Explainer: the Estate and Gift Tax

The Estate and Gift Tax is a tax scheme that imposes a tax on the transfer of an asset. The Estate Tax (otherwise known as the Death Tax; they’re the same thing) requires the transfer to be made after the giver’s death. So, think of an inheritance when you think of the Estate Tax. And the Gift Tax requires the transfer to be completed during the giver’s life. So, think of a birthday or anniversary gift. But in both scenarios, something is being transferred. Also keep in mind that the transfer is being made gratuitously, meaning there is no sale taking place. It must be a gift.

The Estate and Gift Tax is a tax on the grantor of the transfer. That’s the person or estate of a person that is making the gift (the giver). The tax is imposed by the Internal Revenue Service (IRS), our federal taxing authority. Note that we do not have a federal inheritance tax–a tax on the recipient of a transfer. There are a few states that do have an inheritance tax, but California is not one of them. An inheritance tax may apply if the recipient of a gift resides in a state or country that imposes an inheritance tax.

The Estate and Gift Tax is really easy to calculate. It’s a flat tax, meaning that it applies equally to every grantor of a transfer. The federal government imposes a flat 40% tax of the fair market value of the asset being transferred. That is not a typo. As an example, if I gave my friend $1,000 for her birthday, I would have to pay $400 to the IRS for making this gift. It’s an identical result if I left my friend a $1,000 inheritance from my estate. My estate would be on the hook for a $400 tax.

Hold up. Why have we not heard of anyone paying this tax?? And why is no one upset with this??

Enter: the estate and gift tax exemption.

The Estate and Gift tax are linked by an exemption amount. An exemption is a magic number that Congress selects, and it applies to every US citizen and green card holder. Congress has decided that so long as you do not make gifts in excess of your exemption amount, then no tax is owed. The exemption amount is set periodically by Congress, and it gets adjusted for inflation annually. When someone dies, all of the gifts they made during their life are added to the value of stuff they own upon their death, and that total is measured against the exemption amount.

Ok, simple enough. How do we know our applicable exemption amount?

The current exemption amount is set at $10,000,000 per person. That’s not a typo, either.  It’s indexed for inflation annually. So for 2023, the exemption amount is $12,920,000. Additionally, if you’re married, you essentially get to combine your exemption amount with your spouse’s exemption amount. In short, if you are an unmarried person, you can transfer up to $12,920,000 in assets and pay no estate taxes. If you’re married, you can jointly transfer up to $25,840,000 in assets and pay no estate taxes. Only the amount that exceeds the exemption is subject to the 40% tax. For example, if an unmarried person dies owning $14,000,000 in assets, only $1,080,000 ($14,000,000 - $12,920,000) is subject to the 40% flat tax, or $432,000 in taxes owed on a $14,000,000 estate.

How does the IRS know whether lifetime gifts were made, and how much they amounted to?

Just like we are required to report our income every year on a Form 1040, we are also required to report any gifts made in a given year on a Form 709. When you report the gift, the IRS walks over to your file and deducts the amount of that gift from your $12,920,000 exemption amount. No taxes are owed until you run out of exemption! But here’s the thing: you only have to report gifts that are in excess of what is called the annual exclusion. 

The annual exclusion is another number set by Congress that allows each person to make a certain value of gifts every year, to every recipient, and not tell a soul, including the IRS. The current annual exclusion is set to $17,000. So, for example, I can give each one of my friends up to $17,000, per year, and not have to report that on a Form 709. I can combine my exclusion with my spouse’s exclusion, and make up to $34,000 in gifts per recipient, per year, and not report it on a Form 709. This is why you never hear of anyone filing gift tax returns after birthday parties. If only we were all so generous!

So what happens if, for example, parents assist a child with a downpayment of a home, in excess of $34,000 in a given year?

If a gift is made in excess of the annual exclusion, then you deduct the amount excluded and then file a gift tax return for the amount in excess. Let’s say parents give a $200,000 gift to a child to purchase a home. They would deduct the $34,000 ($17,000 x 2 parents = $34,000) they can jointly give to the child in a year and not report it, then report the remaining $166,000 ($200,000 - $34,000). Each parent would file a Form 709 declaring a gift of $83,000 each. The IRS walks over to each parent’s file, and deducts $83,000 from each of their $12,920,000 exemption. If they haven’t gone over the exemption amount, no taxes owed on that transfer.

Whew! That’s a lot of information to digest.

To sum it up, we all get an Estate and Gift Tax Exemption. It’s set by Congress, and annually it gets adjusted for inflation. This year’s amount is set at $12,920,000. Spouses can effectively combine that amount. The tax is a flat 40% tax of the fair market value of the transferred asset, and only the giver of the gift/inheritance is on the hook. But the giver only pays it when they exhaust the exemption amount, and only the amount in excess of the exemption is taxed. Additionally, only lifetime gifts in excess of the annual exclusion (currently $17,000 per year, per recipient) count against the exemption amount. If you never exceed the exemption amount, you don’t pay any tax.

That all being said, the exemption amount is set to reduce in roughly half (to ~$6,000,000 per person) on January 1, 2026, unless Congress acts. Keep your eyes peeled for the coming months and elections to see where the exemption amount lands.

Full Video of the January Living Trust Seminar

The seminar below was presented live on January 21, 2023, by Matt Shafae, at the reSolve Group offices in Palo Alto. We covered basic estate planning, how to review an existing estate plan, how to care for minor children, and a basic survey of the taxes involved in an estate plan.

The screen may be hard to view on the video. Click here for a copy of the slides to follow along.

Marriage: You Either Are Or You Aren't

You’re either married or you aren't. There’s no in between. California does not recognize what some may call “common law” marriage. There’s no magic number of months or years before a romantic relationship transforms miraculously into a marriage.

For the “it’s just a piece of paper, our love is what’s important” crowd, we’re here to tell you that marriage is much more than that. Among other things, marriage confers rights upon someone you are not blood related to. Rights that are often unique to a spouse. In other words, if you’re unmarried–meaning you do not have a marriage license from a government agency–then the law views your partner as a friend that you really, really like.

From an estate planning perspective, a spouse is a family member. They get default rights against a deceased spouse’s estate. They receive major tax benefits from local, state, and federal taxing authorities. The law is very protective over surviving spouses. Not so much over long term unmarried partners, or even “we’re pretty much married” people. Those are all roommates under the law, and they get no special benefits.

