#52 | Securing Your Estate: What To Do Now with Jon Linford – Part 2

Guest Profile

Jon Linford was raised in Arizona as the oldest of seven children. At age 19, Jon served a two-year mission for his church on the islands of Tahiti. After returning to Arizona, he attended Brigham Young University in Utah, where he obtained a Bachelor’s degree in Political Science. Jon attended law school at the University of Arizona. During law school, he was a teaching assistant to the Dean for the Legal Writing Department and received recognition for excellence in legal writing.

Jon was the team leader of the Ninth Circuit Pro Bono Appellate Program, and during his first summer of law school, he clerked for the Governor’s office of General Counsel. After law school, Jon and his growing family moved to Northern Arizona where he practiced in many different legal areas. Of those different areas of law, Jon discovered that he especially enjoyed working with families to protect and distribute their hard-earned assets according to their wishes.

Jon was pleased to join the experienced attorneys of Morris Hall and has focused his practice on estate planning, business planning, estate administration and probate.  Jon and his wife, Maurine, currently reside in Clarkdale, Arizona with their four children. Jon enjoys spending much of his time outdoors, including hiking and mountain biking. Jon looks forward to helping others protect their loved ones and their assets through quality estate planning with Morris Hall, PLLC.

Contact info for Jon Linford and Morris Trust: https://morristrust.com/
Phoenix: 602-249-1328
Northern Arizona: 928-774-0333

Transcript

Speakers: Jon Gay, Bruce Hosler, & Jon Linford

Jon Gay (00:04):

Welcome back to Protecting and Preserving Wealth. I’m Jon Gay, I’m joined by Bruce Hosler of Hosler Wealth Management, as well as Attorney Jon Linford who is joining us for part two of our series. Welcome back to both of you.

Jon Linford (00:15):

Thank you.

Bruce Hosler (00:16):

Thank you, Jon. It’s great to be here today. Jon Linford, thank you for joining me. So, continuing on, I want to talk about the upcoming sunset of the Tax Cuts and Jobs Act. This is on a lot of people’s mind. They’re concerned about the tax implications, and certainly, many people are concerned about what’s going to happen with estate taxes and possibly if that sunsets, what happens, and do they need to update their estate planning?

So, let’s talk about that for a second. What do you think is likely to happen next year to people that are trying to get into an estate planning attorney because of this sunset that’s inevitably coming and just marching forward without any relief of understanding what exactly is going to happen?

Jon Linford (01:04):

Yeah, great question. So, the estate tax is what we’re talking about, and it’s a big tax. It’s 40% of the estate, but it’s 40% of your estate for anything above the exemption amount. So, this exemption amount is very important because it’s a very high tax, but there’s a lot of estates that are not taxed. They’re under that exemption amount.

But that exemption amount’s always changing. Congress and the President are always changing how much they want to tax these estates, and we got a little taste of this. I don’t know if you remember The Build Back Better Bill that Biden was trying to get through?

Bruce Hosler (01:40):

In 2021, absolutely.

Jon Linford (01:42):

He was very, very close to getting it through. With that, he wanted to lower the estate tax, and one of his proposals was to lower it to $3.5 million. So, anyone above $3.5 million size of an estate would pay a 40% tax on that, which is a lot.

Now, because of just a couple senators, The Build Back Better Bill didn’t end up passing, and then they passed a different bill, and so that didn’t get through. So, the exemption stayed pretty high, which was where it was set back in 2017 with the Tax Cut and Jobs Act, which was at $10 million per person indexed for inflation.

And so, that index for inflation this year is $13.6 million. That exemption would be $13.6 million this year. However, because that was passed back with the, we call them the Trump tax cuts, it was passed by a slim majority in the Senate. It had to be done through what’s called reconciliation, and reconciliation is not a permanent bill.

It doesn’t pass permanently or it’s not in place permanently. It’s something that has to be temporary for the most part. And so, it sunsets January 1st, 2026, and that’s why you’re hearing a lot about taxes and the Trump tax cuts going away, and this is part of that.

The estate tax, the exemption will drop to $5 million per person indexed for inflation. So, we’re thinking that’ll be close to $7 million per person, but that’s a big drop and it’s a big change.

Bruce Hosler (03:13):

Oh yeah. It’s $13.6 million right now, dropping to $7 million per person.

Jon Linford (03:19):

And because of that big change, we’re going to have people rushing in to do what we call advanced estate planning. And we had some of this with The Build Back Better, people thought this change was going to go through, and we got this rush of clients coming in all at once, saying, “Hey, I want to start doing some gifting. I want to start planning ahead of time to take advantage of the higher exemption, because you can take advantage of that while it’s in place before it drops.”

Bruce Hosler (03:41):

Let’s pause right there. The way they have to take care of it is because the exemption amount is a unified exemption of estate taxes or gift taxes, so they can make a gift of some of their estate to their children and use that exemption amount before it drops after the sunset, if that’s what they’re expecting, right?

