California Estate Planning Attorney
California Estate Tax Planning
SERVING FAMILIES & INDIVIDUALS IN LOS ALTOS, PALO ALTO, SUNNYVALE, MOUNTAIN VIEW, CA AND THE SURROUNDING AREAS
You might be richer than you think. In the San Francisco Bay Area, the value of your home and your IRA – along with your accumulated earnings – may put your estate at a value of over $5 million. If you neglect estate tax planning because you don’t consider yourself “wealthy”, then you run the risk of saddling your heirs with a hefty estate tax bill.
Estate tax laws change frequently, and we can’t guarantee the accuracy of the specific exemptions discussed on this page. Make sure to retain advisors and estate planning attorneys who know the current status of estate and gift tax laws.
People whose net worth ranges from $5 to $50 million should be using the same estate tax planning strategies that are used by the people we think of as truly wealthy. Unfortunately, their financial advisors and accountants may not have the estate tax knowledge to steer them in the right direction. If you fail to seek advice that is appropriate to the value of the assets at stake, then the IRS will take a disproportionate bite out of the estate you think you are leaving to your beneficiaries.
Janet helped me to resolve a very difficult situation with a family member who was sadly appointed as an executor and who fell off the radar screen for more than two years with a substantial amount of money to be distributed to his siblings. Janet was brilliant and efficient and came through very admirably.
- Karen A.
Common Estate Tax Planning Strategies and Advanced Trusts
Historically, we have used a combination of these and other strategies to build a strong estate plan that retains as much value as possible for your beneficiaries, while still giving you access to income during your lifetime. Please remember the caveat that estate tax laws are vulnerable to dramatic changes. Such changes may limit our ability to use some of these strategies.
Generation-Skipping Trusts (Dynasty Trusts)
When you build a correctly structured Dynasty Trust, then you, your children, and your grandchildren can access the assets without any estate taxes payable – even when your child dies. It’s misleading to call these trusts Generation-Skipping Trusts, because your child benefits from this type of trust just as much as your grandchild does.
Irrevocable Gifting Trusts
Annual gifting of up to $15,000 each year is exempt from the usual gift taxes. If you are reluctant to take full advantage of the $15,000 annual exemption because it means making gifts to young grandchildren, then you will want to consider putting the gifts into Irrevocable Gifting Trusts. Such trusts may be a better vehicle than UTMA or UGMA accounts, especially because the funds in Irrevocable Gifting Trusts are protected from creditors.
Intentionally Defective Irrevocable Grantor Trusts (IDIGT or IDGT)
Via an IDIGT, the asset owner sells or gifts assets to a child. The assets become available to the child immediately, and the child does not have to pay gift taxes or estate taxes (on the original gift or its growth) upon the parent’s death. The grantor may have to pay gift taxes on the assets, but an IDIGT offers a way to make a tax-free gift to a child.
Spousal Lifetime Access Trust (SLAT)
SLATs are a very common component of the estate plans of families with high net worth. With a SLAT, one spouse puts funds from the couple’s combined estate into an irrevocable trust to benefit the other spouse or another family member. After the beneficiary spouse’s death, the SLAT can be transferred to a child without incurring estate tax. When spouses create SLATs for one another, special rules apply.
Qualified Personal Residence Trust (QPRT) for Homes & Vacation Homes
When you use this strategy, you give your home to your child but you retain the right to live in it for a number of years. Thus, the home is removed from the estate and its value is excluded from estate tax calculations. These are complex trusts with several caveats, including the requirement that you must survive longer than the trust term, and there are also specific methods that must be used when placing a value on the house in the trust.
Grantor Retained Annuity Trust (GRAT)
In Silicon Valley, GRATs are an increasingly popular tool for estate tax planning. With this type of trust, the grantor receives an annuity payment for a short amount of time after the trust is formed, usually two to five years. After the annuity payments end, the trust gives all remaining trust assets to the beneficiaries. The beneficiaries are usually children or grandchildren.
