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Tax Saving Estate Planning

Posted by Dixon R. Howell | Jun 24, 2014 | 0 Comments

Is your Estate Worth Less than $10 Million?

As you may know, federal estate tax law has changed dramatically. The federal estate tax exemption is now over $5 million per person ($10.68 million per couple) and, as a result of something called “portability,” any portion of the $5.34 million exemption not used upon the death of the first spouse can (if the proper election is made) be carried over and used when the surviving spouse dies.

Thus, if the value of your total estate is less than $10.68 million, you won't have to pay any federal estates taxes. When you established your Living Trust, the estate tax exemption was probably much lower and there was no portability—you had to use your exemption or you'd lose it.

Your current Living Trust may provide that upon the death of the first spouse, assets equal in value to the amount of the estate tax exemption are to be placed in a so-called “Bypass” trust and held in trust until the death of the surviving spouse. The remaining assets are placed in Survivors and/or Marital Trusts and held for the benefit of the surviving spouse during his or her lifetime.

Upon the death of the Surviving Spouse, the assets in the Bypass Trust escape federal estate taxation, but in the event those assets are sold, any increase in their value since the first death is subject to income taxes. On the other hand, the assets in the Marital Trust get a “step up in basis” for income tax purposes which largely eliminates income taxes on any appreciation in their value. Thus, for estates in the range of $10 million or less, federal and state income taxes, not estate taxes, are now the primary concern.

As a result of these changes, it might make sense to minimize your potential future income tax liability by amending your Living Trust to modify or eliminate the Bypass Trust. This area is complicated and there are some pros and cons, but we strongly recommend that you meet with your estate planning Attorney to discuss whether or not these tax-saving changes are right for you.

About the Author

Dixon R. Howell

Dixon Howell received his Bachelor of Arts degree, cum laude, Business Economics and Accounting, from Claremont McKenna College. He obtained his Juris Doctor degree from the University of California, Berkeley (Boalt Hall School of Law).


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