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Tips for 2014: Estate and Tax Planning

When meeting with your attorney, accountant, tax preparer or other advisor this year, take this handy checklist along and ask if any of these quick tips apply to you.

1. Making gifts that are meaningful: the federal gift tax exclusion

  • California Uniform Transfers to Minors Act (Cal PC 3900, et seq.)
  • IRC Section 529 educational gifts (Grandpa and Grandma’s college fund)
  • The annual federal gift tax exclusion for 2014 is pegged at $14,000
  • How about a “kiddie trust” to make a youngster a long-term co-investor with you?
  • Special life insurance trusts for children and others

2. Property tax planning: Proposition 13 provisions

  • Proposition 58: Transfers between parents and children might protect lower property tax rates.
  • Proposition 60 and 90: Retain property tax basis in a residential move for persons over age 55 (county-specific rules apply as passed by the Board of Supervisors)

3. Individual Retirement Accounts (IRA)

  • Direct IRA contributions to charities reinstated for 2013. Legislation for 2014 is pending. You might benefit if you are in a tax bracket which negates itemized deductions. It also counts for your minimum required distributions at 701/2 years of age.
  • Large sums of retirement investments: Large amounts of IRA or other retirement funds may be subject to a combined federal and state tax exceeding 51.9%. When you pass away, this significant tax burden will be passed on to your beneficiaries. Consider setting up a Charitable Remainder Trust (CRT) as your IRA beneficiary, which provides a tax benefit and can still distribute income to your heirs for a lifetime.

4. Estate Planning

  • Are you or your spouse non-citizens? Consider a Qualified Domestic Trust provision.
  • Use joint tenancy and pay-on-death provisions with care. They result in automatic transfers.
  • Choose ownership of life insurance carefully to reduce a gross estate.
  • If you are planning to update your estate, remember the portability of unused estate tax exclusions for the second spouse to die.
  • Be sure to include provisions to make elder care easier on your children.
  • Advance Healthcare Directive (Cal PC 4701): update for HIPAA and CMIA law changes.
  • If you have a professional corporation, you can put it into your living trust. Follow the rules.

5. Income Tax Planning

  • Selling property that will generate high capital gains? Need to reinvest proceeds of the sale for steady income? Consider a charitable remainder trust solution as an option to a conventional sale.

6. A Death in the Family

  • Avoiding probate for the small estate (Cal PC 13100, et seq.) The limiting amount has been raised to $150,000.
  • Avoiding probate between husbands and wives (Cal PC 13500, et seq.)
  • With the expanded unified credit for estate and gift taxes, most people will not be required to file an estate tax return; however, it may be advantageous for you to file the return to lock in the new portability of the credit for the surviving spouse. Ask your tax advisor.
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