Irrevocable Life Insurance Trust (ILIT)
Life insurance benefits that are not contained in a trust are included in your estate. However, if the life insurance death benefit is placed into an ILIT, then estate taxes are avoided. This type of trust is often used to “set aside” the funds that will have to be paid in estate taxes upon a parent’s death, so that the children are not burdened with a hefty tax bill.
Family Limited Partnerships and Limited Liability Companies
Family business is not just for the very wealthy. Creating an FLP or LLC can protect family assets across multiple generations. These family businesses must be built carefully, with help from experienced advisors.
Generation-Skipping Trusts (Dynasty Trusts)
When you build a correctly structured Dynasty Trust, then you, your children, and your grandchildren can access the assets without any estate taxes payable – even when your child dies. It’s misleading to call these trusts Generation-Skipping Trusts, because your child benefits from this type of trust just as much as your grandchild does.
Irrevocable Gifting Trusts
Annual gifting of up to $15,000 each year is exempt from the usual gift taxes. If you are reluctant to take full advantage of the $15,000 annual exemption because it means making gifts to young grandchildren, then you will want to consider putting the gifts into Irrevocable Gifting Trusts. Such trusts may be a better vehicle than UTMA or UGMA accounts, especially because the funds in Irrevocable Gifting Trusts are protected from creditors.
Intentionally Defective Irrevocable Grantor Trusts (IDIGT or IDGT)
Via an IDIGT, the asset owner sells or gifts assets to a child. The assets become available to the child immediately, and the child does not have to pay gift taxes or estate taxes (on the original gift or its growth) upon the parent’s death. The grantor may have to pay gift taxes on the assets, but an IDIGT offers a way to make a tax-free gift to a child.
Spousal Lifetime Access Trust (SLAT)
SLATs are a very common component of the estate plans of families with high net worth. With a SLAT, one spouse puts funds from the couple’s combined estate into an irrevocable trust to benefit the other spouse or another family member. After the beneficiary spouse’s death, the SLAT can be transferred to a child without incurring estate tax. When spouses create SLATs for one another, special rules apply.
Qualified Personal Residence Trust (QPRT) for Homes & Vacation Homes
When you use this strategy, you give your home to your child but you retain the right to live in it for a number of years. Thus, the home is removed from the estate and its value is excluded from estate tax calculations. These are complex trusts with several caveats, including the requirement that you must survive longer than the trust term, and there are also specific methods that must be used when placing a value on the house in the trust.
Grantor Retained Annuity Trust (GRAT)
In Silicon Valley, GRATs are an increasingly popular tool for estate tax planning. With this type of trust, the grantor receives an annuity payment for a short amount of time after the trust is formed, usually two to five years. After the annuity payments end, the trust gives all remaining trust assets to the beneficiaries. The beneficiaries are usually children or grandchildren.
Irrevocable Life Insurance Trust (ILIT)
ILITs are very useful vehicles to keep money out the reach of estate taxes. Life insurance benefits that are not contained in a trust are included in your estate. If your U.S. citizen spouse receives the benefits, they will not have to pay estate taxes. However, if the benefits go to your children, then estate taxes will come into play. However, if the life insurance death benefit is placed into an ILIT, then estate taxes are avoided. This type of trust is often used to “set aside” the funds that will have to be paid in estate taxes upon a parent’s death, so that the children are not burdened with a hefty tax bill.
Family Limited Partnerships and Limited Liability Companies
Family business is not just for the very wealthy. Creating an FLP or LLC can protect family assets across multiple generations. These family businesses must be built carefully, with help from experienced advisors.
Using These Strategies in Combination
The best way to truly ensure that your family and your assets are protected is by consulting an experienced attorney to help draft an estate plan that accomplishes exactly what you want it to. If you already have a financial planner or income tax adviser, ask that person for referrals to an estate planning lawyer with experiencing working on behalf of high net worth families. We work closely with several Bay Area financial planning and accounting firms who would be happy to give you references regarding our work. We serve families located in the San Francisco Bay Area, including Palo Alto, Los Altos, and San Jose.
