At Financial Journey Partners, we help our clients make smart decisions and align their money with their goals. One way we do that is by holding educational webinars on topics that are important to our clients. We held a webinar on March 20th, and our special guest was E.J. Hong, who is an Attorney and Certified Specialist in Estate Planning, Trust and Probate Law. The webinar was titled Estate Strategies – Beyond the Basics.
During the webinar, we started by outlining the basic concepts of how the estate tax and probate works. Because we know that the current federal estate tax laws are set to expire at the end of 2025, we discussed what might happen afterward. We then went beyond the basics to talk about some advanced estate planning strategies. This month’s blog is a summary of the information discussed during the webinar. We also recorded the webinar. You can view the video by scrolling to the end of this article.
In the blog this month, we will discuss:
- How the Estate Tax Works
- How Probate Works
- Community Property Tax Planning
- Update on Estate Tax Laws
- Advanced Strategies
- Key Takeaways
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How the Estate Tax Works
Let’s start with a few basics of estate planning. The estate tax is the tax paid after death to the federal and/or state government based on the value of one’s taxable estate. This is a tax that is different than, and can be in addition to, income tax and capital gains tax.
To determine the amount of estate tax that is to be paid starts with calculating the total amount of assets owned in one’s estate after death.These assets include:
- Financial assets
- Life insurance
- Real estate
- Business interest
- Other assets
From the total amount of these assets, deduct the debt that includes their share of the following:
- Home mortgage
- Credit cards
- Car loan
- Student loans
- Other deductions such as estate administrative expense, gifts to qualified charities and some business and farm expenses.
The total sum of the assets minus the debt equals the amount of the taxable estate.
In addition to the Federal Transfer Taxes, some states also have additional State Estate Tax Rates.Below is a sample of the estate tax rates in a few states.
To reduce the amount of estate taxes paid after a person passes, some common strategies include using the marital deduction for married couples, using irrevocable trusts, irrevocable life insurance trusts (ILIT)s, gifts of financial assets to family or friends and donations to charities.
How Probate Works
When an individual has a living trust, that document directs how that person wants their assets to be distributed after they pass. If one does not have a living trust, or if they have a living trust but some assets are not put into the living trust, then those assets outside the direction of a living trust most go through a process called Probate to be distributed. Probate is a court system that oversees the execution of wills, conservatorships and guardianships. Assets in a living trust or irrevocable trust do not go through the probate process.
The following diagram shows how the Probate process works.
It is much better to have an up-to-date estate plan with a living trust (and all-important assets placed inside the trust) than it is to go through the probate court process; which can be very expensive and take months or even years to complete.
Community Property Tax Planning
California is a community property state.In general, property acquired during the marriage of either spouse is presumed to be owned by each spouse equally. When it is time to divide all the property existing at the time of separation, the assets of the community estate are divided equally. This means that unless there is an agreement between the parties to the contrary, the court is obligated to make sure there is an exact 50/50 division of community assets and debts. There are nine Community Property States.
- Arizona
- California
- Idaho
- Louisiana
- Nevada
- New Mexico
- Texas
- Washington
- Wisconsin
If you live in one of these states and are married, we recommend that you speak with an estate attorney to determine how this will affect your situation.
Update on Estate Tax Laws
The amount of the Federal Transfer Taxes (estate, gift and generation-skipping transfer) tax is listed in the table below.
As shown in the table above, the amount of an estate that is exempt from the Federal Transfer Taxes was significantly increased, starting in 2018 during the first Trump Administration. It was part of the Tax Cut and Jobs Act (TJCA) that was passed in 2017 and it was a comprehensive tax reform law. It represents one of the most significant overhauls of the U.S. tax code in over 30 years. The act introduced major changes affecting both individuals and businesses, including changes in the estate tax law. The Federal Transfer Tax exemption changed from:
Pre-TJCA: $5.3 million to
Post-TJCA: $11.18 million
The amount of the Transfer Tax Exemption is indexed and increased each year to keep pace with inflation. The TJCA exemption amount is set to expire on December 31, 2025. If it is allowed to expire, the exemption amount will decrease to the range of $6M-$7M.
