Legal Question in Wills and Trusts in California

My wife and I currently own our home as Joint Tenants in California. As part of estate planning we are contemplating change of ownership to community property with right of survivorship (CPWROS), because of advantageous tax treatment when one of us dies. Specifically, we understand that that under CPWROS, the capital gains tax basis for our home is reset to its value at the time of the first spouse's death. (We've been in our home for over 20 years and expect appreciation greater than the 250k individual homeowners exclusion.) And we understand that the home avoids probate under both JT and under CPWROS when one spouse survives the other.

However, we also see a lot of advice that our home should instead be transferred to a revocable living trust. The main reason apparently being that we should want to avoid probate for our children when we both die. Which of course makes sense. But what about the capital gains tax implications assuming one of us dies before the other? If the house is in trust when one spouse dies, is there any reset of the capital gains tax basis? Is there a way to put the house in trust AND get the advantageous capital gains tax treatment?

Asked on 2/19/20, 8:54 am

1 Answer from Attorneys

Michele Cusack Pollak & Cusack

When my married trust clients own property in joint tenancy, the deed into the trust will read "H and W, who took title as joint tenants, acknowledge that this is their community property, and grant to H and W as Trustees of the H&W Trust, the property described as follows........" Or if you are not ready for the expenditure of a living trust, you can deed to CP now, and later to a living trust (which will not change CP status.)

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Answered on 2/19/20, 9:19 am

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