What about domestic partners? Surely, that’s a special designation, right? Domestic partnerships are only recognized by some state and local governments. The federal government has no recognition for domestic partnerships. To the federal government, you’re either married or unmarried.

But some people have children together and never get married. That’s an exception, right? Nope. You certainly share very important responsibilities with one another, but you’re still not married spouses under the law. End of story.

Marriage is much more than some mere formality. It’s a very important legal union between two people.

That all being said, marriage is not for everyone. And that’s totally fine! However, if you do decide to not marry–for WHATEVER reason–then it is extremely critical that you create an estate plan, and specifically provide for any unmarried loved ones that you want to care for. And also to name your unmarried partner as someone who may have legal authority to assist you, and vice versa. Without reducing your wishes to writing, your unmarried partner will receive no special treatment by default, nor will they have legal authority to assist you if that scenario arises.

Whether you are married, but especially if you are not, it is critical to have your wishes reduced to writing so that the appropriate people (and pets) are cared for and that the right people have the appropriate legal authority to act when necessary.

Planning for Your Digital Legacy

An estate plan often focuses on tangible property such as jewelry, artwork, money, and vehicles. However, in this age of technology, it is important to remember to include your digital assets. Digital assets consist of everything we own online. Because we spend more time on computers and smartphones than we ever did before, you may not realize how much digital stuff you own, from photos and videos to online accounts, cryptocurrency, and nonfungible tokens (NFTs).

Why Is It Important to Plan for Digital Assets?

Planning for digital assets is important for several reasons. First, without a plan, digital assets may get lost in the Internet ether and not pass to your loved ones after your death due to the simple fact that their existence is unknown. Second, planning now means your family will not have to worry about hunting for these items upon your death while also grieving a beloved family member. Third, like most adults, you want certain aspects of your digital life to remain private. If you do not create a plan, your loved ones may learn things that you wish to keep secret. Finally, planning now can minimize the risk of identity theft, which happens to 2.4 million deceased Americans each year. 

What Are Digital Assets?

Instead of existing in photo albums and on videotapes and DVDs, most of our family photos and videos are now digital. Even if they lack commercial value, they certainly have sentimental value that you want to preserve for your family and friends. Social media accounts containing your photos and videos can also have value to your loved ones when you are gone. For example, a Facebook account can serve as a memorial after you pass away. When you consider all of the other accounts that you log into (more than 130 on average), the list becomes quite lengthy. 

Digital assets that you may own include the following:

● Social media accounts (e.g., Facebook, Instagram, Tik Tok, Twitter, LinkedIn)

● Financial accounts at brick-and-mortar and online institutions

● Business documents and other files stored in the cloud

● Cryptocurrency/NFTs

● Databases

● Device backups

● Internet domain names and uniform resource locators (URLs)

● Streaming service accounts (e.g., Netflix, Peacock, Hulu)

● Merchant accounts (e.g., Amazon, Etsy, eBay)

● Gaming tokens

● Virtual avatars

● Points-based loyalty programs (e.g., for groceries, gas stations, airlines, and hotels)

● Rights to intellectual property, artwork, and literature

● Online betting accounts

● Monetized video content

Including Digital Assets in Your Estate Plan

Take inventory of your digital assets. If something were to happen to you, a trusted person should have complete access to your online footprint. This includes usernames and passwords for all accounts. Tools such as Dashlane or the password manager integrated in your browser can be used to simplify the storage of usernames and passwords. 

In addition, you should continuously back up all digital assets, including photos and important documents, to the cloud, and ensure that your trusted person can easily access them when the time comes. 

Because they are not controlled by governments or banks, cryptocurrency and NFTs must be handled carefully. You do not have the option of calling customer service to reset your password if you forget or lose it. NFT and cryptocurrency passwords should be stored online in a “hot wallet,” or in an offline device known as a “cold wallet.” Either way, someone needs to know how to access your passwords when you cannot. 

Other estate planning considerations for digital assets include the following:

● Your estate plan can provide that your digital possessions be handled by one or more cyber successors who can distribute your digital assets like tangible property. 

● One cyber successor can control your Instagram account, for example, while another can take possession of your Bitcoin. 

● Keep in mind that passwords should not be memorialized in your will, especially regarding cryptocurrency, as they could be made public when the will is submitted to the clerk of court. 

● Consider how technologically savvy a person is before appointing that person as your cyber successor.

Next Steps for Your Digital Assets

Talk to your estate planning attorney about your digital assets and cyber successors. Have a conversation with potential cyber successors about how they would handle your assets, and make sure that they would carry out your wishes before appointing them. Digital assets can be placed into a trust or distributed through your will, or you could grant access to them through a power of attorney. With the help of an experienced estate planning attorney, you can feel relieved that your digital assets will be easily located, managed, and passed to your loved ones.

How Cryptocurrency and NFTs Fit into Your Estate Plan

Five years ago, cryptocurrency was probably not on your radar. Today, it may be an important investment in your portfolio. You could even own some nonfungible tokens (NFTs), which are powered by the same blockchain-based technology. Despite the dizzying fluctuations in the value of these assets, you should ensure that they are included in your estate plan so you can preserve them for your heirs.

Preserving Cryptocurrency: Now and Later

Cryptocurrency, which is digital money, is exhibiting stability as part of the global financial landscape, even though the value of individual coins (units of cryptocurrency) has been notoriously volatile. The overall market hit $3 trillion in value in 2021, only to lose $2 trillion in value so far in 2022. Emerging from the ashes of the 2008 financial disaster, cryptocurrency is likely to retain its status as an investment option because its holders enjoy freedom from government and bank control.

This advantage can become a drawback when it comes to preserving cryptocurrency. Before you consider including cryptocurrency in an estate plan, it is imperative that you hang on to your digital cash on a day-to-day basis. This involves preserving the passwords and digital wallets (storage units) connected to your cryptocurrency. This will avoid a disastrous situation like the one that befell a Welsh man who accidentally threw away half a billion dollars’ worth of Bitcoin. Consider the following options to preserve your cryptocurrency:

• Hot wallet: An online app that provides convenience but is vulnerable to being hacked or stolen

• Cold wallet: An offline storage device that avoids hacking but is a small item and easily misplaced

• Custodial wallet: A third-party crypto exchange that holds your coins, avoiding the risk of losing the device, although the company could freeze your funds or be the target of a cyber attack

• Paper wallet: A printed list of keys and QR codes that is safe from hackers but easily misplaced
  

Tax Consequences to Consider

Another important consideration is that the Internal Revenue Service (IRS) considers cryptocurrency to be property rather than currency. That means it is subject to capital gains tax. Whether the owner holds it for longer than twelve months determines whether the IRS will assess short-term or long-term capital gains tax. Exchanging cryptocurrency for fiat currency (a country’s official money) is a taxable event, as is exchanging one kind of cryptocurrency for another (e.g., exchanging Bitcoin for Ether). If you are in the business of selling or creating cryptocurrency (called “mining”), ordinary income tax rates will apply.

