Federal Estate Tax

The estate tax is a federal tax that is due when somebody dies and his or hers property is given to the heirs. It consists of an accounting of everything you own or have certain interests in at the date of death. It makes no difference whether such property is transferred via a will or according to the state laws of intestacy. A corresponding tax is the gift tax. The gift tax prevents avoidance of the estate tax through giving away estate just before one dies.

But there are important personal exemptions. The most important one is that there is never an estate tax as long as you leave your estate to a spouse (so called maritial deduction). All other persons profit of the current personal tax exemption. Simplified it can be stated that (for the year 2009) property with a value of $ 3.5 million can be left to other persons without paying estate taxes.

However the personal tax exemption is subject to change. First there will be no estate tax in 2010. In 2011 the personal tax exemption will be risen to 1 million dollars unless Congress extends the 2010 repeal. But that seems to be unlikely. Further reference to the current status of the federal estate tax can be obtained from the IRS (http://www.irs.gov/businesses/small/article/0,,id=98968,00.html).

Optimizing your Estate Planning

Revocable living trusts generally do not protect assets within from the federal estate tax. As long as the grantor lives the property is treated as his very own. Upon his death the very same applies. Therefore the beneficiaries of the trust would be subject to federal estate taxes. Nevertheless the beneficiaries profit from the aforementioned tax exemptions. Therefore no estate tax is due as long as the assets, that the grantor leaves behind, do not exceed the tax exemption amount (e.g. $ 3.5 million for 2009).

Certain trust structures allow to combine the individual tax exemption of a couple in order to save estate taxes when the second spouse dies. Such trusts are known as A-B Trust and will be discussed below. Besides, your local estate planning law firm, for example Rinne Legal in San Francisco, Oakland, Fairfield, Walnut Creek and Sacramento will know the current law and optimize your estate planning accordingly.

Californian Estate Tax

Since January 1, 2005 there is no state imposed estate tax in California any more. It has been phased out in connection with federal estate tax law changes Therefore in our days a living trust in California only has to consider the federal estate tax as described above.