Monthly Archives: January 2014

Inheritance: Avoiding an Increase in California Real Property Tax

For most California estate plans, federal estate tax can be avoided, as can probate.  Of increasing concern is how to avoid an increase in California real property tax.

For the California residence, it can pass from parent to child (or child to parent) without an increase in property tax.  But, without proper planning, property taxes may increase if one sibling buys out another sibling at death in order for one child to inherit the house with the other child receiving assets of equal value.  Proper planning is required to avoid the problem of the County treating a transfer after death as being between siblings and not from parent to child.

In addition, a parent can transfer up to $1,000,000 of assessed value (not fair market value) to the children (or a child can do the same to the parents).  (Assessed value is the value described on the property tax bill, not to be confused with fair market value.)  This $1M exclusion is for transfers both during life and at death.  Excluding the residence, once a parent transfers (combined in life and in inheritance after death) more than $1,000,000, then all transfers to children will be reassessed to fair market value, with property taxes based on those (usually higher) values.

So it is important to review the assessed values of the real estate in an estate plan in deciding upon which children will receive the benefit of the $1,000,000 assessed value exclusion and which children will receive the residence and which children will be stuck with an increased property tax bill upon inheritance.  (Similar rules apply from child to parent.)

Special rules apply for the transfers to a person’s deceased child’s children and to your children’s spouses.

Otherwise, real property taxes will be reassessed upon an inheritance to a person who is not the spouse, not the registered domestic partner, not the parent, not the child, and (with certain rules beyond this post) not a child of a person’s deceased child.

For example, real property taxes will be reassessed on a gift or inheritance to siblings, cousins, and friends.  Over time, increases in such property taxes can amount to significant dollars.

Hence, real property tax planning is an important part of a California estate plan.

copyright James J. Phillips 2014

How to include your charitable causes in your living trust and estate plan

People are often invested deeply in their charitable causes. Some give their money. Some donate their time. Some share their talent. To them, their charitable causes are an important part of who they are.

It is important for such clients to discuss with their attorney whether they want that legacy to continue in their estate plan after their death.

Here are some examples of living trust provisions that address helping your charitable causes after your death:

  • You can have your pattern of charitable giving continue after your death to your desired charity and for your desired charitable purpose.
  • Your lifetime charitable efforts could continue after your death with your bequest to pay for continuation of your charitable work.
  • Your charitable causes or campaigns or efforts could be supported after your death with a thoughtfully planned bequest.
  • You could give your family members roles in your charitable bequests, if you wish, doing so in a manner that might promote their philanthropy (or that might inspire their passion for your charitable causes).

If you are uncertain whether there will be enough funds in your estate both for your family and for your charity, you could use any of these planning techniques:

  1. The charitable bequest occurs only if your total net worth exceeds a certain amount.
  2. The charitable bequest could equal the lesser of a certain dollar amount or x% of your net worth.
  3. The charitable bequest could apply only if certain family members die before you.

Copyright 2014 James J. Phillips