Vermont Legislature SmartTranscripts:

[Mark Langan, Vermont Bar Association (Probate & Trust Section Chair)]: Okay, here we are back

[Representative Emilie Kornheiser (Chair)]: at Ways and Means and it's 02:50. We have Mark Langan here from the Vermont Bar Association. He's going

[Mark Langan, Vermont Bar Association (Probate & Trust Section Chair)]: to talk about probate trust law section. Welcome. Thank you. So my name is Mark Langan. I am the head of the probate and trust section of my law firm, Dinsey. We're the oldest law firm in the state. We were formed in 1917. I was not practicing. No, just if I can digress too, we were formed by Warren Austin and Bill Edmunds. And Warren Austin left the firm, to become senator for Vermont in the capital. And then he, was appointed as our first ambassador to the United Nations by Truman. So we had to change our name. We once once an attorney leaves the firm and has another job, we can no longer use their name. If they die, then we can use their name. So, John Dinze, who probably died in 2015, he joined the firm in twenty in 1953. But we still use his name, and that's the only name that we have. Besides besides being at the law firm, I am the section chair of the probate and law section of the Vermont Bar Association. I have my I not only have my law degree, I have my master's in taxation from Georgetown University. And I am a fellow in the American College of Trust and States Council, which I and I have been state chair for a while. My term of duty has ended in that regard. And, one thing you might wanna know is that I basically worked with the commissioner of taxes in 2015 under the Shumlin administration where we redeveloped the estate tax in Vermont. And it was a a very complicated system, and we straightened it out. So so I was an integral part in the drafting of that that statute. As section chair, I have been very active in bringing many uniform laws to to the state, to to the legislature to pass. Probably the first and largest one was the uniform trust code. So I was the chair of the committee that brought the trust code to Vermont. But I've had a number of other uniform acts come up through, some and many of them are related to trusts that we have done. So it's an area that I'm familiar with. Let me just give you a background, because I go through these speeches with my clients all the time. So a trust comes by its name quite honestly. It is a total English invention. Not known to the French, not known to the Spanish, not known to the Germans. It's inked through and through. And what it is, is there's usually three parties in a trust. And it's one person who gives money to another person in trust for a third party. Right? And you're giving it to that person. And you're hoping they don't run to reopen the money. You are trusting them. That's how it gets insane. That's all it is. And there are many, many forms of it. But that essentially is the core. You have this person who is sometimes referred to as the donor or the grantor or sometimes the settlor as they establish the trust. They give it to the trustee. There's no other names for the trustees. It's just the trustee. And then they give it to and it's held for the benefit of what are called the beneficiaries. Under old law, it was the Sedika Trust. That was a Latin word for beneficiary. So you've just got this triangle. And that's basically what trusts were, is you're giving money to someone else to hold for the benefit. And sometimes it's because you want someone to manage the money for your children because they wouldn't be able to handle it and you may die. So you give it to someone to help manage assets for another person. So when I was in law school, I thought that I basically thought trusts are for rich people. Only the Rockefellers and the Mellon's have trust. So they're bad. That's not true anymore. It's everybody has trusts. We use it pretty much every estate plan that we do, we incorporate the trust in it. So trusts come in a couple of flavors that you have to understand what we're talking about. So once, a trust can be revocable, where the person who sets it up can change their mind and amend it at any time. And of course, the opposite is irrevocable. So trust can be revocable or irrevocable. Trust can be embedded in your last will and testament. And if it is, we call it a testamentary trust. And it only comes to fruition after you die, and it gets funded with your estate assets. So we call them testamentary trusts after last will and testament. And I will digress another part of English law. Why do we call it a last will and testament? Because this dates back to William the Conqueror in So '60 before that time, all property as a transfer from generation to generation was done by the clerics, by the priests, because they were the only people who knew how to read and write. And what happened is when William the Conqueror took a took claim of England after his, I think it was his uncle, Edward. He wanted to get control of the land. So your will conveys your land, and your testament conveys everything else cash, furniture, everything else. So there was but then after the probably Protestant Reformation and stuff like that, the king basically stretched over and said, no, I'm taking control of testaments too. So everything is now a legal process. It's not bifurcated between the legal courts and the ecumenical courts. So it's been merged. It's your last 12 testament. So testamentary trust. If a trust is written during your lifetime, we use the Latin word inter bibles. Inter meaning during, bibles, during life. So interbibos, some people have anglicized it to living trust. So we have those. And then we have another one that is important for my clients to know. It's an IRS tax code issue, which is what we call a grantor trust, which is when you create a trust, and you may have put this money in a bucket, but you are still considered to be the owner of the income, and you have to report the trust's income on your ten forty. So that happens quite quite a bit.

[Unidentified Committee Member]: You're not entitled to start the principal.

[Representative Emilie Kornheiser (Chair)]: Pardon me?

[Unidentified Committee Member]: But you're not entitled as the grantor to take the principal, just the earnings and measures.

