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Do You Collect Art? Here’s What You Need to Know About Changes in The Tax Cuts and Jobs Act

Many people with high net worth and substantial art collections have long been concerned about the 40% estate tax. Some temporary relief was provided from this substantial number with the 2017 Tax Cuts and Jobs Act, meaning that it increased each taxpayer’s ability to make tax-free gifts before 2026.

The lifetime exemption was raised from $5 million to $13 million for individuals and double for couples. These lower tax rates may have eliminated alternative minimum tax or reduced the number of income tax brackets, but some of these changes will expire at the end of next year in 2025. This makes it extremely important for anyone with substantial assets, including an art collection, to work with a qualified asset protection planning and estate planning attorney.

Some art collectors may be concerned that if the exemption levels go back to 2017 numbers, then any gift taxes or penalties could apply for gifts above $5 million in value. However, keep in mind that the IRS in 2019 issued some anti-claw back rules that eliminate this possibility from affecting your individual estate plans. Artwork can appreciate much like bonds or stocks in someone’s estate portfolio.

You may wish to think about your estate plan as incorporating high value items of art. It is also valuable to work with someone who is familiar with assets and collections such as art to ensure that you have an appropriate strategy and plan for protecting these now and in the future. Our estate planning attorneys in Pasadena will help you craft your own plan based on your individual goals and any existing state or federal rules/exemptions.

I Already Have a Living Trust. Do I Still Need a Will in California?

Most estate plans involve more than one document. Although most people think of a will as the baseline for their individual estate plan, you might also need other documents and tools to address wealth planning, asset protection planning, or healthcare concerns.

If you’ve already created a living trust to help accomplish your estate planning goals, this is an important and good step in the right direction. However, it may not fully accomplish all of the intentions that you have with no will present. Creating a will with the assistance of a Pasadena estate planning attorney can help cover these additional bases. Even if you already have a living trust, you probably also need a will. Your will is designed to help streamline estate administration when you pass away and impacts any assets that are titled in your name at the time of your death and those assets that are not placed into your living trust.

If you already created a living trust with the help of a California estate planner, you may want to include a pour over provision in your will. This simply states that all assets should be transferred to the trustee of your living trust after you pass away. You can also use a will to nominate guardians for your minor children, but any assets that you’ve moved into the living trust for the benefit of your children in the future would still need to be managed by the trustee of your living trust.

For more information about how to create a comprehensive estate plan and to be sure that all of your estate plan components are working together, communicate with our Pasadena lawyers now.

The Third Generation Inheritance Curse: What to Know

Many people interested in creating multi-generational wealth aim to support their loved ones for many years to come. However, this also means thinking big picture about things like the third-generation curse. By effectively communicating your goals and intentions with your heirs and structuring your estate plan properly, you may be able to help future beneficiaries and generations better approach this process.

The Great Wealth Transfer is happening right now, which means that $84 trillion is expected to pass from baby boomers to most of their loved ones in Gen X, the millennial generation and Gen Z. In the next 10 years, over $16 trillion of this will be moved. However, the third-generation curse may impact how long your legacy lasts by planning for your baby boomer estate plan now.

This refers to situations where wealth that is accumulated by an initial generation is lost by the third generation as a result of poor spending, poor planning and improper management.

This third-generation curse impacts as many as 90% of families with substantial wealth to pass on. When you use a trust to help ensure that wealth lasts, such as adding clauses about how the funds are distributed or milestones someone must reach to access assets, this can decrease the chances of someone spending through much of their inheritance.

Communication and appropriate estate planning structured by a knowledgeable attorney are helpful in this. Even though you may not have created your estate plan yet, consider this your opportunity to work with an estate planning attorney and identify your next steps for communicating these goals. Contact our Pasadena estate planners to get assistance with your planning strategy.

Does It Cost Money to Administer an Estate Planning Trust?

Have you accounted for all possible expenses in your estate trust? If you intend to gift assets to loved ones, have you also thought about how a trustee will be paid for their services?

There are multiple reasons why a person might choose to establish a trust for their estate planning. They may intend to use the trust while they are still alive, typically selecting a revocable living trust that can be altered as needed. In other situations, you may be establishing a trust for the purpose of providing assets to your loved ones after you pass away. You may want to keep in mind that there can be some costs associated with administering a trust.

