Tag Archives: Prop. 13

Should We Get Married? Estate Planning for Same Sex Couples Now

wedding-91797_150Dear Liza: My long term domestic partner of 30 years and I were registered domestic partners for a few years and then she decided she wanted to be totally financially independent of me so we terminated the agreement last year.  We are still together as a couple and live five minutes away from each other.  Our intention is to leave everything we own to each other and have named each other as executors in our wills.  She owns a house that she may or may not be selling but in general our estates are pretty modest.  I am wondering since we are still a couple is there is an advantage in terms of avoiding probate in getting married versus doing a living trust? First, can I just say I love being able to have this conversation! Now, down to business. There’s a lot packed into your question. I’m going to answer on a general level, but I think it would be worth it for you and your partner to sit down with an accountant and an attorney and see how my advice addresses your particular concerns.

There are three key  estate planning advantages to getting married for same sex couples now, but I wouldn’t frame it as a living trust versus marriage. That’s kind of apples and oranges.  A living trust will still allow you to transfer your assets to each other without probate, regardless of whether or not you marry. But being married has two key federal and one state TAX advantage, all of which you’d realize with or without a living trust.

1.  Married couples get a step up in basis when one spouse dies on all community property assets. That means that the surviving spouse won’t have to pay capital gains on any appreciated assets that she sells after the first death, other than any gain that happened after the death of the first spouse.  For example, if your partner’s house has appreciated a lot since she bought it, and you marry and make that house community property, when one of you dies, that house would be valued at its date of death value, not the original purchase price.

2. Married couples get an unlimited marital deduction from federal estate and gift tax.  That means that you and your spouse can give an unlimited amount of assets to each other, at death or during life, and no federal estate or gift tax will be due for those gifts. For those with modest estates (which are most of us) this isn’t as big a concern now that the federal estate and gift tax exemption is $5.25 million, but that number may be reduced by Congress in the future, and it is a benefit that only spouses receive.  This, in fact, was the basis for Edie Windsor’s challenge to DOMA.

3. Married couples can pass real property to each other in California without a change in property tax rates.  A transfer between spouses is an exception to Proposition 13’s reassessment requirement.  Since you and your partner terminated your Registered Domestic Partnership, and it sounds like she purchased the property alone, her transfer of the house to you via a Will would trigger a change of ownership and reassessment for at least 1/2, if not all, of the property, depending on how she holds title at her death.

Living Trusts and Property Tax in California

Dear Liza, My Wife and I own two pieces of real-property that we purchased long ago, in Los Angeles.  Because of Prop. 13, our property taxes are quite low. If we pass these properties to our children via a living trust, will they have to pay more property taxes? NO! I love being able to give you a simple, happy answer. But, you are in luck. By placing these properties into a living trust, you will be able to pass them to your children without a costly probate proceeding AND because you are passing properties from a parent to a child, they will inherit your property tax rate in both properties! The transfer of real property from parents to children is currently an exception to Property 13 reassessment. Your children will have to file a form requesting that this exception be applied to the properties within three years of the transfer, but unless the law changes in CA, they won’t be reassessed. For those of my readers who do not live in California, I apologize, this is a completely state-specific blog post. California passed Prop. 13 in the 1970″s, limiting the amount of property tax that’s assessed on real property until there’s a new owner, at that point, the property tax is applied to the then-current value of the property. However, parent-to-child is one of a few exceptions to this rule.