Podcast (practical-tax): Play in new window | Download
Who handles your trust and what happens if the person you appointed leaves or dies? And Has Amazon thrust our country into a depression?
Episode Transcript
Intro:
Welcome to the Practical Tax podcast, with tax attorney Steve Moskowitz. The Practical Tax podcast is brought to you by Moskowitz, LLP, a tax law firm.
Disclaimer:
The information contained in this podcast is based upon information available as of date of recording and will not be updated for changes in law regulation. Any information is not to be considered tax advice or legal advice and does not form an attorney/client relationship. Further, this podcast may be construed as attorney advertising. You should see professional consultation for your individual tax and legal situation.
Chip Franklin:
Welcome to another addition of Practical Tax with tax attorney, Steve Moskowitz. Let’s start with a guest that’s in your backyard. That would be Michael Davidson, not only a really smart investor, but he has a lot of ideas, and he’s nice enough to join us here. Can we talk about wills and trusts for just a second here, because this confuses a lot of people. Steve, how many people do you think, watching this right now, don’t have a will or a trust?
Steve Moskowitz:
A lot of them don’t have anything. And another thing is, there’s a lot of people that have something that’s woefully out of date, and if they don’t change it, they’re leaving everything they have to someone that they now hate, and they will turn over in their graves if they understand that, so this is something… should always be constantly reviewed. What I tell income tax clients is, “Look, we think about your income taxes all year long, we plan all year long, we file a return once a year, and your estate planning, which involves everything you’ve worked for in a lifetime, everything that you have, whether you got it yourself or if somebody left it for you, why don’t you give that the time and respect it deserves?”
Chip Franklin:
Michael, what’s your experience? I mean, have you found that, when you try to sell somebody on getting a trust or a will together, it depends on their age, or are they stubborn, or do they usually go right along with your suggestion?
Michael Davidson:
I think one of the questions that isn’t expressed out loud or asked out loud is, is the next steward prepared? And I think for a lot of us and for a lot of our clients, there’s some uncertainty around that, and that’s even a conversation that couples haven’t really processed together. And so, as a result, there is this inaction that takes place as it relates to getting a will done, getting a trust done.
All of us have stuff in our families, and kids, and grandkids, and daughter-in-laws, and son-in-laws, and just that whole dynamic adds this element of uncertainty for the future, and I just think that it’s tough for couples to come together and be decisive with that. And so, I really think that the good question to ask is, is the next steward prepared? If they’re not, then what needs to happen to get there? And I think walking through that series of questioning, I think can help get an estate plan done.
Chip Franklin:
Obviously, there are going to be different stages of life. I know both of you guys can address this. I mean, people start thinking about some of these things when they get to be 50, and it’s too late, in some cases, for financial planning. But a trust and a will, those have to be constantly reviewed, but why? And Steve, let me ask you real quick, what is it about a will that would change, or a trust that would change from when the kid is 25 to when the kid is 35, if it’s still just my money that I’m passing along?
Steve Moskowitz:
Laws change, taxes change, wants change, relationships change. For example, what if you have a situation where your son marries or divorces, has a child, has six kids, one of them has special needs, somebody’s developing differently than somebody else, somebody has a problem, they have an addiction, or something else? It’s like life. Life is a constant series of changes. And a lot of people go through life and they wish, or they think, well, something’s in stone. It’s not. That’s just the way life is. This constantly needs reviewing.
Chip Franklin:
Well, Michael, let me ask you something about when you set up administrators for a trust. Again, it might sound really ignorant here, but it occurred to me that if you set up the administrator and it’s the same age as, for example, myself, by the time the trust needs to be administered, they might be as old as I am. Do you change administrators along the way?
Michael Davidson:
Well, generally, we’re advisors and money managers, and so we have estate planning attorneys that help us with that, and they’re thoughtful enough to ask that question, “Is this person really ready to do that?” And obviously, any good estate plan is going to have successor administrators and trustees and executors, so I think that’s a part of the process. And that’s another question that a great attorney asks, is, “Does this person have the competency and the ability to administer your estate?”
Chip Franklin:
What about tax laws? You mentioned tax laws change. Are some of these grandfathered in? Like, if I start a trust and a will, based on the assumption that the way the law is now and the law changes, do some states or the feds, do they grandfather that old law into your plan?
