High-income Californians may have expected a modest tax increase this year but that does not mean anyone is excited about having to pay up to 3 percent more in income taxes this year. While dependent exemptions went up a paltry $6 per child, people making over $250,000 this year will likely pay thousands more in taxes than in past years. Fortunately, prudent wealth managers know that savvy estate planning can save a person untold amounts in unnecessary taxation over their lives and the lives of their heirs.
Doing the math leads to the simple conclusion that many Californians are getting crushed by increasing state and federal taxes. Ironically, the fact that California does not have a state inheritance tax means that high-income Californians will still be footing much of the bill for state budget deficits.
California passed a bill in 1982 to outlaw state estate taxes, but some of the federal estate tax money collected still returned to the state as a credit. Unfortunately, that credit was put on hold starting in 2001 and was finally wiped out in the recent fiscal cliff negotiations, meaning that the state is short the $45 million it expected from estate tax credits in fiscal 2012.
The recent trend in tax increases proves that when state and federal budgets fall into the red, the higher tax bracket individuals are usually the ones who feel the most pain.
With no end to these increases in sight, people should do whatever they can to legally and ethically protect their assets from unnecessary tax liability. An experienced estate planning attorney can help people maintain and distribute their wealth to loved ones efficiently in times of economic uncertainty. During estate planning, California residents can identify their short- and long-term goals and develops strategies, including drafting the necessary documents, to achieve those goals. There are many different aspects of estate planning, including wills and trusts, administering trusts, drafting powers of attorneys, and even creating domestic partnerships. Whether you have significant amounts of money and assets or just a modest income, estate planning can help you provide for your future and the futures of your loved ones.
Source: Central Coast News “California’s Tax Filing Season Officially Opens,” Debbie Milius, Jan. 8, 2013