New Tax Laws and YOU

Unless you live under a rock, deep in a cave, you have heard about the new tax act that Congress is putting together. This is not a political commentary on that act. More importantly a few things to remember:

– With regards to estate tax very few people reading this need to worry about that element of the new tax act as it is set to bump the estate tax exemption from $5.45m to $10.9m. That is per person. So if you are a married couple with over $21.8m then your loved ones would still pay estate tax after your death. Also, it should be noted that the law sunsets so could go back to $5.45m per person or whatever else Congress feels like. However, for all practical concerns the estate tax is dead.
– However, there are still income tax concerns after death as relates to the step-up in basis. It is possible that people with funded A/B or “bypass” trusts should talk to an attorney about getting a probate court order to revoke that irrevocable trust!?
– Likewise, the same applies for Qualified Personal Residence Trusts (QPRTs) that might not be needed anymore. Again, they can be revoked in probate court.
– Lastly, plain old living trusts are still necessary to avoid probate after death in California as full probate kicks in at $150,000 of gross assets.

So, the apparent death of the estate tax does not mean you should ignore your estate plan as you could leave your loved ones a bad tax surprise and could leave them in probate court. Call your estate planning attorney your estate reviewed in light of the new tax act coming down the pipe from Washington DC.

My best wishes to you and yours this holiday season.


The BEST estate planning tool in California

There are a lot of great estate planning tools available to use. Clearly everybody should have a will, a financial “durable” power of attorney and a health care directive (or “living will”).  However, there are other options. Two that I particular like are the Qualified Personal Residence Trust (QPRT) and the Irrevocable Life Insurance Trust (ILIT). Today I am going to talk about my favorite… the QPRT!

A QPRT is an irrevocable trust. That means that generally it can not be changed. However, we can build some flexibility into it.

The fact that it is irrevocable is what gives it the power. It’s what makes it superior to the basic living trust for the right clients. Let me stress that a QPRT is not right for everybody but when it’s right it’s really right!

One of the main advantages of a QPRT is that it removes the future appreciation of a home from one’s taxable estate at a reduced value.  That is a million dollar house might be removed from your estate using only $600k of estate tax exemption. More importantly, the future appreciation is gone too!  Yes, future appreciation is OUT OF YOUR ESTATE. For our clients with estates that might be subject to estate tax after death this is huge.

Additionally as an irrevocable trust there is some protection from creditors. Some call this asset protection or liability protection. I hate to use that as a “selling point” but I do agree there is asset protection here and that’s important to consider.  Of course nobody should undertake asset protection if they know of a liability as that can be criminal. However, if you have no reason to know about a future liability or creditor then asset protection is a nice benefit of this trust.

Some people use QPRTs as a house management tool. Sort of like a partnership. They put a house into a QPRT, with a short QPRT period, and then the kids become the owners but in trust. This is like a partnership when set up right. It can NOT be used for income producing property but it can be used for a vacation property. We have many clients with vacation homes at Tahoe and Bodega Bay, for example, and QPRTs are excellent for those.

Lastly, QPRTs are simple and not that expensive to set up!

There are more benefits and advantages to a QPRT. Contact me to discuss how it may benefit YOU. -John

Ratings and Reviews

10.0John Bernard Palley
Wealth Counsel Member
2015 Best of the Best Badge