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The LLC Loophole in the Aftermath of Proposition 19

Proposition 19, enacted in the November Election, eliminates the parent-child exclusion from property tax reassessment for transfers of rental property from parent to child.  As a result, real estate investors are looking for new ways to transition real estate to the next generation in a tax-efficient manner.  The rules applicable to LLCs under the California Revenue & Taxation Code (R&TC) can provide a great loophole for avoiding higher property taxes. Real property owned by an LLC is either subject to the Change in Control Rules under R&TC 64(c)...

Proposition 19 Tax

Proposition 19 Tax Alert: Take Advantage of the Parent-Child Exclusion While it Lasts

It looks like Proposition 19 has passed by a narrow margin of 51.5% to 48.5%, making it the first successful attack on the parent-child exclusion (Proposition 58) since passage in 1986.  Under the soon to be old law, California real estate is exempt from reassessment for two types of transfers between parent and child (and, sometimes, grandparent and grandchild): (i) transfers of a parent’s primary residence to a child (or children) and (ii) transfers of up to $1 million of assessed (roll value) of a...

Revocable Living Trust

Does Your Revocable Living Trust Need a QTIP?

While it is true that most revocable living trusts created prior to the 2012 American Taxpayer Relief Act (the “ATRA”) need to be cleaned up, I’m not referring to cotton swabs.  QTIP is the abbreviation for a qualified terminal interest property trust.  As a result of the Marital Deduction and Portability (concepts described below), there are tremendous tax advantages to adding QTIP Trust provisions to the revocable living trusts of married couples. For decades, each U.S. Resident has been allotted a credit against estate taxes commonly...

Family Estate Planning

The Biggest Threat to Your Legacy is Family Conflict

According to a recent poll by TD Wealth, 44% of accountants, attorneys, and trust officers believe that family conflict is the biggest threat to your legacy. Taxes have long been considered the biggest obstacle to transferring wealth, at least by those unfamiliar with the ravages of family conflict. As recently as 2001, the estate tax exemption amount was $675,000, and the value of assets in an estate exceeding that amount was taxed at 55%. There has never been a more tax-friendly time to leave behind a legacy....


First Step in the Divorce Process is Not What You’d Think

I’d venture to say that you have a higher likelihood of a “surprise” death during a divorce than at any other time. Yet, with all that added stress and turmoil, the last thing you are probably thinking of is your estate planning documents. Put another way, you are probably not thinking about what happens to your assets if you die during a divorce proceeding. Under California law, with limited exception, estate planning documents are not nullified until a judgment of dissolution of marriage is entered. Similarly,...


Factors to consider when forming your joint revocable living trust

When spouses form a joint revocable living trust, they must decide what happens to the assets of the trust upon the death of the first spouse to die (herein, the “Deceased Spouse”). The assets of the trust may consist of a mixture of community property and separate property. In general, spouses have two choices: (i) a revocable living trust that requires all assets of the trust to pass to a revocable Survivor’s Trust upon the death of the Deceased Spouse (herein, the “Simple Option”) or (ii)...


Estate Planning For Blended Families

Many of our clients have so-called “blended” families. In such a family, one or both spouses have children from a prior marriage. Each spouse often has an equally strong desire to provide for their spouse (should spouse survive them) as well as provide for their children from a prior marriage. As a result, practitioners frequently recommend the type of revocable living trust that creates a decedent’s trust upon the first spouse’s death. In most cases, this decedent’s trust will provide the surviving spouse with income and...


Maximizing Your Parent-Child Exclusion

Introduction – Why the Parent Child Exclusion is Important California real estate owners pay property taxes based on the net assessed value of their property at a rate of around 1.2% per year. For example, if the net assessed value of your home is $1,000,000, your property tax bill is likely around $12,000 per year. There is often great disparity between net assessed value and fair market value as a result of the voter initiative referred to as Proposition 13. Proposition 13 “caps” the annual increase...


Unitrust conversion

Investment performance is measured, in large part, by total return on investment under modern portfolio theory. For most, not much thought is given to whether the return on investment is dividend/interest income or growth. However, the difference is critical when it comes to income-only trusts. A staple of estate planning for married couples involves the division assets between a survivor’s trust and a decedent’s trust after the first spouse’s death. Most decedent’s trusts grant the surviving spouse a right to all income from the decedent’s trust....


Structuring The Sibling Buyout For Inherited Property

A new client told me that she wants to “buy out” her brother. They recently inherited an apartment complex from their father’s estate. They both want to manage it, but they know they won’t work well together. Their management styles differ – she wants to apply income to much needed repairs and updates, while he wants to raise the rent and put money in his pocket now. I reviewed the property’s chain of title and learned that the property had already been distributed out of her...