The Complete Guide to Planning Your Estate In California: A Step-By-Step Plan to Protect Your Assets, Limit Your Taxes, and Ensure Your Wishes Are Fulfilled for California Residents by Linda C. Ashar

Author:Linda C. Ashar
Language: eng
Format: epub
Tags: estate, will, trust, assets, estate planning, disability, costs, taxes, legal costs, California, living will, power of attorney, executors, trustees, insurance
Publisher: Atlantic Publishing Group
Published: 2013-02-28T00:00:00+00:00

Federal Estate Tax Exemptions

For many people, there is no need to worry about this tax because the value of their estate is not large enough to be affected. There are several exemptions that you can take into consideration for your estate plan. Here is a breakdown of them.

Personal exemption

Depending on the year of death and the whim of Congress, as noted above, the personal exemption will apply from $1 to $3.5 million. One important note is that if you leave gifts that are taxable during your lifetime, this reduces your exemption amount.

Marital deduction

Another deduction for which you may qualify is the marital deduction. This means that all property you leave to your spouse, if he or she is a U.S. citizen, is exempt from taxes. If not a U.S. citizen, this deduction does not apply. So far, this deduction does not change year to year, as in the personal exemption. You must be legally married for this exemption to be used. Terms like “significant other” or “mates” are not recognized by this deduction.

Yet there is a potential problem with this. If you die and leave all your property to your spouse, he or she now has more personal property, which could aggregate the estate to exceed the allowable personal exemption (called the estate tax threshold). The best way around this is to take steps to plan your estate with this in mind, making sure that both spouses can benefit from it.

You can avoid this tax trap by planning an AB trust — discussed later in this chapter — for your needs. In this case, the spouses place all or most of their property into the trust. When one spouse dies, the surviving spouse still has access to the trust property and can use it as needed, but does not own the property outright, which means it is not subject to the tax.

If you are married to a non-citizen, it is important for you to consider the best route to take in leaving property to your spouse. There are several ways around the rule that you cannot leave them property without tax implications. First, if the property is under the exemption threshold, the tax burden will not apply. You can also create a “Qualified Domestic Trust.” These trusts are complex, and the use of an estate planning attorney is critical.

Charitable deductions

For those who are rather wealthy, it may be best to use charitable deductions. Gifts to charities are tax-exempt, assuming you give them to a recognized tax-exempt charity. For this purpose, you will want to work with an attorney to help you set up a “charitable remainder trust.” Before you die, you will need to make a gift to a charity in trust. Then, you can receive a certain annual income from the gift property while you are alive. You will need to pay income tax on this throughout your lifetime.

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