How Large of a California Estate Can Pass Federal Estate Tax Free? by LitherlandLawCA


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									                HOW LARGE OF A
               CAN PASS FEDERAL
               ESTATE TAX FREE?

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                   ROY W. LITHERLAND
                              The federal estate tax is controversial in some quarters. There are those
                              who suggest that the tax is unfair, and they offer a number of different
                              reasons to support this claim.

                              First and foremost, the critics argue that the estate tax is an instance of
                              double taxation. Consider this example. A very simple, conservative
                              individual earns a paycheck every two weeks. He is not interested in
                              complicated investments. He puts everything that he earns in a bank

                              Whatever he puts in the account is what's left after he pays taxes. He
                              does very well throughout his life, he keeps working until he is 85, and
        ●    ●   ●
                              he is very thrifty. There is a great deal left in that account when he
 The federal estate tax is    passes away.
  controversial in some
quarters. There are those     He has one living daughter and she is his sole heir. Why should she

who suggest that the tax is   have to pay a tax on her inheritance? Her father paid income taxes all of
                              his life, and he paid other taxes as well. Why should the event of his
 unfair, and they offer a
                              death be a taxable one?
   number of different
 reasons to support this      These are good questions, and those who object to the estate tax make
            claim.            some valid points.
        ●    ●   ●
                              Whatever you may think about the federal estate tax, it is indeed in
                              place, and it can have a significant impact on the legacy that you are
                              leaving behind to your loved ones. It is important to know how much
                              you can pass on to your heirs before the estate tax is applied.

                              There is a federal estate tax exclusion. The amount that is excluded in
                              2013 is $5.25 million. A base of $5 million was put into place for 2011,
                              and there are annual adjustments for inflation.

                              The top rate of the tax is 40%.
                                   Gift Tax

                                   Some people hear about the estate tax and they decide that they will
                                   simply give away their assets while they're still alive. You can
                                   certainly give gifts, but for the most part it is not going to provide
                 ●       ●   ●     you with any transfer tax efficiency.
     This is because we have a
                                   This is because we have a gift tax, and it is unified with the federal
     gift tax, and it is unified
                                   estate tax. It carries the same 40% maximum rate. So, if you gave
       with the federal estate
                                   $5.25 million in gifts that are taxable throughout your life all of your
      tax. It carries the same
                                   estate would be subject to the estate tax.
        40% maximum rate.
                                   We would like to point out the fact that there is an annual gift tax
                 ●       ●   ●     exclusion that exists outside of the unified $5.25 million lifetime
                                   exclusion. You can give a certain amount of money each year to any
                                   number of people before the gift tax would be applicable. In 2013
                                   this amount is $14,000, but this figure is periodically adjusted to
                 ●       ●   ●     account for inflation.

              Because of this a
                                   There are a couple of additional gift tax exemptions worth
        married couple would       mentioning. You can pay the school tuition of students as a gift, and
       have a total estate tax     these gifts are not taxable. This applies to tuition only, not books
          exclusion of $10.5       and fees or living expenses. In addition to this you can pay the
       million using the 2013      medical bills of others as a gift without incurring any gift tax liability.
         per person exclusion      This extends to the purchase of health insurance for another
       figure of $5.25 million.    person's benefit.
                     ●   ●   ●

                                   Married Couples

                                    There is an unlimited federal estate tax marital deduction. You do not
                                    have to concern yourself with taxation when you're leaving money and
                                    property to your spouse because these transfers are exempt from the
                                    estate tax.

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                                        You can also give unlimited gifts to your spouse while you are alive free
      FREE CALIFORNIA                   of the gift tax.

                                        However, simply deciding to transfer everything to your spouse is really
                                        not an effective estate planning strategy because your spouse would
                                        have to create his or her own estate plan once you are gone.

                                        This unlimited marital deduction is not available to someone who is
                                        married to a citizen of another country. The federal estate tax will still
                                        be looming if you leave assets to a citizen spouse, and the tax man will
                                        eventually get his money when the citizen spouse passes away. On the
                                        other hand, if you were to leave everything to a non-citizen spouse,
                                        this person could just go to his or her country of citizenship and Uncle
                                        Sam would be out of luck if the unlimited marital deduction had been
    One of the inaccurate notions
        that some people have           available to that non-citizen spouse.
     regarding living trusts is the
    idea that they are only useful
    for people with extraordinary
     financial resources. In fact,
                                        The estate tax exclusion is available to every American taxpayer.
          this is not the case.         Because of this a married couple would have a total estate tax
                                        exclusion of $10.5 million using the 2013 per person exclusion figure of
     The primary appeal of living
    trusts is the fact that they can    $5.25 million.
    facilitate the future transfer of
    assets to your heirs outside of
           the probate process.
                                        A question often arises: what would happen to the exclusion of a

     Download our FREE report,          married person who passes away? Prior to 2011, the answer to this
    Living Trusts: Calculating the
                                        question would be that the exclusion passes away as well. However,
          Benefits, to learn:
                                        terms contained within the tax relief act that was passed in 2010 made
    How a Living Trust can ensure
     your dependent minors are          the estate tax exclusion portable for 2011 and 2012.
     How a Living Trust can help
    you avoid the time and cost of      Portability is a term that is used in the fields of estate planning and tax
    How a Living Trust can reduce       law to describe the ability of a surviving spouse to use the estate tax
    the possibility of your wishes
          being contested               exclusion of his or her deceased spouse. A new tax relief act passed at
                                        the end of 2012 called the American Taxpayer Relief Act of 2012. This
    Click to Download Your FREE         piece of legislation made portability permanent. However, changes to
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                                        existing tax laws via legislative mandate are always possible.
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           About the Author                  Conclusion
              Roy W. Litherland
                                             If your assets exceed the amount of the estate tax exclusion you must
                          Roy Litherland     position them with tax efficiency in mind. Given its hefty 40% top rate,
                          has been           the estate tax can significantly erode the wealth that you are passing
                          providing legal
                          services in        along to succeeding generations. A licensed estate planning attorney can
                          Santa Clara and
                                             assist you as you do what it takes to mitigate your estate tax exposure.
                          Santa Cruz

     since 1975.
    Roy has an undergraduate degree
    in accounting from Indiana State
    University, and a Juris Doctor           Forbes
    degree from Indiana University,
                                             Internal Revenue Service
    where he graduated cum laude
    and won honors in the areas of
    income taxation and estate and
    gift taxation. In law school he was      -and-Gift-Taxes
    a recipient of the Dean Faust
    Award and received awards and            Forbes
    honors in income taxation and
    estate and gift taxation.      

    Roy is certified as a Legal Specialist
    in Estate Planning, Trust and
    Probate Law by the California State
    Bar Board of Legal Specialization.

    3425 S. Bascom Ave, Suite 240
    Campbell, CA 95008
    Phone: (408) 356-9200

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