estate planning:
(page 4 of 5)
do I have to pay estate taxes?
(Excerpt from Pamphlet from the State Bar of California)
NOTE: The information provided herein is of a general nature and is not intended to apply to any particular set of facts. The information is not intended as legal advise and no attorney-client relationship is established with the Lau & Lau Law Group LLP.
If you live in California and wish to consult with this office regarding an estate plan, please e-mail us for instructions.
I. TAX PAYER RELIEF ACT OF 1997
The Taxpayer Relief Act of 1997 ("The Act") made major changes in the gift and estate tax laws. One of the major changes is in the amount of the unified credit amount. Federal estate and gift taxes work in combo in that a single tax rate schedule applies to all cumulative lifetime gifts over $10,000 per person per year and any transfers at death.
The way it works is that the gross tax on all taxable transfers is calculated, then the lifetime "unified credit" is used to offset the tax. The unified credit can be used during your life or transfers from your estate. The Act increased substantially the unified credit as follows:
Bottom line by the year 2006, you can give away up to $1 million dollars during your lifetime or in your estate and not have to pay tax. Once you use up the unified credit, you will have to pay federal estate/gift taxes starting at 37% and moving up to 55%.
II. COST OF PROBATE IN CALIFORNIA
If your estate needs to be probated, there are various fees involved. The big chunk of the fees are for attorney and executor fees as listed below:
Note: Assets are gross assets not net. Fees are for attorney fees and executor fees.
III. ADVANTAGES OF A LIVING TRUST
Avoids probate and related costs.
- Can be used to reduce estate taxes.
- On death allows quick distribution of assets.
- Maintains privacy.
- Can be changed or canceled at anytime.
- Provide for minor children and other beneficiary without court imposed guardianships / conservatorships.
- Can be used to avoid conservatorship proceedings for yourself and spouse.
- Management responsibilities can be shifted to professional trustees if loved ones are not capable of responsibility.
IV. FREQUENTLY ASKED QUESTIONS REGARDING ESTATE TAXES
Q. When must a federal estate tax return be filed?
A. An estate tax return (on Form 706) must be filed for an estate with a gross capital value of over $600,000.
Example:
Gross Estate Net Estate $ 80,000 cash $ 80,000 cash $500,000 business partnership interest $200,000 equity in business $400,000 house $250,000 equity in house $980,000 $530,000
You have to file a federal estate tax return but do not have to pay taxes.
Q. Which states are community property states
A. Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.
Q. What does community property mean?
A. During a marriage, all property earned or acquired by either spouse is owned in equal half shares by each spouse - except for property received as "separate property" by one of them through gift or inheritance. On death, there are no restrictions on how each spouse can give away their half of community property.
Q. What happens if I die without a will?
A. In California if you die with surviving spouse and one child, your estate, half of the community property and all of your separate property, will be divided equally between your spouse and child. If you leave a surviving spouse and more than one child, your estate will be divided 1/3 to your spouse and 2/3 equally among all of your children.
Q. Can I nominate a personal guardian for my minor children in my trust.
A. No. You can only do this via a will but you can name the guardian of the estate (i.e., money to be given to your children) in the trust.
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