Steve Moskowitz:
I’m going to quote what I quoted back when I was a law professor. Law is only that which those in power at the times say it is. Our Congress and their infinite wisdom can do whatever they want to do. And there’s so many times when they’re even thinking about something, you have to be prepared and saying, “Well, for example, right now, there’s a very generous exemption from estate taxes. What if that changes?” Well, you have to be prepared for it. And the reason we’d like to tell our clients about it is you don’t want to get a call from your lawyer saying, “Hey, there’s a new law coming at midnight tonight. Do you want to make a major change? Hurry up and tell me because we have three hours.” These are things that you want to think about, plan, and then say, “Well, if this happens, I’m going to go this way. If that happens, I’m going to go that way.”
Chip Franklin:
I like the name of your company, Michael, Wealth Wisdom. And the Wisdom part, I think is really important, especially if people get into their sixties and they start thinking about retirement, and now, we have this incredible inflation that’s going to eat, at least, hopefully, for a short period of time, into people’s pensions and 401ks and savings.
Steve Moskowitz:
Or as we like to call it, turn them into 201k plans.
Chip Franklin:
Well, here’s my question for you. If you were going to go back to work, and we had a discussion about that a few episodes back on Practical Tax, if you were going to go back to work, is it better to go into something where you can file a long form to help abate some of those taxes? This is a question for both of you, but I’ll start with you, Michael.
Michael Davidson:
Well, I think going back to work, whether you’re currently working or not going back to work, you always… We call it walking in wisdom, and another way to say that is just being… We want to be healthy. One of the best ways that I can have longevity in the future is to do my best to be healthy today.
And it’s the same way with finances, and with finances, there’s really five things you can do with money. You can give it away, you can save it for the future, you can pay taxes, you can pay down debts quickly, or you can spend it. And as it relates to a tax planning, our recommendation to our clients is to do the giving and the saving first. That generally helps with lowering taxes, and if you can do that and live on and develop a lifestyle that allows for giving and saving when you have income in the future, you’re more likely to have a lifestyle that works. And so, it isn’t necessarily a tail wagging the dog. We want the dog to wag the tail here.
Steve Moskowitz:
And a lot of times, you can put those together where you do have a charitable interest, but the charitable interest will throw off an income tax benefit. For example, if you do a CRT, charitable remainder trust, and you say that you want to live in this house for the rest of your life and your spouse for the rest of their lives, but when the second of you passes, your house is going to go to the charity of your choice, you get an income tax deduction for that now. And physically, everything is the same. You’re living in the house the rest of your life and your spouse’s life, but you pay less taxes now because of something that’s going to happen after you’ve passed.
Chip Franklin:
Yeah, amazing stuff. Can we get you back, Michael? I really appreciate it. We had a hard time tracking each other down, but I really appreciate you being here. Thank you so much.
Michael Davidson:
No, anytime. Thank you-
Steve Moskowitz:
Thank you.
Chip Franklin:
Thank again. His website will be at the end of the show, but it’s called the wisdomindex.com. And I could use some more wisdom. I-
Steve Moskowitz:
We always use more wisdom.
Chip Franklin:
If it was-/p>
Steve Moskowitz:
Only watch out for the guy who says he doesn’t need any because he knows all there is to know. That’s the guy I want to avoid.
Having nothing to do with pepper, state and local taxes. Here in California, California does follow a lot of the federal law, but not all of it. There’s some laws that are just different in California, and other laws, the state will interpret more strictly. For example, with 1031 exchanges, the state interprets things more strictly. Also, California enacted what’s called the clawback rule, where if you exchange a property for a property in a state outside of California’s special reporting rules, then we have situations where lots of people move in and out. Moving in is easy. It’s okay, you’re taxable. Moving out, which a lot of people are doing, the state of California may still try to tax you. This comes up all the time in our practice.
So what happens is, whether a state can tax you or not depends on two things. One is a residency. That’s easy. Physically, right now, today, we’re in San Francisco, California, but suppose you moved to another state, say, Texas, that doesn’t have a state income tax. California may still try to tax you on your worldwide income, saying that, although you’re not physically present in California, you intend someday to return to California as your permanent home. Even though you’re physically in Texas, California may say that you have to pay California taxes on your worldwide income because you are a domiciliary of California. So when people are considering leaving California, we like to meet with them and what we call, cut all the strings. The best thing you could ever have is never come back here again.
But would a day in Disneyland get you taxed? If there was nothing else, probably not, but certainly, you don’t want to have a California driver’s license. You want to have the driver’s license for where you live and your registration and your doctors and dentists, because if you say, “Well, I have this great doctor in California,” California, see, and that’s one of the factors.
