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Planning for estate taxation into the future

People in California with significant estates may want to think about the future of estate taxation even after the major increase in the transfer tax exemption that was included in the 2017 Tax Cuts and Jobs Act. The law, which went into effect in 2018, doubled the exemption on transfer tax to $11.18 million per individual or $22.36 million per married couple. However, while this exemption allows even very wealthy individuals to avoid federal estate taxes, it has a built-in sunset clause. Without a specific renewal, the increased exemption will expire in 2025 and return to its 2017 level.

This means that people who have an estate above $5.6 million may want to engage in additional planning in order to lock in as much of the exemption as possible before the 2025 expiration. People with substantial estates may hesitate to take any planning actions that could prevent them from accessing their own funds. However, there are trust options people can choose that allow them a certain level of access while protecting a greater portion of the estate from potential future taxation.

One such option is a spousal lifetime access trust or SLAT. This is an irrevocable trust that passes assets to a spouse while adding an independent trustee for oversight. The spouse can access the principal of the trust as well as its income for distribution when necessary. This removes the value of the trust from the creator's estate and also keeps the funds out of the reach of creditors.

There are a number of estate planning strategies that can help people provide the greatest value to their beneficiaries and avoid a large estate tax burden. An attorney may advise clients about planning strategies like trusts to help them protect the value of their assets and pass them on to their loved ones.

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