Planning For A Secure Future

Tax-saving estate planning strategies

On Behalf of | May 10, 2024 | Estate Planning

Business owners and other high-wealth individuals need to act by the end of 2025 to take advantage of significant tax planning opportunities in California that can assist in the tax-free transfer of money within their estates. To take advantage of this exemption, which will be cut in half at the end of 2025, you’ll need to take multiple steps.

Understanding estate tax exemptions

The current estate tax exemption stands at $13.61 million for individuals and $27.22 million for couples. It rises annually with the inflation rate, so the 2025 figures will be higher. However, because of the 2017 tax overhaul, that figure is expected to drop by about $7 million per person at the beginning of 2026. High-worth individuals should consider modifying their estate planning tasks now to compensate for this change.

You have several tax-saving strategies to consider to still take advantage of the 2017 tax overhaul. Couples should consider spousal trusts and dynasty trusts and begin contributing to them now. Dynasty trusts can list your children as beneficiaries. You can create multiple spousal trusts, but make sure they are not interrelated so you don’t trigger the reciprocal trust doctrine.

Staying within the law on trust creation

Many types of trusts are powerful instruments in any estate plan. Each one has different advantages for passing on your wealth to beneficiaries. The Internal Revenue Service considers multiple factors to determine whether the trusts you create run afoul of the reciprocal trust doctrine.

Consulting with financial planners and tax professionals can help you avoid problems so you can retain tax advantages in your estate plan. The timing of trust creation plus the language, differing terms and powers within each trust can significantly affect whether the documents you create will retain their legal tax advantages.