Utilizing Fractional Share Discounts to Reduce the Taxable Estate

Fractional share interest discounts are a relatively simple technique to reduce the taxable estate.  Fractional share interest discounts work well where an estate is only slightly above the lifetime estate tax exclusion or as a first step to reduce an estate greatly in excess of the lifetime exclusion.  Fractional share interest discounts are generally used to reduce the value of real property or business interests. The basis of the fractional share interest discount is relatively straight forward.  There is a limited market of buyers willing to purchase only a portion of an asset with the remainder of the asset owned…

Proper Entity Choice for a Small Business in California (S Corp and LLC)

Reason for Incorporation: Business owners are personally liable for the debts of the business or a legal judgment against the business if the business is not incorporated.  There are three primary forms of business incorporation: the C Corporation (C Corp), the S Corporation (S Corp) and the Limited Liability Company (LLC).  Incorporation of a business into one of the three above entities will limit the owner’s personal liability for the business’ debts and judgments. Pass Through Taxation: The C Corp entity choice results in two layers of taxation.  The C Corp is a separate taxpayer and will pay taxes on…

Making Lifetime Gifts to Reduce the Taxable Estate

Lifetime gifting is a simple but surprisingly effective way to reduce the value of an estate.  Every person has a gift tax exemption of $11,200,000 which allows for the transfer of gifts up to this amount during life without incurring any gift tax.  Even gifts made in excess of the gift tax exemption may have beneficial tax results because the payment of the gift tax is preferable to the payment of the estate tax. The gift tax is exclusive while the estate tax is inclusive.  To demonstrate, assume a person would like to make a taxable gift of $150,000 but…

Which Divorced Parent Gets the Dependency Exemption and the Child Tax Credit?

There are special rules for divorced parents who claim the child dependency exemption and the child tax credit.  The exemption is $3,650 for tax year 2009 and is adjusted upward for inflation in subsequent years.  The exemption is phased out as income increases over the threshold of $250,000.00 on a joint return, $208,500 on a head of household return, $166,800 on a single return, and $125,100 on the return of a married person filing separately. The dependency exemption is not available to taxpayers subject to the Alternative Minimum Tax. The parent entitled to the dependency exemption is also entitled to…

Marriage of Valli Court of Appeals of California

Community Property Background In California, community property law governs the division of property upon divorce. All property acquired during marriage and before legal separation is presumptively community property. All property acquired before marriage is presumptively separate property. All property acquired by gift, bequest, or devise is also considered separate property. Finally, property titled in the name of only one spouse is presumptively separate property. Upon divorce, a court will award each spouse his or her own separate property. Each spouse will be awarded one half of the community property. In order to distribute property in accordance with community property principles,…

Documents and Records Your Attorney Will Need To Start Your Divorce

One of the first questions asked by prospective family law clients is “What do I need to bring to my attorney to help start my divorce?”  In order to reach division of the assets and debts of the marriage, as well as to determine support that may be paid by either party, the party’s financial situation must be determined and assets and debts identified. The two basic family law forms used to document assets and debts are the Schedule of Assets and Debts and the Income and Expense Declaration.  Each party will complete each form and exchange it with the…