1 / 32

JOY OF LAW

AVOIDING LEGAL PROBLEMS IN LIFE AND BEYOND Professor Dagmar Halamka dmhalamka@gmail.com. http://emeriti.usc.edu. JOY OF LAW. 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…

weston
Download Presentation

JOY OF LAW

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. AVOIDING LEGAL PROBLEMS IN LIFE AND BEYOND Professor Dagmar Halamka dmhalamka@gmail.com http://emeriti.usc.edu JOY OF LAW

  2. 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

  3. Co-ownership of Property

  4. Co-ownership of Property (Cont.)

  5. Co-ownership of Property (Cont.)

  6. Co-ownership of Property (Cont.) TENANCY IN COMMON JOINT TENANCY COMMUNITY PROPERTY

  7. 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

  8. 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

  9. 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

  10. 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

  11. Propositions 60 and 90 (cont) • One Time Only Benefit

  12. 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

  13. Proposition 58 • Proposition 58 • No real property tax reassessment in parent-child transfers or vice versa • Caveat – could incur huge income tax consequences

  14. 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.

  15. 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

  16. 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

  17. 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)

  18. Will It Fly? • Formalities required • Sign • With at least two witnesses • Exception: holographic (handwritten will) • At least 18 years of age • Testator must know relatives and extent of property owned

  19. 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

  20. 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

  21. 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

  22. Preservation Of Assets With Probate Avoiders • No probate necessary if estate is under $100,000 • No probate necessary if utilize probate avoider

  23. 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)

  24. Probate Avoiders (Cont.) • Living trust and pour 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

  25. 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)

  26. 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

  27. 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

  28. 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

  29. Living Trust (Cont.) • Very difficult to contest • Minimizes emotional stress on your family • Prevents unintentional disinheriting

  30. 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

  31. 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

  32. http://emeriti.usc.edu 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 • dmhalamka@gmail.com

More Related