what happens without a will or living trust

[irvineboy]

What is the name of your state (only U.S. law)? CA

Let's say man has assets. Has children with women but not married legally.
If man passes, what happens to his assets? Does it automatically go to his children?
If the answer is that it gets settled in court, how does court decide who the assets go to? Wouldn't it most likely be his children?

 

[FlyingRon]

It would most definitely be his children (and grandchildren, etc... if he had those). Each of his children get an equal share of his estate. If a child is deceased, any further descendants of that child split the deceased child's share.

You don't get rights to an intestate estate for being an unmarried partner or baby mama.

 

[irvineboy]

It would most definitely be his children (and grandchildren, etc... if he had those). Each of his children get an equal share of his estate. If a child is deceased, any further descendants of that child split the deceased child's share.

You don't get rights to an intestate estate for being an unmarried partner or baby mama.

What would happen if his children don't have children and in a bad situation, all his children pass? Then what happens?

 

[FlyingRon]

What would happen if his children don't have children and in a bad situation, all his children pass? Then what happens?

Provided none of the children have children, if there is a spouse, the spouse gets it all. If they aren't married, then they start looking down a list of other relations: parents, siblings, etc... to determine who gets the money. It will not be the unmarried partner/baby mama.

 

[irvineboy]

So after talking to many helpful advisors, there are some angles to avoid paying an attorney to set up a trust to make sure that properties are passed from person A to person B (beneficiary) after person A's death. Also, these two angles avoid probate in court.

Either you can change the filing status to Joint Tenancy with Rights of Survivorship (JTWROS) which you would give person B 50% ownership to person A's property. If person A dies, then Person B gets 100% ownership to the property. According to Nolo.com, this avoids probate in court. Nolo - Property owned in joint tenancy automatically passes to the surviving owners when one owner dies. No probate is necessary. Joint tenancy often works well when couples (married or not) acquire real estate, vehicles, bank accounts or other valuable property together. In California, each owner, called a joint tenant, must own an equal share.

Or, if the state has one available, Person A can fill out a transfer of death (TOD). So when person A dies, person B (beneficiary) receives 100% of the property. This avoids probate in court.

I recently went to an attorney seminar trying to educate people on the benefits of trusts. They were also trying to set up people with trusts to make money. They made two statements, that I thought was interesting and contradicted what people have stated.
1) They claim that "joint tenancy", the way in which many married couples hold property, does not avoid probate.
I thought with JTWROS, it avoids probate because the surviving owner gets 100% of the property when the other owner dies? Unless Nolo.com is incorrect.
2) They also claim that holding title to property as "joint tenants" may cost you thousands of dollars in capital gains taxes on the death of the first to die.
I thought that capital gains would only be if you have sold the property and then only if the gain on the sale of the personal residence was greater then the capital gains exclusion amounts. Inheritance of property does not generate capital gains taxes.

 

[FlyingRon]

Either you can change the filing status to Joint Tenancy with Rights of Survivorship (JTWROS)

You mean you want to deed the property to that form of ownership. JTWROS is not a "filing status." You can't just change anything.

which you would give person B 50% ownership to person A's property. If person A dies, then Person B gets 100% ownership to the property. I believe that this avoids probate in court but need verification.

Yes, it does, but understand strongly what you said in the first sentence there. You gave away half the property. Joint tenancy can be terminated unilaterally by either party. B could change it to tenancy in common and break the survivorship right of A.

Or, if the state has one available, Person A can fill out a transfer of death (TOD). So when person A dies, person B (beneficiary) receives 100% of the property. This avoids probate in court.

Yes, but note that if B dies first, the property goes to A's estate, not to B's estate or heirs. Don't know if that's what you want or not.

I recently went to an attorney seminar trying to educate people on the benefits of trusts.

Seminars where they're trying to sell you a specific product are lousy ways to get legal advice.

1) They claim that "joint tenancy", the way in which many married couples hold property, does not avoid probate.

Absent knowing exactly what point they are trying to make I don't know. On it's face it is indeed incorrect.

2) They also claim that holding title to property as "joint tenants" may cost you thousands of dollars in capital gains taxes on the death of the first to die.
I thought that capital gains would only be if you have sold the property and then only if the gain on the sale of the personal residence was greater then the capital gains exclusion amounts. Inheritance of property does not generate capital gains taxes.

Again, I'm not sure what they're trying to claim not hearing it, but there's a difference between getting property by survivorship rights and by inheriting it (via a trust or will).

Let's say A buys a property for $10,000. Later he marries (or otherwise gets associated with B) and deeds the house from him to A and B jointly.
If the house is sold for $100,000 (we'll omit real estate commisions and other adjustements to basis for simplicity), a capital gain occurs of $90,000.
Now let's say A just dies. Now B already owned half and B's basis was $5,000 on that half. B inherits A's part which the basis steps up to the FMV. Half of the FMV is $50,000. B's basis for the whole house is now $55,000. If B sells the house for $100,000, there's a gain of $45,000.

Now instead, lets say A retains ownership (outright or in a trust). When A dies, if B is the sole heir/benefiicary, the whole property steps up to the FMV of $100,000.
If B sells no gain is due.

 

[irvineboy]

You mean you want to deed the property to that form of ownership. JTWROS is not a "filing status." You can't just change anything.

Yes, it does, but understand strongly what you said in the first sentence there. You gave away half the property. Joint tenancy can be terminated unilaterally by either party. B could change it to tenancy in common and break the survivorship right of A.

Yes, but note that if B dies first, the property goes to A's estate, not to B's estate or heirs. Don't know if that's what you want or not.



Seminars where they're trying to sell you a specific product are lousy ways to get legal advice.


Absent knowing exactly what point they are trying to make I don't know. On it's face it is indeed incorrect.


