You have to preserve your family wealth for the benefit of succeeding generations if you are planning your estate as a very successful individual. The estate tax presents a looming threat to your financial legacy. There is no state-level estate tax in California, and we are fortunate because some states do impose death taxes on the state level. However, you do have to be concerned about the federal estate tax as a California resident.
This tax can have a considerable impact on the financial future of your family, because it carries a 40 percent maximum rate. It is applicable on asset transfers that exceed $5.43 million. This is the amount of the exclusion during the current calendar year, but there are annual adjustments to account for inflation.
When you are considering the potential impact of the federal estate tax, you should be aware of the unlimited marital deduction. The estate tax is not applicable on asset transfers between spouses, even if the transfers exceed $5.43 million.
Family Wealth Trusts
There are certain types of trusts that can be used to preserve family wealth if you are exposed to the federal estate tax. One of them is a qualified personal residence trust.
Here in California real estate is particularly valuable, and the value of your home is part of your estate for tax purposes. It is possible to transfer your home at a tax discount if you convey it into a qualified personal residence trust. Your life would not be disrupted during the trust term, but after the expiration of the term, it could be transferred at a taxable value that would be less than its true fair market value.
A grantor retained annuity trust can also be used as a tax efficiency tool. If you are in possession of highly appreciable assets, this type of trust could potentially be used to transfer earnings to a beneficiary with little or no tax consequences.
Generation-skipping trusts are also used to preserve family wealth. With this type of trust, two generations could benefit from the assets, but there would be just one round of taxation.
Wealth Preservation Consultation
These are a handful of examples, and we have provided very, very general explanations in this blog post. However, if you would like to obtain more information about wealth preservation, our firm can help.
The ideal wealth preservation plan will vary depending on the circumstances, so personalized attention is key. We would be glad to get to know you and become apprised of your objectives and your family dynamic. All of your questions will be answered, and if you decide to go forward, you can create a custom crafted plan that preserves resources for the benefit of your loved ones.
To set up an appointment, send us a message through this page: Sacramento CA Estate Planning Attorneys.