[Mark Langan, Vermont Bar Association (Probate & Trust Section Chair)]: Well, it depends on what powers you retain in your I'll digress and tell you why. What happened is that probably in the thirties and the forties, when we had much more progressive brackets in the because our top bracket right now is 37% on income. It went up to this is sort of curious, I find, is that when they asked people in the MAGA movement, make America great again, they said, to what year are you referring to? When was America great? And they said, 1953. And you know what the top bracket was in 1953? Eighty. 90%. 90%. That's right. Now, it's only 36% or 37%. But anyway, so we've had times where the bracket has Congress has moved this bracket up and down quite a bit. And what was done before the grantor trust rules was that rich people would put their money into various trusts. And so none of those trusts would go up into the high brackets. So Congress basically passed Section six seventy one to six seventy seven that says, hey, grantor, if you have retained a certain power over this trust, then we're going to treat you as the owner of that income and you report it, stack it on top of your other income. That catapults you up into the higher brackets. We're not gonna let you get away. You know? So perfect. You know, it's they just shut down the rule that could do that. The problem was 1980 so that's probably grantor trust rules probably came in maybe before World War II. And then in 1986, what they did was they scrunched down the brackets. Threats in The States have the same brackets as you and I do, ten, twelve, up to 37%. But an individual hits their top income tax bracket at the IRS at $500,000 and a married couple at $700,000 You know what a trust hits at 37%? $16,000 So everything over 16,000 in the trust is taxed at 37%. So you don't want to be having you want to be a grantor trust because you're probably in a lower bracket. You might be in the 22% or percent. It's made it very unfavorable to leave income in trusts. The way that it works at the federal level is that to the extent that a trustee distributes out assets to beneficiaries, it will carry out income for income tax purposes. So it's a little bit complicated rule. I say it over and over again because clients don't get the idea. But I had a great case. I had a case where the trust had a Cadillac. And the surviving spouse said, I want the Cadillac in my own name. We had about $5,000 of interest in dividends in the trust. They were sitting in a checking account. We distributed the trustee issued a new title certificate in the name of the surviving spouse. The Cadillac was worth $9,000 To the extent you distribute anything out, it carries out income for income tax purposes. So we distributed out a Cadillac for 9. And guess what? She got a k one from the trust saying that it carried out the $5,000 income, even though that cash was sitting in a checking account. She has to pay the income on that on that cash or interest, even though she got a Cadillac. She can't, like, chop off a part of the Cadillac and say, I'm going to pay my taxes with the front hood. She's got to come up with other money. It's sort of like that. That's kind of the thing. So let me back circle back as to what I would say 99 percent of the cases that we basically use trusts to avoid probate administration so that we don't have to go through the probate courts. Because it can take a long time to get through probate. People want to move on with their lives. So it's one of the many techniques of avoiding probate administration. And it's become super popular in The United States. So everybody, even people with the most modest of means, it's not, as I say, it's not for rich people. It is for everybody because we use it as a probate administration thing. And largely, the way that it has occurred of late in fact, I was just looking at this, I think when I talked to the House Judiciary just recently, I was looking back to 1976 when I was in law school, that the federal exclusion amount at the time was $120,000 So when you die, the first $120,000 was not taxable. And then also at that time, what you gave to your spouse, it wasn't unlimited as to what you could deduct. It was the greater of half of the estate or $250,000. And that jumped up to it was an index for inflation. It went up to $1.75 for quite a long time. And then right around the time that George W. Bush became president, there was the exclusion amount was about 1,000,000, a million and 2. And so each, the husband and wife, would use their exclusion before the estate tax would kick in. So that's what? Two? 2.4. Okay? And George W. Bush wanted to get rid of the estate tax, and he called it the death tax. And it was was gaining a lot of traction. And I thought because I knew that even at that level, was hitting about 2% of the population. At at that time. And yet a lot of people wanted to get rid of the the estate tax. And Time magazine did a poll, and they found that 19% of their respondents thought they were in the top 2% of wealthiest Americans. I thought it's an America. But and since then, what's happened, it was indexed for inflation. And then we had a few years at 2,000,000 apiece at the federal level. And then it went up to 3.5. And we and Vermont had always been coupled with with the our our our estate tax was coupled with the federal, but then they decoupled when it went to 3.5. And really what they knew it was going to five, and we were at two and at 3.5. And so I think they thought, where's the middle ground? And it was at 2.75. And therefore, we were at 2.75 for a really long time. It's a it's a state level. But at the federal level, what happened is that it was that it was scheduled to sunset at the 2010. And then and it did in a way that it did. At the 2010, we had no estate tax. And and then this this guy, put around in January, a guy by the name of Dan Duncan died. And Mr. Duncan was the ninth wealthiest American in The United States. He came from oil money down in Houston. And he had, I think, about 9,000,000,000. And then in February, George Steinbrenner, who won New York in DC died. So what happened was and this is a super important concept of planning today is that when assets are includeable in your estate for estate tax purposes and they're inherited for income tax purposes, another chapter of the code, they say your assets, the basis of assets will move up to the date of death value. So we call it step up basis. So the income tax, the capital gain, the built in capital gains goes away. And when when I was learning this in law school, they said, well, there's there's probably two reasons why Congress did this rule. Number one is they didn't think that you should have to pay an estate tax and an income tax, double taxation on the