What about NFTs?

NFTs are unique digital collectible items. They are based on the concept “I own this.” It does not matter what “this” is, just that it is valuable or may gain value someday. That is why various digital collectible assets, such as the following, can be characterized as NFTs:

• Digital artwork

• Video clips

• Social media posts

• Memes

• Gaming tokens

• Digital real estate

While being the owner of the virtual Pyramid of Giza may seem silly today, who knows how much it will be worth tomorrow? This makes a little more sense when we think about emerging technologies like virtual reality, augmented reality, and metaverses. While the NFT market seems to have collapsed recently, you never know when it will bounce back or if something similar will take its place.

How Crypto and NFTs Fit into Your Estate Plan

Talk to an estate planning attorney about cryptocurrency and NFTs, even if you have not yet purchased your first Dogecoin or CryptoKitty. They can help you keep taxable events to a minimum and preserve your digital assets as part of your overall estate plan while maintaining your privacy.

An Estate Plan Can Help You Reach Your #GOALS

Many of us put off estate planning because it deals with a lot of challenging topics–our mortality, potential taxes, our finances, our health, our loved ones. It can feel easier to put it on the back burner, especially if we don’t feel “wealthy” or “old”–two common descriptors we all think about when we hear the words “estate planning.”

We’ve said it over and over: EVERYONE needs an estate plan (not just the wealthy or aging). Imagine if a relative left you $500 or $5,000 or $50,000 as an inheritance. It’s probably not going to make you rich, but all of us welcome any sort of unexpected assistance. Now imagine if you had a lengthy legal process to wade through to receive the gift. You probably would have wished that your relative had created an estate plan to simplify the process, regardless of the size of that gift. This is particularly true if anyone is financially dependent upon you.

Estate planning doesn’t have to be overwhelming or induce anxiety. Instead of looking at estate planning as “just another thing you have to figure out,” start with your goals. You probably have a lot of it figured out already.

Who do you want to provide for?

If something happened to you yesterday, who would be the people, pets, organizations, or causes that you would want to provide for? Your spouse or partner? Your children? Your parents or siblings? Your dog or other pets? A charity addressing a cause that you are passionate about? All of the above? Identifying who you would want to help is the very first step.

Once you have figured out the who, next comes the what. We all have differing levels of assets. Our finances, our obligations, all look different from person to person. Like we highlighted above, even the smallest amount can significantly help someone else. Would you want to itemize specific gifts to specific beneficiaries? Would you want to divide up whatever you own into fractions or percentages? Or perhaps a combination of the two. You can define what you provide to others however you see fit.

Next, you will want to figure out the how and when you are providing for the who above. Are you providing for young children or a family pet? Or maybe both at the same time! Those two gifts will look dramatically different. It probably will not be helpful to either group to dump a large sum of money onto their laps. These gifts will need to be managed, and the managers of the gifts will want guidance and means to execute the gift.

We all have goals. Most of the time those goals include caring for our people and pets. An estate plan will help you reach those goals, even when you are not around. If you can describe who you want to provide for, then you’re most of the way there to creating an estate plan. Contact an estate planning professional to reduce it down to writing so that you can take one important step toward peace of mind.

Your Home = Your Wealth

For most of us, our primary source of wealth is our family home, our primary residence. Especially for Bay Area folks. We have watched our property values soar, and accordingly enjoy built up equity in our homes. The problem—if you want to call it that—is that the equity is not sitting in our bank accounts. It’s “stuck” in our homes. And we cannot access it without selling the ground on which we stand.

This means that for many of us, our largest asset is the thing we sleep in. It’s what is going to make up the bulk of our estate. So when it comes time to create an estate plan, several issues need to be addressed to have a comprehensive estate plan that will be effective when the time comes.

Is your home sentimental?

Let’s face it, unless you leave your home to someone who loves it as much as you do, they’re likely going to sell it and enjoy the cash. If your home is sentimental, or if your family legacy is tied to it, your estate plan should clearly define what your beneficiaries can–and cannot–do with the home. Can they live in it? Can they rent it out? Can they sell it? If they cannot sell it, where does the house end up when your beneficiaries die?

Do you have more than one beneficiary?

Many families leave a bulk of their estate to their children. And many families have more than one child. If you have one home, and multiple children, you don’t want to “leave it up to the kids” when it comes to the family home. What if one child wants to live in it but the other wants to cash out? Is it important to plan ahead for any increases in property taxes? Do you want to allow for either child to have the option to purchase the other’s share?

Are there competing interests for the home?

Many of us are the “‘tween” generation these days. They have little ones at home while caring for one or more aging parents. You may find yourself in a position where you want to provide a place for your parents to live, but also leave an inheritance to your adult children. If you want to keep the house for your parents to live in, have you made adequate plans for the trust to pay the expenses for the home while your parents live there? What if your children need the equity in the home to pay for college while your parents need a place to live? Which dependents get priority?

Many of us do not have adequate cash and other investments to offset distributing our entire home to one child and hope that our other children miraculously receive some equalizing gift. There are lending and other financing strategies to offset such a gift, but they need to be carefully planned for ahead of time. It’s imperative to consider your own thoughts with respect to your home, and then plan accordingly.

Estate Planning for the Self Employed

It takes a lot of courage and hard work to start your own business. Small business owners develop adept skills at being adaptable, flexible, and resourceful. That being said, small business owners are vulnerable to catastrophic risk everyday. Small businesses focus a lot on economic and financial risk. Often overlooked is the impact of personal crises. If an untimely personal crisis–death, injury, incapacity–were to occur, it’s important to ensure that there is a plan in place so that the business can continue to operate, especially if your loved ones are counting on the business to continue.

Succession Plan

A succession plan for your small business is like an estate plan for the business. It defines who takes over the business when you are unable to. It also may include options for certain parties to purchase the business. It helps avoid ambiguities, in-fighting, and allows the business to seamlessly transition without disruption. The succession plan should work in concert with the estate plan. A succession plan can help bridge any gaps between your estate plan and the operation of the business when there are more than one party involved in owning or managing the business. For example, your estate plan can only address your ownership stake in the business. It cannot dictate what co-owners or partners do. A succession plan allows you to create a binding plan on all parties involved.

