Dear Friends, Colleagues, and Clients,
On March 25, 2019, the California Senate introduced Senate Bill No. 378 (SB-378). SB-378 proposes an estate, gift and generation-skipping transfer tax of 40%, an amount equal to the tax imposed at the federal level.[1] This tax would include a lower $3.5 million basic exclusion for individuals and $7 million for married couples (which shall not be adjusted for inflation.) Additionally, the taxpayer is allowed a credit for all taxes paid under the federal estate, gift and generation-skipping transfer tax system.[2] If SB-378 is passed by the Legislature it would be conditioned upon voter approval at the next statewide election in November 2020.[3] If passed, SB-378 directs all proceeds from the collection of estate, gift and generation-skipping transfer taxes to benefit a newly created fund, The Children’s Wealth and Opportunity Building Fund.[4] SB-378 notes that this fund would be created to implement and, “directly address and alleviate socio-economic inequality and build assets among people that have historically lacked them.”[5]
The new proposed transfer tax would end the “no death” tax environment for the first time since the state death tax was repealed in 1982. California imposed a “pick up” tax until 2005, after which the “pick up” estate tax is no longer imposed in California and there was no estate tax at the state level.
So, what should you be doing ahead of this Bill becoming law? Take advantage of the current $11.4M federal estate, gift and generation skipping transfer tax exemption by funding your dynasty trusts. Not sure you want to fund so large a gift to a trust that once you gift it away, you cannot change your mind and reclaim it? Use the HYCET Trust (Have Your Cake and Eat It Too) trust which under currently tax law allows trusts established in certain qualifying states to be designed to let you reclaim prior gifts made to the irrevocable trust if the donor needs or wants all or part of the prior transfers.
DO NOT WAIT. California needs money and the pols are happy to take it from the deep pocket residents. Contact us if you would like to upgrade your estate plan from “coach” to “first class.”
[1] 2019 California Senate Bill No. 378, California 2019-2020 Regular Session.
[2] Id.
[3] Id.
[4] Id.
[5] Id.
For more information about any of the information discussed in this Client Alert, or any other income or estate tax planning or asset protection planning assistance, please contact the: Jeffrey M. Verdon Law Group, LLP at jeff@jmvlaw.com or 949-333-8150.