Estate Plans and the Exodus from California

Margaret A.M. Heine

is the principal counsel at Heine Law Group in Fullerton, California. She is licensed in California and Washington and has authority to practice before the Supreme Court of the United States and the United States Court of International Trade.

Her practice includes estate planning, wills, trusts, and probate as well as business, real estate, and civil litigation. Email: nbylegas@gmail.com or visit company website www.margaretamheine.com.

Estate Plans and the Exodus from California

More and more often clients are informing us that they are moving out of state, out of country, or purchasing second homes outside of California and are interested in the impact on their estate plans.

The simple answer is that California probate courts only have jurisdiction over California assets.  That would apply to residents and non-residents alike.  The California probate court can review and apply a probate order from another state, but it must comply with California law.  The second part of the equation would be to determine which state or country are you a resident.  Where do you have your official domicile and spend the majority of your time?

It is possible that your estate may be subject to the multiple jurisdictions and treated differently in each jurisdiction.

There are two types of taxes which may be payable on an estate.  Estate tax is what is paid by the decedent’s estate.  The recipients do not owe any taxes it is the estate that owes the tax.  Inheritance tax is what is owed by a person who inherits assets from a person.  So, a person living in California may owe inheritance tax to another state for anything inherited from a person who was a resident of that state.

Federal estate taxes are uniform across the country.  Today, an individual has an $11.4 million exemption and a married couple has $22.8 million exemption.  If the estate is below those thresholds, no Federal Estate taxes are payable.

In California, there are no estate or inheritance tax payables.  A person may still owe inheritance taxes, however, if they inherit something from another state that does have inheritance taxes.  That will be briefly covered later.  It is important to note that California Senate Bill 378 is pending and is seeking to change the estate tax payable in California.  Under this bill, any estate over $3.5 million for an individual and $7.0 million for a married couple would pay estate taxes to the state of California at a 40% tax rate.  Once the federal exemption is reached taxes would then be paid at 40% to the federal government.  The bill does provide that there will not be double taxation. So, if you pay federal estate taxes, you will not pay California estate taxes on the same dollars.  If this bill passes, it will be on the 2020 ballot for voters to consider.

John Doe is a client that had a trust in California, he lived in California.  He did not place all of his assets in the trust, and had some assets simply held in his name.  Most of these assets were outside the state of California.  Mr. Doe’s trust handled his estate and assets in California.  Some California assets not in the trust at the time of Mr. Doe’s death were personal assets under $150,000.00.  He also had leases and mineral rights in other states and owned vacant land in other states.  None of these were included in his trust.

Under California Probate Code Section 13100 et seq., there is an affidavit procedure to transfer assets without the need for probate.  A death certificate is required, the affidavit sets forth the heirs of the decedent, verifies the assets to be delivered, and that no probate is required in California.  If the decedent has been dead for at least 40 days, the assets can then pass to the heirs without a court order.

As Mr. Doe’s trust took care of all of his other California assets, no probate was required as the remainder of the assets were valued under $150,000.00.  (Caution, this provision does not apply to real property.)  So that simple affidavit transferred Mr. Doe’s personal property outside of the trust to his heirs.

If Mr. Doe had a pour over will, a will designed to deliver assets to a trust which are not part of the trust, the pour over will would also function to move assets to the trust, but if it exceeds the $150,000.00 value or contains real property, the will would need to be probated.

The assets in other states were subject to the laws of each individual state, and in some cases a probate had to be opened to get title to the assets to pass to Mr. Doe’s heirs.  None of the states honored the California Trust of Mr. Doe without the need for probate; however, they did use the pour over will and the distribution of the trust document to pass the assets to Mr. Doe’s heirs.

Here is what would happen in other states for non-California assets:

In Arizona, there is a law similar to California’s affidavit which will pass small estates to heirs without probate.  The values are different, however, as it is only for property under $75,000.00.  Further, unlike California, you can pass real property under this non-probate procedure if the property is less than $100,000.00.  Arizona also has no estate taxes.

Another popular state with limited probate procedures is Nevada.  There, a small estate valued under $25,000.00 can be distributed without probate.  If the estate is under $300,000.00, then they have a limited probate procedure.  Nevada also has no estate taxes.

Oregon is not so kind.  They also have a limited probate proceeding, requiring probate on any estate having more than $75,000 in personal effects and more than $200,000 in real property.  They tax all estates over $1 million dollars.  So, their exemption is much smaller than the Federal estate tax exemption.

As to other places, there are 14 states that have estate taxes:  Connecticut, Delaware, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Tennessee, Vermont, Washington, and the District of Columbia.

There are 6 states that have inheritance taxes:  Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania.

If you hold assets in other states, you may want to check with local counsel there to determine the probate and exemptions which apply in that state.  You would also want to be certain to include language in your estate planning documents which would facilitate the transfer of these non-California assets in the event of your death.

If you move to another state, have a will and trust prepared in that state to make sure that your assets pass as you intend and that you have limited your exposure to the probate process, expense, and planned for estate and inheritance taxes.

If you will maintain two households, be sure to let your California counsel know of assets held outside of the state of California.  Assets in other countries provide unique challenges which will be covered in a later article.