same money. They didn't think that was right. Number two is the only person who knows what the basis is is now six feet under. This is a real problem. It's a practical matter. So why don't we just move it up to a date of death value? So when you take away the estate tax, if we eliminated it, then nobody gets a step up basis. Nobody. That means, like, someone who has an estate of $600,000 and may have a house. No step up in basis for them. So so I think that somebody you know, I I tapped George W. Bush on the shoulder and said, you can't get rid of the estate tax because what you do is you think you are helping the wealth, but you're gonna have a broad based income tax on everybody. So they said, Okay, we can't do that. We can't do that. So what they did is they had this Kakamemi scheme that was in Section ten twenty two of the code, where they gave you they said, Okay, well, we'll give you if the estate tax exclusion is 2,000,000, we'll give you 2,000,000 executive to play with, and you can dole out basis to the beneficiaries. Well, isn't that a nightmare? Because the kids of the deceased are going to be saying, yeah, I'll take that, but I want some stuff up on basis with it. They would be haggling over the basis, let alone the furniture. So fortunately, never came into being. So back to 2010, what happens is that December 1730, Obama signs a bill that says, hey, we're reinstating the estate tax. It's it's in effect this year. But okay. For you people who died before December 17, we're gonna give you the option. You can either not pay the estate tax, but if you don't pay the estate tax, no step up basis. Or you can pay the estate tax and you'll get the step up rates. We gave everybody that option. And then from December 17, we were at a $5,000,000 exclusion. And that exclusion, that period of time from 2010 to about 2019 was our period of economic, what they call stagflation. We had very little inflation during that period of time. So that 5,000,000 just wrapped up. And until 2019, it made it up to 5,500,000. And so along comes Trump in 2019 and Paul Paul Ryan from yeah. Paul Ryan has the Tax Cuts and Jobs Act ready for him and he just signs on. What they did was they said, we're gonna double it. So we went from 5,500,000 to $11,000,000 Everybody in The United States had $11,000,000 exclusion. Okay, so then but based on the Office Congressional Budget Act of 1976, they had to sunset it. And so it was to sunset at the 2025. We were as planners, were thinking about, oh, this is going to go back. It would go back to what the 5.5 would have been indexed for inflation, which was about 7,000,000 at that point in time. But then along comes the new tax act, the big beautiful bill. And what they did is they stopped it from sunsetting. Would have been index for inflation would have been in the $14,000,000 mark, but they said let's round it up to $15,000,000 So we now have a federal estate exemption of $15,000,000 per person. So that means that a family can transfer close to a husband and wife could transfer close to $30,000,000 without taxation. This is affecting less than one tenth of 1% of The United States. It affects so virtually, we have very little. But the super wealthy, they aren't really too concerned about the exemption amount Because 15 times $230,000,000, that means so little when you've got billions and billions of dollars. What concerned about is what's the rate. They want to push down the rate to 35%. It's right now at 40. It has been as high as 50. So anyway, that's a little bit digression into the estate tax, but it's probably good to know that. I think that's what a lot of times what we do in planning is that the government has given you these exclusions, be it Vermont gives you a $5,000,000 exclusion, the federal government gives you the $15,000,000 exclusion. And we want to make sure that our clients afford themselves of what the government has given you. So there's a very famous tax case called Helring versus Gregory. And in it, the Supreme Court said basically, they said, you can fashion your affairs to avoid taxes. You cannot evade taxes. So the difference between it's okay to fashion your affairs, to reduce everybody has the right in America to do that, to fashion their affairs so they pay the lowest tax possible. But you cannot cheat the government. So you can't lie to the government and stuff like that. So they've done a pretty good job of shoring that up, I think. And one way that is important is that now tax preparers, they sign the return, and they are on the line for penalties of perjury if they lie. So that we have lots of clients who may have fanciful ideas about thinking about how they might get around to tax or something. And I say, yeah, you're thinking like a lawyer, but you're used by a won't work. On trusts, generally, as I said, they are very popular as a probate administration matter. But let me try to explain, maybe give you an example of the classic estate plan. And that is that in Vermont, let's say we have a $5,000,000 exclusion, which came out, I think in 2021. So at the federal level, this is an important concept. It's called portability. At the federal level, let's say I had a client who was very, very wealthy. And when his wife died, she didn't use any of her exclusion. And at the time, it wasn't $15,000,000 It was maybe 11,000,000 And portability, at the federal level, they say, if your spouse did not use their exclusion and they are your last deceased spouse, then you can tack on their unused exclusion onto your basic exclusion. So if it wasn't used, you can say, and so when he died, the second he died, he went from 11 up to 22 because his wife didn't use it. Because the theory is the government's saying, yeah, we're not too concerned. Each spouse should get the 11,000,000. And if they do, we're fine how they use it, how they divvy it up between the two of them. But they can pass. We're not going to be so very strict that you have to figure out who's got what. We don't have portability at the Vermont. So as I tell my clients, if you don't use it, you lose it. So one of the part of our jobs is saying, how are assets titled? Are they titled in a way that it will be includable in your estate so that you can use your $5,000,000 solution? So that's it. And then usually what happens when the first spouse dies, we have an unlimited marital deduction so we can zero out the tax. But that deduction part gets added to the estate of the in a sense it does it get added to the state of the second to die spouse. So we catch that. And so we only get the 5,000,000 for the first stop. And then the second spouse has now got this bump up of the Merrill trust, but they can use 5,000,000 for their assets and then anything over the Alberta Vermont state tax. That's kind of how the system.

