Estate tax efficiency is an important consideration for high net worth individuals. There are a number of states in the union that impose estate taxes on the state level. We practice law in California, and we get a break here, because there is no California state estate tax. However, we do have to be concerned about the federal estate tax.
You may hear people say that the estate tax is only a factor for people who are very wealthy. Depending on your definition of “very wealthy,” this may not be entirely true. We practice law in the Bay Area of California, and anyone who lives around here knows that property is extremely valuable. The value of your home is part of your estate for tax purposes, and this is something you need to understand when you are evaluating your potential estate tax exposure.
We have a federal estate tax exclusion or credit. This is the amount that you can transfer before the estate tax would be applied. During the current calendar year, the exclusion is $5.43 million. Annual inflation adjustments are applied, so the figure rises slightly year-by-year.
It is possible to transfer unlimited assets to your spouse tax-free, but transfers to everyone else are potentially taxable.
If you are facing estate tax exposure, there are steps that you can take to mitigate the burden. There are various different types of trusts that can be used to provide estate tax efficiency. These would be irrevocable trusts. Since you cannot revoke or dissolve these trusts, you are surrendering incidents of ownership. As a result, the assets would no longer be part of your taxable estate.
Since we touched upon home value previously, we should point out the fact that you can reduce the taxable value of your home if you were to convey it into a qualified personal residence trust. You could continue to live in the home as usual for a period of time that you determine. However, after this term expires, a beneficiary of your choosing would assume ownership of the home at a significant tax discount.
This is just one trust that can be used for tax efficiency purposes, but there are others. The ideal choice or choices will vary depending upon the circumstances.
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You should certainly understand all of the facts when you are planning your estate as a financially successful individual. If you take the right steps, you can position your assets in the optimal manner to gain estate tax efficiency.
Our firm would be glad to answer any questions that you may have about tax efficiency strategies. We offer free consultations, and you can send us a message through our contact page to set up an appointment: Campbell CA Estate Planning Attorneys.