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% on the value of all owned by a California decedent in excess of $3.5M. Yes, 40%!
A few details of the bill to be aware of
- This tax would include a lower threshold than the federal exemption, namely, $3.5 million for single individuals and $7 million for married couples (which would not be adjusted for inflation) above which the tax rate will be 40%. This 40% proposed new tax for California residents would provide a tax credit at the federal level.
- We speculate the legislature will put the bill on the ballot in 2020. If it passes it would direct 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.”
- 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.”
This proposed inheritance tax was repealed in 1982, however it might be reinstated after the general election.
What to do ahead of this bill becoming law
If your estate currently exceeds $3.5M, or you expect it to before you die, including appreciating assets, real estate holdings, and stocks and bonds, create a NV Dynasty Trust and fund it with your assets using the temporary federal gift tax exemption.
Not sure you want to fund so large a gift to a trust that once you gift it away, you cannot reclaim it? Consider the HYCET Trust (Have Your Cake and Eat It Too) which if established in a qualifying state, assets transferred to the trust ahead of the CA state inheritance tax becoming law, will be removed from your taxable estate at your death preventing CA extracting its inheritance tax. If later you need or want all or part of the gifted assets back, you may reclaim them under the design of the HYCET Trust.
Do not wait!
California needs money and the politicians are happy to take it from residents with deep pockets. Contact us if you would like to upgrade your current estate plan from “coach” to “first class.”
Jeffrey M. Verdon, Esq.
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 949-333-8152.