Special Licensure or Expertise

Perhaps the business at issue is a professional or medical service. If the business relies on special licenses to operate–CPAs, architects, lawyers, dentists, therapists, etc.--then the estate plan and succession plan needs to nominate and appoint appropriate decision makers to step in when you are unavailable. Even without needing special licensure, if the business is primarily fueled by your expertise, a comprehensive plan will account for this. Otherwise, there ought to be a plan for winding down the business if continuing is not possible.

Vendors and Clients/Customers

A comprehensive estate plan addresses all of the authority necessary to conduct your affairs when you are unavailable. This includes dealing with third parties like vendors to the business and the clients and customers of the business. Without the proper authority, those interacting with the business may become frustrated and take their business elsewhere.

There is no blueprint for a proper estate plan dealing with a small business. Part of the reason you started your own business was for autonomy and to be able to conduct business your way. That also means you will need to tailor your estate planning to address every aspect of operating your business.

Estate Planning for Multigenerational Caregivers

More than 12% of American parents who are caring for children under the age of 18 also provide unpaid care to aging adults. All told, these multigenerational caregivers provide more than two and a half hours of unpaid care a day, on average, according to a Pew Research Center analysis of Bureau of Labor Statistics data.

This number will only increase as life expectancy continues to crawl upward over time, and as professional care becomes more costly. This means that estate planning that addresses the needs of all three generations–the minor children, the caregiving generation, and the aging generation–is all that more critical.

The caregiver generation is often spread thin, stressed out, and expends a lot of emotional and financial resources to care for two generations of needs. If something were to befall that person, it would impact the minor children and the aging adults significantly and simultaneously. Having a comprehensive estate plan that addresses the needs of both generations is imperative. Our default procedures are not designed to address the responsibilities of a multigenerational caregiver.

Similarly, the aging generation ought to address that someone provided unpaid care for their needs. Oftentimes, the aging generation’s estate plan–if they even have one–simply leaves any remaining assets at death to their children, in equal shares. It typically is not amended to provide for an offset for any expenses used on their behalf, or to create an unequal distribution to account for the caregiving provided by one adult child but not from another. Frequently, the caregiving adult child assumes that their caregiving will be recognized by their siblings. Sadly, that isn’t always the case. These arrangements need to be documented to avoid any unnecessary resent, or worse, any unnecessary litigation.

There is a lot riding on the shoulders of multigenerational caregivers in a family. Any crisis will upend all of the responsibilities they must meet, and dramatically disrupt the care being provided to the other two generations. A comprehensive estate plan is imperative for the caregiving generation, as to avoid any disruption in care to the aging generation and the minor children, as well as an estate plan for the aging generation to document the care being provided to them.

Using A Professional Fiduciary

Estate planning is about choosing the right people to fill certain roles in your estate plan. It’s selecting decision makers and defining who they care for when you are unable to. For some, the estate plan and beneficiaries may be clear, but maybe it’s slim pickens trying to select someone to carry out the plan–the decision makers. Well, like anything else in life, you can usually find a professional to do the job. Enter: professional fiduciaries.

A fiduciary is a person who acts on behalf of another, like managing money or property. A fiduciary assumes a duty to act in good faith with care, candor, and loyalty in fulfilling their obligations. The trustee of a trust is an example of a fiduciary. The trustee is administering the terms of the trust, on behalf of the person who created the trust, for the benefit of the beneficiaries.

There are institutional fiduciaries, like a bank. And there are individual fiduciaries, who are bonded professionals in private practice. For flexibility and a personal touch, some may hire a private professional fiduciary. For long standing stability and managing large portfolios of assets, some may hire an institutional fiduciary. It depends on the circumstances and your priorities. Either way, you can meet and speak with a professional of your choice, and then nominate them in your estate planning documents.

Here are some circumstances when professional fiduciaries may be helpful.

Transplant

If you relocate to another part of the country, or to another country altogether, it may take some time to build a network of trusted friends and contacts. A professional fiduciary can help fill the role of financial decision maker when a personal contact or family member is not a practical possibility. If you end up finding someone you are more comfortable with, you can always amend your documents to update your list of decision makers. You do not need to delay creating an estate plan simply because you do not know enough people in town.

Specific Needs

If your loved ones require special attention–whether that be due to a medical condition, an addiction issue, issues related to means tested government benefits, or something entirely different–a professional fiduciary can assist navigate those delicate waters so that you do not have to place an ill equipped family member into the situation. A professional fiduciary will not be emotionally attached to your situation. They will have no problems setting boundaries with the beneficiary, or sticking to firm guidelines. It’s their job and they take it seriously. They will also ideally have familiarity and experience dealing with discrete issues with trust beneficiaries.

Multi generational

If an estate plan calls for long term care of beneficiaries–for example, a “dynasty” trust, or a trust set up for a very young beneficiary that will persist into that person’s adult life–then choosing a decision maker that can carry on their duties for decades may make a lot of sense. Institutional fiduciaries typically have the ability to outlive an individual serving that role, and can provide that continuity and consistency that may be required under the circumstances. Similarly, nominating a private professional fiduciary firm, that employs several fiduciaries, may allow for that same type of continuity over the course of years.

Your estate plan should not be dependent upon your personal network of contacts to provide you with an adequate decision maker. A professional fiduciary can fill a gap until a personal decision maker is available to you, and it can also provide you with options that a family member or close friend cannot provide.

What Needs to Happen When Someone Dies?

After a client has designed their estate plan, the most common question we get, by an overwhelming margin, is some form of “What needs to happen when someone dies? How does someone execute this estate plan we have created?”

Notice

When someone dies, there usually isn’t an alert that goes out to your loved ones, your banks, your employer, your utility companies, your credit card companies, etc. Well, unless you’re a celebrity. But for us non-celebrities, the news of one’s death trickles out organically. Loved ones handle the deceased’s remains and any rituals–funeral, memorial, wake, spiritual ceremony, etc. Sometime from a week up to a month and a half after the death, the county produces a death certificate. With the death certificate, the decedent’s loved ones begin to notify all interested parties and organizations of the decedent’s passing.

