One of the missions of the BoomX Academy, the BoomX Show is to help in as painless of way as possible, help improve people’s legal literacy, their financial literacy. Today, we will talk to and answer to the questions of a young family leader who is building an estate plan, an asset protection plan, and has questions about tax.

How do I give a gift to my surviving spouse in order to avoid not only estate tax, not only capital gains tax, but also protect the assets against the possibility of high unreimbursed medical expenses. Some of the questions that he asked and I answer in today’s episode is what is the credit shelter trust?

How does that differ from a spousal protection trust and what is a QTIP trust? In the tax lingo there’s unlimited marital deductions, but there’s a trap. A mistake that you can make that can lead to significant estate tax if you live in a state with estate tax. All of these principles of course apply to federal estate tax.

If you are high net worth, even if your a state is below the taxable amount of millions of dollars, you should be even more interested because we all have the potential of loss of our estate, of our assets during retirement, from high unreimbursed medical expenses, which can lead to Medicaid liens and transfer penalties and spend downs.

This is what we will discuss in today’s episode of the BoomX show. We have a busy day, lot to cover. Let’s get started.

Welcome, BoomXers. Let’s throw out the old playbook. It’s time to tear down the traditional way of looking at your life and money and leverage the laws of money to our advantage. That’s right. There are laws of money and those who learn and leverage the laws of money win and sometimes win big. Stay tuned as asset protection attorney Darol Tuttle, educator, and leader of the BoomX nation shows us how. Beginners investors, entrepreneurs, fellow attorneys.

Are you ready? Are you ready? Let’s arm this bomb.

Now, here’s the BoomX show the laws of money.

Hey there, BoomXer. Are you in or near retirement? If so you likely have misgivings even fear about what the future holds. Many retirees are simply concerned that they will go broke during retirement. They ask themselves, do I have enough money? They know how much they will make in social security, retirement income.

Perhaps they have a pension rental property, income, investment income, but yet the questions like. What if there is an unexpected illness and what about this irregular, unexpected occurrences and expenses that happen? How will that affect the cashflow. Like anything else, mapping out income cashflow, just like mapping out income and future projections of a business increases the likelihood of success, but also gives peace of mind here at BoomX show.

BoomX Academy in the Boom X nation. We work hard to offer free resources to our listeners to help them do that just that. One important, free resourc is simply membership at boomxacademy.com. Once again, that’s boomxacademy.com. As a free BoomX member called a BoomX citizen.

You will automatically be enrolled into the BoomX show podcast companion course. Enhanced content being built daily to supplement most episodes, to answer your questions, summarize legal strategy, provide you with updates in the law and to simply get you thinking to help you build your family’s wealth and protect it. Another resource is those offered by our sponsors.

Let’s just take a moment and talk about that.

Retirement is often described as a journey, a voyage you’ve ended your working life and now entered into that phase of life. That has great uncertainties, but describing it as a voyage is an understatement. If anything, it is a three phase voyage, three separate destinations, because as I’ve indicated in prior episodes of the BoomX show laws and money podcasts, which you can listen to by going to boomxshow.com.

Retirement actually has three phases. Fortunately now with technology, the internet and whatnot, it is easy to connect to professionals who can help you and resources some free some for modest fee that can guide you, help guide you through the different phases of retirement.

And it is very easy to take technology for granted. I recently had the unfortunate experience of flying into San Juan Puerto Rico and through a very odd set of circumstances. My phone did not work, so I had no internet and I arrived in San Juan, which is a very, very populated city and about 12:30 at night.

And when I arrived, I thought, okay, well, I know how to get from San Juan to my home on the other side of the island. You can do it without a map. Boy, was I wrong? I realized, that old adage that men don’t ever stop and ask for directions. I actually did stop and ask for directions.

After I had tried helplessly and hopelessly to get out of this massive city for over two hours, what should have taken me two and a half hours to go from the airport to my home. It took me two hours just to get out of the city. And of course, when I finally stopped to ask for directions, swallowed my pride, I realized, oh my goodness, they don’t sell maps anymore at a gas station.

