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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)...

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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...

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The Perfect Entity Choice for Your Dream Business

The Perfect Entity Choice for Your Dream Business

I associate the “dream business” with the need to scratch an entrepreneurial itch – it seems like a great idea, but you have no idea how successful it will be.  For the reasons set forth below, the best choice of entity for your dream business is probably an LLC. One of the first steps in starting any business is determining which type of entity to form and organize and operate your business out of: a corporation, an S Corporation, a limited liability company (LLC), a limited partnership, a...

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Death Certificate

Why Probate Takes So Long and How to Speed It Up

In general terms, probate is a judicial process where a court of law (i) appoints a personal representative of a decedent’s estate and empowers the representative with authority to marshal in the decedent’s assets and have them appraised; (ii) oversees notice to, and payment of, creditors of the decedent; and (iii) “approves” a decedent’s will and the beneficiaries thereof, or determines successors in interest (when a decedent dies without a Will), and authorizes distribution of any remaining assets accordingly....

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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...

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Contractors Must Avoid Litigation

Contractors Must Avoid Litigation

When a business relationship is governed by a written contract, it can provide clarity to the parties when an unforeseen event arises.  Simple misunderstandings are at the root of most disputes, especially when it comes to the relationship between Contractor and Owner.  A simple misunderstanding can cause a relationship that started out with a solid handshake, good eye contact, and promises of fair dealing to turn into the Hatfields & McCoys.  Contractors fall behind schedule, use the wrong materials, diverge from plans and specifications, run...

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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....

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20% QBI Deduction: Some Landlords Must Revise Lease Under New Tax Law

The 20 percent qualified business income (QBI) deduction is a huge boon to qualifying taxpayers. Essentially, a qualified business with $100,000 in profit can use the QBI deduction to reduce taxable income to $80,000. Under the guidelines the IRS introduced less than a month ago, in order for landlords to qualify, they must actively manage rental property.  To be considered an “active trade or business” a landlord must log 250 hours per year toward management of the rental property.  Time reports should include a description of...

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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,...

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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)...

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