And another factor I think is extremely unfair, they ask if you have family in California. Now, when you have adult family, your mother can live wherever she pleases. And if your mom decides she wants to live in California, you’ve moved to Texas, the state actually will go ahead and consider that as a factor. Now, sometimes the state has been so outrageous, there was a big case in Los Angeles, where the state judge found the actions of the state of California so unreasonable, the judge said, “It’s so clear that the taxpayer moved to another state,” it was Nevada in that case, that the judge ordered the state of California to reimburse the attorney’s fees. And the bottom line is, that’s one of the things we have to watch out for.
Chip Franklin:
So I was thinking about this. About 15, 16, 17 years ago, nobody would’ve been able to predict the growth and success of Amazon, much less e-commerce and all that. But there’s obviously a dark side to all that. Steven Pope is our guest, and he’s the founder of myamazonguy.com, and has, I think, some valuable insights into this whole world. Steven, I’ve seen your videos.
Steven Pope:
Hey.
Chip Franklin:
Great stuff. Thank you-
Steven Pope:
[inaudible 00:12:39].
Chip Franklin:
… for being with us on Practical Tax.
Steven Pope:
Well, thanks for having me, Chip.
Chip Franklin:
Steve, you shop on Amazon, I shop on Amazon, and I remember when Walmart would come to small communities and the small businesses would all complain. And I remember not being so understanding, thinking to myself, well, some businesses can sit right next to a Walmart and do well, like one of those little yogurt places. I remember reading a story about some of the places, like, you have this big shark and you see the little fish that are hanging around the shark and eat the remains of what he eats. But Amazon is different than Walmart and different than a shark. Steven, how is it different, and how is it affecting our lives, and is it all good, or is it a little bit of both?
Steven Pope:
Well, I definitely buy a lot of stuff on Amazon. All I know is God bless the trash man that takes away all those brown boxes, because it’s become a part of our life. I mean, Amazon is half the economy, and not because Amazon themselves make half of the GDP, but because of all of the impacts that are integrated, if we talk about logistics, supply chain, and everything that’s involved, and all of the e-commerce that grew lots from the pandemic, and now we’re seeing a downturn on it. But the consumer has basically trusted Amazon more in the United States to shop on that platform than any other platform in the country, and more than 60% of all product searches start on Amazon. They passed Google a couple years ago, so it’s a massive platform with a massive impact, and we’re seeing Amazon accelerate in many ways.
Chip Franklin:
Steve, obviously, when you start a new business, most of us think of renting office space and putting a sign out, getting an ad, coupons, all that. There are a lot of businesses that actually are part of the Amazon world and their material goes up on there. Does that offer a long-term problem for the government, for collecting taxes, because now, they don’t have… Again, local taxes are going to go down because people are doing it from their home. Is Amazon going to change the tax structure on a local level, and then maybe, one day, on a federal level, or has it already begun?
Steve Moskowitz:
It already has because as we see with the sales taxes, it used to be that Amazon said, “Well, we don’t have a brick and mortar store in your jurisdiction, so no sales tax for you.” And they got sued, and now, you see those sales taxes. And basically, what happens, wherever there’s a government, somebody’s looking to say, “How can they get some more taxes?”
Steven Pope:
God bless the government and taxes, right? I-
Steve Moskowitz:
And Amazon is getting into more and more stuff. Now, Amazon will drop groceries at your door within two hours, and then the pharmaceuticals, they’re just getting into, so who knows what else Jeff Bezos will say, “Hey, I think they should be part of the team”?
Chip Franklin:
Steven, I saw one of your videos, and you were really upset at Amazon for having this discount day, the second… Prime Day. Explain why you were upset and how that affects businesses that advertise on Amazon.
Steven Pope:
It’s going to diminish the value and it’s actually going to hurt sales, because now, consumers are just going to hold on and they’re going to wait for the perceived discount in sales. I mean, this year’s sales for the July Prime Day were basically last year’s regular prices. I mean, it’s just become such a race to increase pricing with margins being so low, and inflation so high, your cost of personnel, your cost of COGS, the supply chain is a wreck, and you’re lucky if you even have stuff in stock, in many instances.
A minute ago, you mentioned the cost of opening a business, right? So my business, I have 330 employees worldwide, and not a single one of them in a building, completely remote. And so, when we talk about Amazon businesses-
Chip Franklin:
Wow.