Jon Linford (04:01):

Yep. It’s kind of use it or lose it type scenario with a lot of these. If your estate is in those ranges, and you’re able to gift it ahead of time and then it drops, you’ve already used it and they can’t claw that back. The IRS has said they won’t claw that back.

Bruce Hosler (04:15):

Yep, I’ve heard that they’ve already committed to that.

Jon Linford (04:17):

Yeah, so I think it’s going to be even worse this time because we have the election coming up in November. You’re going to have the new President, the new Congress in January. They’re going to be negotiating the entire year of 2025 on this new tax bill, because it has to be in place by January 1st, 2026, or else all of these tax laws are going to completely change.

And promises are going to be broken because Biden, they’ve said we won’t tax people making under $400,000 a year. Well, that’s not going to be the case if everything sunsets. And so, they’re going to be negotiating this throughout 2025, and they’re not going to do it overnight.

It’s going to be up until Christmas Eve or when Congress, when they’re ready to go home, they’re going to finally negotiate it and the President’s going to sign it at the last second most likely is what happens.

So, we don’t really know what the final bill is going to be, whether the exemption’s going to be $13 million, $10 million, $7 million, $3.5 million – we don’t know where it’s going to be probably most of the year. And so, you really need to get in at the beginning of the year if you really want to get some of this advanced planning done, because we can’t wait until the last minute.

This type of planning is not something we can do overnight. It takes several months. If we want to do gifting ahead of time, if we want to do certain strategies to minimize an estate tax, it’s going to take a lot of time. So, you can’t wait until the end of 2025 to do that.

Bruce Hosler (05:45):

Well, that’s what I was hoping to let our listeners know, Jon, is that they have to get prepared for this because estate planning attorneys are going to get very busy with drawing up their documents, and all their plannings. If we’re making irrevocable trust and we’re making gifts to those, all of that takes time to put all of that in place.

Jon Linford (06:04):

Even in November, no matter who wins, whether it’s Democrats or the Republicans, we still don’t know what’s going to happen. Some people say, “Well, Republicans want the exemption to be high.” That’s less taxes, right? The Democrats want it to be low, but you look at these Senators, they all have big estates, and so they want to act in their own self-interest too, I think.

Bruce Hosler (06:23):

Oh, you mean they may have a conflict of interest, Jon?

Jon Linford (06:25):

A little conflict. So, even with Democrats, we don’t know what’s going to happen. It’s just hard to predict.

Bruce Hosler (06:30):

Alright. Well, this year in 2024, in March, I published my first book, Moving to Tax-Free. And as I’ve introduced the new concept of the two-generation tax-free legacy plan, I introduced those concepts with my book.

And Jon, you’ve been instrumental in working with me in the important aspect of leaving a legacy to our children that potentially could be income tax free and provide an income stream that would last their entire life, and it would also be asset protected.

And some of that comes down to you setting up a revocable trust that when the parents pass away becomes a dynasty trust and provides for asset protection for those children, protecting them from an unexpected divorce, a lawsuit, a car accident, a business failure, a bankruptcy, any number of things.

And so, the legacy that mom and dad have saved and left to their children is protected inside of that irrevocable trust that is now a dynasty trust. Tell our listeners about how you prepare your dynasty trust and some of the benefits to those springing powers that come out of your regular revocable living trust.

Jon Linford (07:51):

When we create a revocable living trust, if we’re concerned about those things for the kids or the beneficiaries, whoever the beneficiaries are: the creditors, divorce, bankruptcy, lawsuits – the way society is, we need all the protection we can get.

We create these, what we call sub-trusts or beneficiary trusts, and these are trusts that are created under the revocable living trust. Basically, they spring to life once you pass away.

Bruce Hosler (08:20):

So, those are called a springing trust, correct, Jon?

Jon Linford (08:22):

Yeah, it’s a springing trust. It’s a sub-trust that’s created under your trust. So, when you pass the assets that were in your revocable living trust, they fall down to the sub-trust, those springing trusts for the beneficiaries. They’re irrevocable trust that has language in it to offer that creditor protection.

Now, Arizona actually has pretty favorable laws for this creditor protection. Every state has different laws, and for these sub-trusts in Arizona, they’re very favorable for no matter where the beneficiaries live. They can be protected with these sub-trusts created under your revocable living trust.

And it can be a third-party trustee that manages that trust for the beneficiary, or they can be their own trustee and manage that.

Bruce Hosler (09:07):

So, let’s just talk about that whole trustee thing for a minute. Frequently, a family may want to leave one of their children as the trustee for the other children, or they may want to use a brother or sister or niece or nephew, or they may want to give each child the ability to be the trustee of their own trust. Or they may want to hire a professional third-party trustee.

In Arizona, we have Arizona fiduciaries that fulfill that. You’re telling me that you can name any one of those trustees as the successor trustee for those children, and the parents can have all kinds of flexibility in choosing those trustees and contingent trustees too.