[Unidentified Committee Member]: Our concern, thank you for that. That's a great overview.

[Representative Emilie Kornheiser (Chair)]: A

[Unidentified Committee Member]: previous presenter was talking about how individuals can avoid paying taxes, tax avoidance. And so just wondering about with your clients and setting up generation skipping trusts and other forms, if that's a major thing that we should be concerned about and people moving assets or moving income so that it's not coming into the state's office. That's kind of what we're thinking about is to looking at the revenues of the state.

[Mark Langan, Vermont Bar Association (Probate & Trust Section Chair)]: Yeah. So and I think that it was interesting in my work with the Shumlin administration that we talked about a few of those concepts. So one of the concepts that I talked about with them was portability because my section members said, please, please, get portability pass. And I couldn't they said no. We're not gonna so we don't have portability at the state level. The second thing they wanted and this is something that I brought up with the commissioner. Said, you know, Maine has a rule that says that if a nonresident owns residential property in Maine and they put it into an entity like an LLC or something, they'll see through it and they will subject it to tax. And so I asked the commissioner to ask the governor, do you want to do that? And they got back and said, no, we don't want to do that. Because I think that the negative aspects would have outweighed the positive aspects of that. That would be my guess. But no, I don't think that trust per se, there are certain things that trust can do that are totally within the boundaries. Most of these rules are all at the federal level. So there's not much Vermont can do. We aren't Vermont and most states are not in the business of trying to They don't have the strength, the staff to look into what's includable in the state, what's deductible. They just piggyback off the IRS. And they piggyback off the IRS rules, and they piggyback off the IRS auditors. They just sort of Vermont's not alone. Almost every state in the country does that. I don't think there are any independent that are so detached from the federal that they It's very much like we do with income tax. We are totally What's deductible? What's includable in gross income? What's a credit? Those are all federal rules that we just piggyback on. It's state. Most states do that.

[Unidentified Committee Member]: It's easier. They've recently selectively decoupled from all the corporate income taxes. Yeah. Anyway.

[Mark Langan, Vermont Bar Association (Probate & Trust Section Chair)]: And it becomes more of an issue. Because same with the big thing about Tax Cuts and Jobs Act, you know, with corporations really benefited there. But so there are certain like I'm thinking of a technique that sometimes you can put an insurance policy in a trust. And it doesn't have to be in a trust because the federal rule says, hey, owner if you are the owner of a policy on your life, and when you die, the death benefit is includable in your estate. Right? So the whole death benefit. So all you do is figure someone else to be the owner. And then sometimes that's your kids. Sometimes people will just transfer to their kids and say, you be the owner of this policy. And then if I die, it's not a Google My Estate because I don't own the policy. So you don't need a trust to do that. But a lot of people do because when it's usually a big amount of money, the death benefit comes in, it's usually you want to make sure that it's going on for your surviving spouse and children. But it's not the trust per se that does that. It's just who is the owner the policy. Yeah. You mean the beneficiary? When you say the owner, the policy, you mean the beneficiary? No, I mean the owner. The owner who's paying for the policy? Usually. Frequently, I'm a trustee of many insurance trusts. So I get the notice because I'm the owner, the company knows it, and I write I write the person who's the insured and I said, hey, would you like to make a gift to the trust? And they send money to me and then I use the money to pay the premium. Because I'm the owner. So when they die, then it's not includable in this state for stick to it. It's a federal. Representative Holcombe? Can I take

[Representative Rebecca Holcombe (Member)]: a slightly different direction from a question? I don't know if you

[Representative Rebecca Holcombe (Member)]: deal with donor advised funds at all. What do you see happening in that space, and what do you think is the impact of that? You've raised some questions about charitable giving. But how do you see that developing? In Vermont, specifically?

