Incorporate in California
Many readers interested in wealth planning are small business owners, entrepreneurs, and other successful business people. One way to protect your business from you, and you from your business, is to Incorporate In California.
Incorporating in California is a smart thing to do, since you will be conducing business and business is always risky, no matter the industry. Are you signing leases, contracts, hiring employees, visitors are coming into your office. In this litigious society, you need to protect you and your family as much as possible.
End of the Year Tax Withholding Adjustments
Its always a good idea to review your withholdings at the end of the year for two reasons. One, you don’t want a significant underpayment to the IRS, or you may face some penalties. Two, you don’t want a significant overpayment either since this constitutes an interest free loan to the IRS! It’s okay to owe a little or receive a small refund, however if the difference between owed and paid is significant, a review with your tax preparer and/or accountant should be scheduled.
This Yahoo story on how to Penalty Proof Your Tax Return is a good read.
Estate Tax In Limbo
It has been well publicized that the estate tax that we are all so familiar with disappeared for 2010. There was speculation that Congress would act before allowing that to happen, especially with the federal government’s need for as much revenue as it can get. However, other policy matters took center stage and the estate tax issue was not addressed.
As it stands now, if Congress does absolutely nothing, the estate tax will resurface again in 2011, and the exemption will be at the same level as it was back in 2002, $1 million. This amount is far below the $3.5 million exemption in 2009. It is widely believed that this will not happen, that something will be done before, but it is possible that we will see 2002-2003 level exemptions for estate tax purposes.
So what can you do? Obviously nobody in their right mind would try to time their date of passing, so for the most part you don’t do much. If someone in your family does pass however, there are a lot of tax implications that must be examined by a tax professional. CNN Money discusses the issues here. If so you should speak with a financial/tax adviser so that you ensure you employ the best strategies for your estate, or that of your loved ones.
The Estate Tax: California Doesn’t Have One … For Now
You have undoubtedly heard about the estate tax by now. Opponents of the tax like to call it a death tax, as that is what triggers the tax. They attach a morbid word to the term in an effort to drum up opposition to the tax. Basically it is a tax on your right to transfer your property upon death. When someone passes away, all of the property they own or have a certain interest in is considered their “gross estate.” After you perform some allowed deductions and calculations you arrive at a taxable estate. If this taxable estate exceeds a certain exemption amount, it is taxed on the exceeded amount.
For 2009, this amount is $3.5 million, and the highest rate is 45%. It was set to completely disappear next year, and revert back to $1 million in 2011. Which means, if nothing is done, those with very sizeable estates who pass away next year are “lucky” in a sense that they hit the estate tax jackpot.
This scenario is highly unlikely as I’ve written before how President Obama plans to freeze the current exemption, $3.5 million. With proper planning, this tax can be avoided by most families, as $3.5 million is a fair amount.
California is one of a few states who do not collect any type of death taxes, estate, inheritance or gift. Since 2005, estates don’t even have to file an estate tax return with California, because the US phased out a credit that the states received from the Federal tax.
What surprises me is that California is in such a financial mess, yet we haven’t heard any talk of an estate tax resurrecting itself. They’ve increased taxes wherever they can, to much opposition. But the budget is so unbalanced how long before we see talk of implementing an estate tax at a lower exemption amount to capture more assets? I hope they’re not reading this, I don’t want them to get any ideas!
How Safe Is Your Safe Deposit Box?
I previously asked if your deposits were safe at the bank. Now I am asking if your items in a safe deposit box are secure. When I ask that you may be wondering if I’m referring to theives, accidents or even natural disasters. But no, I am asking if your contents in the safe deposit box are safe from the State of California.
No that is not a typo. In California there is an Unclaimed Property Law that allows the State of California to . Specifically Section 1514 of the Code of Civil Procedure states:
1514. The contents of any safe deposit box or any other safekeeping repository, held in this state by a business association, escheat to this state if unclaimed by the owner for more than three years from the date on which the lease or rental period on the box or other repository expired, or from the date of termination of any agreement because of which the box or other repository was furnished to the owner without cost, whichever last occurs.
It would appear that your contents would be safe as long as your lease doesn’t run out or the agreement with the bank isn’t terminated. But this is not the case. California’s State Controller has been aggressive in the past seizing assets of deposit boxes which have not had any activity within the past 3 years. Even if no such termination occurred. In one case a couple of years back, a lady stored her grandmother’s jewelry and a file of personal documents at her bank, thinking they would be safe. Without giving her any notice and with no evidence she forgot about her stuff, the bank under the auspices ofthe State auctioned off the jewelry on Ebay for a fraction of the $80,000 value, and shredded everything else. She did not find out for another 9 years.
The state was racking up $400 million a year doing this. They were allowed to deposit these funds into a general account to use for various state expenses. Now, if the rightful owner ever comes around they can claim the property. There is a State Controlller’s page for information on unclaimed property. Because of the publicicty and a class action lawsuit, new laws were put in place and the State Controller implemented some reforms. They are attempting to increase their efforts in notifing owners of the imminent seizure of their assets, but it is still not perfect. Even celebrities from London are owed money from the program.
While you can rightfully claim any value of property they seized, it is not always easy to place a dollar value on assets now lost forever. The state is not in the business of storing mementos and stock certificats and jewelry. In previous cases they sold jewelry for a fraction of the real value, and that was all you were allowed to recover. Whether this practice has been eliminated is unclear. What is clear is that if you have a safe deposit box, check at least annually that your bank and the State have not decided on your behalf that you have abandoned it.
