Estate Planning and Estate Taxes

Rental Property Investor · Los Angeles · Member since 2020 · 88 posts · 74 votes

With the current TCJA the estate tax exemption is 11.18 million (single) and 22.26 million (married). Any estate in excess of these thresholds are taxed at 40% in CA. For example, if you are worth 20 million as a single person and pass away, the beneficiaries will pay 3.6 million in estate tax to the IRS within 9 months. I know with real estate, it's easy to build an estate above 11 million or the government may lower the estate tax exemption to around 5 million (single). What are you doing to plan for estate taxes? I started an indexed universal life insurance policy that is max funded to be utilized as tax free income, disability insurance, infinite banking, and provide a lump sum death benefit to help pay off estate taxes for my future kids.

Thanks for any insight!

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Katie L.

Attorney and CPA · San Diego, CA · Member since 2017 · 590 posts · 422 votes

@Steven Nguyen

If you're concerned about estate taxes, I highly recommend that you sit down with an estate planner to go into your options to reduce estate taxes. There are a ton of ways that you can do so, but they will be highly personal to your estate, your assets, and your goals. The estate tax exemption is currently scheduled to increase until 2026, at which time it reverts back to its lower value prior to the Tax Cuts and Jobs Act. President-Elect Biden has proposed reducing the exemption, possibly sooner than 2026, but that remains to be seen whether it becomes an actuality or not.

*This post does not create an attorney-client or CPA-client relationship. The information contained in this post is not to be relied upon. Readers are advised to seek professional advice.

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Mike S.
Investor · Broward County, FL · Member since 2018 · 1k+ posts · 938 votes
5y
@Steven Nguyen
While the life insurance death benefit will be transferred tax free and out of probate, it will still be counted towards your estate.
You may want to look at irrevocable life insurance trust where you can use the gift exemption each year to pay for the premium. That would be completely excluded from your estate but you will be loosing control over it.
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Lance LvovskyPro Member
Accountant · Fort Lauderdale, FL · Member since 2013 · 1k+ posts · 753 votes
5y
@Steven Nguyen
I have many transactions going on right now with clients utilizing gift and estate planning techniques. Flps, SLATs, GRATs, etc. With your life insurance policy you need to review with tax advisor whether it is inclusive with estate. For example I am structuring right now transaction for a client that will remove $400,000 of taxes from his estate by moving the policy to a defective grantor trust, without triggering either 3 year look back or transfer for value rules.
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Ashish AcharyaBusiness Member
CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
5y
Originally posted by @Steven Nguyen:
With the current TCJA the estate tax exemption is 11.18 million (single) and 22.26 million (married). Any estate in excess of these thresholds are taxed at 40% in CA. For example, if you are worth 20 million as a single person and pass away, the beneficiaries will pay 3.6 million in estate tax to the IRS within 9 months. I know with real estate, it's easy to build an estate above 11 million or the government may lower the estate tax exemption to around 5 million (single). What are you doing to plan for estate taxes? I started an indexed universal life insurance policy that is max funded to be utilized as tax free income, disability insurance, infinite banking, and provide a lump sum death benefit to help pay off estate taxes for my future kids.

Thanks for any insight!
Based on what I have seen, most of the investors here don't need to worry about the estate taxes so I have not sure if someone can give you a quick answer. Also, estate planning is very personal and customized to specific individuals. But, if you expect estate taxes, there are multiple ways to freeze your estate up to the threshold. Definitely not a DYI project as it is complicated.

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Steven Nguyen
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Rental Property Investor · Los Angeles · Member since 2020 · 88 posts · 74 votes
5y
Originally posted by @Lance Lvovsky:
@Steven Nguyen
I have many transactions going on right now with clients utilizing gift and estate planning techniques. Flps, SLATs, GRATs, etc. With your life insurance policy you need to review with tax advisor whether it is inclusive with estate. For example I am structuring right now transaction for a client that will remove $400,000 of taxes from his estate by moving the policy to a defective grantor trust, without triggering either 3 year look back or transfer for value rules.

Can you elaborate on how a defective grantor trust works? Thank you!
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Mark Pedroza
Real Estate Agent · Sacramento/Placer ~ San Francisco Bay Area counties · Member since 2012 · 1k+ posts · 743 votes
5y
Originally posted by @Steven Nguyen:
With the current TCJA the estate tax exemption is 11.18 million (single) and 22.26 million (married). Any estate in excess of these thresholds are taxed at 40% in CA. For example, if you are worth 20 million as a single person and pass away, the beneficiaries will pay 3.6 million in estate tax to the IRS within 9 months. I know with real estate, it's easy to build an estate above 11 million or the government may lower the estate tax exemption to around 5 million (single). What are you doing to plan for estate taxes? I started an indexed universal life insurance policy that is max funded to be utilized as tax free income, disability insurance, infinite banking, and provide a lump sum death benefit to help pay off estate taxes for my future kids.

Thanks for any insight!

Proposition 19 was passed in November. This will require that inherited (probate) homes that are not used as principal residences,
such as second homes or rentals, be reassessed at market value when transferred. The law doesn't go into effect until February 2021.
The ballot measure eliminated the parent-to-child and grandparent-to-grandchild exemption in cases where the child or grandchild does not use the inherited property as their principal residence, such as using a property as a rental house or a second home. Mainly if the heir's lived out of state (NV, NY, TX, WY, etc..)
Which means the PR, representing the estate, will have to pay the reassessed value of the property when the sale is completed.
I see more PR's, who live outside of CA, selling more properties in the coming year(s)...
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Katie L.
Attorney and CPA · San Diego, CA · Member since 2017 · 590 posts · 422 votes
5y
@Steven Nguyen
If you're concerned about estate taxes, I highly recommend that you sit down with an estate planner to go into your options to reduce estate taxes. There are a ton of ways that you can do so, but they will be highly personal to your estate, your assets, and your goals. The estate tax exemption is currently scheduled to increase until 2026, at which time it reverts back to its lower value prior to the Tax Cuts and Jobs Act. President-Elect Biden has proposed reducing the exemption, possibly sooner than 2026, but that remains to be seen whether it becomes an actuality or not.
*This post does not create an attorney-client or CPA-client relationship. The information contained in this post is not to be relied upon. Readers are advised to seek professional advice.
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