While living trusts will usually enable beneficiaries to avoid the process of going through California Probate Court, there may still be costs linked to trust administration. The successor trustee, who manages distribution of assets in the trust is eligible to charge trustee fees. In some cases, a family member serving in the role of trustee will waive these fees, although some decide that the amount of work they put into this process is substantial enough that they deserve to be paid for their role. After a person takes on trustee status, they realize that it may involve numerous challenges and can be very time consuming. In some cases, it may be out of the scope of expertise for the person appointed as trustee, particularly if this was a personal family member or friend.

This means that an accountant, attorney or other outside professionals may be required, and the trustee is eligible to pay these individuals using trust fees. These professionals can help to ensure that the trust has been distributed according to the administration of the trust guidelines as well as existing laws. Talk to our estate planning team in Pasadena now for more information.

What Happens If I Pass Away in California Without an Estate Plan?

Every state has specific rules about what happens when someone passes away with no estate plan in place. This is because estate administration must still occur. If you or someone you know has recently passed away without an estate plan, you may need to understand the various stages through which their estate will be administered. This process is referred to as intestate succession, and the rules are rigid in terms of which relatives in your family are entitled to your assets. There’s a strong chance this plan doesn’t align with what you want, but it becomes the default if you fail to plan.

You can help avoid these challenges in your own situation by contacting an experienced Pasadena estate planning attorney to help you. If someone passes away in California, there are questions about how their assets will be divided and distributed among surviving family members. Standard wills are drafted by California for all individuals who fall into that category. There is only one formula for dividing assets in California, which means there is no opportunity to customize the plan based on the heir’s age, needs, health, and whether or not this person was close to the descendant.

This is because the state determines what happens to the assets based on the same formula that they apply to all families. Even if you had specifically promised something to someone else or hoped that they would receive it in the process of your estate being administered, this is not guaranteed and, in fact, when intestate planning steps in, the state of California will determine what is most appropriate for your assets. This could lead to many different challenges in your family. Working with an estate planning lawyer to at least create a basic simple will for your estate planning purposes can reduce challenges.

Study Shows Women Are Prepared for Retirement

Women are increasingly recognizing the importance of securing their own financial future. Since women tend to live longer than men, it is important for them to consider their financial planning whether single or married.

Even for married women, the possibility of one partner using long term care services means that it’s worth a conversation around financial planning during and after that circumstance. Since one in four adults over the age of 65 will need long term care support at some point in their life, it’s a good idea to think about how you and your spouse will navigate this if this issue emerges after retirement.

Women in particular must pay special attention to their planning strategies. Often times, they are behind in terms of saving. There are many reasons for this, including the gender pay gap, more time spend out of the workforce, and less overall savings when compared with men. Women, though, may also need to support themselves longer.

A recent study completed by the Bryn Mawr Trust found that nearly 87% of female respondents said they felt prepared financially for retirement. Their active participation and involvement of a financial advisor significantly helped to boost their level of confidence. Women are leading the charge and the change when it comes to showing how to tackle these big issues and maintain a proactive role in planning for their own future.

There are many challenges that can face retirees including inflation, the rising cost of health care and concerns about accomplishing their individual goals with long term care and estate planning. By surrounding yourself with a team of experienced professionals in the financial space, such as CPAs, financial advisors, insurance experts and estate planning lawyers, you can feel greater confidence about your own financial future and your ability to respond to any other challenges that emerge. To get your estate plan in line contact a qualified estate planning lawyer in Pasadena to learn more.

What Surviving Spouses Need to Know About Portability

Have you updated your estate plan since 2021 or 2022? Even just a matter of one year can mean that your estate plan is outdated, which is why it helps to have a relationship with an attorney you can trust.

Significant IRS changes in estate tax rules were announced a few years ago that might influence your current plan. These are important for surviving spouses to understand. This is a good move for surviving spouses because the guidance makes it easier for eligible spouses to claim their deceased partner’s unused estate tax exemption. This process is known as portability.

The move will provide significant financial relief and make the estate planning process even easier for many families. Up until this point, the process for transferring a deceased spouse’s untapped estate tax exemption was filled with documentation and deadline requirements.

Prior to this rule change, survivors had a maximum of nine months to file for portability, which could be extended on request an additional six months. This also required a complicated estate tax return with exact figures and appraisals for transferring unused exemptions, and that could have ended up as high as over $12 million for deaths that happened in 2022.

