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Estate Taxes
These days estate taxes are high on the political
agenda. In California, state estate taxes were eliminated
in January of 2004. However, you still must consider federal
estate tax laws. Under the 2001 Tax Act, the exemptions
of estate property have been greatly increased. This is
good news for you!
Under the new laws, in 2003 up to $1 million of estate
assets are exempt from estate tax. This means that if your
gross assets are less that $1 million, no estate tax will
apply! The exemption amount will increase until the year
2010, at which time federal estate taxes will be completely
eliminated.
Now for the bad news, in 2011 the 2001 Tax Act expires.
Unless new legislation is created the system reverts back
to the tax laws effective prior to 2001. It is probable
that new legislation will be implemented prior to 2011,
but the question is what kind. We do not know yet; however,
in the meantime we will minimize the exposure of your estate
as much as possible. Your living trust will be carefully drafted specifically
for you, so as to minimize or eliminate any estate taxes. Joint Tenancy
Some people attempt to avoid probate by creating
a "joint tenancy with right of survivorship."
These legal terms simply mean that the property is held
jointly with another person or persons, and at death, the
survivor(s) take whatever interest in the property the deceased
person owned. Joint tenancy does not avoid probate; it simply delays
the probate process until the survivor passes. However,
the biggest problem with this scheme is that it creates
some serious tax consequences that can cost thousands of
dollars. Additionally, by making your spouse, child, relative, or
friend a joint tenant, you are legally giving up
rights to the property during your lifetime.
If you decide later to sell the property, refinance the
property, or take the person's name off the title, you are
STUCK! You cannot take any of these actions without the
express consent and signature of the person you put onto
the title. Moreover, if the joint tenant gets into any kind of trouble,
falls victim to a lawsuit, is subject to a divorce, etc.,
your asset maybe tied up in a long legal battle, costing
you time and money. The lesson to be learned here is that
joint tenancy is a bad idea for estate planning purposes.
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