Saving taxes

Craig J. Bauman Attorney at Law – California
email or call (858) 488-1497

A/B or A/B/C Trusts: The current estate tax limit is $2,000,000.00 (which will shortly rise to $3,500,000.00). For married couples with estates in excess of those amounts, an A/B or an A/B/C Trust can be established. After the death of the first spouse, the trust assets are divided up, so that up to the then current estate tax limit is assigned to the B trust. If one-half of the estate is greater than the then current estate tax limit, the C trust is also funded. The B (and if needed) C trust become irrevocable. The remaing half of the estate is assigned to the A trust. The surviving spouse can do anything they want to with the money in the A trust and can spend all the income from the B and C trusts, plus may spend pricinipal from the B and C trusts for things like medical bills or house payments or insurance payments. At the second spouse’s death, by being able to use both spouse’s personal exemption amount, hundreds of thousands of dollars may be saved in estate taxes.The cost of adding the A/B provisions is just $100.00 extra and the cost of an A/B/C trust is based upon the size and complexity of the estate.
Irrevocable Life Insurance Trusts (ILIT): By purchasing life insurance through an Irrevocable Life Insurance Trust, the insurance proceeds are not included in a person’s estate. Therefore, if a person is in good enough health to purchase a sizable policy (or married spouses buy a joint adn survivor policy) then it is possible to buy a several million dollar policy and use the proceeds to pay estate taxes or other bills. Using a simple example: A $100,000.00 life insurance policy that is part of an estate that is already at the estate tax limit would be taxed at 37%, thus only $63,000.00 would be left as part of the estate. If purchased through an ILIT, all $100,000.00 would be availble to the estate, as it estate tax-free. Fees for ILIT begin at $750.00.

Charitable Giving: By the use of Charitible Remainder Trusts or Charitible Lead Trusts, highly appreciated property can be pleged to a charity so that all income still goes to the owner, but with taxes on it greatly reduced by the amount of the value of the property that will go to the charity at death OR the income from a highly appreciated property can be pledged to a charity, resulting in a charitible deduction of that amount of income, that may be used to offset other income, with the property remaining part of the estate at that person’s death. Legal fees, which begin at $750.00, are dependent upon the size and complexity of the gift.
Family Limited Partnerships: The typical situation in which a Family Limited Partnership works well is best illustrated by the following example: Papa owns a large apartment building, near the beach. At the value of $10.5 million, Papa, who is a widower, can only pass $2 millionn at his death before estate taxes start in at 37%. By setting up a Family Limited Partnership, and issuing limited partnership shares to his 3 kids, well in advance of his death, saves him income taxes now, and gradually, over the years, as he issues more and more partnership interests, shifts enough of his estate so that there are little or no estate taxes on what is left. Due to the complicated nature of this method, fess are set based upon the size and complexity of the asset and other issues, with no minimumm fee set.

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For more information, please contact:
Craig J. Bauman Attorney at Law – Local to San Diego, California
email or call (858) 488-1497

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