Knowledge

When the decedent’s loved ones are emotionally and psychologically ready, they begin to piece together what they can about the decedent’s life. This will include discovering the assets and debts of the decedent, obtaining control over any digital accounts and assets (like social media and cloud accounts), as well as determining whether the decedent had an estate plan. Hopefully, the decedent alerted the people involved in their estate plan as to the location of the estate planning documents. That’s not always the case, so sometimes this step may involve a bit of a “wild goose chase” for the documents.

Administration

Once it is determined whether there is an estate plan, steps are taken to administer the estate. There are two main routes of estate administration:

Only a Will, or no estate plan

If no estate plan is discovered, or the decedent only had a will, then the decedent’s estate must go through the probate process. Read our prior post about what probate entails. Our office can be retained to assist the loved ones guide the decedent’s estate through probate if there is only a will, or no estate plan at all.

Estate plan with a living trust

If the decedent died having created an estate plan built upon a living trust, then the administration of their assets is handled privately by way of trust administration. Trust administration is often quicker and less expensive than probate administration. The person named as the successor trustee of the living trust is tasked with carrying out the terms of the trust, along with providing notices required by law, marshaling and valuing assets, paying any debts and expenses, and distributing the remaining assets following the terms of the distribution provisions of the trust.

To assist them, the successor trustee can hire an attorney (like our office, for example!) to represent them in carrying out their duties. Trust administration can differ greatly from one trust to another. Also, trust administration varies greatly whether the decedent was married and survived by a spouse versus being unmarried or the second spouse to die. Trust administration can be handled by attorneys whether or not the attorneys drafted the estate plan.

If you lost a loved one, contact us to schedule a complimentary initial consultation to figure out next steps.

Estate Planning for Divorced Spouses

Divorces happen. That much is obvious. Why they occur, and how frequently, is a bit more nuanced. And we can leave that for another law firm’s blog. If you’re divorced, or considering a divorce, remember to update or create your estate plan accordingly. For a quick refresher on marriage in California, read our prior post.

Untangling a marriage can be emotionally draining, legally complicated, and sometimes overwhelming. That being said, having a plan in place in case something happens to you either before, during, or after a divorce should not be moved to the back burner.

In California, divorces can take months to years to complete. A lot can happen during that time, even if the divorce is an amicable or “straightforward” divorce. Additionally, all divorces in California trigger what are called “automatic temporary restraining orders” (ATROs). When either spouse files a petition for dissolution (that’s legal speak for divorce) and serves the papers on the other spouse, the ATROs are triggered requiring both spouses to maintain financial status quo. The ATROs help prevent one or both spouses from emptying out bank accounts, or transferring assets to third parties without the other spouse’s knowledge and consent.

The following issues should be considered in light of the ATROs described above. You should always consult your family lawyer before taking any action during a divorce.

Guardianship of Minor Children

You can divorce a spouse, but you cannot terminate your ex-spouse’s parental rights over your children. If something happens to either of you, the surviving parent typically becomes the sole legal guardian of the children. Keep that in mind when making guardianship decisions in your estate planning documents during and after your divorce. Your guardianship designations do not supersede your ex-spouse’s parental rights. It doesn’t matter how much or how little visitation the surviving parent has or had.

Nominating Your Ex Spouse

If your ex-spouse is listed as an agent or beneficiary in any of your existing estate planning documents, you should review the designations carefully and immediately. Your documents likely do not have any provisions addressing a divorce. Similarly, if your retirement assets, life insurance policies, or any other assets with beneficiary designations list your ex-spouse as the beneficiary or successor owner, consider updating those designations as well. Updating beneficiary designations could violate the ATROs. Please consult with your attorney before taking any action.

Revoke Joint Documents and Address Joint Assets

If you created a joint living trust with your ex-spouse prior to the divorce, you should consider revoking the trust. If you both agreed to hold assets jointly, either during or after divorce, consider drawing up a written agreement documenting the terms of your joint ownership.

Create An Interim Estate Plan

If you’re in the middle of divorce proceedings, you still need an estate plan. It needs to reflect that you are currently legally married (you will not be legally divorced until the court enters judgment), but that you are working towards not being married. You can create a will that distributes whatever you do own to the individuals or organizations that you care about. For example, that last thing you probably want is for assets you intended on going to your children to end up in the hands of your ex-spouse instead. You should also create a durable power of attorney that specifically allows your agent to work with you family law attorney to complete the divorce on your behalf in the event you are unable. You can create a separate living trust while you’re still married, but you’ll need to obtain a judgment dividing your assets before you can fund your living trust. This also means that if you’re funding a separate living trust during a divorce, it could violate those ATROs as well. For many divorcing couples, a will, power of attorney, and healthcare directive is a solid interim estate plan until the asset issues are resolved.

Everyone needs an estate plan. If you’re divorced or divorcing, it’s imperative that you document your wishes, and act with care and nuance when it comes to your transitioning family dynamics. Schedule an estate planning consultation with a competent attorney, and consult with your family law attorney throughout the process.

Avoid the Estate Planning Banana Peel – Don’t Add Your Kids on Title to your Home

Many aspects of estate planning in California center around avoiding the need for probate court. Adding a death beneficiary to an asset or adding a co-owner on title to an asset are two ways to avoid the need for probate court when you die. Well, that sounds pretty easy. Why don’t we all just do that and call it a day?

Put simply, adding co-owners and death beneficiaries to assets only addresses one situation: that 1) you have died; 2) that the beneficiary/co-owner is alive upon your death; 3) the beneficiary/co-owner has capacity and is over 18 years old upon your death; and 4) the beneficiary/co-owner does not have creditors nipping at their heels.

There are so many other scenarios that can occur. All it takes is for any one of the four factors above to be false for your simple plan to become complicated and problematic. Besides that, there are tax implications for adding people onto title of your assets.

Let’s illustrate with a common example. A widowed parent owns their own home, and has two children. The parent figures that it would simplify everything if they add their two children onto the title of the home. That way, upon the parent’s death, the children receive the home, in equal shares, without having to go through the probate process.

What gets overlooked in the above hypothetical are the following considerations.

Death v. Incapacity

The only way to avoid probate in the above example is if the parent dies. If the parent is alive but incapacitated (think: dimentia), the children have no authority to act on the parent’s behalf by simply being co-owner of the home. They now co-own a property with someone who cannot handle their own affairs. They would have needed the parent to sign other legal documents, such as a durable power of attorney.

