Trusts and Estates Blog

Lancaster – Palmdale – Santa Clarita – Estate Tax Planning

Although California has no estate tax, the federal estate tax bite can be substantial enough to justify careful planning for estate tax liabilities. The larger your estate, the more carefully you must plan and choose from many options, depending on your specific circumstances and objectives.

For experienced and insightful advice and custom estate plans that will help you meet your wealth preservation and asset transfer goals while minimizing or avoiding estate tax liability, contact the Antelope Valley estate tax planning attorneys at Thompson Von Tungeln, A P.C. , in Lancaster. Our estate plan solutions may involve any of the following approaches to cut your future tax liability down to size:

* Use of revocable living trusts and irrevocable life insurance trusts to transfer assets out of your estate while maintaining control and beneficial use
* Qualified personal residence trusts , especially where your primary residence represents a significant asset within a larger net worth profile
* A/B bypass trusts, dynasty trusts, and generation skipping trusts to avoid and manage the complications presented by California community property law
* Charitable remainder trusts , charitable lead trusts, or gifts
* Community property agreements, prenuptial agreements, and postnuptial agreements

There are essentially two main approaches to managing estate tax liability: transferring assets out of your estate through trusts or gifts, and maximizing the value of your federal estate tax exemptions. Some of the instruments described above emphasize only one approach, while several cover both. What’s right for you will depend upon your broader estate planning goals, the characteristics of your family, and the nature and value of the particular assets you hold.

An important feature of sound estate tax planning is integrating tax management strategies into a broader estate plan without overwhelming or distorting it. Unintended and unfortunate consequences–such as the disinheritance of one’s own children –can result from too close a focus on tax planning without sufficient attention to your other wealth transfer objectives.

Make Gifts to Reduce Your Estate

One thing you can do to save estate taxes, whether you are married or single, is to start giving away some of your assets now to the people or organizations who will eventually receive them after you die.

This is an excellent way to reduce estate taxes because you are reducing the size of your taxable estate. (Just make sure you don’t give away any assets you may need later.) But what may be even more satisfying is that you can see the results of something that may not have happened without your help.

You can currently make annual tax-free gifts of up to $13,000 per recipient. If you are married, you and your spouse together can give $26,000 per recipient per year. (You can either give $13,000 each, or one spouse can make a $26,000 gift with the consent of the other spouse on a timely-filed gift tax return.) You can also give an unlimited amount for tuition and medical expenses if you make the gifts directly to the educational organization or health care provider.

You do not have to give cash. For example, if you want to give some land worth $52,000 to your child, you can give your child a $13,000 “interest” in the property each year for four years.

As long as the gift is within these limits, you don’t have to report it to Uncle Sam. Just the same, it’s a good idea to get appraisals (especially for real estate) and document these gifts in case the IRS later tries to challenge the values.

What if you want to give someone more than $13,000? You can, it just starts using up your $1 million federal gift tax exemption. If your gift exceeds the annual tax-free limit, you’ll need to let Uncle Sam know by filing an informational gift tax return (Form 709) for the year in which the gift is made. After you have used up your exemption, you’ll have to pay a gift tax on any gifts over $13,000 (or whatever the annual tax-free amount is at that time). The gift tax rate is equal to the highest estate tax rate in effect at the time the gift is made. In 2009, it is 45%.

Making gifts now can reduce your estate taxes later.

Note: The amount allowed for annual tax-free gifts has been tied to inflation since 1999. However, it will only increase in increments of $1,000 and it will be rounded down instead of up. So, for example, if adjustments for inflation would increase the amount to $13,999, it would remain at $13,000.

Pay The Tax Now – And Save

Remember, once your federal gift tax exemption is completely used, you will have to pay a gift tax if you make any taxable gifts (currently, those more than $13,000) while you are living. Or, you could wait until after you die and have your estate pay an estate tax. (If the transfer is made while you are living, the tax is a gift tax; if the transfer occurs after you die, the tax is an estate tax.)

The tax rate is the same, whether you pay it now or after you die. But it costs you less to pay the gift tax now than to pay the estate tax after you die.

As explained in Part Three of “Understanding Living Trusts,®” after you die, taxable gifts you have made since 1976 are added back into your estate before estate taxes are calculated. (This is so Uncle Sam can calculate your estate taxes at the highest tax rate.) The amount you have paid in gift taxes is then subtracted from the estate taxes due. (Think of the gift tax as a prepayment of the estate taxes you will owe.)

But the amount you’ve already paid in gift taxes is not in your taxable estate when you die. You’ve already paid it to Uncle Sam. Making the gift now lets you forever remove the amount paid in gift tax from your taxable estate.