I mean, normally with my male, arrogance and disdain for asking for help, you’d just simply bite the bullet and buy a $2 map. Well, no, they don’t sell maps and gas stations anymore. So of course I asked the gas station. For assistance and he spoke no English. Now I realized, man, I’m in, I’ve been really big trouble, sort of got worse.

It took me a total of five hours to finally just work my way through dead reckoning and absolute luck to find the highway through just all the intertwined, tangled roads, little roads that turned into alleys to make it home, even though I’m frustrated by telling the story. Let’s face it. I was arrogant.

I thought that I could navigate my way home in the dark in a city that I really did not understand without help. And when I asked for help, I couldn’t get it. That is not the case for you as part of sponsorship of the BoomX show laws of money podcast. Our sponsor Shane Cloninger of SC financial group has made an incredible offer, extremely generous offer, and that is he will build and send for free to anyone who so requests it a detailed financial forecast.

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Welcome back. One of the great things about my project to BoomX show and the project of the BoomX academy is every single week, Thursday at 11:00 PM. I misspoke am Pacific time. We conduct, I conduct office hours in which students have the BoomX academy can come. Ask a questions about what they’ve learned in the various courses.

We have the, BoomX show companion course, which is available to any member of the BoomX academy. We have the nest egg course, which is available as part of membership to the family leaders. Family leader. Membership is open for enrollment. You can become a family leader it’s just $44 a month. $1 for the first month as a trial basis.

And then you can cancel anytime you want. I think that you will like it because as a family leader, you were automatically enrolled in the nest egg course. And this is a course designed to help family leaders take that very first step. You can draft and we’ll draft properly. A limited power of attorney as part of that course using the drafting app, which is very easy to use.

And it will generate for you a legal document, which I in my law firm. I’ve charged clients $1,800. If they are an attorney-client relationship, but on the academy for $1, for that very first month, you can draft that legal document and draft as many as you want for family members. We are trying to break down the barriers to families who are trying to protect their assets.

And one of the barriers that gets quite frankly, a fear of attorney’s fees, I think the value proposition of attorneys. Pencils out, but for those who need convincing, we have a great way for you to begin the process of implementing the same exact high quality work product and an asset protection plan that lawyers use in their legal practices, the best lawyers in their legal practice across the entire nation.

That’s the point. You can also enroll in the asset protection roadmap, which is a tuition based course, but we’ll draft all the legal documents that you need to protect your wealth. Last Wil and Testament, Spousal Protection Trusts, Medicaid, asset protection, trust financial power of attorney healthcare power.

I can go on and on and on. I get excited. However office hours every week is part of the course. And as part of the membership in the BoomX academy, I answer questions and family leaders come every week and they ask questions about their estate plans and they ask questions about retirement. They ask questions about the stock market will crash.

And of course the answer is a resounding yes. It’s just a question of when. And so today’s episode of the BoomX show we are joining the office hours that occurred this week and some great questions about how to protect assets and incorporate it into an estate plan to protect the surviving spouse. Estate planning does not end just at your lifetime.

You need to think about who it is that you love and what are the threats to their wealth. Will they have enough retirement? Will they have enough to pay for long-term care? Will they have enough to pay all the taxes. And what does the law require in order for that to happen, that the kernel of truth behind all of the questions in office hours and is a content of this particular podcast episode.

So with that said, let’s jump in and as I answer the questions about asset protection in the context of spousal protection.

If the first spouse dies and the surviving spouse is in good health and 78 years old and all the decedent, that’s the dead person. Right. Right. Assets get put into a survivor’s trust because I do have that roadmap for the spousal protection trust in over 80 possible need of long-term care, high medical costs go into the spousal protection trust under 80 in good health things go into the survivor’s trust. The dead person’s assets go into the survivor’s trust because the conditions at that time do not trigger the spousal protection trust.

So my question is when the surviving spouse does turn 80 or is, and will the spousal protection trust be activated or is it too late because the surviving spouse has already had control of the deceased spouse’s assets other than the retirement accounts? Great question.

And so in a last will and test them spousal protection trust is used for holding the assets of the deceased spouse and when a person passes away all the assets that were owned by the asset owner, really for that split second have no owners, you can’t take it with you. That’s a golden rule of estate planning.