[Mark Langan, Vermont Bar Association (Probate & Trust Section Chair)]: Oh, in Vermont? Before the invention of donor advised funds, the way that we did it was when people wanted to set aside money, permanently set aside money for charity. They would create a private foundation. Private foundations took two flavors. They took flavor of the not for profit corporation where you file with a secretary of state, get a charter, or they use a trust. And in fact, when you go on IRS form ten twenty three about trying to get the entity to be exempt from income taxation. There's usually the first question is, are you a nonprofit corporation or are you a trust? The world's a defense case. So then and we did those. And the income tax return for a private foundation is called the nine ninety private foundation. When I did my first one, I think it took me forty hours to complete the private foundation income tax return. It's a bear. Well, because they're asking you for budgets and projected budgets, and it just goes on and on and on for pages. But the taxation rule is that the private foundation can be subject to a 2% excise tax unless it distributes essentially 5% of the fair market value of their assets out each year. And the rules are really flexible. They can say, oh, you can hold up for one year, then do 10% the next year. But it's where you want to control, maybe control what the investments are and what you're invested in and that sort of thing. So then the brokerage houses came up with the concept of, we'll take care of all that administrative stuff for you. So we're going to create a donor advised fund. So you put the money in and it will get pooled. But we'll keep it on the books as to what your money is. And all you have to do is think about your cherries. Who do you want it to get? So they don't have to worry about if they're a not for profits corporation, they don't have to do the annual report every year. If they don't have to do the nine ninety. And you've got some professionals who are working on this. And so it's great for our clients. They can go in and say, they figure out where they want to do it. They usually do it on an annual basis because they're looking to get that 5% out each year. So it's taken away the administrative issues. So it's been a great, it's been easy for people, much easier for them to give to charity. Think donor advised funds are great. And what usually happens with the donor advised fund, obviously, donor is an advisor. And usually the institutions, the two biggest players that I recommend clients to are Vermont Community Foundation and Fidelity Chair. I think those two are really big in that space. And misspoke. I thought the Vermont Community Foundation would be very Vermont focused. Know what's going on. And but they have the ability to go outside. It's a donor advised fund. So you're not hamstrung to go to Fidelity if you want to help charities that let's say, I think the number one charity on the big board right now is Doctors Without Borders. So the charity system is sort of interesting because a woman from American Cancer comes up and visits me every year. She has a list who were at the top ones. And for a while, for a long time, was St. Jude's. But I think they've just been bumped by Doctors Without Borders And American cancer is slipping. American cancer and American heart used to be number one and two, but they've sort of slipped on that.

[Representative Emilie Kornheiser (Chair)]: Representative Branagan has a question.

[Representative Carolyn Branagan (Member)]: Well, I got I got three things. First, wanna ask you. When we first sat down to talk, you told us about the giver, about the three people. The giver and then the person

[Mark Langan, Vermont Bar Association (Probate & Trust Section Chair)]: The trustee.

[Representative Carolyn Branagan (Member)]: Yeah, the trustee. Okay, and then for another person, the child or the So where is the owner? Is that the

[Mark Langan, Vermont Bar Association (Probate & Trust Section Chair)]: trustee? Who's the trustee? That's a good point. Technically, it's the trustee. The trustee is the legal owner. What happens is in trust law is the title bifurcates. And title is split between the trustee who owns bare legal title and the beneficiaries who own what is called beneficial type or equitable type. So title splits at that point.

[Representative Carolyn Branagan (Member)]: Okay, that's beyond me.

[Mark Langan, Vermont Bar Association (Probate & Trust Section Chair)]: Well, let's say you have a piece of property in the trust. And trusts are not entities. They are not like LLC. They are not like corporations. They are exactly what I describe them as they are relationships. And therefore, trusts are not taxable. The fiduciary is taxed. The title has to go in the name of the trustee. And the trustee has to pay the tax. So it's not an entity type of thing. It's just a relationship. In fact, we call it a fiduciary income tax. We're taxing the trustee on the income of the trust. So if, let's say, the trust owns a house, then the deed will read the trustee is conveying it to John Doe and Jane Doe. So we call it a trustee's deed. There's no I once early in my career, I saw a deed that was drafted by a well known attorney here in Baccalaureate, and he drafted it to the trust. I went, what? You can't do that. You didn't do anything. You didn't convey this property because it's in the name of the trust. You've got to do it in the name of the trustee. So this legislature, in its infinite wisdom, sort of helped people out, said they passed a statute that said, if you transfer to the trust, we will deem it as if it were transferred to the trustee. Now they didn't say they didn't say it's okay to transfer it to the trust. They didn't say that. The legislator said, no, no, no. We're just going to deem it to be as if you had conveyed it to the trustee. So we got out there. But the trustee so when an account is opened up at, let's say, Merrill Lynch, it's under the name John Doe, trustee of the Mary Doe Trust.