Again, I'm not sure what they're trying to claim not hearing it, but there's a difference between getting property by survivorship rights and by inheriting it (via a trust or will).

Let's say A buys a property for $10,000. Later he marries (or otherwise gets associated with B) and deeds the house from him to A and B jointly.
If the house is sold for $100,000 (we'll omit real estate commisions and other adjustements to basis for simplicity), a capital gain occurs of $90,000.
Now let's say A just dies. Now B already owned half and B's basis was $5,000 on that half. B inherits A's part which the basis steps up to the FMV. Half of the FMV is $50,000. B's basis for the whole house is now $55,000. If B sells the house for $100,000, there's a gain of $45,000.

Now instead, lets say A retains ownership (outright or in a trust). When A dies, if B is the sole heir/benefiicary, the whole property steps up to the FMV of $100,000.
If B sells no gain is due.

In your first example, when B inherits the property due to A's death, there is no capital gains tax until property is sold right? Meaning, if B just holds onto the property at the time of A's death, no taxes are paid upon inheritance?

In your second example like a TOD?, who actually records the FMV? It sounds like when B inherits the property from A and sells it right away (rather than holding it for appreciation), there is no capital gains tax.

If I am understanding the scenarios, it sounds like there are less tax implications for B in scenario 2 (TOD) vs scenario 1 (JTWROS).

 

[TrustUser]

1) attorneys are probably stating that the property does not escape probate, because when the 2nd joint tenant dies, it will go into probate, assuming nothing was changed after 1st joint tenant dies. so technically it is a true statement.

2) if i recall, properties in trust in community property states receive a step-up in basis for the entire property, not just the deceased tenant's half.

 

[irvineboy]

1) attorneys are probably stating that the property does not escape probate, because when the 2nd joint tenant dies, it will go into probate, assuming nothing was changed after 1st joint tenant dies. so technically it is a true statement.

2) if i recall, properties in trust in community property states receive a step-up in basis for the entire property, not just the deceased tenant's half.

Unless 2nd joint tenant sells the property before he/she dies. Or does a TOD to a beneficiary. That would avoid probate.

In regards to what ron said.
Let's say A buys a property for $10,000. Later he marries (or otherwise gets associated with B) and deeds the house from him to A and B jointly.
If the house is sold for $100,000 (we'll omit real estate commisions and other adjustements to basis for simplicity), a capital gain occurs of $90,000.
Now let's say A just dies. Now B already owned half and B's basis was $5,000 on that half. B inherits A's part which the basis steps up to the FMV. Half of the FMV is $50,000. B's basis for the whole house is now $55,000. If B sells the house for $100,000, there's a gain of $45,000.

I would think that B would not only inherit A's half of the $100,000 of $50,000, but B would also inherit his portion of the $50,000. Essentially, because B now owns 100% of the property, he owns the entire basis step up of FMV of $100,000. The difference in basis is $100,000 - his original basis of $5,000 = $95,000. But this is more than the capital gain of $90,000 so I'm not sure if the math is correct.

Unless you just ignore the second part of ron's equation and just focus on the capital gain of $90,000

 

[FlyingRon]

Capital gains NEVER applies unless the property is sold. The transfer on death (either via TOD deed, or will, or many trusts, or joint survivorship rights) is doesn't trigger capital gains tax. The part that is owned by the decedent is stepped up to the FMV so it changes the basis, but that doesn't change taxability.

Inheritance and estate taxes are different things. Federally, there is no "inheritance" tax. THere is an estate tax, but the exclusion limits are so high that they don't apply to most people (it's over $5 mil.) . There is no longer an estate or inerithace tax in California. Other states may have one or both, with or without an exclusion.
Again, the transfer strategy usually doesn't change the estate tax liability. To dodge that requires some more elaborate trust schemes.

 

[TrustUser]

you asked why attorneys made 2 separate statements.

i gave you 2 simple answers on how those statements could be construed to be true.

 

[irvineboy]

Capital gains NEVER applies unless the property is sold. The transfer on death (either via TOD deed, or will, or many trusts, or joint survivorship rights) is doesn't trigger capital gains tax. The part that is owned by the decedent is stepped up to the FMV so it changes the basis, but that doesn't change taxability.

Inheritance and estate taxes are different things. Federally, there is no "inheritance" tax. THere is an estate tax, but the exclusion limits are so high that they don't apply to most people (it's over $5 mil.) . There is no longer an estate or inerithace tax in California. Other states may have one or both, with or without an exclusion.
Again, the transfer strategy usually doesn't change the estate tax liability. To dodge that requires some more elaborate trust schemes.

I did not know that the estate tax does NOT apply in the state of California. That is interesting. I'm sure federal estate tax still applies.

So if you live in CA, and you pass $10m worth of estate (greater than the federal limit of $5,540,000) there is NO CA estate tax but there is still a federal estate tax?

 

[irvineboy]

It sounds like there are less tax implications for B in a Transfer of Death (TOD) vs a JTWROS - when the property is inherited and sold. Correct?

 

[FlyingRon]

Possibly, but I'm getting tired of these hypotheticals. If you have a real situation you'd like us to talk about, give it to us plainly.

 

[irvineboy]

Scenario 1 - John has a property worth $1m that he owns as sole owner. John changes deed to JTWROS with Jack. John owns 50% and Jack owns 50%. When John passes, Jack inherits 100% of the property. Property is now valued at $1.5m upon inheritance. Jack sells the property.

Scenario 2 - Chris has a property worth $1m that he owns as sole owner. Chris fills out a TOD and puts Craig as beneficiary. When Chris passes, Craig inherits 100% of the property. Property is now valued at $1.5m upon inheritance. Craig sells the property.