And so the law imposes upon the assets, legal or fictional owner, essentially it’s the court. The word estate means assets now under the control of the court. And these assets used to be owned by a living person. So there’s like this holding area, the estate and a personal representative is the person that represents the estate, like in estate is a legal holding area of assets after a owner has passed away, but there has to be a human being that administers and interacts with the court, interacts with the banks and interacts with the creditors and the heirs.

And that probate process can, as long as there’s need for assets to be administered, maybe it’s a very complex estate. Maybe it’s millions of dollars. Maybe there’s claims on the money from creditors. Maybe there’s a dispute among the heirs. And these horror stories of probates going on for a decade.

But for the most part, statutorily, they last for four months, a minimum of four months. And then the court supervision of the transition of the assets from the deceased owner to the heirs ends. And it’s during that time period. And only during that time period that the personal representative is establishing, following the instructions inside of the Will.

The spousal protection trust must be created by a will. It requires a probate. And one of the teaching points that I try to get out to all the BoomX show podcasts listeners and students at the BoomX academy is that the spousal protection trust is authorized under a federal statute. Which require there’s a living heir who is a spouse that trust must be created in a Last Will and Testament, which requires a probate and there’s carpet bombed messaging from the estate planning industry about living trust, like avoid probate, avoid probate.

So people get in their mind. This thing of probate’s bad, probate’s not bad. Not only is it not bad, it’s required in order to establish this trust. And so the first step is one of your questions was Darol is there a roadmap? Well, roadmap implies, look, we’re here and we want to go there. And what route do we take?

What are the steps? The first step is okay. Get the body off the kitchen floor. I’ll call the police call 911, attend to the funeral. And then once the grieving processes over, open a probate. Grab the will you have 30 days to file the last will and Testament with the court. That’s statutorily required.

It’s at that point that the appointed personal representative also known as an executor, if you’re male or an executrix, if you’re female, and those are the medieval words, executor, executrix, but the modern word, personal representative. So in your case, you’re appointing your son to be the personal representative.

Step one, he will open a probate. He’ll do that by filing a petition with the superior court in the county, in which he wants to use. You don’t have to open a probate in the county in which the deceased donor lived. In my state of Washington, there is a few counties that they’re so small. Like the population of the county is so small as they use just one courthouse and there’s Myrtle, who’s the clerk.

You pay your filing fee and you call her up. Hey, Myrtle can get the judge to sign that. She walks it down the hall to the judges office, knocked on the door. He signs it and back. And so it’s like really efficient to do it that way. The larger counties, of course, it’s all online. It’s a little bit more of a pain, but it’s pretty, pretty efficient.

Like when COVID hit the courts closed down, but they were doing all of their work through zoom meetings, just like the rest of the world. And so probate today doesn’t even require a trip to the courthouse like it did when I was a younger attorney. And so the court’s going to look at the partition and look at the Will, and then it’s going to issue what’s called letters testamentar.

Letters, testamentary, it’s just this bizarre piece of paper and which the personal representative is appointed. It’s like notice to the world that there’s a probate. There’s now an estate of the deceased owner and the personal representative is your son. And in your example, in your case, it’ll be your son and he can take that to a bank, to a financial institution.

He can take it to any person that needs to know and say, look, my dad’s dad, I’m in charge of the estate, open in the state account. And of course they’ll say, okay. Yeah, no problem. Estate of Darol and my son, Ben will be responsible for doing that. He’s representing my estate. Now my last will and Testament will say, but I want a spousal protection trust to be created.

And so the second thing my son will do is after he’s created the estate account is he will say open a trust account, call it the Susie Tuttle spousal support trust, spousal protection trust, and the bank types into the computer. Spousal protection trust appoints the cause number. Then my son will wait four months until all of the creditor’s claims have been resolved.

There’s a four month time timeframe in which anybody can make a claim on the money. Now, if I had no debt or no creditors against me personally, or if I did and they failed to provide notice and make a claim in the probate. Four months is there a time limit? They have to make a claim within four months of notice, not four months and one day.

