Estate planning is a crucial aspect of financial management that ensures your assets are distributed according to your wishes after your passing. In recent years, both federal and state governments have introduced significant changes to estate planning laws, affecting residents across the United States.
Federal Estate Planning Law Policies
Federal Estate Tax Exemption: One of the most notable changes at the federal level pertains to the estate tax exemption. As of 2023, the federal estate tax exemption is $12,920,000 per individual or $25,840,000 per married couple. This means that estates valued below these thresholds are not subject to federal estate taxes. However, it's important to note that these exemption levels are subject to change due to legislative updates, so it's wise to consult with an estate planning attorney for the most current information.
Step-Up in Basis: Another significant federal estate planning policy is the step-up in basis. This policy allows heirs to adjust the tax basis of inherited assets to their fair market value at the time of the decedent's death. This can be advantageous for beneficiaries because it can potentially reduce capital gains taxes when they sell inherited assets. In March of 2023, the IRS issued Revenue Ruling 2023-2, denying a basis adjustment under Section 1014 for property acquired from a decedent when the property is held in a grantor trust upon the death of the grantor.Unless the assets are included in the taxable estate of the original owner (or "grantor"), the basis doesn't reset.
California Estate Planning Law Changes
Probate Threshold Increase: In California, the probate process can be time-consuming and expensive. However, recent changes have aimed to simplify matters for smaller estates. As of 2023 California has increased the probate threshold to $184,500 for estates valued at less than this amount. This means that estates falling below this threshold could potentially avoid the formal probate process, saving time and money.
Proposition 19: Another significant change in California is Proposition 19, which was passed in November 2020. Proposition 19 alters property tax rules, particularly regarding property transfers between parents and children and grandparents and grandchildren. It limits the ability to transfer property without triggering a reassessment for property tax purposes. This change can have significant implications for estate planning, as it may affect the transfer of family homes and property.
Health Care Directives: California has also seen changes in laws related to advance health care directives and durable powers of attorney for health care. These documents allow individuals to appoint someone to make medical decisions on their behalf if they become incapacitated. Ensuring your health care wishes are clearly documented is a crucial part of estate planning.
Estate planning laws and policies are subject to frequent changes, both at the federal and state levels. The federal estate tax exemption and the California probate threshold had specific values. However, it's essential to stay informed about the latest developments in estate planning laws, especially if you reside in California, where Proposition 19 and other changes have been introduced.
To navigate the complexities of estate planning effectively, consult with an experienced estate planning attorney who can provide personalized guidance based on your unique circumstances and the most up-to-date legal requirements. Estate planning is not a one-size-fits-all endeavor, and professional advice can help you protect your assets and ensure your wishes are fulfilled.