Similarly, if either or both children are incapacitated upon the parent’s death, probate may be necessary to receive ownership of the home unless the incapacitated child signed a durable power of attorney themself. Or, if the children are not yet adults, they cannot own the property outright without legal guardians involved.

Creditors

When the parent adds the children as co-owners to any asset, including their home, the parent is entangled with that child’s financial life, including that child’s creditors. If the child is going through a divorce, or someone is suing them for money, or the child owes taxes or other debts, or if the child files for bankruptcy, then the parent’s home is now subject to the claims of the child’s creditors. The parent may have to figure out how to get their own house back!

Additionally, if the child faces those same creditors after the parent’s death, there is no barrier between receiving full ownership of the house and satisfying those creditors’ claims. Ultimately, the child may end up losing the home to their creditors, which is certainly not what the parent intended.

Creating Capital Gains and Property Tax Problems (Click here for a brief discussion of taxes)

When the parent adds their children to title, the parent is making a lifetime gift of that portion of the home. This in itself could trigger a gift tax issue. Gift tax issues aside, typically when the parent dies, all of the capital gains built into the home are eliminated upon the parent’s death. But only the capital gains associated with the portion of the home that the parent owned at death. The portion of the home that the children now own do not receive what is called a “step up in basis”, and the capital gains for the children’s portion are not eliminated. If the parent kept all 100% interest in the home, then all of the capital gains would have been eliminated. After putting their children on title during their life, the parent is now creating a capital gains problem for the children when they sell the home.

Adding multiple children to title can also create adverse property tax implications. Even though Prop 19 has severely limited the application of the parent-child exclusion, there is still an opportunity for the parent to transfer the home to one or more children with some relief from increased property taxes. However, when more than one child is added as co-owner, the home could get reassessed when one child decides to buy another out in the future since that is not a parent-child transaction.

Co-ownership and death beneficiary designations lack any nuance. It only asks whether an owner is dead, and if the answer is yes, ownership of the asset automatically transfers to the other co-owners or to the beneficiaries in whatever condition or circumstance they find themselves. No discretion is involved to determine whether it’s a “good” situation to transfer ownership of the home to the co-owner or beneficiary. Additionally, It makes you vulnerable to your co-owners’ creditors, and could create unforeseen tax issues for your loved ones. The only surefire way to transfer ownership of your assets, with nuance and full discretion, is to create a comprehensive estate plan.

The Myth of the “Straightforward” Estate Plan

“We have a pretty straightforward situation, so it shouldn’t be too complicated or cost too much, right?”

We often get asked this question by prospective clients. It’s not really a question to us, though. Rather, it projects how the prospective client views both their situation and the estate planning process in general. They view their situation as uncomplicated, which is a veiled way to suggest that there’s little actual work involved. That as long as a client wants assets to pass, for example, to their spouse and children upon their death, then they just have to say some magic words to us and the legal fees magically vanish and we admit that estate planning is really just copying and pasting names into a word processor and then hitting “print.”

All snark aside, we take these expectations and assumptions seriously. It is an estate planner’s daily battle to combat these assumptions and to demonstrate that an effective comprehensive estate plan should include large doses of nuance.

There is no such thing as a straightforward estate planning situation. It just doesn’t work that way. Sure, wanting to care for your loved ones is a straightforward desire. How you intend on doing that is much less straightforward. And each person holds different values and priorities when it comes to caring for their loved ones.

Will you be incapacitated at any point before your death? Will your spouse be incapacitated when you die, or will they be perfectly healthy? Will they remarry? What if they remarry and have additional children? What if you are a part of a blended family? How old will your children be when you die? Will your death be a traumatic experience for them? What if one or more of your children are incapacitated when you die? What if you are old and gray when you die, but right when you die one of your children is amidst a messy divorce, bankruptcy, or are facing addiction issues?

I can keep going. We haven’t even discussed the size and extent of your estate, or whether there are assets that need special treatment. We haven’t discussed how exposure to taxes may impact your decisions. Or maybe you’re self-employed and we need to figure out how to continue the business, or wind it down, after your death. It gets less straightforward with each additional consideration.

It’s not about inserting names into templates. It’s about adding nuance, being advised of your options, carefully walking through hypothetical situations, and weighing the possibilities. It’s thinking through all of the contingencies so that your loved ones don’t have to.

You can contact us to schedule a free initial consultation to get the conversation started.

3 Reasons Why Estate Planning is Improved When You Work With a Lawyer

Talking about death can be difficult. It’s also a bit of a downer, to put it mildly. So many of us put estate planning off as long as possible. For most people, hiring a lawyer can elicit a similar reaction. When you put the two together, it’s easy to understand why some people may want to avoid discussing their own death or incapacity altogether. Some try to address their own mortality with as little conversation as possible by creating their estate plan on their own, or by using online resources.

The following are 3 reasons why working with a lawyer can improve the estate planning experience.

Expertise

A certified expert estate planning lawyer has years of training in both estate planning and tax matters. You can rely on that expertise when you ask detailed questions. They can walk you through hypothetical scenarios, tell you why some of your ideas are fantastic approaches, and maybe how some of your ideas aren’t the best way to proceed. An estate planning lawyer can provide detailed advice and counsel suited to your specific situation, knowing they are required to have your best interest in mind. You never have to wonder if their information is inaccurate or outdated, or whether they have others’ interests in mind.

Working with a lawyer creates a dynamic feedback loop. They can ask follow up questions of you when they hear an issue that you may not have even identified yourself. An estate planning professional can help identify blind spots in your thinking and help you resolve them.

Experience

Estate planning lawyers have years of experience working with other clients—both in planning, as well as administering trusts and estates of those who have died. In that experience, they can offer you a wealth of examples that worked out well, and experiences that may not have worked out as the client had intended. They bring this experience into your situation. You receive the opportunity and benefit of years of planning experience on demand. Additionally, when a crisis or issue does arise, the lawyer will be there to advise and support you or your loved ones to help you get through the crisis.

Peace of Mind

Estate planning lawyers are there to support you through this often challenging process. They can provide some levity to what may seem like a heavy topic. They can be a sounding board to inter-family dynamics. Lawyers can provide perspective and context to what can seem like a complicated or overwhelming dilemma. All the while, an estate planning professional will ensure that your documents are drafted accurately, meticulously, and effectively. You can rest assured that your estate planning documents are valid, enforceable, and can withstand any potential challenge. This peace of mind is invaluable.