And one of the reasons probate is so powerful is because it’s a way to permanently bar creditors from coming against you estate without a probate. And without that credit or claim process, creditors could show up years later and say, Hey, your dad owed me money and I pay up. And now if my son, the personal representative failed to follow the procedures or did not use a probate and paid the money out to the heirs before the creditor claim was paid, then he’s personally liable for that debt to the creditor.

Whereas using a probate permanently bars them. So that’s like another good reason. There’s two good reasons for probate one. If you’re married, it’s the only way to create a spousal protection trust two, it’s the only way to permanently bar creditors and give resolution to claims. Now, once that is established, so we set up the state account, set up the trust account.

Then my son just goes to Bank of America and says, okay, transfer money. I’ve there’s no creditors. They’re permanently barred. We met the four month of time, period. I want to close the probate, but before I do that, move money from the estate account to the trust account. And then as soon as that money hits the trust account, that trust is funded and it’s created.

Now, your question is Darol. What if we didn’t establish it at the first death? Can I do it later? The answer is no. No. The spousal protection trust must be created in a probate and you have the tax rule is nine months. So estate tax, you have nine months to pay any debt, estate tax, you get an automatic hit and extension of six months for a total of 15 months.

And so sometimes you’ll hear people say, oh, you’ve got nine months. That’s a tax rule. It’s not a probate rule. And once the probate is closed, then you lost that opportunity. Now, I suppose it is possible. You could petition to reopen the probate. But that would be extremely problematic for congenital. If you have not correctly established a spousal protection trust within a reasonable amount of time, if you did not follow the probate procedures, 30 days to file the will after the date of death, then you blew that opportunity.

You can’t go back years later and established as a spousal protection trust. My question was, let’s say that spouse is in good health and under 80, let’s say 75. You’re not going to fund a spousal protection trust at that. So yeah, once that money doesn’t hits like a marital share or the other trusts that the money that goes into excluding the spousal protection trust because the conditions that would initiate the spouse protection trust then exists that money now, is there any protection for that money? Let’s say 10 years down the line, my wife goes into a long-term care.

There is, of course there is, but she would have to implement asset protection strategies of a single person. Yeah. What’s so powerful about spousal protection trust is the five-year lookback period transfer penalties, spend down and Medicaid liens don’t apply. It just, you did to get the spousal protection trust activated the person has to be, let’s say over 80, 80, or over, if that’s what you decide and be in need of long-term care.

You don’t have to draft it that way. One of the things I struggle with is I want to give flexibility. I don’t know. I can remember my first million high net worth case I ever did. And I was like a year out of law school.

And a couple came in and it was during the.com bubble and they had been a state of over 2 million and they were young. They were in their thirties, of course and back then that federal credit amount was only $625,000. So they had a federal estate tax problems. And, but it was a bubble, and they were only 35 years old now the bubble popped.

And I never heard back from them, but the estate planning, credit shelter trust that I had drafted for them wasn’t relevant anymore because their net worth had diminished far below the credit amount. And so the takeaway I learned from that experience, so I was like, okay, especially when you have young clients, And especially when they have wealth, that’s based on the stock market.

Like you really don’t know what their net worth will be on the date of their death. I was at that point, I was 32 years old, so they must’ve been just a few years older than me. So they’re probably still alive and maybe their net worth is taxable again. Since that time, the credit amount on the federal elbows now for a couple of 22 million and for Washington State, for me, a $2 million credit for each spouse.

And so if you have clients who are already in advanced age, or sometimes one spouse is already sick, regardless of age, they have cancer, they have Alzheimer’s, Parkinson’s. And that you’re not going to make an outright gift to that spouse just based upon their health wouldn’t make sense. And so I call it hard wiring.

We require was 100% certainty that the estate of the deceased spouse goes into a spousal protection trust. We can take no chance, but on the other hand, if we have clients who are young, I don’t consider myself young. My son considers me to be ancient, but I’m only 57. And so if I’m not for the record, I note that.

Attendee Karen is now just cracking up at that comment. And so when you have clients who were in their mid seventies, they consider me a young pup. And she’s nodding her head for the record. Yes, you’re a young pup, but on may not want my estate to transfer to a spousal protection trust. If my surviving spouse is young and healthy and maybe my wealth is substantial, but it’s not that big.