Steven Pope:
Yeah, I’m a big culture guy. I hire a lot. And when we talk about Amazon businesses, they are not opening up brick and mortar shops. These small businesses are digital shops, leveraging an infrastructure that has run through multiple networks. And because of Amazon and FBA, Fulfilled by Amazon, these brands and businesses weren’t put out of business like they were in the Walmart days that you talked about, but instead, they were actually, quite frankly, able to be native-born Amazon brands.
Many of the brands that you guys consume and know, like Goli is a great example, right, big supplements brand, they were born on Amazon. Many, many brands that are born on Amazon can then leverage their platform and go to the brick and mortar and go through regular distribution. But they don’t even need to, even though, if we quiz a thousand people, what was the last thing you bought on Amazon, you’d get all kinds of answers, socks, unicorn meat. You can buy anything on Amazon these days, right? But then, if you then asked them, okay, what was the name of the brand that you bought it from? If more than 2% of people could answer that question, I would be very surprised. So Amazon has commoditized the market and they’ve made this vehicle where it’s two-day shipping, Prime Now, like Steve brought up, and the ability to access inventory. In fact-
Steve Moskowitz:
And also, it gave the opportunity for a small business to have a worldwide market. In the old days, if you set up mom and pop store, well, okay, people would walk into the store, but somebody in another city or state or country is certainly not going to buy. Now, it doesn’t matter, and that’s why you’ve seen an exodus from so many cities when people say, “Why should I…” And the pandemic changed so much, where people say, “Why should I pay all this rent in a city that has high cost, high taxes, when I can move someplace else, get a much bigger, nicer property, and pay way less money when I’m tapping on my computer all day anyway?”
Steven Pope:
I know brands that are in Puerto Rico right now because of the tax savings and everything, and they’re [inaudible 00:18:49]-
Steve Moskowitz:
Oh, Chip, acts 20 and 22 in Puerto Rico. Oh, can you save both? You got me really excited. You can save both to federal tax. We’ll do that in a separate show, because we have to go in a few minutes, but I could be talking quite a bit about that. I-
Chip Franklin:
Is downtown America and brick and mortar dead?
Steven Pope:
I think if you’d asked me that question a year and a half ago, I probably would’ve said, “Yes.” Today, I think the answer is no, and I think that consumers are going back to their regular habits and they really want to. E-commerce had a decade of growth in eight weeks, but we’ve actually seen it regress seven years backwards in the last three quarters. We’re definitely in a depression, not a recession. We’re in a depression, and the economic landscape is terrible, what I think is coming.
Chip Franklin:
You know the old definition, between a recession and a depression, right?
Steven Pope:
When I lose my job, it’s a depression.
Chip Franklin:
Yeah, right. And that’s interesting because it’s true, but I think in the old days, if you lost your job, you’re screwed, but now, you have opportunities, like what you’re doing. I mean, I hate to say that to people who lost their job, “Oh, it’s an opportunity,” because you know what they’re thinking, but-
Steven Pope:
No, that’s exactly what happened to me, actually. So I was making $200,000. I thought I was at the top of my game. I was a director. I was a hotshot working in e-commerce for a lighting brand, and I got laid off. They gave me a nice three-month severance package. That was cool. Most people would go on vacation or do something. Well, I started an agency in under 48 hours because I got laid off, so I agree with you, Chip, opportunities.
Chip Franklin:
Well-
Steven Pope:
Failure is very motivating to me.
Chip Franklin:
Just talking to you for 10 minutes, I can tell I’d want you on my side. Will you come back with us please, Steven?
Steven Pope:
I absolutely would.
Chip Franklin:
Thank you.
Steven Pope:
One other thing you might find curious, there’s about ten billion dollars that have entered our space in these things called Amazon aggregators, and they basically went around and bought all these Amazon brands up, so Thrasio, two billion dollars, just that one alone. They’re now crashing, and now we’re seeing a big market change, but there’s just a lot going on in the Amazon space, so would be happy to, Chip.
Chip Franklin:
All right, well, great. Your email address will be at the end of this, so people can get in touch with you if they have any questions. And I suggest people watch your videos on YouTube. Great stuff. Thank you so much, Steven.
Steven Pope:
Thank you.
Chip Franklin:
It will.
Steven Pope:
Thank you so much.
Chip Franklin:
Yeah, that is amazing. That is a subject that I would like to dive deep into, the whole what this landscape is going to look like. Again, thanks so much again. That is Steve Moskowitz. This is Practical Tax.
Outro:
Thanks for joining us on the Practical Tax podcast with tax attorney Steve Moskowitz. To hear more and view more podcasts, go to moskowitzllp.com/practicaltax.