[Representative Carolyn Branagan (Member)]: I've got two more things. First, I just want to share with you that our previous speaker, well first professor in tax law, gave us a great presentation for Omar Malik. And in his presentation, he hinted at something that I do occasionally hear and really bugs me. I want to just share it with you. He said that the attorneys, he should know the work, but he met the attorneys and the CPAs. Not be along being slick. And if there's a hole in the law, they'll take advantage of it, to a questionable extent. That really bothers me because in my experience, so I live in Georgia, which is just south of St. Alders, all the CPAs and all the attorneys that I know, I admit that I have a sheltered little world, okay? They are so ethical and so honest and so fearful of making a mistake because they lose their license. You just said something about that they are held to the charges of perjury. It's discovered that they knowingly did something incorrect on the return. So I just want you to know that because that belief that the CPAs and the attorneys are all kind of sneaky, you know, that has been here since I first got elected in 2002. And I don't know how to fight it. And I shared it with Chef Smith

[Representative Mark Higley (Member)]: years

[Representative Carolyn Branagan (Member)]: when and years he was on the committee. And he understood what I was talking about, and you know Chef, he just laughed about it. But I think did have bothered me. So I just want to tell you that. And then the last thing, I can't read my own writing here. I'm sorry, I can't read my writing. So I don't know what the last

[Mark Langan, Vermont Bar Association (Probate & Trust Section Chair)]: thing Can I ask you, just to clarify, Yuri, the second point that you were making, I don't know if I grasp it, is your concern that the public, the laypeople, are concerned that the lawyers and CPAs are crafty or something?

[Representative Carolyn Branagan (Member)]: Somehow they're not honest and somehow not playing by the rules. And I don't observe that at all. I observe the opposite, that in fact, if anything they're dealing with is questionable at all, or might be interpreted as questionable, they don't do it.

[Mark Langan, Vermont Bar Association (Probate & Trust Section Chair)]: They

[Representative Carolyn Branagan (Member)]: run away from it. And they tell their client, No, I'm sorry, I can't be party to that. That's what I felt seen. And yeah, it bothers me out there that in the public, even in this building, there's a feeling that the lawyers and the CPAs are, and I think it's behind this desire to, I don't remember what the third thing was, but it's behind this desire to, which is the third thing, change tax law to prohibit that kind of thing, to beef it up, to tighten up the rules so that there is no way to get around it, and Vermont can collect its full due out of taxation, which I agree with also. Everybody has to pay tax, that's how our state functions. But it's not that anybody is, not that I have witnessed in my years here. Honestly, I haven't. That's not who made me think of it. Michael Butchowski? No way. I mean, it's just beyond them and Emilie. It's just not done out in the professional world. But yet there is this belief that those guys are sliding through, they're slick, they're coming with a nice suit and a white shirt. Let me tell you something, not true. These guys that I know, when they're in Vermont, which is the realm of my universe, they aren't. So I don't know if you can fix that.

[Mark Langan, Vermont Bar Association (Probate & Trust Section Chair)]: No, the perception.

[Representative Carolyn Branagan (Member)]: Why not?

[Mark Langan, Vermont Bar Association (Probate & Trust Section Chair)]: One of my annual gigs is I am the last speaker with a former law partner at the UVM Tech School. So UVM Tech School gives a presentation in Burlington and Killington. Probably present in front of 500 accountants. There might be a few attorneys here, but it's basically for accountants. And our thing, we're the last leg and people really look forward to us because we the year in review. And we go through the cases and that sort of thing. And my perception, and this is probably We talk about these cases, and sometimes all the CPAs are very honest and they would think, what was this taxpayer thinking? What did they The stories are almost comical as to where they were going. The attorney tries to do what they they try to do. But I think that there is the just harking back to Halbering versus Gregory, you can fashion your affairs in any way you can to like, let's say, if the government says we're going to let you deduct your auto loan, that you might think about buying a new car. And there's a lot of ways where the government has used the tax code to help and to steer society. For example, the medical deduction. As you get late in life and you go to an assisted living facility, those huge expenses of medical are going to be deducted. My mother didn't pay income taxes for the past couple of years because her medical expenses were so high. Those are all policy decisions and stuff like that. We do have techniques that we use, but they're totally There's an ongoing discussion with the Internal Revenue Service and with the tax court and with Congress as to what the rules are and what they aren't. And my job is to figure out where do you stay within the rules and not to do anything that would be outside the rules.

[Representative Carolyn Branagan (Member)]: And I think the CPAs follow that for the most part. They want to know what the rules are. I know the CPAs will pour over state legislation at the end of the fiscal year. And look and see what we've changed and what we haven't changed and whether it might be a legal loophole or maybe some opening, but nothing illegal. And it just bothers me that a lot of people continue. That they'll do things and they're just covering it up so we don't catch them.

[Mark Langan, Vermont Bar Association (Probate & Trust Section Chair)]: Yeah, I find the group that I speak to, the accountants are really an honest bunch. And, you know, I think also with my experience, when I started coming up coming up to the state house to do that is how I don't think the general public has an inkling about how civil these conversations are within the state house because of what they see at the federal level and the fighting that goes on. But this state, I find the legislators in the state house are incredibly civil and open to discussion. But I'm not sure if the public perceives how civil it is.

[Representative Emilie Kornheiser (Chair)]: Representative Masland had a question about two Branagan questions ago.

[Representative Carolyn Branagan (Member)]: Two. That's right.

[Representative Mark Higley (Member)]: That's our revision

[Representative James Masland (Member)]: civil. I understand. On my so I'll say I have a big piece of property. I can put it in a revocable trust.

[Mark Langan, Vermont Bar Association (Probate & Trust Section Chair)]: A revocable trust, something you can change.