Distribution Options for Your Beneficiaries

One of the main reasons cited for creating an estate plan is to care for loved ones. An estate plan allows you to expressly name beneficiaries to your estate, the methods by which the gifts will be distributed, how the distribution is administered, whether there are any conditions on the gifts, and so forth. Most people want to provide for family members, relatives, or close friends. This post will survey some common options for how you can make the gift.

Outright and free of trust

The most straightforward way to provide for someone is outright and free of trust. Upon your death (or your spouse’s death, or after the second of you to die, etc.), the gift is distributed to the intended beneficiary, and assuming they are above the age of 18, the gift is now owned by them. That’s it. For example, if you leave $40,000 to Person X, then upon your death, Person X receives $40,000 to do whatever they want. It works similarly for percentage or fractional gifts, like 25% of your estate, or 1/3 of your estate. The value is calculated, and when the distribution stage takes place, the beneficiary receives that gift as their own. The limitation to this method of giving is that you relinquish all control over the gift. If the beneficiary was going through some life challenges, like a divorce or a bankruptcy, your gift may end up never reaching the beneficiary at all. Or if they face significant debt, your life’s work may have ended up going straight into the hands of the beneficiary’s creditors.

Sometimes a little nuance is needed. Maybe dropping a large sum of money on someone isn’t the best idea under the circumstances.

In Trust

Leaving a gift in trust for someone can provide a lot of flexibility and oversight. This option creates a trust (a separate trust other than your living trust) naming your beneficiary as the beneficiary of this newly created trust. You also name the Trustee managing the assets held in trust. 

These trusts are created after your death. They are sometimes called “beneficiary trusts”,  “inheritance trusts”, “FBO trusts” (“for the benefit of”), “GST trusts” (generation skipping transfer), “dynasty trusts”, or “asset protection trusts”. For the most part, all of those terms can be interchangeable. They all describe an irrevocable trust set up for the benefit of someone other than yourself. “Irrevocable trust” means that the beneficiary is not able to change the terms of the trust (unlike your living trust, which is amendable during your life). The two main reasons someone may want to create irrevocable inheritance trusts is to 1) retain some control over the gift; and 2) protect the gift from the beneficiary’s creditors (think: the beneficiary’s ex-spouse in a divorce, a plaintiff in a judgment against the beneficiary, or from a bankruptcy). By keeping an inheritance in trust, the assets in trust will not “count” toward the assets of the individual beneficiary, and remain somewhat shielded from those creditors.

If you want to provide for a minor (a child under the age of 18), then a beneficiary trust is the way to go. You can name someone as Trustee of the trust to manage the gift for the benefit of the minor child, and that person does not need to be the child’s parent or guardian. You can specify when, if at all, the minor beneficiary is able to take over as Trustee of their inheritance.

Similarly, you can provide for someone who is financially immature or has addiction issues. A trust allows you to provide for someone even when they are not fully capable of providing for themselves.

Supplemental Needs Trust

Sometimes a beneficiary is receiving government assistance that is means-tested. For example, many MediCal and SSI/SSA benefits have eligibility requirements pertaining to a recipient’s income or net worth. If your beneficiary receives a lump sum inheritance, it could disrupt those benefits. The beneficiary would then need to use their inheritance for their care in place of the government benefits, and they would likely end up destitute, back on the government benefits. By leaving the inheritance in a supplemental needs trust, the trust can provide for the beneficiary without disrupting their means-tested assistance.

With trusts, you can place conditions on your gifts. For example, a common condition for parents is that their children be educated before receiving their inheritance. However, what may be clear in your head, may be ambiguous to someone carrying out your instructions. What does educated mean? Does the child need to earn a degree? Two year degree or four year degree? Does the institution need to be accredited? Does the institution need to be located in the United States? Can it be an online institution? You get the idea. You can place any condition on your gift that you like. However, an estate plan is only as effective as it is executable. There needs to be as little ambiguity in the trust terms as possible.

When you work with an estate planning professional, they will field all of the available options, discuss your goals, and assist you with matching your options and your goals. And after all that, an estate planning professional will make sure the documents are drafted correctly, with as little ambiguity as possible.

How Do You Select The Decision Makers in Your Estate Plan?

Determining what happens to your stuff after you die is only one aspect of an estate plan. And it’s not even the most critical part. The most critical component of any estate plan is the people involved. Who will act as your financial agent in a time of crisis? Who will make medical decisions for you? If you have minor children, who would you select to be their legal guardian? And then there’s your stuff. Where do your assets and possessions go after you die? And if you’re leaving any of it to young, immature, or unprepared individuals, who will you select to manage that inheritance for them?

Financial agents. “Financial agent” is a short hand to mean the successor trustee of your living trust, the executor of your will, and the attorney-in-fact under your power of attorney. The reason we have one umbrella term for these roles is because they all serve in making financial decisions for you when you are unable, and the three roles overlap so much that we recommend using a consistent list for all three.

So how do you choose your financial agents? It comes down to judgment. This is a decision making role. Choose someone who shares similar priorities, values, and decision making principles with you. Don’t worry about knowledge or expertise. With good judgment, one can always seek out the appropriate expert advice.

Guardians. Guardians are nominated to raise minor children–children under the age of 18 years. A good guardian is someone who shares your values. Are you religious? Do you like early bedtimes for your children? Is diet and nutrition important for your child? A good candidate for a guardian nomination would hold dear the same values that you do. Additionally, if your child is school-aged, it will be critical that the nominated guardian live local enough as to not uproot your now-orphaned child. Orphaned children have already gone through the trauma of losing their parents. They do not need the additional unease of living in unfamiliar surroundings, away from their friends and community.

Healthcare agents. The same goes for healthcare agents as was described previously about financial agents. You do not need to befriend a bunch of medical professionals to use as healthcare agents. You want someone who shares your judgment and values. They can speak to the medical professionals to get expert opinions and advice.

You can select the same person or persons for each or all of the roles above. But that is not required. It really comes down to your life situation and peace of mind. Would you want the person in charge of your child’s inheritance to also be the one who puts them to bed each night? Do you know someone who can make medical decisions for you and also handle your financial affairs? An experienced estate planning professional can help walk you through your life situation, priorities, and selections. And they can add their own experiences as additional guidance.

Estate Planning is Not for You

It’s for them—your loved ones, for those you care about.

When you are either deceased or incapacitated you obviously won’t be available to participate in the execution of your estate plan. Your estate plan is all that remains to assist in caring or providing for your loved ones or causes that you care about.

