Brown & Streza Blog
By David Keligian on 4/9/2018 9:12 AM
Most Californians with higher incomes and homes will probably end up with higher federal income taxes as a result of the new income tax bill. Our federal income tax law now imposes a $10,000 limit on federal deductions for state and local income taxes. For example, any person who owns a home in California with an assessed value of $1,000,000 will be limited in their federal income tax deductions for the California taxes on their home alone—regardless of how much state income tax they pay.

That makes a ballot initiative slated for the November 2018 California ballot especially painful. Named “The College For All Act of 2018”, it is an attempt to re-institute the estate tax in California. Unlike the federal estate tax rules, which were recently liberalized, the proposed California estate tax starts to kick in on estates of more than $3,500,000 at a 12% rate, increasing to a rate of 22% on estates of more than $5,490,000. The initiative, backed by the California Federation of Teachers, establishes priorities...
By David Keligian on 10/26/2017 2:49 PM
Regardless of your party affiliation, expecting Congress to enact rational tax reform is - - at least for individual income taxes - - like asking your dog to parallel park your car. You're foolish if you expect a good result. To paraphrase one observer's comment, you can't expect reform from those who deformed our income tax laws to begin with.

Let's talk about one of the first principles mentioned in the "Unified Framework for Fixing Our Broken Tax Code" (the "Framework"). The Framework is supposed to make the tax code simple, fair, and easy to understand. But fixes such as adding a "zero tax bracket", combining 7 tax brackets into 3, and eliminating most itemized deductions don't simply do anything for most taxpayers.

Most individual tax returns are filed with software that makes the number of brackets, or what itemized deductions are allowed, simple to address. The same point applies to repealing the alternative minimum tax ("AMT"). Again, most tax return software automatically generates AMT...
By David Keligian on 6/20/2017 12:35 PM
Although tax reform in general and estate tax repeal in particular have been sidetracked as a result of other issues facing the Trump administration, even if the estate tax is “repealed", it will not eliminate the possibility of taxes being due at death. That is because one of the long standing features of our estate tax law is the increase of a decedent's income tax basis in any assets that are included in their estate for estate tax purposes.

For example, under current law, if I own a piece of vacant land that cost me $1,000 and it has appreciated to $10,000,000 on my death, my estate would include an asset valued at $10,000,000 on which I would have to pay estate tax. However, for income tax purposes, my heirs could sell that property with a “stepped-up" income tax basis of $10,000,000, thus avoiding income taxes on the sale of the property at it’s date of death value.

For example, the estate tax previously was repealed for just one year in 2010. Anyone who died that year didn't pay estate...
By David Keligian on 5/21/2013 2:28 PM
The end of 2012 was a tumultuous time for estate planning. No one—Congress, planners, or clients—knew anything for certain other than the high estate and gift tax exemption might (and temporarily did) go away at the end of 2012.

Congress and the administration soon agreed that for 2013, both the estate and gift tax exemptions would be “permanently” set at $5,250,000, with inflation adjustments. Some people who rushed into 2012 planning may have thought that the rush was unnecessary. Those who procrastinated breathed a sigh of relief, thinking they could wait to do their planning.

President Obama’s fiscal year 2014 budget illustrates how uncertain the situation remains, and how quickly the rules for estate planning can again change. While budgets represent something of a “wish list” for different types of tax increases, there are several key points about the 2014 budget.

First, President Obama has proposed returning the 2018 estate tax rates to the 2009 levels—estate and gift tax rates...
By David Brown on 3/7/2012 4:07 PM
When an estate is in excess of the Unified Credit, gifting assets is a good way to avoid future estate taxes.

A Qualified Personal Residence Trust (QPRT) is one of the best tools to use because it is so simple.

While we still have a $5,000,000 exemption we should all be encouraging our clients to make gifts this year, assuming it is a taxable estate.

Here are a few of the characteristics of a QPRT:

1. Transfer the home or homes (a couple is allowed to transfer up to 4) at a significant DISCOUNT. 2. The gift FREEZES the value at the discounted gift value, so if the home appreciates by the time the client dies all of the appreciation is out of the estate. 3. While the client is living they still live in the home just like they always did. 4. If they are married there is no “rent” due at the end of the “term” unless they want to pay rent. Some couples like the idea of paying rent to the kids after the term as a further means to help the kids and reduce the estate tax. Many...
By David Keligian on 10/28/2011 2:38 PM
The $5,120,000 per person gift tax exemption is supposed to last until December 31, 2012. Why use it now if you still have next year? Here are two good reasons.

The first is that given our country’s economic and fiscal situation, the Joint Select Committee on Deficit Reduction, also known as the “Supercommittee”, may reduce the gift tax exemption sooner than 2012. At least half the members of the committee are insisting on tax increases as part of the deficit reduction “solution”. (As one wag put it, where do all the “solutions” go after politicians get elected?)

The Obama administration has not only proposed tax increases in its jobs bill, but is also calling for a return of the estate and gift tax rates and exemptions to their 2009 levels. That means an estate tax exemption of $3,500,000 per person, but a gift tax exemption of only $1,000,000 per person. So it is possible a significant reduction in the current $5,120,000 gift tax exemption could occur sooner than the end of 2012.

This...