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…

Reducing the Taxable Estate with Family Limited Partnership

The family limited partnership (FLP) and the limited liability company (LLC) are excellent estate planning techniques to reduce the taxable estate.  The estate planning advantages of the FLP also apply to the LLC so this article will simply refer to FLP’s for clarity.  A FLP is a limited partnership comprised of family members.  FLPs have become very popular during the last few years because the valuation discounts of FLP assets have been so substantial.  The primary estate planning benefit of a FLP is to reduce the value of assets held in a taxable estate by transferring the assets into the…

What Happens to Your Property if You Die Without a Will in California? (Infographic)

If you die without a will, your property will be distributed to your heirs according to the laws of your state. Lawyers call this “intestate succession.” The result may or may not coincide with your own wishes, but will almost always cost your loved ones an unnecessary amount of time and money as they navigate the probate process. Below is an infographic that shows what happens to your property, in California, if you die without a will, trust, or estate plan. (click image for larger view)

Transmutation: The Transfer of Property Between Spouses in California

A transmutation is a transfer of property between spouses whereby the characterization of the property changes as a result of the transfer. The Problem:  Either 1) estate planners in pursuit of a significant tax benefit applicable to the transfer of community property to a surviving spouse cross the line by accidentally transmuting separate property to community property upon funding a joint marital revocable living trust or 2) clients who once held a generous intention borne of marital happiness lose or forget that objective at the time of divorce. The Impact:  Separate property is viewed as community property when the couple…