How Does The New Tax Law Affect Your California Estate Plan?

Good News!! As of January 1st, of 2018, the estate tax exemption threshold was effectively doubled for estate gift and generation-skipping inheritance taxes for tax years 2018 – 1025. This means no inheritance tax for the heir of an estate of $11.2 million for single persons and $22.4 million for couples (based on the law allowing a sharing of tax exemptions between couples called “Portability”).

Compare this to the $5.49 million for a single person in 2017. If you live in North County San Diego (Carlsbad, Solana Beach, Oceanside, Escondido, Rancho Santa Fe, Encinitas, San Marcos), your home has been exponentially increasing in value over the last ten years and, with savings, your estate could exceed that amount. So, for example, anything over that amount left to your heirs would be taxed at the inheritance rate of 40% or more.

If you created an estate plan in the 1990’s, to protect your assets from estate inheritance taxes, (to avoid the estate tax exemption in 1996 of $600,000, and $1million in 2002), your trust may now be obsolete and the part you removed from your estate to shield it, is no longer a necessary tool for tax avoidance. In fact, as of January 1, 2018, the increase in the estate tax exemption threshold makes many trusts obsolete all together.

If you (or you and your spouse’s estate planning documents contain a Credit Shelter Trust, Bypass Trust, A-B Trust, Marital Trust or Family Trust, you will be saddled with creating unnecessary additional trusts upon the death of a spouse that will limit your access to otherwise community assets. It does not matter that the law regarding the exemption threshold has changed; the original terms of the trust by law must be upheld because that aspect becomes irrevocable upon your spouse’s death.

This new tax law means fewer families will need to complex estate plans and can have practical and straightforward trusts, which are still widely used to avoid the expense and long process of Probate.


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