Estate taxes are imposed upon an estate which has a net value - in 2002 and 2003 - of $1 million or more. Under curent law, that amount will increase to $1.5 million in 2004 and 2005, and to $2 million in 2006 through 2008. For estates which approach or exceed this value, significant estate taxes can be saved by proper estate planning, usually before death and, in the case of married couples, before the death of the first spouse. Estate planning for taxation purposes must take into account not ony estate taxes, but also income, gift, property and generation-skipping taxes as well. Qualified legal advice about taxes should be obtained during the estate planning process.
How Does the Way in Which I Hold Title Make a Difference?
The nature of your assets and how you hold title to those assets is a critical factor in the estate planning process. Before you change title to an asset, you should understand the tax and other consequences of any proposed changed. Your estate planning lawyer will be able to advise you.
Community property and separate property
If you are married, assets earned by either you or your spouse while married and while a resident of California are community property. On the other hand, a married individual may own separate property as a result of assets owned prior to marriage or received by gift or inheritance during marriage. There are significant tax considerations which need to be addressed in the estate planning process with respect to both community property and separate property. There are also significant property interests to consider.
Separate property can be "transmuted" (that is, changed) to community property by a written agreement signed by both spouses and drafted in conformity with California law.
It is important to seek competent legal advice when determining what character your property is and how the property should be titled.
Joint Tenancy Property
Regardless of its source, if a property is held in joint tenancy, it will pass to the surviving joint tenant by operation of law upon the death of the first joint tenant. On the other hand, property held as community property or as tenants in common, will be subject to the will of a deceased owner.
Community property with right to survivorship
Married couples may hold title to their community property in their names as "community property with right of survivorship." Property held in that manner at the death of the first spouse is not affected by that spouse's will, but passes instead to the surviving spouse.
What Are Other Methods of Leaving Property?
A number of assets are transferred at death by beneficiary designation, such as
- Life insurance proceeds
- Qualified or non-qualified retirement plans, including 401 (k) plans and IRAs
- Certain "trustee" bank accounts
- "Transfer on death" (or "TOD") securities accounts
- "Pay on death" (or "POD, assets, a common title on U.S. savings bonds
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