If, on the other hand, you keep the asset in your estate until you die, the amount you would have paid in gift taxes is still in your estate. This makes your taxable estate larger and increases the amount of estate taxes your estate will have to pay. Keeping the asset in your estate until after you die forces you to pay estate taxes on the amount you would have paid in gift tax. In effect, you’re paying a tax on the tax!

This is best explained with an example. Let’s assume you have completely used your federal gift tax exemption through prior gifts and, as a result, you are now in a 45% gift and estate tax bracket.

If you give your children $1 million as a gift (while you are living), the gift tax will be $450,000 ($1 million times .45 = $450,000). You, the donor, pay the gift tax. So your children would receive the full $1 million, and an additional $450,000 would be removed from your taxable estate to pay the gift tax. In other words, it would cost you $450,000 to give your children $1 million.

If, on the other hand, you wait until after you die, it would take $1,818,182 to leave them $1 million (45% of $1,818,182 = $818,182 in taxes, leaving a net of $1 million for your children). That’s $368,182 more than if you gave them the $1 million while you were living!

Which Assets Are The Best To Gift?

It can be especially smart to give away assets that are appreciating in value, because any income and appreciation that occur after the gift is made are also removed from your taxable estate.

But you also have to look at the estate tax savings compared to what the recipient may have to pay in capital gains tax if the asset is later sold. Remember, when you give away an appreciated asset, it keeps your original cost basis (plus any gift tax paid). And if the recipient decides to sell it, he/she will have to pay capital gains tax on the difference between the selling price and what you paid for it.

If, on the other hand, you don’t give it away and it stays in your estate, the asset will receive a full step up in basis as of the date of your death (saving capital gains tax on the subsequent sale of the asset). But, depending on the size of your estate when you die, there may be estate taxes. So it’s a trade off.

Currently, the maximum federal long term capital gains rate (for assets held longer than 12 months) is 15%, while the estate tax in 2009 is 45%. But it isn’t always better to give away an asset and let the recipient pay the lower capital gains tax. Among other things, you have to consider what you paid for the asset, what it’s worth now, what you think it will be worth when you die and if the recipient plans to sell or keep it.

Making Gifts From Your Living Trust

You may have heard that you should remove an asset from your living trust before making the gift. For example, if you wanted to give your son a $5,000 gift in cash and your checking account is titled in the name of your trust, you would make the check payable to yourself, cash it, then make the gift in cash or use a cashier’s check.

That’s because, in the past, if the grantor died within three years of making a gift directly from his/her living trust, the IRS tried to include the gift – -even annual tax-free gifts — in the grantor’s taxable estate.

You don’t have to play this shell game anymore. Gifts made directly from a revocable living trust are now considered the same as if they were made directly from you, even if they are made within three years of your death.

How to Get The Most Out of the Increasing Estate Tax Exemption

Estate taxes must be paid when you die if the net value of your estate (assets less debts) is more than the amount exempt from taxes at that time.

In 2001 President Bush signed a tax bill that increases the estate tax “exemption” from $675,000 in 2001 to $3.5 million in 2009. Congress went so far this time as to “repeal” the estate tax in 2010, but unless it takes further action, the estate tax is automatically scheduled to return in 2011 with the exemption back at $1 million.


2002 – 2003

$1 million
2004 – 2005

$1.5 million
2006 – 2008

$2 million

$3.5 million

n/a (repealed)

$1 million

Federal estate taxes still carry a wallop. In 2009, the tax rate is 45% on every dollar over $3.5 million. Estate taxes must be paid in cash, usually within nine months after you die. But with careful planning, they can be substantially reduced or even eliminated, especially now. Here’s what you can do to get the most out of the increasing estate tax exemption.

1. Married? You can “double” your exemption. By setting up an A-B living trust, both spouses can use their estate tax exemptions and in 2009 protect up to $7 million from estate taxes. But unless you plan ahead, you can waste one spouse’s exemption. The cost to your family: $1,575,000!

2. Check the wording. If you already have an A-B living trust, make sure the language to use your exemptions is flexible and does not state a specific dollar amount (e.g., $1 million or $2 million). Instead, it should apply a formula or use language such as “the amount that is exempt from estate taxes at the time of the grantor’s death.”

3. Shift assets. If you and your spouse have separate trusts, you may need to move assets from one trust to the other as the exemption increases.

4. Switch to a trust. If a will is your only estate plan, consider changing to a living trust now. It will probably cost more initially, but it can avoid probate, prevent court control of assets at incapacity, and will give you more control over the distribution of your estate after you die.

