As we enter 2025, several important legislative changes are poised to affect estate planning in California. From federal tax revisions to new reporting requirements, it’s essential to stay ahead of the curve to protect assets and ensure smooth wealth transfer.
Federal estate tax exemption reduction: Under the Tax Cuts and Jobs Act (TCJA) of 2017, the federal estate tax exemption reached a historic high of $13.61 million per individual in 2024. However, this provision will expire on Dec. 31, 2025, and the exemption is set to revert to approximately $7 million, adjusted for inflation. Estates exceeding this threshold may face federal estate taxes up to 45 percent.
While California does not impose its own estate tax, this reduction could still significantly impact residents with substantial estates. To mitigate potential tax liabilities, strategies such as lifetime gifting or establishing irrevocable trusts may be worth considering before the change.
Required minimum distributions from inherited retirement accounts: As of Jan. 1, 2025, new rules apply to required minimum distributions (RMDs) from inherited retirement accounts. Beneficiaries who inherited retirement accounts from 2020 onwards must withdraw the full balance within 10 years of the original owner’s death. This applies to non-eligible designated beneficiaries, including those who are not spouses, minor children or individuals with disabilities.
Importantly, if the original account owner had already begun taking RMDs, the beneficiary must continue these annual withdrawals during the 10-year period. Failure to comply could result in substantial penalties. Beneficiaries should review their RMD plans to ensure they meet the new requirements and avoid penalties.
Corporate Transparency Act (CTA) reporting requirements: The Corporate Transparency Act (CTA) requires many entities, including LLCs often used in estate planning, to disclose beneficial ownership information (BOI) to FinCEN. However, a federal court in Texas recently issued an injunction, ruling the CTA and its reporting rules “likely unconstitutional.” Following this decision, FinCEN announced that BOI filings, originally mandatory by Jan. 1, 2025, are now voluntary while the injunction remains in place.
This injunction adds to ongoing legal challenges and varying court rulings across the U.S., creating uncertainty about the CTA’s enforcement. Entities choosing not to file face no liability for non-compliance during this period. Nevertheless, estate planners and clients should consult tax and legal professionals to determine whether voluntary compliance aligns with their planning goals, as the situation may evolve.
Changes in probate thresholds: In California, a new law effective April 1, 2025, allows for the simplified transfer of primary residences valued up to $750,000 to heirs without the need for probate. This change aims to reduce the burden of probate court proceedings and facilitate quicker asset distribution.
Action steps for 2025: With these changes on the horizon, California residents should take action to adjust their estate plans. It’s essential to:
- Update wills, trusts and beneficiary designations.
- Consult professionals to ensure compliance and reduce tax liabilities.
- Make gifts before the federal estate tax exemption drops.
- Review RMD plans for inherited accounts to avoid penalties.
By staying informed and proactive, individuals can navigate these changes and protect their estates in 2025 and beyond.
Send your questions to ccolan@colanlegal.com and use “Alpine Mountaineer estate planning question” as the subject. We’ll answer your questions in our upcoming issues. This article is provided by your local estate planning attorney, Corina Colan. The Law Office of Corina I. Colan / (909) 265-3315 / www.colanlegal.com
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