’s estate. So if you hold a couple million dollar life insurance policy in an irrevocable trust, that’s removed from the estate and not counted.

David (2m 48s):
So no matter how much life insurance you have in there, it goes income. Tax-free the trust. And then once that trust is inside the trust, it’s not, includable what Biden’s proposal now is trying to do is any gifts to those grant or trust. They want to exclude now future gifts to these grand toward trusts. So premiums being paid can be counted back into the state and taken off a life insurance death benefit. So let’s just say for a quick, like an easy example, you now AF if this law passes and you put $200,000 of premium into a million dollar policy into a grant or trust, they want to now say that that’s, you have to include $200,000 from on an estate tax level off of that million.

David (3m 32s):
So it’s not a clean million. That’s going to the family, you know, based on this law. So there’s, there’s, there’s a lot of moving parts going on right now. And like, as you said, clients are scrambling because with, if, if right now really a couple could, can gift up to $23 million out of their estate. But if this law changes and it reduces down, they lose that. They can’t go back and get that money anymore.

Jeffrey (4m 1s):
And for some people it’s substantial, correct.

David (4m 6s):
In regards to what the potential tax they could be looking at. Oh yeah, yeah. Yeah. Like I, I recently I did an analysis last week for a client here in Boston where the estate was, let’s say it’s approximately $40 million. And I said, under the current tax law they have between Massachusetts and federally, I’m sorry. They had a $30 million state under, under current tax law. They have about a $4 million tax today between Massachusetts and federal irrespective or Biden does, even if it rolls back, if Trump’s law rolls back in 2025, there are tax quadruples.

David (4m 46s):
It goes from 4 million to 16 million. It goes to almost half the estate is gone. We don’t ruin a family. Absolutely, absolutely. It was then it’s a fire sale depending on if they have liquid assets or if they have hard assets or a small family business, you know, it’s not like you have hard assets or a small family business that could be a fire sale. I always bring back, you know, the story which people forget about of, you know, Joe Robbie and the Robby family back with the Miami dolphins. When, when, when Joe Robbie passed away, they owed so much money to the federal government. That’s when they had to sell the football team to Hussein Anga and they lost one of the most profitable teams in NFL history.

David (5m 27s):
And they had to sell the stadium and they had to sell a lot of their assets to come up with uncle Sam wanted his money nine months later, and that family got wiped out.

Jeffrey (5m 36s):
That’s unbelievable. It’s such a valuable franchise. And so, you know, what are company owners doing? What are your clients doing about this? You know, working on this legislation as there’ve been lobbying going on as it still is any of this still in play.

David (5m 52s):
Yes, it’s, it’s, it’s all still in play. There’s still no clear decision. As of today, we’re hoping within, within a week or two, we might have some more legislation. I mean, I’m, I’m, I’m advising my clients right now that have irrevocable life insurance trusts. If they can, to future fund some of the premiums, you know, put extra premiums into the irrevocable trust today, before the end of the year before this law passes. So then any, you know, Sotheby’s, once it’s in the trust, they can’t clot back out. So, you know, we’re future funding, some premiums we’re talking about. If the law does pass, we’re going to be able to do some intrafamily loans at the low AFR rates that are out there, meaning that you know, that the families can loan trust the money and do different things.

David (6m 37s):
We might have to, we might have to revert some of the policies back to split dollar policies, depending on if we, if we don’t have the ability to gift a lot of money into these already established brand toward trusts, we’re got to come up with some other ways to make this all happen. So I’m trying to advise people to, you know, I’m talking to everybody, a lot of my clients who have grant or trust, specially who are paying significant premiums over six figures a year, you know, targeting those clients first, you know, where they’re, where they’re spending more than a hundred thousand dollars a year on life insurance premiums,

Jeffrey (7m 11s):
Not just how you are, your clients are being affected. I think the whole life insurance industry is being affected. And that tends to be a big lobby as well.

David (7m 22s):
Yes. I mean, life insurance, life insurance for decades and decades and decades and decades has always fought to keep life insurance income tax-free to the beneficiaries and any internal growth inside of an insurance policy to grow tax deferred. And they, and they’ve done a good job, you know, keeping those two things, no matter, you know, through all the changes and all the tax changes, they’ve kept that going. And what’s kind of interesting is I actually have a few senators as clients. I don’t understand how they’re going to pass this because probably I would have to say 98% of the senators own irrevocable life insurance trust, where they’ve built, you know, they’d have life insurance outside of their estate.

David (8m 4s):
And I just can’t see them passing a law. That’s actually going to be detrimental to themselves to

Jeffrey (8m 9s):
The day that the two things in life, death taxes, pharmaceutical, and life insurance profits, you know, I, I, you know, I, I probably a little bit more optimistic that the life insurance industry and you’re right, and our Congress and senators are elected officials are not going to want to rock their own.

David (8m 32s):
No, I don’t. I don’t think so. They have it in the past. You know, all of us, you know, from estate planning attorneys, you know, to people that are playing in the higher end of the insurance industry, you know, we just, we just, we shook our heads when this came in the legislation, like, how could they possibly, you know, do this? This has been like a staple, you know, planning tool for years and years and years and years. And they’re just really trying to shake the tree, you know, and, and, and see what, see what happens. So it’s, it’s been unclear.

Jeffrey (9m 4s):
And the other side being not political, let’s say, I understand the Democrats are trying to close some of these wide open doors of wealth because there’s too much debt. And they’re trying to find ways to lower debt in the country. This was a logical place to go. But every time the Democrats go after life insurance industry, they fail, they didn’t want Obama.

David (9m 26s):
And when you really look at some of the numbers, it really is kind of small potatoes compared to the overall number that they need to, to come up with. And I think that’s part of the reason that they fail at the end of the day, because, you know, you’re still dealing with such a small percentage of people in the United States that are dealing with this issue. I mean, there’s certainly been a hell of a lot more millionaires in a hell of a lot more multi-millionaires over the last number of years, but it’s still a really, you know, when you really look at the numbers compared to the overall population, it’s pretty small

Jeffrey (9m 58s):
David, I’m sure you’re going to be very busy right now and into the new year for those who don’t respond to it. I know yesterday I spent half the day in law offices with family business clients working on some of these issues. So if someone was looking for you, when your help, how would they find you?

David (10m 13s):
They can either go to my or they can find me we’re we’re our physical office is a Newton corner, or they can email

Jeffrey (10m 26s):
So that’s great, David, and we like having you on the show and we know you’re going to come back soon. There’s so much going on. So we look forward to seeing you again on radio entrepreneurs. Thank

David (10m 35s):
You, Jeff.

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