Orange County Estate Planning Lawyer Blog
Gifting before death may cause huge capital gains taxes
INCOME TAX “BASIS” CONCEPT
Under our system of federal and state income tax, if the property is sold before death for more than what was pay for it then there is a capital gain. There are special rates which apply to capital gains the penny upon one’s tax bracket. To compute capital gains, you subtract the income tax basis of the property from the net selling price. The income tax “basis” is what was paid for the property in the first place minus any depreciation and adding any expenditures for capital improvements.
We handled a case that spread across decades. It started out uncomplicated as we were the attorneys for a conservator who was handling the affairs of his distant cousin. The conservatee, Linda, was formerly Dr. Smith’s nurse. Linda had married Dr. Smith who apparently had a prior marriage and at least one daughter, but Dr. Smith had died many years ago and left his new wife, Linda, about $500,000 to live on.
What if Your Spouse is Omitted – A Will is a written document which states to whom a person’s belongings, money and property are to be given upon death. A Will is typically effective upon a person’s death and can be changed or replaced any time as long as the Will maker is mentally competent. People who die without wills are said to die “intestate” so their money and property passes under the laws of intestacy. Refer to my blog on “passing without any will.”
Trusts for Special Needs – Special Needs Trusts are used to hold money and property for specific periods of time, and to pay out the money and property according to detailed written instructions. Special Needs Trusts in particular are for lifetime financial and personal care for a Beneficiary who has a disability. The concept is to have money and property available for a disabled person but completely controlled by someone else, typically known as a Third Party Trustee. If properly structured and administered, the disabled person/Beneficiary, may still keep receiving public benefits such as Supplement Security Income (SSI) and Medi-Cal. Giving an inheritance to a disabled person by trust or through probate can be disastrous if they lose their public benefits.
A Will is a written document which states to whom a person’s belongings, money and property are to be given upon death. A Will is typically effective upon a person’s death.