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Estate Tax Protection

An In-Depth Guide to Estate Tax Minimization

Before they pass away, most everyone wants to rest assured, knowing their loved ones are financially stable for life. You want to pass down your money, homes, and cars to your family and friends. However, you need to be aware of a few things.

One of these is estate tax.

Weiner Law can help you find the best ways to minimize the estate tax payable by your family when you pass away.

Table of Contents

What Is Estate Tax?

When a person passes away, the net value of everything they owned at death is subject to federal estate tax, currently at a rate of 40%.

Currently, however, if someone dies with less than around $11.7 million of net assets, their family is not subject to estate tax. That exemption amount is double for married couples. This exemption amount is historically high and is scheduled to fall to approximately $6 million per person on January 1st, 2026.

State Estate Taxes

Some states impose a state estate tax in addition to the federal estate tax. Currently California does not inpose state estate tax, so residents of California only need to be concerned with the federal estate tax, if they have net assets above the exemption amounts set out above.

Reducing your estate tax exposure

When San Diego residents accumulate signifncant wealth throughout their lifetime, it is possible that some of what has been accumulated will be lost to estate taxes. If estate tax is due, it generally must be paid within 9 months of death. By working with an attorney to plan in advance, there are various structures that can be put in place to either minimize or eliminate the estate tax that your family will otherwise have to pay. The earlier you start planning, the more effective these techniques are likely to be.

You have options that allow you to protect your assets and help to minimize estate taxes.

Irrevocable Trusts

When planning to mitigate your estate tax exposure, at least part of that planning is likely to involve the use of irrevocable trusts.

Transferring assets to an irrevocable trust means that those assets will not be treated as owned by you upon your death. If they were not owned by you, they cannot be subject to estate tax. Some of the most common irrevocable trusts that are used in this context are grantor retained annuity trusts and intentionally defective grantor trusts. These are complex trusts that are certainly not appropriate for everyone. We would carefully evaluate your overall objectives, of which tax minimization is just one, before recommending any particular strategy.

Annual Gifts

One of the most effective ways to reduce the extent of your assets that could be subject to estate tax after you pass away is to make gifts to your loved ones annually. You can give up to $15,000 in gifts per year to an individual without there being any gift tax exposure. $15,000 can be given to an unlimited number of individuals without triggering gift tax liability. Gift tax applies on the total of all gifts made during your lifetime. However, the tax only applies if the total value of gifts exceed your lifetime exclusion amount. This amount is currently the same as the estate tax exemption amount, ie $11.7 million per person. The $15,000 annual gifts mentioned above do not count when calculating whether you have exceeded your lifetime exclusion.

Life Insurance Policies

If you know that it is likely that your family will have some degree of estate tax exposure, purchasing life insurance can be an important component in planning for how to pay that estate tax. Buying life insurance to cover future estate tax is most effective when that life insurance is owned by an irrevocable trust rather than you. Structuring things in this way means that the life insurance proceeds will not be considered part of your “estate”. So while the proceeds will be there to pay the estate tax, the proceeds will not themselves be subject to estate tax.

Revocable vs. Irrevocable Trusts

A trust is a legal agreement whereby the creator of the trust, know as the settlor, trustor or grantor, transfers assets to the trustee. The trustee holds legal title to the assets for the benefit of the beneficiaries.

Revocable trustsare an important part of the foundational planning that all families should put in place, regardless of whether the family assets that could be subject to estate tax.

However, when looking to reduce potential estate tax exposure, revocable trusts will not be one of the tools that we use. The main reason for this is that, from the IRS’s perspective, you still own the assets that you have transferred to your revocable trust. If the goal is to transfer assets out of your estate so that you are not deemed to own them at the time of your death, this goal cannot be accomplished using a revocable trust. Only an irrevocable trust will work.

While revocable trusts can be changed any number of times during the trust creator’s lifetime, this is not the case with irrevocable trusts. As the name suggests, irreovcable trusts generally cannot be amended after they have been created. Establishing an irrevocable trust is therefore a more complex process that involves considerations beyond those applicable to revocable trusts. Irrevocable trusts also often involve the trust creator giving up a certain amount of control over the assets transferred to the trust.

Estate Tax Planning in San Diego

Our law firm offers several estate planning services to San Diego residents, includingestate tax planning.

Estate planning exists to provide you with peace of mind, not just around who will inherit your property, but also to minimize any potential tax exposure.

Our estate planning process has three steps:

  • Initial Session: First, we will schedule a Family Wealth Planning Session. Our attorneys will sit down with you and work with you to design a plan that is right for your family.
  • Signatures: Then, a month later, you’ll return to our office to sign the required documents, making your plan official.
  • Documents Issued: Once we process that paperwork, we’ll provide you with a binder of everything you need, detailing your estate plan and creating peace of mind for you and your family. We will also guide you through the process of how to transfer assets into your trust, or trusts.
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Get in Touch

If you have possible estate tax exposure, or you may do in the future due to an inheritance, for example, we should discuss how best to reduce that exposure.

Estate taxes can severely deplete the resources that you leave behind for your family.  The sooner you start the planning process, the more options will be available to minimize the exposure.  

If you are interested in more information or want to schedule a complimentary consultation, you can write to us or call us at (858)-252-4768.

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