You have worked hard your entire life to build an estate. You certainly do not want your heirs and beneficiaries to have it unnecessarily depleted because your attorney failed to provide you an estate plan that minimizes your tax liabilities.
There are so many estate planning strategies available that the public must rely on trained professionals to help choose and implement the right ones. Despite the commonly-held belief, these strategies are not just for the ultra-rich. They often are very effective for families that have had to work hard to save for their future.
Estate Tax Overview
The following are just some of the tax issues your estate planning attorney must navigate:
Federal Estate Taxes: These are generally applicable to large estates. In 2023, the first $12.92 million in a person’s estate is free of estate taxes, less any lifetime gifts made over the annual exclusion amount each year.
Gift Taxes: As of 2023, any person can give up to $17,000 to any number of individuals without you or the recipient incurring a tax reporting or paying liability. Gifts that exceed $17,000 per year create a tax reporting obligation for the person making the gift and reduce the amount of the federal estate tax exemption available at death. More information is provided below about this important tax issue.
Generation Skipping Transfer (GST) Tax: If you make a gift or transfer in trust to someone two or more generations younger than you, including nonrelatives who are more than 37 and ½ years younger than you, the gift may be subject to GST Tax. As with the federal estate tax, this tax is generally applicable to larger estates.
Property Taxes: In California, since the passage of Proposition 13, avoiding property tax reassessment is a critical part of estate and gift planning. Depending on the date of the transfer, a transfer of real property between parents and children (and sometimes grandchildren) may be excluded from reassessment. There are monetary limitations on the value of the transfers that can be excluded. More recently, the California voters approved Proposition 19 which became operative on February 16, 2021. Proposition 19 eliminated most exclusions for parent to child and grandparent to grandchild transfers of real property. There are some exceptions for family homes and farms. Property tax issues should be a part of every estate planning or asset transfer discussion.
Gift taxes are exactly what their name implies: taxes levied by the government on gifts you make to others while you are still alive. You can minimize or sometimes completely avoid such taxes by following the advice of a qualified estate planning attorney.
As discussed above, you can give $17,000 per person per year in 2023. This amount increases with inflation. The real benefits of a gift tax laws are related to estate planning. With property gift planning, families can transfer significant amounts of money to younger generations with no tax liability. This is an especially important technique if your estate is likely to have an estate tax liability.
As an example, if you and your spouse have three married children and six grandchildren, you and your spouse can give those 12 people $17,000 each, each year tax free. In this way you can remove $408,000 from your estate, saving a considerable amount in estate tax.
Not all property is a good candidate for gifting. Special caution is required when considering a gift of real property. A qualified estate planning attorney will help you consider tax basis (and the resulting capital gains tax issues), property tax reassessment, fractional discounts and jointly owned property issues before you make a gift of real property.
Tax laws change. Constantly. You need a long-term relationship with an estate planning attorney that keeps you informed and will be there when you need to change your estate plan because of a change in the law, a change in your circumstances, or regretfully, when your family needs them to help administer your estate.Hyatt McIntire & Associates are proud of the relationships that we build with the families of our clients. We try hard to know both our clients and the next generation of their family so that the family can work with someone they already know when they have to settle their parents’ affairs. Contact us at (530) 674-9761 or via email today.