I spent a strategy session with one of my clients explaining why their DIY Trust was going to cause a tax issue. When you die, there are three taxes we need to worry about:
Death Taxes (Estate Tax): Today, the exemption is over $12 million, so it would be easy to claim that this does not matter. However, the Estate Tax exemption is going to change in 2025 when the current law sunsets. Stay tuned! We don’t know what will happen—perhaps everyone will be worried about estate taxes again.
Capital Gains Tax: This is the tax on the profit from the sale of a house, stock, or any investment. The tax is on the profit from purchase to sale. If a Trust is written properly, the asset’s value can step up to the date of death value, and for a married couple, step up at the first death and again at the second death (double step-up).
Property Taxes: Prop 19 causes a reassessment at death of all property. A personal residence can maintain its lower taxes from Prop 13 only if a child lives in the home and the Trust is drafted so that there is no sibling-to-sibling transfer.
Wow, that is a lot to keep track of. The person asking these questions thought that the DIY online Trust they had was adequate. They wondered why I charge so much until they realized that drafting a Trust is not just filling in the blanks; it is making sure that the Trust is drafted so that all the potential taxes at death are minimized (or avoided altogether).
If you want help from a professional who understands all these taxes, give me a call.