To that end, the most important aspect of an estate plan is the personal information and guidance that you provide to those who step in to execute your plan. Without that information and guidance, it could be a wild goose chase trying to piece together all the loose ends surrounding your life. The more loose ends, the more time and effort will be required to carry out your wishes.

Do your trusted agents have access to your passwords and credentials?

Our lives no longer consist solely of tangible assets. Sure, for most of us our homes are our most valuable assets. But more and more, our lives are becoming more digital and intangible–online financial accounts, cloud storage, digital photographs, social media accounts, cryptocurrency, etc. To access these digital assets, your trusted agents will need your passwords. Without them, federal privacy laws require a court order to access them. Your trusted agents require adequate time and evidence to obtain a court order. If it takes your agents too long to obtain the order, or if they lack the requisite evidence to persuade a judge to issue an order, the digital accounts may be terminated, blocked, and in some cases deleted. Even providing the PIN to your mobile device could save your agents time, expense, and a lot of expended energy.

Do your trusted agents have clear guidance on your wishes?

An estate plan allows you to document your wishes–how to handle your financial affairs, how to provide for your loved ones. But it’s only as good and thorough as the information you provide. Be sure to keep current documentation of your assets, your debts, and any specific instructions. A great place to keep this information is in your estate planning binder containing your legal documents.

Is your list of trusted agents current?

Our lives are ever changing. And so are the relationships we have with our loved ones. It’s critical that you revisit your estate planning documents to confirm that you have the most current list of trusted agents to step in when a crisis arises.

A current, detailed estate plan will allow your loved ones to step in and execute your wishes in that time of crisis. Chances are that you will be unavailable to provide any guidance or assistance when that time comes. Be sure the appropriate information is readily available for your trusted agents to minimize delays and confusion.

Funding Your Trust

Once you have created a trust, it’s important that you “fund” it. Funding the trust essentially means that you transfer ownership of your assets into the name of the trust. Instead of your name being on the account, it’s your name as trustee of the trust on the account. 

For example: the checking account of Joan Johnson becomes the checking account of Joan Johnson, trustee of the Johnson Living Trust, dated March 3, 2020. 

It is critical to fund your trust to avoid the time, expense, and public nature of probate. And to have a plan in place if an unexpected crisis arises. Having a trust unto itself doesn’t help you achieve that end; you have to get your assets into the name of the trust for the trust to be effective. Ideally, everything you own, besides your retirement accounts, is typically transferred into a living trust. If you don’t put your assets (like your house) into your trust, then your estate may still go through probate!

When we set up a trust for you, we provide you with complete funding instruction to address each type of asset and how to move it into the name of the trust. And if any questions arise, we welcome our clients to call us with any questions.

Taxes and Estate Planning

One of the most consistent questions that we come across involves taxes. For estate planning purposes, there are three (3) distinct types of taxes that may impact your estate plan. 

1. Estate & gift tax

The estate and gift taxes are transfer taxes. They are federal only. California does not impose an estate or gift tax.

• Transfer taxes tax the transfer of an asset. The estate tax is imposed when someone transfers something upon death (think: inheritance) and the gift tax is imposed when it’s a lifetime gift (think: birthday present).

• Who pays it? Always the person making the transfer (aka the estate of the person who died, or the person giving the gift). 

Not all transfers are taxed. There is an exemption amount that must be exceeded before the tax kicks in. The current exemption amount for an individual is $11.7 million*, and for a married couple it’s $23.4 million*. In other words, you need to have more than $11.7 million or $23.4 million in net assets to have to pay any estate tax. 

The gift tax is related to the estate tax. This is how: every year, every single person can give any other person $15,000* without reporting it to the IRS. A married couple can double that amount. If you exceed the amount, then you have to report it to the IRS. But instead of paying tax on it, your estate tax exemption amount is reduced by the fair market value of the item gifted. 

Example: If you love this blog, and you’re married, you can give Natasha $30,000 this year without reporting it to the IRS. If you love it SO much, you could give Natasha $31,000, but then you have to report that extra $1,000 to the IRS. The IRS then takes your $1,000 and reduces your estate tax exemption amount by $1,000. So instead of being $23.4 million exemption, it would be $23.4 million MINUS $1,000. 

*This is the amount for 2021. Each year this amount is adjusted for inflation. 

2. Income tax (capital gains taxes)

Income tax, as you know, is both state and federal. For purposes of this section, we’re focusing on capital gains taxes (profit made when selling something) and not your wage income (income made going to work).

If you buy something for an amount and it increases in value, and then you sell it, you have to pay taxes on that increase in value, which is called a gain. A capital gain is a profit from selling a capital asset, which is basically anything that is substantial in nature, excluding cash or retirement accounts (think: real estate, stocks, heavy machinery, artwork, collectibles, etc.). 

Example: You buy your house for $1 million. It increases in value to $4 million and you sell it. You’ve “earned” $3 million on the house. You have to pay capital gains taxes on the increase in value of $3 million. Your capital gains taxes are part of your income tax. 

Importantly, built-in capital gains get zeroed out when someone dies. 

Example: You buy your house for $1 million. It increases in value to $4 million, and you die. Whoever gets your house (spouse, child, etc.) retains it at the value of $4 million. If they sell it the minute that you died, then they do not pay any capital gains. If they hold on to it until it’s worth $10 million and sell it, then they would pay capital gains taxes based on $6 million in gains ($10 million - $4 million, date of death value), rather than $9 million ($10 million - $1 million, purchase price). 

3. Property tax 

Property tax is imposed by the county in which the property sits. We are bolding this because it’s important and has come up numerous times with Prop 19. To repeat: property tax is a COUNTY tax. It’s not state. It’s not federal. It’s local. 

Property tax is paid in two installments, annually. It is calculated based upon an “assessed value” and is only adjusted when a property is reassessed in value, which happens most often when it changes ownership on title. 

For the most part, property taxes are adjusted anytime the property changes hands, with certain exceptions. If you plan on transferring property to your children, or to your parents, then there are certain benefits afforded to these discrete transactions. Proper planning is critical to avoid unnecessary increases in property tax.

Why does this matter? 

It is crucial not to conflate or confuse the three taxes described above. Proper tax planning within the context of estate planning requires keeping each analysis separate. Tweaking a transaction to gain a benefit through one tax analysis may increase your tax exposure with one of the other taxes. Ultimately, you are best off planning ahead and trying to anticipate pitfalls before they happen, especially when it comes to intergenerational transfers. Contact us to discuss your specific situation and to work through your goals for your family.