ESTATE PLANNING IN CALIFORNIA

In California, an estate exceeding a market value of $150,000 is subject to probate proceedings. For estates worth less, there is a simpler process. Since California property values are typically high, most residents have estates exceeding $150,000. Having an estate plan is helpful for avoiding most probate issues.

California has several state-specific laws, which can be advantageous in some situations and detrimental in others. There are several important issues to consider. These are a few common examples.

Since California has laws allowing both separate and community property for married couples, you can give your spouse legal rights to your separate property acquired prior to the marriage or inherited during the marriage by using transmutation.

Pros

1. Allows spouses to share their separate property.
2. Spouses with a larger net worth can transfer assets to the spouse with a lower net worth, which can reduce tax liability because of the applicable exclusion amount.
3. May help couples reduce the capital gains tax when selling a property.
4. Allows one spouse to transfer ownership of personal separate property to the other spouse to become the other spouse’s sole and separate property.

Cons

1. May result in a spouse losing converted property in a divorce.
2. Agreements are often drafted without legal help and result in one spouse taking property from another when the relationship deteriorates.

A joint tenancy agreement is not always used by married couples in California. Joint tenancy is often used when property is dually owned with another person other than a spouse such as a child or a sibling. For example, imagine that you are single and are buying a property to share with your brother. You want him to have the property after your death without probate issues. Joint tenancy’s right of survivorship allows your brother to have full ownership of the property when you die. Joint tenancy should not be confused with tenancy in common, which does not provide a right of survivorship.

Pros

1. Minimizes probate fees and some taxes.
2. Ownership of the property cannot be affected by other survivors.

Cons

1. May result in a partial loss of control of the property.
2. Selling the property requires approval of both parties.
3. Possible personal asset exposure to joint tenant’s creditors.

There are several types of trusts. A trust is a form of security for your assets, and it protects them for you or your designated heirs. It is important to understand the limitations of a specific type of trust before creating it.

Pros

1. Living trusts can be updated and keep assets out of probate.
2. Trusts may provide conditional income for heirs with a scheduled payment structure.
3. Trusts can be set up in a way that promotes tax savings.

Cons

1. Irrevocable trusts cannot be changed without approval of all beneficiaries.
2. The process of funding a trust can be difficult.
3. A will must also be created to provide clarity about the trust’s purpose.

A will outlines your wishes regarding the distribution of assets and personal effects after your death. In California, you must be 18 years of age and of sound mind for your will to be legitimate. You must sign it in the presence of two witnesses. Although the state recognizes most handwritten wills, it does not recognize verbal wills.

Pros

1. Makes your wishes about distribution of your belongings clear.
2. Minimizes disagreements between your survivors and heirs.
3. Works in accordance with other documents to help keep your assets out of probate.

Cons

1. May not be executed without other parties or an attorney knowing about the will.
2. Must meet specific criteria to be considered valid.
3. May have outdated provisions in the future if it is never amended.

If you have done some reading about estate taxes, you were probably relieved to find that California eliminated its inheritance tax in the 1980s. California estate tax returns do not have to be filed. However, there are still some various tax issues that may affect your beneficiaries, which is why you should discuss your plans with an attorney. Lawyers help you plan ahead for those potential issues and also save your beneficiaries the expense of hiring an attorney to solve an unintentional mess in the future.

There are many other issues to consider, and some exist because of state-specific laws in California. One of the biggest common obstacles is money. However, estate planning is more affordable than you might think. When you see how much money you save on a long-term basis, the cost of setting up your estate plan is far more attractive.

Another reason why people avoid estate planning is fear of difficulties. Fortunately, your attorney handles the hard work and asks you to provide any necessary documentation. People also avoid estate planning because of potential arguments with spouses, children and other family members. These may be inevitable in some instances. However, the disagreements stemming from estate planning will be less taxing on survivors’ finances and emotions than the typical arguments that happen after someone dies without an estate plan. To learn more about how we make the process easier for everyone, please contact us today.