And so there’s not a tax reason to do it. You want to build in some flexibility. The problem with flexibility is how do you draft every possible scenario? And that’s really what your question is in a way. It’s okay. But what if she’s younger than 80 and what if she’s not disabled? And what if she’s not an eminent need of care.

A great way to build in flexibility is by use of a Clayton election. And a Clayton election comes from a court case Clayton versus the. It must be. I wonder if it’s Clark, it’s always against the commissioner, the internal revenue service who’s ever in charge of the internal revenue service at that time period.

He’s always the other party, but it’s a Clayton. We call it a Clayton election that comes from the last name of a family that brought out lawsuit and what they did in their estate plan and they prevailed. And so Clayton’s selections are now authorized law. It allows the personal representative to decide how the estate of the deceased spouse will distribute.

Which is amazing because now you can say too, but you’re in your last will and Testament. I want my estate to transfer outright to my surviving spouse unless my personal representative decides otherwise. And here’s the choices can transfer all or some of it to a spousal protection trust, can transfer all or some of it to a credit shelter trust, a QTIP trust ,a simple family trust or a bypassing go to heirs completely.

And a bypass means stepping over the surviving spouse, not leaving her a gift outright or in trust. And you’re like, okay, so you basically, you’re talking about giving the personal representative, the discretion to disinherit the spouse.

That’s astounding. That sounds scary doesn’t it? However, think about it. If you appoint your son to be the personal representative, and he’s you gotta trust your personal representative. And if you’re choosing your son, you got to have 100% confidence he’s always going to do the right thing. But if you pass away when you’re 89 and your surviving spouse is 92, and she’s got one foot in the grave and another on the banana peel.

And because a lot of spouses die within the same year when the first spouse dies, grieving depression and just not having something, somebody there to take care of you to love that second death often follows quickly. And so why would you leave any amount to a surviving spouse who’s already passed her life expectancy?

And so that’s a way to build an incredible flexibility. The problem is that’s a big burden on the personal representative. What do I do? Ho w what do you mean Clayton election? How does that work? And what does all of these stress mean? What’s the right decision. They’re definitely going to have to contact an attorney at that time, become educated and have good advice and counseling.

I personally don’t think it’s difficult. It gets down to the granular level of family dynamics at that point.

If you are in or near retirement, you may have concerns that one of the many threats to wealth in America today, in particular high unreimbursed medical costs, unnecessary taxation, or even family mismanagement could threaten your retirement nest egg.

The good news is that the law does have solutions. Federal law and centuries old trust law offers many safe harbors. And when implemented correctly can protect your savings against Medicaid liens, state, and federal tax agencies and even private creditors. But why do so many retires then suffer asset erosion or even complete depletion having failed to meet the laws requirements?

The simple but sad truth is that most are unaware of these asset protection laws, or believe that only the super wealthy can pay less in taxes or think that they must hire an expensive attorney. Some who charge tens of thousands of dollars to put it all together. Unfortunately, we live in a world now where middle class Americans simply do not have enough wealth to lose any of it.

It’s more important than ever for most to have an asset protection, trust and plan, even if they are not super wealthy. Now for the first time families have. Families can protect their assets if they learn a few basic concepts, have the correct legal documents and implement these asset protection plans correctly. To do this begin by enrolling in the BoomX academy.

The BoomX academy is that you guessed it boomxacademy.com. That’s a boomxacademy.com BoomX academy offers free and tuition-based courses on topics related to retirement, estate and asset protection planning sign up today for the family leaders membership level. And you will also join an online community of other.

You may attend weekly live office hours with me, Darol Tuttle, host of the BoomX show and in, in the trenches asset protection attorney, best of all, you’ll have access to the BoomX drafting app so that you can easily draft all of the legal documents you need without hiring an expensive lawyer. To repeat, you will walk away with a full set of properly drafted legal documents. Documents that you understand.

You can join today as a free member and you will be enrolled and the BoomX show companion course automatically. You can also test drive the $40 per month. The family leaders level at the astounding rate of just $1 for the first 30 days.