Advanced Strategies
There are numerous advanced strategies that can be implemented with the help of an estate planning attorney to reduce estate transfer taxes and ensure that assets are passed to the desired beneficiaries. One strategy is called a Dynasty Trust. This is an irrevocable trust where the beneficiaries change, usually in succession by generation (if the state’s Rule Against Perpetuities allow), to avoid tax and creditor terms.
The Pros of a Dynasty Trust include:
- Wealth transfer - pass assets to future generation(s) while minimizing taxes
- Freeze value of assets at the time of gifting - the gift is valued at the time it is given for the gift tax return. Thus, appreciation is passed onto heirs without being subject to estate tax or Generation-Skipping Transfer (GST) Tax
- Asset protection - shields assets from creditors and lawsuits
- Protection/control - grantors can serve as trustees and provide for distributions, even after death
- Use larger gift tax exemption - take advantage of larger gift tax exemptions while they exist
The Cons of a Dynasty Trust include:
- Expensive to create, maintain and administer
- Income and capital gains created by the assets are taxed at high trust rates if retained in the trust
- Complicated to manage due to factors such as legal and tax nuances, administrative responsibilities, costs, etc.
Who should consider a Dynasty Trust:
- High net-worth families who want to preserve wealth for generations
- Individuals concerned about estate tax exposure
- Families who want to protect assets from law suits, creditors and divorce
- Those who wish to control how future generations use inherited wealth
Another advanced strategy is a Spousal Lifetime Access Trust (SLAT). A SLAT is a dynasty-type trust that is specifically put in place for the primary benefit of the spouse and issue. The grantor spouse is the spouse who establishes the SLAT for the beneficiary spouse. The beneficiary spouse can use the trust estate for health, education, maintenance and support (with a special trustee). Since the trust is established for the benefit of the spouse, it will be a grantor trust for income tax purposes. The remainder goes to the heirs without being subject to estate tax.
Key Takeaways
A lot of material was covered during our webinar and in this blog. Let’s summarize the information with a few key takeaways.
- Existing Estate Tax Laws sunset on December 31, 2025. Congress is currently discussing extending these lower exemption limits in some way, but it is not clear that they will pass a bill before this year is over. If they do not pass a bill, then the law expires at the end of 2025 and we revert to prior income and estate tax rates
- If you heard an estate strategy you would like to discuss, please contact an estate attorney
- We believe it is important for you to keep your estate plan up to date, with updates at least every five years or as things change
- Estate planning is a key element of our FJP Retirement FrameworkTM making things easy for your heirs
- For clients of Financial Journey Partners, we recommend you keep a full set of all your estate documents in your Client Portal Vault
Press play to watch the entire Estate Strategies - Beyond the Basics Webinar below
We want to give a hearty thanks to E.J. Hong, our special guest for this webinar. She is an Attorney and Certified Specialist in Estate Planning, Trust and Probate Law. She can be contacted at:
E.J. Hong
Phone: 650-223-5702
Email: ej@ejhong.com
Address: 2479 E. Bayshore Road, Suite 175, Palo Alto, CA 94303
Website: www.ejhong.com
If you have questions about how estate planning concepts may affect your financial plan, our Wealth Managers Elaine Manley, Scott Manley and Linda Tjiputra are happy to talk with you.
Some of the graphics in this blog are under Copyright © 2025 Law Offices of E.J. Hong, P.C.
We are here to help you make smart decisions to align your money with your goals so you can Enjoy the Journey.
Financial Journey Partners - Partners in Your Financial Journey®
Our Financial Journey Partners office is based in San Jose, California. We have clients that live in many states across the country. If you have questions about your investments or financial situation, call us to schedule time to talk about your specific situation.
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The views expressed by E.J. Hong do not necessarily reflect the views of Mutual Advisors, LLC or any of its
affiliates. E.J. Hong and the Law Offices of E.J. Hong P.C. are not affiliated with Mutual Advisors or any of its affiliates.