Mike is a self-made man. During the 1950s, he and his wife saw opportunities in California’s Central Valley to buy inexpensive farm land, and they did. Throughout 1955 through the present day, they used every available dollar to buy additional land, houses, buildings, and any other type of real estate imaginable. They farmed some of the land, developed some of the land, and rented out some of the land. As time went on, they paid off all their mortgages and bought more land, all with cash.
During 2010, at age 82, they were confronted by their tax professional who saw lots of income and lots of property, but no estate plan. When she developed a balance sheet, she conservatively estimated their net worth as $100 million. With no estate plan, they were facing an estate tax burden of at least $38 million! There is a very real possibility that the entire amount would have to be paid immediately or in an installment plan which could force the family to sell property at “fire sale prices”, further increasing their loss.
This is not an unusual situation. A single person with more than $5 million, or a married couple with more than $10 million, faces a 40% estate tax rate.
The solution will take five years to complete. Using a combination of:
- A living trust, which will save $2 million in estate tax;
- Properly using the Williamson Act, which will save $14 million in estate tax;
- Organizing their farms and investment property in family limited partnerships, which will save $9.1 million in estate tax;
- Selling one half of the family limited partnerships to their children using a self-cancelling installment note “lock in” discounted values will save $8.45 million in estate tax;
- A charitable lead trust will provide money for scholarships for local high school students to attend college and study farming, then provide an inheritance for Mike’s grandchildren. This will save $4.8 million in estate tax; and,
- An aggressive gifting strategy using a Crummey trust to gift $224,000 per year to their children and grandchildren.
In all, there is a very good possibility that Mike and his family will completely eliminate his estate tax liability.
Acuña ❖ Regli provides expert services within the four corners of family wealth transfers: Estate Planning, Probate and Trust Administration; Conservatorship and Special Needs Planning; and, Inheritance Litigation. We are also available to counsel our clients and to refer them to competent, qualified attorneys who can help if they need further, specialized help. ContactUs@AcunaRegli.com or call (925) 906-1880.