5. Review your plan annually with a qualified attorney. Your estate plan is a snapshot of you, your assets, your family, your goals and the tax laws in effect at the time it was prepared. Any time one of these changes, you need to review your plan. As frequently as the laws are changing these days, it would be smart to do this every year. A qualified attorney can quickly review your plan and see if any changes need to be made.

What’s New for 2010?

Congress has left us with a mess when it comes to estate planning for 2010.

Remember this chart? Well, 2010 is now here. Most estate planning professionals fully expected Congress to do something before 2010 arrived, even if it was only to extend the 2009 federal estate tax laws into 2010. But Congress was so consumed with health care reform that it did not get to the estate tax before the Christmas break. So, as of January 1, 2010 there is NO estate tax.


“Exempt” Amount

2002 – 2003

$1 million
2004 – 2005

$1.5 million
2006 – 2008

$2 million

$3.5 million

N/A (estate tax repealed)
2011 and therafter

$1 million

Note that this is not a permanent repeal. If Congress continues to do nothing, the estate tax comes back in 2011 with a $1 million exemption and a top tax rate of 55%.

Many believe that Congress will want as many tax dollars as possible to help pay for its spending programs and will act soon to reinstate the estate tax. But we don’t know what Congress will do or when it will act. Here are some of the possible actions that Congress might take:

* Reinstate the 2009 estate tax laws, making them retroactive to January 1, 2010.
* Reinstate the 2009 estate tax laws for 2010 only, but not make them retroactive.
* Reinstate the 2009 estate tax laws and make them permanent.
* Pass extensive estate tax reform.
* Do nothing, and let the current law run its course. This means, in 2011, we would have a $1 million federal estate tax exemption and a top tax rate of 55%. By comparison, in 2009 we had a $3.5 million exemption and a top tax rate of 45%.

In the meantime, we have a new set of estate tax laws. What does this mean to you?

No Estate Tax
Your current estate plan may include some formulas to save the maximum in estate taxes, make charitable gifts, and provide for your spouse, family and friends. In 2010, when there is no estate tax or marital deduction, these provisions may not work properly. For example, if you have beneficiaries other than your spouse, the current wording in your plan could cause your spouse to receive fewer resources than you had intended. Also, some states have their own death or inheritance tax, so even though there is currently no federal estate tax, your estate may still be subject to a state tax.

Income Tax on Inherited Assets
The basis of an asset is the value used to determine gain or loss for income tax purposes when the asset is sold. Before January 1, 2010, assets that were inherited were automatically given a new “stepped-up basis” to full market value as of the date of the deceased owner’s death. This saved the beneficiaries a substantial amount in income (capital gains) tax when the asset was sold.

Beginning January 1, 2010, the amount of assets that can receive a step-up in basis is limited. Assets that do not receive the stepped-up value will be taxed based on the deceased owner’s original cost basis (what that owner paid for the asset). This means your beneficiaries could have to pay a considerable amount in income taxes when the assets are sold.

Most estates will be able to step up $1.3 million worth of assets. An additional $3 million of assets left directly to a surviving spouse can also be stepped-up. But there are some complicated hoops to jump through to make this happen.

Generation Skipping Transfer Tax Repealed (For One Year Only)
In addition to the estate tax, the generation skipping transfer tax was applied to assets that “skipped” the living parent (your child) and went directly to a grandchild. This tax was also repealed for 2010, but it is scheduled to come back in 2011 with an approximately $1.5 million exemption and a 55% tax rate. By comparison, in 2009 the GSTT exemption was $3.5 million and the top tax rate was 45%.

What Should You Do?
Now is the time to have your estate plan reviewed by your attorney. Remember, your plan needs to reflect the tax laws that are currently in effect. Some changes will probably need to be made to make sure your assets are distributed the way you want and to maximize income tax savings. And, depending on what Congress does or doesn’t do this year, more changes may need to be made later.

Understanding Living Trusts: Doesn’t joint ownership avoid probate?

Not really. Using joint ownership usually just postpones probate. With most jointly owned assets, when one owner dies, full ownership does transfer to the surviving owner without probate. But if that owner dies without adding a new joint owner, or if both owners die at the same time, the asset must be probated before it can go to the heirs.

Watch out for other problems. When you add a co-owner, you lose control. Your chances of being named in a lawsuit and of losing the asset to a creditor are increased. There could be gift and/or income tax problems. And since a will does not control most jointly owned assets, you could disinherit your family.

With some assets, especially real estate, all owners must sign to sell or refinance. So if a co-owner becomes incapacitated, you could find yourself with a new “co-owner” — the court–even if the incapacitated owner is your spouse.