[Representative James Masland (Member)]: For my for my kids when I cook. Uh-huh. That'll be the asset that'll have you be my property. Absolutely. So in the interim, it's a revocable trust. The property taxes do every year, I presume I pay those. Correct. And there won't be any income from the property. There isn't, I mean, it's not gonna rent it out. So the the basically, it's a tax. It's a during the interim, I pay taxes on the real estate once a year.

[Mark Langan, Vermont Bar Association (Probate & Trust Section Chair)]: Your property tax?

[Representative James Masland (Member)]: Property tax. Yeah. Are there other taxes in a in a situation, simple situation like that that are due by me? The insurance don't have any income.

[Mark Langan, Vermont Bar Association (Probate & Trust Section Chair)]: Right. Because now if it did, I e, you put it on Airbnb and rent it out, you get rent. Obviously, you would have to pay the rent. So let's say that you live in Florida and you have a piece of property in Windsor. And so you now don't live in the state of Vermont, but you have this property and it's in the trust. And you die. It's subject to Vermont estate tax. That's right. And all the tangible personal property in it.

[Representative Carolyn Branagan (Member)]: It's subject to Vermont, state taxes.

[Mark Langan, Vermont Bar Association (Probate & Trust Section Chair)]: It's a tax, yes. We can tax two things within our borders, which is we can tax land and tangible personal property. But if let's say that the person in Florida owns a corporation in Vermont and they have stock in it, the stock is an intangible. So that belongs to the domicile where the person lives. So really back up this and I tell my clients this was sort of get property 101. Two types of property, real property, land, and any building that's attached to it. Everything else we call personal property. Personal property comes in two flavors. Some stuff you can touch and stuff you can't touch. Stuff you can touch, furniture, forks, knives, spoons, your clothing, jewelry, guns, cars, know, that sort of thing. And stuff you can't touch, bank accounts, your retirement account, that sort of thing. Okay. So now that's that's property. Okay, let's talk title. Title, we have finally, we have a system of title. I say finally, it used to be in the feudal age, the way they transfer title was the owner would scoop up mud and fix it in the owner's hands. So you now own the property. They just transferred mud. But then came reading and writing and registry of deeds and stuff like that. So now all real estate must be conveyed in writing. And you can't orally transfer land. With regard to tangible personal property, we have no system. It's the Wild West. And that's why people steal it. They steal paintings, they steal electronics, they steal your car. Well, your car is the only thing that has a title certificate usually. And then it's only if the car is under 20 years of age. We don't really have a system for tangible personal property. And then intangible personal properties, when you open up account, the the financial institution or whatever institution will say, pick who's the owner, and you write it down. So we do do have a system as we know who owns the property there. So so Representative Higley.

[Representative Mark Higley (Member)]: So the previous speaker had talked about, and maybe you've talked about, I just haven't heard the words yet, a resident trust.

[Mark Langan, Vermont Bar Association (Probate & Trust Section Chair)]: Yes.

[Representative Mark Higley (Member)]: Difference he's saying, and we need to maybe consider a definition of residence other than what we have now. Does that make sense?

[Mark Langan, Vermont Bar Association (Probate & Trust Section Chair)]: Yeah, it does. So a resident trust is a Vermont income tax concept. So because it's embedded in our I think it's 5,811. 32, and it's section 11. And basically, they're saying in that section that the income from a trust is taxable by the state of Vermont. If the contributor to the trust doesn't use the word contributor, but basically it's saying any so it doesn't necessarily have to be the donor or grantor or settlor. If anybody else if another person puts money, gives money to the trustee for whatever the terms of the trust are, they could be a contributor. And if when that person dies, they are domiciled No. Wait a second.

[Unidentified Committee Member]: It's to stay away from the word domiciled.

[Mark Langan, Vermont Bar Association (Probate & Trust Section Chair)]: No. The way that it works is if if there's a if there is a contributor who was a Vermonter at the time of contribution, and the trust becomes irrevocable, I think while they were a Vermonter, then that contribution and any income that's generated from it would be subject to Vermont's taxes. That's the concept that And this statue is very akin to Connecticut and New Jersey. I'm not sure about New York. So we do tax so it can be a resident trust if the contributor was domiciled at the time the trust became. I'm

[Representative Rebecca Holcombe (Member)]: just curious how you would even disattenuate that if there's multiple contributors to a trust and it's invested. Do you have to go back and look at the basis?

[Mark Langan, Vermont Bar Association (Probate & Trust Section Chair)]: Absolutely. No, not the basis, but who contributed what?

[Representative Rebecca Holcombe (Member)]: But how do you do you I'm record keeping here.

[Mark Langan, Vermont Bar Association (Probate & Trust Section Chair)]: Yeah, yeah, it's a record keeping.

[Representative Rebecca Holcombe (Member)]: Do you have to look for specific I mean, I'm just trying to even imagine how that would work. Let's say Jim gives Donates. Mark has a trust for his kids, and Jim donates to the trust for Mark's kids $10,000 and that trust invested in Is it based on the stock that was bought with Jim's donation?

