Estate Planning For Homeowners And Renters In California?

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What are the biggest estate planning mistakes homeowners make in California?

The most frequent error is failing to update estate plans as life changes occur. A Will drafted when you’re single with no assets will be drastically different from one needed when you’re married with a home and children. Another common mistake is assuming a Will alone is sufficient. While a Will directs how your assets are distributed, it doesn’t avoid probate, which can be a lengthy and expensive process. Finally, many homeowners neglect to consider how jointly owned property impacts their estate plan.

Probate, in California, can be particularly complex and time-consuming. The courts require strict adherence to procedures, and even minor errors can cause delays and increased costs. This is why proactive planning is so crucial. A well-structured estate plan minimizes these risks and ensures your wishes are carried out efficiently.

As an Estate Planning Attorney & CPA with over 35 years of experience, I’ve seen firsthand the devastating consequences of inadequate planning. My approach is to create a comprehensive strategy tailored to each client’s unique circumstances, taking into account not only their legal needs but also the tax implications of their decisions.

How does joint ownership of property affect estate planning?

Joint ownership, such as Joint Tenancy with Right of Survivorship, automatically transfers ownership to the surviving owner upon death, bypassing probate. However, this can have unintended consequences. For example, it may not align with your overall estate plan if you want to leave your share to someone other than the joint owner. It also lacks the asset protection benefits of a Trust. Furthermore, if the joint owner is not your spouse, it can create gift tax issues.

Community property ownership, common for married couples, also has specific estate planning implications. Understanding the difference between separate and community property is essential for maximizing tax benefits and ensuring a smooth transfer of assets. A CPA’s perspective is invaluable here, as we can help you optimize your ownership structure to minimize capital gains taxes and maximize the step-up in basis.

The step-up in basis is a significant advantage for homeowners. When you inherit property, the tax basis is adjusted to the fair market value at the date of death, potentially eliminating a substantial amount of capital gains tax when the property is eventually sold. This is a critical consideration when structuring your estate plan.

What is the difference between a Will and a Trust in California?

A Will is a legal document that outlines how you want your assets distributed after your death. However, it must go through probate, which, as mentioned earlier, can be costly and time-consuming. A Trust, on the other hand, allows you to transfer ownership of your assets to the Trust during your lifetime, avoiding probate altogether. A properly funded Trust also provides greater control over how and when your assets are distributed, even after your death.

Trusts also offer additional benefits, such as privacy and creditor protection. Unlike a Will, which becomes a public record during probate, a Trust remains private. Spendthrift provisions can also be included to protect your beneficiaries from their own poor financial decisions or creditors. In San Diego, where real estate values are high, these protections are particularly important.

Choosing between a Will and a Trust depends on your individual circumstances and the complexity of your estate. For many homeowners, a Revocable Living Trust is the most effective solution, providing both probate avoidance and greater control over their assets.

What happens if I die without a Will or Trust in California?

If you die without a Will or Trust, your assets will be distributed according to California’s intestate succession laws. This means the state decides who receives your property, and it may not align with your wishes. The process can also be more complicated and expensive, as the court will appoint an administrator to manage your estate.

Intestate succession laws prioritize spouses and children, but the specific distribution rules can vary depending on your family situation. For example, if you have children from a previous marriage, the distribution may be different than if you only have children with your current spouse. Having a Will or Trust ensures your assets are distributed according to your intentions, regardless of your marital status or family dynamics.

Furthermore, without a Will or Trust, you lose the opportunity to nominate a guardian for your minor children. The court will make this decision, which may not be what you would have chosen.

What digital assets should be included in my estate plan?

Digital assets, such as online accounts, social media profiles, and cryptocurrency, are increasingly important parts of our lives. Failing to plan for their succession can create significant challenges for your loved ones. Without access to your passwords and account information, they may be unable to manage your online presence or recover valuable assets.

California’s Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA) provides a framework for accessing digital assets after your death. However, it requires specific language in your Will or Trust to be effective. Without this language, service providers like Google or Facebook can legally deny access to your accounts.

As of March 2025, domestic U.S. LLCs are **exempt** from mandatory BOI reporting; however, executors of **foreign-registered entities** must file updates within 30 days to avoid **$500/day** fines. It’s crucial to inventory all your digital assets and include clear instructions for accessing them in your estate plan.

What is the Petition for Succession process for a primary residence in California?

For deaths on or after April 1, 2025, California’s AB 2016 allows for a simplified transfer of a primary residence up to **$750,000** through a **”Petition for Succession”**. This process requires a Judge’s Order, but it avoids the full probate proceeding. However, it’s important to note that other non-real estate assets must remain below the separate **$208,850** limit to qualify.

The Petition for Succession requires specific documentation and adherence to court procedures. While it’s simpler than full probate, it still requires legal expertise to ensure a smooth transfer. It’s also crucial to understand the eligibility requirements and potential limitations.

Distinguish between a **Small Estate Affidavit** (for real property <$69,625, e.g., vacant land) and **AB 2016** (Probate Code § 13151). The new rules are complex and require careful consideration.

What is the importance of trust funding?

Creating a Trust is only the first step. You must also fund the Trust by transferring ownership of your assets to the Trust. This involves changing the title of your bank accounts, brokerage accounts, and real estate to the name of the Trust. Without proper funding, the Trust is essentially empty and will not avoid probate.

Trust funding can be a complex process, especially for homeowners with multiple assets. It’s essential to work with an experienced attorney to ensure all assets are properly transferred and that the Trust is fully funded. This includes updating beneficiary designations on life insurance policies and retirement accounts.

A common mistake is forgetting to update beneficiary designations. These designations supersede the instructions in your Will or Trust, so it’s crucial to ensure they align with your overall estate plan.

How often should I review and update my estate plan?

Estate plans should be reviewed and updated regularly, especially after major life events such as marriage, divorce, the birth of a child, or a significant change in your financial situation. Tax laws also change frequently, so it’s important to ensure your plan remains compliant and optimized for tax benefits. Plans created before 2025 must be reviewed because the new AB 2016 and Small Estate limits do not apply retroactively to deaths occurring before the effective date.

The **April 1, 2025** implementation date is a critical milestone for California estate planning. The new laws provide significant benefits for homeowners, but they require proactive planning to take advantage of them. It’s recommended to review your plan at least every three to five years, or sooner if your circumstances change.

The Federal Estate Tax Exemption is now permanently increased to **$15 million per person** effective January 1, 2026. This is a significant change that may impact your estate planning strategy.