Most people in California don't have to be concerned about estate taxes when they prepare an estate plan. The federal estate tax only applies to estates that are worth more than $5,490,000. Married couples can effectively combine their estate tax exemptions, meaning that up to almost $11 million of their combined estates can be shielded from estate taxes. At the state level, California has eliminated its estate and inheritance taxes.
Some readers may remember the probate fight involving former model Anna Nicole Smith and the estate of her deceased husband, Texas billionaire J. Howard Marshall. Smith married Marshall in 1994 when she was 26 and he was 89. When he died the following year, Smith was not named in his will. She challenged the will unsuccessfully in a Texas probate court. She later filed for bankruptcy in California, and argued in that proceeding that Marshall's eldest son, Pierce Marshall, had improperly prevented his father from leaving an inheritance to her.
Although our current president-elect campaigned on promises to fight for blue-collar workers, one of his major policy proposals will likely benefit only a few very wealthy individuals. The repeal of the combined federal gift and estate tax is a cornerstone of the Trump tax plan. While it is impossible to know at this stage what Trump - or Congress - will actually do, eliminating the gift and estate tax seems probable, since it will have little effect on tax revenue and is therefore unlikely to generate much controversy.
For many people in California, passing on treasured family heirlooms and sentimental property is an important part of estate planning. But, according to a recent news story, many members of the so-called "millennial" generation are not particularly interested in inheriting furniture, antiques and collectibles from their older relatives.
Avoiding probate has long been an important goal for those preparing an estate plan in California. Probate refers to the process of administering a deceased person's estate through the state court system. In California, the process can take months or even years. It can also be very expensive. Fees for lawyers and executors are based on the size of the estate and can devour a significant portion of the decedent's assets.
For more than two decades Medi-Cal, California's state Medicaid program, has had the right to assert claims against the estates of people who received Medi-Cal benefits when aged 55 or older. Avoiding a Medi-Cal recovery has been a major estate planning priority for many people. This is about to change significantly. Under a new state law, Medi-Cal's recovery rights will be significantly more limited with respect to the estates of people who die on or after January 1, 2017.
When California residents die without a will or trust, their estate is distributed according to California's intestacy laws, without regard to whatever wishes the decedent may have had. If the decedent left a substantial estate, there is also a significant risk of litigation among surviving family members and would-be heirs.
It might not be the easiest thing for people in California to think about, but estate planning is important for the future of their loved ones. It can help the individual with their own piece of mind for the inevitable. Death is a part of life. For many, illness can come before death. Because of that, having a reasonable set of goals for the future with estate planning is a sound method for asset protection. This is true whether it is a substantial estate or one more modest. Everyone has property that they want to go to the people of their choosing. Knowing how to make certain one's wishes are adhered to requires planning.
An estate plan is not something that should be prepared once and then locked away, not to be seen again until a person passes away. As we discussed in a recent post, everyone with an existing estate plan should review it every few years to make sure it still addresses their needs. It should also be reviewed and updated after certain major life events - including divorce and remarriage.