Antelope Valley Estate Planning Law Firm Thompson Von Tungeln Advises California Residents to Review Their Power of Attorney Options

Antelope Valley estate planning law firm Thompson Von Tungeln advises California residents to review the different power of attorney options available to them. The power of attorney options include the General Power of Attorney, the Durable Power of Attorney, the Non-Durable Power of Attorney, and an Advanced Health Care Directive. Each has its uses, and a combination of them is essential to good estate planning.

Lancaster, California (PRWEB) January 5, 2010 — Antelope Valley estate planning law firm Thompson Von Tungeln recommends that California residents review the different power of attorney options available to them as part of their estate planning process.

“There are a number of different types of power of attorney vehicles available for use in estate plans,” said Kevin Von Tungeln, partner at Thompson Von Tungeln. “Each type has its uses, and can provide protection in the event of incapacitation. You should consult with your estate planning attorney to determine, which, if any, are necessary for your estate plan.”

A General Power of Attorney designates a person to handle the business, financial and legal affairs of another person, either for a specific function or for overall day-to-day needs. This basic estate planning document is necessary in the event you become incapacitated or unable to make decisions for yourself. A Durable Power of Attorney comes in two forms for estate planning purposes. It can be effective immediately or upon disability. Estate planning attorneys utilize the Durable Power of Attorney to designate someone to make financial, housing and other care decisions for someone who can no longer make them for his or her self.

An Advanced Healthcare Directive is an estate planning document that allows you to designate someone to make medical decisions on your behalf. Your estate planning attorney can help you include your wishes on life-saving measures, end-of-life care, organ donation and choice of a physician into your directive. Another, less commonly used vehicle is the Non-Durable Power of Attorney.

“The time to review these with your estate planning attorney is when you are healthy and in the process of creating your estate plan,” said Von Tungeln. “Directives that are signed when a person is seriously ill are prone to being challenged in court if one of your loved ones believes you were not of sound mind and body when you signed the Power of Attorney form. Your estate planning attorney can review your options on which of these Power of Attorney forms to include in your estate plan.”

Antelope Valley Estate Planning Law Firm Advises California Residents to Monitor Changes to the Federal Estate Tax

Antelope Valley estate planning law firm Thompson Von Tungeln advises California residents to closely monitor the many estate tax proposals before the Congress. The changes may add some clarity to the current confusion, but they may also significantly affect current estate plans.

Lancaster, Calif. (PRWEB) January 12, 2010 — Antelope Valley estate planning law firm Thompson Von Tungeln is advising California residents to monitor the proposed changes to the federal estate tax that are before the Congress.

“The federal estate tax system is in a bit of flux right now,” said Kevin Von Tungeln, partner at Thompson Von Tungeln. “The current law is due to expire in 2010, and allow the federal estate tax rate to revert to the 55 percent level that it was prior to 2001. The top rate has been declining since 2001 and is scheduled to drop to zero percent in 2010. The potential for changes after 2009 is creating anxiety for anyone creating their estate plan.”

One proposal that is gaining some traction comes from the Obama administration. President Obama’s 2010 budget proposal calls for keeping the estate tax at 45 percent on estates valued at $3.5 million or higher from 2011 for the foreseeable future.

“If the administration proposal becomes law, it will give Americans some certainty in their estate planning,” said Von Tungeln. “The uncertainty of what would happen in 2011 and beyond caused many estate planning attorneys to create estate plans that had vehicles in them that were tied to the changes in the rates from the 2001 law. Some certified estate planning specialists have been including language in their estate plans to guard against changes in the estate tax law not knowing what types of changes may be enacted.”

Some alternative proposals include indexing estate tax to inflation, which would effectively reduce government revenue. It is unclear which proposals, if any, will be enacted into law. Given the present fiscal situation in Washington, it is possible that Congress may revisit the issue as they search for additional revenue sources. Checking with your estate planning attorney every year or two to review your estate plan is a wise planning strategy.

About Kevin Von Tungeln

With more than 18 years’ legal experience, Kevin L. Von Tungeln serves Thompson Von Tungeln in the areas of estate planning, probate, trusts, wills, trust administration, conservatorships, guardianships and elder law. He is certified by the State Bar of California Board of Legal Specialists as a Board Certified Specialist in Estate Planning. Get to know more about Kevin’s approach to estate planning by viewing his informational videos at: Kevin can also be found at LinkedIn by going to: (

About Thompson Von Tungeln

Antelope Valley estate planning law firm Thompson Von Tungeln (TVT) offers sophisticated estate planning and administration for the affluent, discriminating client. As Board Certified Specialists in Estate Planning, Trusts and Probate as certified by the State Bar of California Board of Legal Specialization, partners Mark E. Thompson and Kevin L. Von Tungeln are expertly equipped to serve these clients with the creative, effective and custom solutions they demand. For more information, contact TVT at 661-945-5868 or visit their website at

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