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2013 tax considerations for California estate planning

| Dec 17, 2012 | Estate Planning |

Californians may have seen a recent financial news article about the new taxes from the Affordable Care Act, known colloquially as Obamacare, that are scheduled to go into effect at the beginning of 2013. In particular, people need to pay attention to a new 3.8% investment income tax increase, which may change the estate planning needs of people looking to avoid unnecessary taxation.

The new tax will be applied on top of existing taxes on the investment income of all married couples earning over $250,000 and single people earning over $200,000 per year, but also has ramifications for any trust or estate that gains more than a paltry $12,000. Investment income subject to the tax includes things like short and long-term capital gains, interest and dividend income and rental income.

Because this new 3.8% tax kicks in at the incredibly low threshold of $12,000 for all trusts, people most likely need to consider changing the way in which their estate plan distributes property and assets. While many people have favored naming a trust as beneficiary in an estate plan, avoidance of the surtax may now require that a trust name a living individual beneficiary or beneficiaries.

In addition, so-called ‘high income earners’ with capital gains or other investment income may want to consider putting more of their money into tax-free options including IRA contributions and life insurance policies. People should also look at opportunities to take advantage of lifetime gift tax exemptions, which may allow people to transfer more tax-free assets to loved ones in 2012 than in future years.

The Affordable Care Act appears to be here to stay, but the savvy estate planner may be able to avoid the unnecessary taxation that comes with it. An experienced estates and trusts attorney can help a person find the right asset protection strategy for their individual situation.

Source: US News Money “Avoiding the Obamacare Surtax,” by Rob Russell, December 6, 2012

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