Everyone (especially us at Brown & Streza) is encouraging their wealthy clients to make use of the $5,120,000 per person gift tax exemption which will automatically revert to $1,000,000 at the end of this year. However, some wealthy clients are concerned that even if they have $20 million or $30 million dollars of wealth, gifting $10,240,000 may be too radical a step. They may be concerned about parting with the cash flow generated by the gifted assets.

An excellent solution is an irrevocable gift made by each spouse, in trust to the other. The benefits to this planning, which must be completed before the end of this year, are:

1. First, assuming no “fraudulent conveyance”, the assets in each irrevocable trust enjoy the strongest creditor protection available under California law. 2. Both spouses have made maximum use of available gift tax credits that are probably the highest we’ll ever see. The trusts are drafted so that the gifted assets are excluded from both husband and wife’s estate...

We get frequent questions about how to avoid California’s high income tax rates by claiming residency in another state. Since California is very aggressive in residency matters, it is important to understand the basic rules determining California residency.

BASIC RULES. There are two basic rules you need to keep in mind if you wish to avoid California tax. The first rule is that a California resident pays California tax on their worldwide income.

For example, if you are a California resident and own part of a Nevada LLC, you will pay California tax on your distributive share of the Nevada LLC’s income, even if that LLC earned all of its income completely outside the state of California.

The second rule is that California will tax California-source income, regardless of where you live. Thus, if you live in Florida but own California real estate, you will still have to pay California tax on the California real estate income.

WHO IS A RESIDENT? California has a very expansive definition...