Portability of the Estate and Gift Tax Exemption

The estate and gift tax imposes a tax on assets an individual owns at death and assets gifted during life in excess of the exemption amount.  Gifts and estates in excess of the exemption amount were subject to a federal tax ranging from 35-45%.  The exemption amount has fluctuated dramatically in the last decade making estate planning difficult as we …

Making Lifetime Gifts to Reduce the Taxable Estate

Lifetime gifting is a simple but surprisingly effective way to reduce the value of an estate.  Every person has a gift tax exemption of $5,000,000 (indexed for inflation and $5,450,000 in 2016) which allows for the transfer of gifts up to this amount during life without incurring any gift tax.  Even gifts made in excess of the $5,000,000 gift tax …

Transmutation: The Transfer of Property Between Spouses in California

A transmutation is a transfer of property between spouses whereby the characterization of the property changes as a result of the transfer. The Problem:  Either 1) estate planners in pursuit of a significant tax benefit applicable to the transfer of community property to a surviving spouse cross the line by accidentally transmuting separate property to community property upon funding a …

The Enforcement of Premarital Agreements upon Death

Spouses often enter into premarital agreements to define their respective property and support rights in the event their marriage terminates by way of dissolution. The premarital agreement will also usually define the parties’ rights to share in each other’s estate upon death by requiring specific inheritance provisions to the surviving spouse and/or waivers of statutory inheritance rights. The surviving spouse …

Proper Entity Choice for a Small Business in California (S Corp and LLC)

Reason for Incorporation: Business owners are personally liable for the debts of the business or a legal judgment against the business if the business is not incorporated.  There are three primary forms of business incorporation: the C Corporation (C Corp), the S Corporation (S Corp) and the Limited Liability Company (LLC).  Incorporation of a business into one of the three …

Utilizing Fractional Share Discounts to Reduce the Taxable Estate

Fractional share interest discounts are a relatively simple technique to reduce the taxable estate.  Fractional share interest discounts work well where an estate is only slightly above the lifetime estate tax exclusion or as a first step to reduce an estate greatly in excess of the lifetime exclusion.  Fractional share interest discounts are generally used to reduce the value of …

Reducing the Taxable Estate with Qualified Personal Residence Trusts (QPRTs)

A qualified personal residence trust (QPRT) is an estate planning tool utilized to transfer assets out of a wealthy individual or couple’s estate in order to reduce or eliminate the amount of estate taxes due upon their death.  A QPRT operates by an individual or couple transferring a personal residence into a grantor trust while continuing to enjoy the use …

The Irrevocable Life Insurance Trust (ILIT)

An Irrevocable Life Insurance Trust (ILIT) is an irrevocable trust established in order to own life insurance on the life of the settlor of the ILIT.  Normally, the proceeds of the life insurance policies on an individual’s life are includable in that person’s gross estate when a person dies.  If the ILIT owns the policy and the settlor holds no …

Reduction of the Taxable Estate with GRATs

A grantor trust is established by the grantor irrevocably transferring property to a trust during his or her lifetime while retaining an interest for a number of years with the remainder to the beneficiary.  The remainder interest to the beneficiary is subject to gift tax and its value is ascertained per the tables provided by Internal Revenue Code Section 7520.