During this first month, you will be able to draft a limited power of attorney to preserve their right to transfer your nest egg, to an irrevocable trust, a proven strategy. I’ve helped clients implement countless times. This is also an $1,800 value. You will be enrolled at no further costs into the nest egg course, which will introduce you to the concepts of asset protection and how to implement this legal document and begin your asset protection plan.

To learn more, go to boomxacademy.com. That’s boomxacademy.com.

Have you ever heard of a charitable remainder trust? Yes. Oh yeah. I’ve heard of that I think so. I’ve heard of giving money to charities and yeah, but you don’t need to trust that. Yeah, charitable remainder. There’s two kinds of charitable remainder trust and charitable lead trust. And that’s just another example of how lawyers can’t w like the worst at naming things, because they don’t really. A spousal protection trust is a testamentary third-party supplemental needs trust.

That’s what it is. And when you say spousal protection trust, I’m the only attorney in the country that refers to a testamentary third-party supplemental needs trust for the benefit of a surviving spouse, a spousal protection trust. The reason I do it is because spousal protection trusts three words, it immediately invokes a mental image.

You can name a trust anything you want to. When you create a trust for your family, you don’t call it third-party supplemental needs. Trust you call it the Faith Tadman trust because she’s the person, right? And so a charitable remainder trust and a charitable lead trust are great way to avoid or reduce estate tax liability by giving a gift to charity, but also to your kids at the same time.

And if you do the math, you know, your estate so larger is going to be in estate tax. If you hire me for the state of Washington, there are 12, 12 or 11. I just did an episode on estate tax on my podcast and I list the states. So go back and listen to that list. It’s two episodes ago. Yeah. And there’s then an inheritance tax to like Pennsylvania has an inheritance tax and inheritance tax are brutal in the sense that there’s not a credit it’s paid by the person receiving it.

So it’s almost like a luxury tax. Like you’re getting this windfall and your dad died and you’re getting his money. And we want part of it, the state of Pennsylvania, like we want part of it. And they have a weird system where if it’s a spouse, it’s only 4%.

And if it’s a kid it’s 12% and if it’s anybody else is 15%, and if you pay with three weeks of death, you get a 5% discount, a weird. And so how do you give a gift to kids? And avoid the inheritance tax. It’s much more difficult than a state tax because the state tax there’s credits and deductions.

So Washington, the feds have a credit. All states have a credit. Oregon has a $1 million credit Washington has a $2 million credit. So the first million is not taxed at all in Washington. The first 2 million is not taxed at all right now after a credit, then there’s also available deductions and most notably for charity, a gift to charity.

I’ve never met a client. Very rare. I’m like of the thousands of cases I’ve done. I shouldn’t try to count. There’s no way for me to know, but I’ve done a lot of cases. People just don’t like giving money to charity, unless you’ve given, got into the practice of being generous during lifetime. You’re not going to be generous at death.

And so I’ve bring it up, but my clients are like, no, no way. What they do is they don’t, they also don’t like giving their estate outright to their children. Like I’ve got a $4 million estate, I’ve got two kids. What I’m going to write. The personal representative is going to write a check for 2M to my son?

No, they don’t like that, but they do is okay. How about this then instead of a $2 million gift, why don’t you give him a hundred thousand dollar pension every year, 120, so 10, 10 K a month. Boom, boom, boom, boom. And they’re like, I like that idea. And so the trustee is taking that money and investing it.

And you’re giving a percentage of the trust Corpus and pension. So maybe 1 year the kids getting 10K a month and then maybe next year as a market goes in the trust, blah, blah, blah. It’s 11k and then 12 K. And so if you think about it, depending on market conditions, but you only have to make three or 4% for the kid to actually get more in pension time value of money than he would have gotten had it been an outright gift because the remainder whatever’s left at the end of the trust is a gift to charity.

And you don’t, you do not receive a hundred percent charitable deduction against estate tax at the death of the owner, but a partial one. And when you calculate the amount of the charitable deduction and the state taxes, you’re not paying plus the projection of a rate of return on the investments that’s paid out to kids. Everybody makes more money.

