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Income inequality and estate planning in California

by | Mar 30, 2016 | Estate Planning |

Income inequality has become a major topic of political discussion in California and across the United States. Over the past couple of years, the media has published countless articles about the amount of wealth controlled by a small percentage of Americans. And, in this presidential election year, one candidate has staked his campaign on the issue: Bernie Sanders.

Whether or not Mr. Sanders becomes president, and whether control of Congress changes this fall, the issue of income inequality is not likely to disappear soon. And, those thinking about estate planning would be wise to consider the possibility that at some point in the future, estate taxes may make a comeback.

Avoiding unnecessary taxation has long been one of the cardinal goals of estate planning. Over the past decade, estate taxes have become less of an issue for most California residents, as the federal estate and gift tax exemption has increased each year.

As we discussed in an earlier post, the exemption is $5.45 million for 2016. If a person’s gross estate and previous taxable gifts are under this amount, their estate will generally not be subject to federal estate tax.

Married couples can basically combine their exemptions. The second spouse to pass away can use any unused portion of the first spouse’s exemption. Moreover, California does not collect an estate tax, except on the estates of people who died before January 1, 2005.

Of course, this is all subject to change, if the political winds shift. No one can predict, with any certainty, what Congress may do with the federal estate and gift tax over the next 20 or 30 years.

For these reasons, it is always a good idea to include some tax planning in estate plans, even if one does not anticipate having a multi-million dollar estate at death. Those who have already prepared an estate plan should pay attention to changes in the law, and review their plan from time to time to ensure it minimizes potential tax consequences.

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