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Trusts and tax minimization

Tax planning and estate planning often go hand-in-hand, since it is a priority for many California families to preserve assets to pass along to the next generation. There a lot of different ways to go about doing this that are all perfectly within the bounds of the law, although some tax minimization tactics are more controversial than others. In choosing any type of estate tax plan, it is crucial to receive qualified and reliable advice and to structure the passage of assets in strict accordance with the law.

In California there is no state-level estate tax, so the main concern is for families with assets that exceed the $5.25 million federal estate tax exemption. Federal estate taxes can rise as high as 40 percent, taking a substantial amount from the total that is passed along to children and grandchildren. However, thoughtful planning in advance can help reduce the total that is taxed.

One method of doing so known as the grantor retained annuity trust has gained significant attention in recent weeks as Congress continues to debate a long term federal budget deal. The grantor retained annuity trust allows for individuals to transfer in different types of assets such as stocks, bonds, or property. When those assets are transferred back out they are taxed under capital gains rates, but under regulations for this type of trust are typically not subject to estate tax. This practice has some in Congress calling for reforms to eliminate this method of tax minimization, but has others lobbying to keep it. 

Source: Raw Story, “How the wealthiest Americans use this one weird trick to avoid $100 billion in taxes,” Travis Gettys, Dec. 17, 2013. 

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