Your state saves and sometimes avoids estate tax completely. The charity gets a gift in 20 years and the kids are happy because they get a pretty substantial pension amount. That’s a charitable REIT, a remainder trust.

You can flip it, you can give the charity pension, and then the kids get a big paycheck at the end, but that’s not as popular. Okay. This new last will and Testament you drafted the initial one, had a spouse protection trust and a survivor’s trust. This new one talks about a marital share or marital trust and a non-marital share or credit shelter trust.

If you think about estates tax, it’s in an estate tax distinction. And what happens is all the money that the surviving spouse inherits in a way that she has ownership of it just increases the size of her estate. You pass away. We leave everything outright to her then her estate becomes larger. If by way of example, if your estate combined net worth is $3 million.

And you pass away, you live in a community property state. And so at that moment of death, the marital community severs, it’s divided into two parts. Wife’s surviving spouse has 1.5 million that’s half of the community property. The estate, remember what I just said an estate was earlier. It’s the assets owned by the deceased asset owner.

In this example, the estate would have assets worth 1.5 million. So now we’ve got two buckets. Don’t we? 1.5 and 1.5 now, right? At this point, there’s no estate tax problem in the state of Washington because a credit amount is 2 million. The estate is below the credit 1.5, the surviving spouse is below the credit 1.5.

The problem is there’s an unlimited marital deduction, but you can’t have both. You can’t have a credit and the deduction. So if we give everything outright to the surviving spouse, there’s no tax owed at that first death because that’s a tax-free transaction. However, now we just screwed the pooch because we lost.

The first spouse’s credit, the first spouse to die had a $2 million credit. We claimed the deduction instead of the credit. Wife has 3 million. She dies a month later of a broken heart, and she’s a million dollars over the credit amount, her credit amount, which is two. So that estate’s going to write a check for $200,000.

That’s a big paycheck for the government, right? You just, basically you named the state of Washington is one of your heirs for 200K. Now the mistake that was made is that we weren’t, we just looked at it all as marital community property, the community property by let’s give it to my wife. If we looked at it as non-marital or seize the credit gave it to her in such a way that she could benefit from it, but she did not take technical ownership.

Then we would have preserved the credit of the first spouse and non-marital means bypass. We’re putting the money in a credit shelter trust a spousal protection trust works too. A spousal protection trust is a tax savings trust. And what we’re saying is like you can, you’re the beneficiary of the trust surviving spouse during your lifetime.

And you can receive distribution for maintenance, education support, and health, but there’s so many strings attached to it that at her death, it is not counted as her asset. That’s how you keep her below the credit. You keep your state below the credit. I got it. That’s it. So when you hear marital and non-marital, that’s the distinction they’re trying to make, they’re trying to give her access, but not give her title.

Okay, so marital share. She would, yeah. By the way, the only way you can give, so then let’s get even geekier about it. Let’s drill down in young lawyers should listen to this podcast. Like I’ll probably take some of this material for the podcast. And young lawyers really should listen to this because man, it took me a long time to get wrap my brain around this.

I finally, oh, I was about five years in a practice and I had that aha moment. And it’s the only way you can give a gift. I just said that a gift to a spouse is a non-taxable event. There’s an unlimited marital deduction. There’s no medicaid transfer penalties imposed upon gifts between spouses, right? And so there’s no gift tax.

When you give, you can give, you can sign a community property agreement right now and give your wife all of your separate property. If you want it to there’s no tax for that. However, we painted her into an estate tax problem at the end of her life. I already commented on that. Now, is there a way to give a gift to a surviving spouse that qualifies for the unlimited marital deduction, but in trust, because if I give my wife money, there’s no tax.

That’s just an outright gift. But if I give it to her in a credit shelter trust, it’s not her property. Is there a way to give her property in trust that qualifies for the unlimited marital deductions but still counts as her asset. And the answer is yes, it’s called the qualified terminable interest property trust. QTIP.

Thanks for listening to another episode of the BoomX show laws of money podcast, where asset protection, attorney Darol Tuttle breaks down the complicated rules of a state retirement and even long-term care planning.

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