So, if the child becomes incapacitated or whatever, there can be a contingent successor trustee in those cases as well. Is that right?

Jon Linford (09:58):

Yeah, absolutely. And as you see, estate planning is not a cookie cutter thing. Every situation’s different. Even every beneficiary is different. The children are different. So, each sub-trust may have different provisions. One may have a third-party trustee; one may have the beneficiary be their own trustee. One may have a professional, it just depends on the situation.

One may have restrictions as to the amount of income or principal that can be distributed every year or throughout the time at different ages. One, the beneficiary may have full discretion and full access to the sub-trusts.

If we have a beneficiary that’s disabled, for example, or becomes disabled later that you don’t even know about, but maybe is needing government benefits for both medical health insurance and for disability, if they receive an inheritance of more than $2,000, in a lot of cases, they are kicked off their disability, their health insurance, their disability.

We don’t want that to happen. So, these sub-trusts also have language that can protect in a scenario like that as well. So, there’s so many scenarios that could come up that we have built into these sub-trusts that protect in these situations.

Bruce Hosler (11:04):

So, if I’m hearing you right, we’re building these sub-trusts with all the flexibility possible no matter what the circumstances are of the family. It’s like a Swiss Army knife, baby! We’ve got a blade, and we can pull it out whether we need a Phillips or a regular screwdriver or a can opener or a sharp knife or even a corkscrew, whatever.

We’ve got all the tools inside of your trust that when mom and dad die, we can do what we need to do to pass this wealth on in a legacy manner that is very favorable. And then if we use that trust with my two-generation tax-free legacy plan, we can potentially leave this income to the children tax-free with flexibility to take money in and take money out, and leave this legacy tax-free.

Because again, with my book Moving to Tax Free, we are very fearful folks that over the next 10, 15, 20 years that the tax rates in the United States are likely going to double and be like European tax rates in the 50% to 60% tax bracket, and leaving a tax-free legacy of tax-free income to your children will be way more valuable than a 20% or 30% tax bracket that you’re in today. And so, that’s why this type of planning that Jon’s talking about is so, so important.

Well, Jon, we’re kind of to the end of our time here. This has been a very rich conversation, and I very much appreciate you joining the show. Do you have any closing comments or thoughts that you would like to share with our listeners today about estate planning, about their document preparation, or any thoughts that you have going on today that you’d like to share with the listeners?

Jon Linford (12:47):

Again, thank you so much for having me on this. It’s been a pleasure talking with you and discussing about these important issues. There’s so much to talk about, but like I said, it’s not a cookie cutter thing. Everyone’s situation is so different.

So, my advice is to have a good professional like you and myself, have a team that’s built around you to help for your specific scenario because you have a specific scenario that you need to plan for. And by having that team in place on an ongoing basis, not just a one-time plan, but an ongoing basis throughout your life and incapacity and at death, we can be there as a team to help whoever is in charge and everything can be as smooth and seamless as possible.

That would be my strong recommendation, is just to get a specific plan and a specific team to support you throughout these times in your life. And I’d be happy to help.

Bruce Hosler (13:41):

That collaborative team Jon, is such an important point that you’re making. And everybody that loves their family does not want to leave a mess for their loved ones. And we have seen that. We’ve seen that where people don’t do proper planning, and the kids almost are mad at mom and dad because they left them a mess. We don’t want that to happen.

Jon, that is fantastic advice. Thank you for being on the show today. I’m sure we’ll have you on again and we’ll talk about some other topics.

Folks, this has been a great show. If you have questions, be sure and reach out to Jon. Jon, share your contact information one more time.

Jon Linford (14:18):

Our website, morristrust.com. Phone number for Northern Arizona is 928-774-0333. For the Phoenix Metro Area, it is 602-249-1328.

Jon Gay (14:39):

And Bruce, before we get to your content information, I want to encourage our listeners if they haven’t listened to part one of the series with Jon, definitely go back and listen to part one, some excellent information in there.

Bruce, if our listeners want to contact you and your team at Hosler Wealth Management, how do they best find you?

Bruce Hosler (14:51):

Reach us at https://www.hoslerwm.com or at one of the offices: Scottsdale, 480-994-7342. We’re in Prescott: 928-778-7666.

Jon Gay:  Securities and advisory services offered through Commonwealth Financial Network, member of FINRA/SIPC, a registered investment advisor.

Forward-looking commentary should not be misconstrued as investment or financial advice. The advisor associated with this podcast is not monitored for comments and any comments should be given directly to the office at the contact information specified.

Any tax advice contained in this communication, including any attachments, is not intended or written to be used and cannot be used for the purpose of 1) avoiding federal or state tax penalties, or 2) promoting marketing or recommending to another party, any transaction or matter addressed herein.

The accuracy, completeness, and timeliness of the information contained in this podcast cannot be guaranteed.  Accordingly, Hosler Wealth Management, LLC does not warranty guarantee or make any representations or assume any liability with regard to financial results based on the use of the information in this podcast.

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