Estate planning can become more complicated if you own assets outside of California or outside of the US. Among the considerations are the tax laws of those foreign jurisdictions, as well as the laws in those regions that may dictate how your assets are to be distributed after you pass away. For most, this is not a substantial problem to overcome, but it is important to be aware of the considerations.

Assets in other Jurisdictions

Other jurisdictions may not have the concept of a "trust" as we do here in California. Consequently, you may need to hire a lawyer in that particular country to understand how to appropriately plan your estate for property you may own in that country. Additionally, the laws in those countries may grant your family certain rights with respect to the property located in that country.

State Estate or Inheritance Taxes

California no longer has a "state estate tax", but other states still have such a tax. A "state estate tax" may also be referred to as an inheritance tax. Therefore, if you own property in states that have their own estate or inheritance tax, it's important to consult a lawyer in those states about how to plan appropriately.

International Tax Issues

It's important to remember that tax treatment between different countries can become even more complicated and may be affected by treaties put in place.

US tax laws are focused on making sure you are not avoiding taxes by shifting your property to other countries or by claiming property from other countries as gifts rather than income. Thus, even if you had a non-tax reason to move property to or from another country, it may have the unintended consequence of triggering tax laws.

If you own assets in multiple states and other countries, it's a good idea for you to consult with an estate planning lawyer to understand the potential issues you or your family may face.

For some clients, tax minimization or avoidance makes up a large part of the work related to their estate plan. Usually, those with higher net worths confront these issues. Among them are the gift tax, estate tax, income taxes, and property taxes. Let's briefly touch upon each one.

Gift Tax

Gift Taxes occur as a result of making lifetime transfers of assets to others. As a practical matter, only a small number of individuals face this issue. This is because until 1/1/2026, a person may transfer approximately $11,200,000 in assets without facing gift taxes. In some scenarios transfering assets and paying gift taxes can be more beneficial than having those assets continue to be part of the estate and therefore taxable for estate tax purposes.

Estate Tax

In simple terms, Estate Taxes are paid based on a valuation of the assets you own at the time of your death. If your estate is less than $11,200,000 (as of 2018), then you may not owe any estate taxes (depending on whether you made transfers during your life that utilized the estate tax exemption amount). Many estate plans for married couples take advantage of the "marital deduction" to defer estate taxes until the death of the surviving spouse.

Income Taxes

One area that estate planning lawyers focus on when it comes to income tax is the tax basis for a transferred asset. For example, recipients of assets by lifetime gift generally have the same tax basis as what the gifting party had. On the other hand, recipients of assets through an inheritance after the death of the owner may receive the asset with a "stepped-up" basis. Consequently, if you receive an asset from a living person, you may pay higher capital gains tax than if you had received the asset from someone who has passed away (for example, through that person's will or trust) if you later decide to sell it.

Property Taxes

In California, real property is reassessed for property tax purposes whenever there's a change of ownership. Transfers between parents and children and grandparents and grandchildren may be exempt from reassessment entirely or up to a certain dollar amount.

Because of the property tax system in California, it's possible that someone with highly appreciated property is still paying very little in property taxes. This is especially true if this person has owned the property for a long period of time. Planning how to transfer your real estate intelligently may allow your family to reap significant benefits in the form of maintaining low property taxes.

These are just some of the considerations and potential obstacles that taxes pose in estate planning.

There are countless reasons, legal or otherwise, for why a person may not be able to transfer his or her assets. Here are a few that estate planning lawyers run into from time to time:

Spendthrift Provisions - If you're the beneficiary of a trust that was established for you by someone else, chances are there is a "spendthrift" provision or clause in the trust. These types of clauses prevent the beneficiary of a trust from giving away their interest in the trust. These are often included to give beneficiaries protection against creditors.

Pension and Retirement Plans - Except for the ability to name a beneficiary, generally, it's not possible to transfer ownership of a pension plan. Similar problems exist with IRAs or other retirement accounts, unless the owner of the account is willing to withdraw the amounts from the IRA thereby causing recognition of taxable income.

Roth IRAs don't result in taxable income upon withdrawal, but the account owner would give up the ability to have the account grow tax free. There's one exception for spouses of the retirement account owner. In the case of spouses, when one dies, the surviving spouse may be able to "rollover" the account into his or her own IRA and continue the tax-deferred growth of the account.

Non-Public Businesses - If you're a partner or shareholder in a business, the governing documents or shareholder agreements may include a provision that limits your ability to transfer shares. Alternatively, securities laws may hinder the ability to transfer ownership in the business to others.

There are other scenarios where transfers of assets may not be possible, for example, a membership in a country club, businesses that are involved in controlled substances such as alcohol, and certain professional practices.

It's therefore important to consider the types of assets that you own when discussing your estate planning options.

While estate planning fees generally are not deductible on your income tax returns, they may be deductible or partially deductible for the following reasons:

1. If the fee is considered a business expense.
2. If the fee is an expense for the production or collection of income, for the management, conservation, or maintenance of property held for the production of income, or in connection with the determination, collection, or refund of any tax.

Under item 2 above, you may be able to deduct a portion of the legal fees if they relate to tax planning.

If this applies to you, the lawyer you are working with may be able to estimate the portion of your legal fees that relate to tax planning. It is also a good idea to discuss this with your accountant to determine what is appropriate in your specific situation. For some of you, tax planning may be one of the most important aspects of your estate plan, so it doesn't hurt to ask!