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.

Making a gift to a minor may be difficult for a number of reasons. The minor may not be legally able to manage the property that you leave for them. In addition, they may not be responsible enough to manage the asset for their long term benefit.

For some, making gifts to their minor children may be a technique to reduce the size of their estate for estate tax purposes. Whatever the reason may be, there are a couple of options for making a gift to a minor that may be suitable depending on your specific situation.

Trusts

Some people decide to use a trust as the primary vehicle for holding and managing property for a minor. The trust has the benefit of having a Trustee who can manage the trust asset and who may be granted the discretion to make distributions to or for the benefit of a minor child. This trust could be established for your child either while you're alive, or it can be set up at the time of your death.

One downside to using a trust, however, is that the cost of maintaining a separate trust for a minor child may be excessive in relation to the value of the assets held in the trust. 

California Uniform Transfers to Minors Act

Where the gift to minor person is relatively small, using a custodial account under the California Uniform Transfers to Minors Act (CUTMA) may be more attractive. Generally, the gift is held by the Custodian you select until the minor child reaches a specified age.

Figuring out the best way to transfer your assets to minor beneficiaries can be challenging. Most people grapple with the desire to provide for the child but not grant unfettered access in a way that would cause the minor to lose motivation in pursuing his or her own life goals. Estate planning lawyers can provide helpful insights on how to structure such a gift.

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.

Estate planning tends to be heavily focused on the care of loved ones. One difficulty you or someone you know may face is figuring out how to leave behind assets to care for someone who is mentally impaired or disabled to a degree that he or she cannot function independently. Some of the same considerations involved in leaving assets to a minor child are also relevant here.

Trusts

Any gifts that you make or assets you leave behind for an incapacitated person who cannot manage his or her affairs, would ideally be in the form of a trust. The Trustee of the trust can then manage those assets in a way that will be effective for the beneficiary. The Trustee can also make distributions for the benefit of the beneficiary in a way that will enhance the beneficiary's lifestyle. Frankly, the beneficiary may not even understand or be capable of comprehending the existence or nature of the trust.

Special Needs Trust

One concern that crops up for certain disabled beneficiaries is the potential loss of public benefits they may be receiving. If the beneficiary is receiving public benefits or government assistance, it's possible that your gift to them in the form of a trust or otherwise may jeopardize the beneficiary's eligibility for the public benefits and government assistance. In this scenario, it may be prudent to establish a "special needs trust" that limits how the trust assets are used so as not to cause the beneficiary to forfeit his public benefits.

Deciding the best way to leave assets to an incapacitated person can be difficult. It may depend on their level of disability, the value of the assets that you wish to give to them, or whether or not they are receiving government assistance. Having an estate planning lawyer explain the possible consequences and pros/cons of the different approaches could help you ensure that you are doing what is in the best interest of the beneficiary.