California Estate Planning Considerations
Community Property State
There are nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Alaska is an opt-in community property state that gives both parties the option to make their property community property.
Domicile is a person’s legal permanent residence and may not be where they currently live. For those in the military, people who have homes in several states, or those who have moved frequently, figuring out which state is their proper domicile is critical.
IRS Publication 555 provides guidance and states that generally, community property is property:
- That you, your spouse, or both acquire during your marriage while you and your spouse are domiciled in a community property state.
- That you and your spouse agreed to convert from separate to community property.
- That cannot be identified as separate property.
Guidance is also given regarding what is considered separate property:
- Property that you or your spouse owned separately before your marriage.
- Money earned while domiciled in a noncommunity property state.
- Property that you or your spouse received separately as a gift or inheritance during your marriage.
- Property that you or your spouse bought with separate funds or acquired in exchange for the separate property during your marriage.
- Property that you and your spouse converted from community property to separate property through an agreement valid under state law.
- The part of property bought with separate funds was purchased with community funds and amount with separate funds.
A premarital agreement is an agreement that may change the result of the property division.
Last Will and Testament and Trusts
The minimum age of a person competent to make a will is 18. The number of witnesses necessary to execute a will is two.
The custodial arrangement terminates when:
When the minor child is between ages 18 and 25 for custodial transfers made by irrevocable lifetime gift, will, or trust, or exercise of a power of appointment if specified by the donor in the appropriate writing.
Otherwise, when the minor child reaches age 18, or
The minor child dies.
Dying without a Last Will, the California laws of Intestacy.
The estate goes to the surviving spouse or domestic partner (DP), taking the decedent’s 50% share of all community (and quasi‐community) property. Separate property goes to the spouse or DP as follows:
- If there are no surviving descendants, parents, siblings, or descendants of a sibling, —100% of the property
- If there are no descendants, the parent(s) survive or descendants of the parent(s)—50% of the property.
- If there is one child or a descendant of that deceased child—50% of the property
- If there is more than one child—one‐third of the property.
- If there is one child and descendants of one or more deceased children—one‐third of the property
- If there are descendants of two or more deceased children—one‐third of the property
- If there is no surviving spouse or DP, or if a portion does not go to the spouse or DP:
- 100% (or applicable portion) of the estate goes to surviving descendants, equally if they are all of the same degrees of kinship to the decedent, but if of unequal degree, those of more remote degree take by representation (see Ca. Prob. Code §240)
- If there is no surviving spouse/DP or descendant:
- 100% to surviving parent or parents equally
- If there is no surviving spouse/DP, descendant, or parent:
- 100% to descendants of parents, equally if they are all of the same degrees of kinship to the decedent, but if of unequal degree, those of more remote degree take by representation (see Ca. Prob. Code §240)
If none of the above:
- Intestacy laws outline further distribution to subsequent levels—grandparents, descendants of a predeceased spouse, next of kin (and descendants), and parents of a predeceased spouse (and descendants). See Ca. Prob. Code §6402.
- If no legally described recipient can be found, estate assets go to the state of California.
Properly Transferring Property Through California Trust Laws
California law provides you with a variety of trust types that can be used to help you transfer benefits and property to specific loved ones. While setting up a trust can be relatively simple, a trust tends to have tax, probate, and personal consequences that can be very important to understand fully. Furthermore, abiding by the rules set out by the state of California is essential to setting up a proper trust. The following table outlines the specifics of California’s trust laws.
California Code – Division 9: Trust Law
California law states that a trust is created only if:
- The settlor properly manifests an intention to create a trust;
- There is trust property; and
- There is a beneficiary (unless it is a charitable trust).
A trust concerning real property is not valid unless evidenced by one of the following methods:
- By a written instrument signed by the trustee or by the trustee’s agent if authorized in writing to do so.
- By a written instrument conveying the trust property signed by the settlor, or by the settlor’s agent if authorized in writing to do so.
- By operation of law.
Methods of Creating Trusts
In California, a trust may be created by any of the following methods:
- A declaration by the owner of the property that the owner holds the property as trustee.
- A transfer of property by the owner during the owner’s lifetime to another person as trustee.
- A transfer of property by the owner, by will or by other instrument taking effect upon the owner’s death, to another person as trustee.
- An exercise of a power of appointment to another person as trustee.
- An enforceable promise to create a trust.
Under California law, a trust may be created for any purpose that is not illegal or against public policy. A trust made for an indefinite or general-purpose is not invalid for that reason if it can be determined with reasonable certainty that particular use of the trust property comes within that purpose.
Death With Dignity
Assembly Bill ABx2 15 titled “End of Life Option Act” was passed and signed into law on October 5, 2015 and went into effect June 9, 2016. The Bill authorizes “an adult who meets certain qualifications, and who has been determined by his or her attending physician to be suffering from a terminal disease, as defined, to make a request for a drug prescribed pursuant to these provisions for the purpose of ending his or her life.”
California passed the Revised Uniform Fiduciary Access to Digital Assets Act to ensure that testators can retain control of their digital property and plan for its ultimate disposition.
California does not impose an inheritance tax.
Credit Estate Tax
California imposes an estate tax equal to the maximum credit allowed under IRC Sec. 2011 for paid state estate and inheritance taxes. However, the current federal tax code does not permit a credit for paid state estate or inheritance taxes. Therefore, California has no credit estate tax in effect at this time.
California does not impose a GST tax.
California does not impose a gift tax.