Why Tax Planning Can Look A Lot Like Estate Planning

For most people living in California, which includes residents of Amador and Calaveras counties

who have been affected by severe winter storms, tax planning looks different this year, April

2023. This is because the federal income tax filing due date for individuals for the 2022 tax year

has been extended to October 16, 2023 from April 18, 2023 (April 15, 2023 fell on a Saturday

this year and the following Monday was a holiday, Emancipation Day).

Getting ready to file your annual income tax return can look a lot like estate planning because

you need to get organized by making decisions about what important legal and financial

documents to keep, also known as record retention. You also need to review your assets list and

your liabilities list. You also need to know about the taxable limits on the number of gifts you

can make during your lifetime and at your death. I just celebrated 20 years in business on

February 1, 2023. For the last 20 years I have been counseling clients on how to assist their

executors and trustees, which includes record retention for tax planning and estate planning.

Record Retention Tips for Tax Planning and Estate Planning

Your tax planning checklist should include a review of what records you should retain.

Collecting and organizing your tax papers can be a chore. Tax professionals will remind you

that the IRS advises you to keep your tax returns forever. You should make a decision about

what supporting documentation you will retain and for how long because much of the supporting

documentation can be destroyed after you have passed any statute of limitations for audits which

is three years in most cases. Collecting and organizing your tax papers is also helpful for estate

planning. Providing correct and updated information to your executors and trustees allow them

to find the information they need to complete their administration without a lot of detective

work.

What if you don’t know what paperwork is important and what you should keep? If you have

completed your estate planning, you will need to make sure that you have your Trust, Last Will

and Testament; Power of Attorney and a Healthcare Directive. You may have already taken

extra steps in estate planning if you have written letters to your loved ones; created a list of

specific gifts; or preplanned your funeral arrangements. You will want to keep these documents

with your estate plan. You will need to collect all information pertaining to non-trust assets

including insurance and retirement accounts. The rule of thumb when determining what legal

documents are important, especially in a life and death situation should be “Can I replace this

item?” My clients are protected because I maintain a copy of their estate planning documents in

my file. This is not true for people who have prepared documents themselves or utilized an

online vendor. If you are concerned about adoption papers and divorce decrees, the courthouse

does maintain the file, you would be able to obtain a copy for a nominal fee. If you are

concerned about birth and death certificates, you would be able to obtain a copy from the

recorder’s office for a nominal fee. Deeds to your real property and Deeds of Trusts evidencing

your current property holdings and mortgage obligations could also be obtained from the

recorder’s office. Bank records can be obtained from your financial institution. Any paperwork

that would be difficult to reproduce should be flagged for immediate retrieval from the premises

in case of a fire or flood or any other natural disaster.

Annual Gifts

Your tax planning checklist should include a review of annual gifting to family members. This

annual gift does not result in a deduction from taxable income for gifting. But if the gift is

under $17,000 ($34,000 for married couples), it won’t be subject to gift tax and doesn’t

count toward your lifetime gift and estate tax limit. You’ll want to consult with your

financial advisor and your tax advisor to determine if you should consider family gifting

for gifts made in 2023.

Tax Returns

You must file taxes every year as an individual. This requirement is not excused upon your

death. How does a deceased person file a tax return? It is up to your estate representative to file

the deceased person’s final tax return if the decedent received taxable income through the date of

their death. Your estate representative depends on the circumstances, but simply is the

Administrator under the Probate; or the Executor under the Will; or the Trustee under the Trust.

Currently, in California no estate taxes are due. Currently a federal tax filing is required for

estates with combined gross assets and prior taxable gifts exceeding $12,920,000 in 2023. This

means that you can die in 2023 and Twelve Million Nine Hundred and Twenty Thousand Dollars

can be distributed to your beneficiaries tax-free. In my opinion if you have an A/B Trust or a

Complex trust and you are below the current exclusion amount you will want to meet with your

attorney to consider amending and restating your complex trust to avoid unnecessary

administration costs including legal and accountant fees that are not required for a non-taxable

estate.

Now that you know that record retention helps with tax planning and estate planning, you can

make the process easier for your loved ones by obtaining an estate plan and keeping it updated.

If you need legal guidance with your estate planning documents, please call The Estate Planning

Law Center at (209) 223-7625 to schedule a 30-minute consultation (in person, via zoom or via

telephone).