[Mark Langan, Vermont Bar Association (Probate & Trust Section Chair)]: Yeah. If he if he's in the state domiciled when the trust becomes irrevocable.

[Representative Rebecca Holcombe (Member)]: Yeah. And Carolyn also donated 20, and she bought really bad stock that didn't do as well. So the basis wouldn't have drawn as much. You would be able to disaggregate back to the

[Mark Langan, Vermont Bar Association (Probate & Trust Section Chair)]: business. You have to and transmuting. Yeah, yeah. Then

[Representative Carolyn Branagan (Member)]: would lawyers and accounts?

[Mark Langan, Vermont Bar Association (Probate & Trust Section Chair)]: Well, I'll give you an example of recordkeeping. So we have two systems of marital property in The United States. We have the English system and the Spanish system. Those states that were settled by the Spanish and the French, because this is actually a German concept called community property and that the continent of Europe has adopted it, but not the English. And what community property says is that anything you walk into the marriage with is your own separate property, and anything that you inherit from your family or get a gift from is your separate property, and your spouse has no claim against it in the event of divorce or death. Anything you earned during the marriage, it goes to the community estate and both of you own it fiftyfifty. So that, let's say, in the old fashioned days where the wife stayed at home and raised kids and the husband goes out and earns all this money. Well, the theory is he can only do that because she's there pulling her weight that enables him to go out and earn money. So she's entitled to have. That's a basic community property state. But it turns out that so well, getting to your point is in community property states, California, New Mexico, Arizona, Texas, they have to keep three sets

[Unidentified Committee Member]: of books.

[Mark Langan, Vermont Bar Association (Probate & Trust Section Chair)]: Yeah. What's my separate property? What's your separate property? It's our community property. So sometimes it's rare when you have multiple contributors that are I don't know of many cases that it really happens. It's infrequent. So it's one of those rules that, yeah, it could be a nightmare, but it rarely occurs because you don't usually have third party contributors coming into the trust. With resident trusts, Okay, so here's the here's what's going on with residents trusts, too, is that that what happens, though, where this where where I'm seeing the cases are is that. So the contributor is dead now. Okay. And let's say the trustee is out of state and all the beneficiaries are out of state. Why should Vermont be able to tax that trust? Because nobody's in the and maybe even the assets are out of the trust, are out of state. Why should Vermont be able to tax it just because a contributor contributed one point into infinity? And we are now starting to see a bunch of cases percolating up through New Jersey, Connecticut, and some of the other states, they're saying, no, we look at the the judges are saying, we look at these at a tax by tax basis. So maybe the first year, yes, because your contributor just died and the contributor was there and it's irreparable. But now if a trust loses the ability, it's touching its nexus with Vermont, then maybe Vermont shouldn't be able to tax it any longer. And that seems to be going the way where the law is developing. There was a case recently by the name of Kessler that was decided by the United States Supreme Court that Judge Thomas wrote the opinion. And basically, was North Carolina was trying to tax this trust and nobody was in North Carolina. It was just it had a historical room, but nobody was in it. And the court said, no, we I think that no, there was a beneficiary in in the state. And they were latching on. North Carolina was latching on the fact that they had a beneficiary in the state. But the beneficiary was totally discretionary. They had no rights. They were at the whether the trustee distributed income or principal to them, they couldn't force anything like that. And the United States Supreme Court said, you're lacking nexus. You have to have nexus to be able to tax that. So as I said, in Vermont, we can tax real estate that's in it and take personal property. A lot of people didn't know this rule, it's a great case. It's the Commonwealth of Pennsylvania versus Frick. Maybe you remember the name Henry Frick. Mr. Frick, he was from Pennsylvania, Philadelphia, and his art collection was sitting in the Frick Museum on Fandenvenue. And Pennsylvania wanted to tax it. And the United States Supreme Court said, not so fast. You don't have nexus. You don't have tangible personal property is not in and even though it's movable, they said, we don't care if it's movable. It wasn't in the state when he died. So if your tangible personal property is out, people ask, but if it's in, it is. So I had a decedent who died with a house in Manchester. And usually, we don't pay attention to the tangible personal property, it's usually not. But she had a painting worth $2,000,000,000 So we reported it, and we paid either her modesty tax on So,

[Unidentified Committee Member]: Penny, just a

[Mark Langan, Vermont Bar Association (Probate & Trust Section Chair)]: yeah, so Right.

[Representative Carolyn Branagan (Member)]: You don't have the basis.

[Representative Emilie Kornheiser (Chair)]: Well, thank you. Okay. Thank you. Thank you, sir.

[Mark Langan, Vermont Bar Association (Probate & Trust Section Chair)]: You're welcome.

[Representative Carolyn Branagan (Member)]: There's more questions I've given them. Maybe what they are. Hope we see you again.

[Mark Langan, Vermont Bar Association (Probate & Trust Section Chair)]: Okay, be happy to go. Well, I might be down for as much.