Financial Advisors: Real estate is often a substantial element of your client’s portfolio – one you are not managing or advising on. Please let your clients know that they must, as part of their end of year tax planning, address Prop. 19 with their estate planning attorney and perhaps discuss it with their parents and siblings immediately.
Insurance Professionals: Life insurance is a terrific shield against what can be punishing “death taxes”. If your client owns property that holds their family business, could a life insurance policy defray some of the pain this tax increase would cause? If one child is inheriting a home they will live in and the other an income or commercial property, can life insurance be used to make things “fair” and “even”?
Business Attorneys: If your clients own the brick and mortar for their family business, it is imperative that they speak to an advisor. Could the business weather reassessed property taxes when the founder passes away or should that real estate be transferred to the next generation now?
Real Estate Attorneys: While effecting the transfers is a simple matter for real estate attorneys, they should recognize that these transfers of wealth only make sense in the larger context of federal estate tax and gift laws. Every client should conduct a full analysis of the risks and benefits of transferring real estate to the next generation.
Other Considerations: As always, tax planning can feel like playing a game of whack-a-mole. You find a terrific solution that works under state law, and find that you have given yourself a big federal tax black eye. It is important to never DIY this type of planning. This law passed on November 3rd. The sharpest tax lawyers in California have yet to weigh in, and all eyes are towards Washington D.C. as changes to the federal estate tax are anticipated under the Biden administration as early as late January.
I am an estate planning attorney, not a tax attorney, and by no means an expert in taxable estates or California real estate taxes. Spotting issues for my clients and bringing on the right team of experts to help them create an estate plan that promotes their values and preserves family harmony is at the core of my business. I will be asking my clients if it is “fair” to leave a primary residence to one child and an income-producing property to the other, given this change in the law. How can we address other assets in the trust to create equity among siblings? How do we leave one child a family business, and an enormous continuing tax bill, and the other child the family home they intend to live in, without causing ill will between the children?