joy of law avoiding legal problems in life and beyond dagmar halamka
TRANSCRIPT
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JOY OF LAW
AVOIDING LEGAL PROBLEMS IN LIFE AND BEYOND
Dagmar Halamka
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Today’s Topics
• Co-ownership of property via deed• No reassessment of real property taxes upon sale or
transfer of primary residence (proposition 60 and 90) if…
• No reassessment of real property tax in parent-child transfers or vice versa, transfers to trust (funding)
• Exclusion of income tax of $500,000 capital gains• Preservation of assets with various strategies• Wills• Probate• Probate avoiders• Living trust and pour over will• Living trust advantages• Homework assignments
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Co-ownership of Property
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Co-ownership of Property (Cont.)
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Co-ownership of Property (Cont.)
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Co-ownership of Property (Cont.)
TENANCY IN COMMON
JOINT TENANCY
COMMUNITY PROPERTY
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Community Property
Basic Concept of Community Property:
• Assets accumulated while married and living in California
• Each spouse has a 50% share, can dispose of to other
• No built-in right of survivorship
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Separate Property
Separate Property Examples:
• Inheritance or gifts received by one spouse • Assets owned on wedding date
• To preserve Separate Property status, must keep the asset separate
• Separate can become Community Property by commingling
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Propositions 60 and 90
No actual reassessment of real property tax upon sale or transfer of primary residence
• May buy or construct a new home of equal or lesser value than your existing home and retain that property tax base value for the new property
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Propositions 60 and 90 (cont)
If husband or wife is 55 or older
• Must buy or complete construction of your replacement home within two years of the sale of the original property
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Propositions 60 and 90 (cont)
One Time Only Benefit
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Propositions 60 and 90 (Cont.)
• Proposition 60 applies L.A. County to L.A County
• Proposition 90 applies if LA County to…• Alameda County• Orange County• San Mateo County• Ventura County• San Diego County• Santa Clara County• El Dorado County
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Proposition 58
Proposition 58
No real property tax reassessment in parent-child transfers or vice versa
• Caveat – could incur huge income tax consequences
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Internal Revenue Code
Exclusion from income tax of $500,000 capital gains for sale of residence for a husband and wife ($250,000 if single) effective May 7, 1997.
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Internal Revenue Code (Cont.)Example:
• Purchase price of home is $300,000 and the present sale price is $810,000• (Presume no improvement)
• Husband and wife exclude from tax $500,000 using capital gain exclusion
• Tax at capital gains rates at 15% for profit
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Internal Revenue Code (Cont.)
Example continued:
• Capital gains tax rate (15%) on net profit - basis of $300,000 purchase price + $500,000 exclusion = $800,000
• Sale price of $810,000 - $800,000 = gain of $10,000
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Preservation of Assets with Various Strategies
Estate Planning
• Wills (ticket to probate court)• Probate fees are $22,700 for a $500,000
estate• Primary residence values at gross value for
probate fees (no deduction for mortgage)
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Will It Fly?
Formalities required
• Sign
• With at least two witnesses• Exception: holographic (handwritten will)
• At least 18
• Testator must know relatives and extent of property owned
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About Wills
A NAMING Document
• Names the persons who receive Probate Estate Assets
• Names an executor and a guardian
Applies to Probate Estate Assets
• Not to assets with Probate Avoiders
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What Is Probate?
• Probate’s Purpose• To pass “Probate Estate Assets” of a deceased person
to the deceased person’s heirs
• Court procedure required
• Court approves “executor” to “settle the estate” under court supervision
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More About Probate
• Concerns raised about probate:• Private matters in public proceeding• Time (approximately 15 months)• Cost• Possible proceedings in multiple states
• One approach: What do I care? I’m gone
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Preservation Of Assets With Probate Avoiders
• No probate necessary if estate is under $100,000
• No probate necessary if utilize probate avoider
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Probate Avoiders (Cont.)
• All investments with named beneficiaries
• Jointly held personal or real property • (Does not avoid probate on death of second
joint tenant)
• In TRUST FOR (poor man’s trust)
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Probate Avoiders (Cont.)
• Living trust and poor over will (a.k.a. revocable trust, a.k.a. family trust)
• Should review every 3-5 years (with expert) or any significant change of circumstances
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About Living Trusts
• Also a NAMING document
• It names who receives trust assets• It names a trustee and successor
trustees
• Person creating living trust is called the settlor (or grantor or trustor)
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About Living Trusts (Cont.)
• Trustors maintains control during capacity
• Husband and wife can be trustors and trustees
• No reassessment of real property upon transfer to trust
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Living Trust• Avoids all probate and related costs – both
financial and emotional
• Completely flexible – can be changed or cancelled at any time
• Lets you keep control, even at incompetency and after your death
• Provides effective pre-nuptial protection
• Avoids problems of joint ownership
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Living Trust (Cont.)
• Prevents a conservatorship at physical or mental incapacity
• Preserves privacy – completely confidential
• Can reduce or eliminate estate taxes• Federal estate tax exemption was $5.34 million in
2014 for an individual
• A husband and wife can pass $10.68 million to beneficiaries estate tax-free and with no probate, saving for federal estate taxes and probate fees
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Living Trust (Cont.)
• Very difficult to contest
• Minimizes emotional stress on your family
• Prevents unintentional disinheriting
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Living Trust (Cont.)
• Allows quick redistribution of assets to beneficiaries
• Distribution to minor grandchildren
• Protects minor children from court-imposed guardianships
• Distribution to spendthrift beneficiaries in trust (i.e. $500 a month)
• Can protect beneficiaries with special needs
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Living Trust (Cont.)
• Inexpensive, easy to set up and maintain
• Professional asset management with corporate trustee
• Successor trustee will manage financial affairs if you are unable to do so
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Once I Have a Living Trust, What Do I Do With It?
• Funding
• Transferring title to assets• Examples: real estate deed, bank
account, stock• Assets acquired after create living trust
• Warning: Refinancing home
Continued… for Seminar Part B