However, the filing period has since been extended for five years from the spouse’s date of death, which significantly reduces the pressure and things on the to-do list for grieving and surviving family members.

Valuations no longer have to be exact since figures can be rounded to the nearest $250,000. In order to ensure you’ve undertaken the right steps for appropriate planning on behalf of your surviving spouse, it is valuable to work with an experienced estate planning attorney.

Will My Loved Ones Pay Capital Gains on An Inherited Piece of Property?

When you inherit property like stocks or a house, the property is typically worth more at that point in time than it was when the original owner bought it. If you were to sell the property, this could lead to substantial capital gains taxes, which could mean that your loved ones are responsible for thousands of dollars in the tax bill.

Capital gains refers to the difference between the selling price of the property and the basis of the property. The basis is typically also the purchase price of the property. The basis could be adjusted, however, in the event that you or the owner spent substantial money on capital improvements. It’s a good starting point to assume that 15% capital gains tax will apply at the federal level. This could also include any state taxes.

When you inherit real estate, if the tax basis of property is stepped up, the value is then readjusted to the current market value, which could eliminate or significantly reduce any capital gains tax that would be owed by the person who received and then sold the property. You’ll want to discuss with any of your real estate professionals and financial professionals other considerations to keep in mind whenever you pass on property. Unintended consequences could leave your loved ones with a failure to plan or to maximize the value of the overall asset.

If you need assistance in determining the full scope of your estate plan, working with a Pasadena area lawyer is an excellent next step. Our lawyers can help you chart your personal goals alongside current estate tax strategies.

What Is the Spousal Lifetime Access Trust?

Have you ever thought about using irrevocable trusts as part of your estate planning? If not, you can work with an attorney to help you accomplish this. Talking with a lawyer can help you navigate the process of determining what is best for your individual needs.

Using an irrevocable trust is a powerful strategy for accomplishing multiple estate planning goals. Since the current Tax Cuts and Jobs Act is set to end at the end of 2025, you may choose to instead shift your assets into an irrevocable trust. One popular kind of irrevocable trust is known as a spousal lifetime access trust. This trust is created to allow your spouse access to the assets inside. This means the spouse is the primary beneficiary of assets in the trust and descendants are the secondary beneficiaries.

Since there are no transfer tax consequences for giving assets to your spouse, this also means that when your trust is properly structured with the help of a knowledgeable estate planning attorney, those assets may not be taxed at the time of your death.

You can also set the trust up such that if your spouse passes away or you get a divorce, then the assets pass to the next beneficiaries in line. Although it may seem like the end of the Tax Cuts and Jobs Act is far off, now is a great time to communicate with your estate planning lawyer about what to know and how to structure your plan, as well as considerations you may wish to think about in the near future should the law change again.

Unequal Inheritance? Plan Ahead to Avoid Disputes Among Your Children

There are many reasons why you may wish to gift unequal inheritances to your loved ones, but this can cause unnecessary conflicts and disputes among your children if they don’t know in advance. You may be interested in thinking about how to treat your children fairly, while keeping in mind that fair does not always mean receiving equal assets.

Particularly when your family dynamics are complicated, you may need to do advanced planning with the help of an experienced estate planning lawyer. You may determine that unequal inheritances are more appropriate, such as paying back a child who has helped you through numerous medical issues, or a child who may not have as many financial opportunities as the others. Equal inheritances have actually become far less common than in the past. For example, between 1995 and 2010, the number of parents who reported treating their children unequally in their estate planning increase from 16% to nearly 35%.

While it may be simpler to evenly split your assets among beneficiary children, you might have different intentions. Prevent conflicts by explaining your wishes, adding a deterrent such as a no contest clause that says that anyone who attempts to contest the will may not be eligible to receive their assets, or setting up a trust in addition to your will.

A spendthrift trust, for example, can give you peace of mind that money will be managed more effectively by a child who may not otherwise be capable of handling it. Working with an estate planning attorney can also increase your chances of proper estate planning in line with your individual needs.

If you’re not sure what to do with your own estate plan, you can use the guidance of a lawyer to help you select the right tools, timelines, and people to help accomplish your goals. Contact our Pasadena office to get further support with your California estate plan.