Avoid capital gains tax in Ventura County

The purpose of your estate plan isn’t only to draft a will. A properly crafted and implemented estate plan (drawn up by your friendly Ventura estate planning attorney) will eliminate two unpleasant outcomes: probate and conservatorship.

Probate

Eric Ridley is one of the Top Estate Planning Lawyers in Ventura County, CA.

Probate is a certainty if something isn’t done to avoid it, since it is a process which occurs after one’s death. It is the formal process by which you change title on assets left behind by a decedent – but it is a nightmarish process.

Probate is also a court proceeding – and it freezes all of the assets of the deceased person – bank accounts, real estate, etc. It takes at least 18 months, makes your personal affairs public, and is an expensive place for families to fight.

The good news? You can often avoid Probate through the use of a revocable living trust.

Avoid Probate, Save Thousands – Use Revocable Living Trusts with Your Ventura Estate Planning Attorney

There are a lot of great reasons to use a revocable living trust for an estate plan. One of these reasons is capital gains tax avoidance. Something valuable, such as your house, which could be subject to capital gain taxes after death, can be transferred to your family inexpensively through use of these capital gains tax-saving techniques in conjunction with a revocable living trust.

The capital gains tax is the federal government’s way of collecting capital gains – whether it be through inheritance or sale of property. In other words, if one sells property for more than what you bought it for, you must pay your capital gains taxes (note that capital gains taxes are not considered to be a gift). These taxes can be as high as 23.8%. However, capital gains tax-saving techniques can significantly reduce capital gain taxes owed by individuals and families.

I’m going to show you how to avoid capital gains in Ventura County. I’ll show you how to use a revocable living trust without using any complicated trusts or bypassing trust tax rules.

Conservatorship

Conservatorship is what “the system” has in store for unprepared people who don’t die, but become incapacitated.

When an adult becomes unable to manage their financial affairs, there is a possibility the court will appoint someone to take over.

It’s not a pleasant process, but conservatorship does have the benefit of being much faster than probate – it can take place in as little as six weeks (usually less). However, there are drawbacks to conservatorship. The court will appoint someone to oversee an incapacitated person’s financial affairs who may or may not be trustworthy. If the guardian has authority over medical care decisions, a stranger will make your medical decisions instead of your loved ones.

You can avoid Conservatorship through planning and preparation with revocable living trusts. Setting up a revocable living trust means that when you become incapacitated there is no need for a lengthy court process, nor the unpleasantness of having one’s financial affairs supervised by a stranger. A loved one or family member will step in and take charge.

Capital Gains Tax

The capital gains tax is the federal government’s way of collecting capital gains – whether it be through an inheritance or sale of property. In other words, if you sell property for more than what you paid for it, you must pay capital gains taxes (note that capital gains taxes are not considered a gift). These taxes can be as high as 23.8%. Capital gains tax-saving techniques can reduce capital gain taxes owed by individuals and families.

Capital Gains Avoidance Example

Here is an example of how capital gains tax avoidance measures may work – in conjunction with revocable living trusts – to save your heirs thousands of dollars over the years:

Joe passed away at age 96 after a full life. Through careful preparation, Joe was able to transfer many assets such as his home or car into a revocable living trust before he died. When he died, there was no need for probate because it had all been transferred prior to his death. With a revocable living trust, Joe’s family was able to quickly and easily take charge of all of Joe’s assets instead of having a court watch over the process. His wife Sally becomes the trustee, but each of their children is listed as successor trustees. This means that if Sally were to become incapacitated or pass away before her husband, it would be one of their children taking over rather than strangers in a courtroom.

If Joe had sold his home prior to death for $500,000 and capital gains taxes owed on the property were accounted for at 23.8%, the capital gains tax savings went into Joe’s pocket rather than passing through probate with no chance for capital gains tax-saving techniques.

But we’re married!

And married folks – it’d be reasonable to assume that your spouse would automatically have this authority, right?

Wrong.

A conservator is never “automatically” appointed – the person’s spouse would probably have the “inside track,” but they would need to still work through the expensive and arduous conservatorship process.

Which, like probate, is heard in a public forum, takes a long time and… surprise – costs thousands of dollars to get started. And worse than probate, it will continue indefinitely until the subject either regains their capacity or dies.

A properly prepared estate plan will defeat these two horrible processes.

Tax Breaks With Estate Planning

But wouldn’t it be nice if one’s estate plan could go beyond beating bad outcomes and could, in fact, deliver an amazing tax outcome as a sort of “bonus?” Good News – as residents of California which happens to be one of nine so-called “Community Property” states, we are fortunate to be graced with the ability to eliminate capital gains tax on any asset that is held in one’s living trust – Twice, if you’re married!

That’s the good news. The bad news is that the triggering event that delivers what is known as a “full step-up in cost basis” is a trustor’s death.

Reduce Capital Gains with a Living Trust

Living trusts can reduce or eliminate the capital gains tax on property. What that means on a practical level is that as soon as one completes the process of “funding” their trust, all assets titled in it receive the “step-up” upon death.

This is compelling for married couples, since the first step-up occurs upon the death of the first spouse/trustor to die, meaning that the surviving spouse/trustor could then sell ANY asset of the trust, and pay NO capital gains tax.

A living trust helps reduce or eliminate the capital gains tax on property, regardless of its nature (e.g., a primary residence, rental property, bar of gold) and without regard to how many years it has been owned.

Back to our married example – if the surviving spouse opted to not sell an asset after their partner’s death, that spouse would be entitled to a second step up when giving the house as an inheritance. The inheritor won’t have any capital gains tax!

Change Your Cost Basis

You can get the amazing “double step-up in cost basis” by way of an ancillary document that accompanies one’s living trust. – it has different names, but I call it a “Community Property Agreement.”

The Community Property Agreement is for use in trusts – so you can formalize and simplify the process of creating a “legal fiction. ” This “fiction” is that all of your assets in question are community property rather than being treated as separate and distinct property, which would be seen as eligible for capital gain treatment.

Ventura Estate Planning Attorney

This way, you and your family will be able to get the best of both worlds – when property is properly titled into your trust, the property will receive the probate avoidance that the trust titling delivers, but when you treat property for tax purposes as if it had been titled as Community Property, it is eligible for the double step-up in basis that Community Property titling delivers.

This would be of interest to a single person, too – however, the capital gains tax savings would either deliver less benefit in capital gains tax savings or take much longer to see – since you’d only have one spouse to consider and not two.

Before turning control over to a conservator, it is possible for you to transfer property into your trust while alive; immediately obtaining the capital gain tax advantage upon death.

If you have any questions or would like more information, please don’t hesitate to call me – Ventura Estate Planning Attorney Eric Ridley – on 805-244-5291, or email me on ridley.eric@gmail.com

We have the knowledge and experience to help you protect your property, so it can be passed on to future generations. We will work with you, as your Ventura, CA Estate Planning Lawyer, to create a plan tailored specifically for your needs. Our Ventura law firm will take you through our proprietary service process to offer you the best advice in our area.

Our law office cherishes the trust you place in us as our client, and in the practice area of estate planning, it’s our business to treat you as the professional that you are. We will include you in all decisions about your case, we will contact you when necessary – when any issue arrises, and we will provide you with feedback along the way.

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Wills

A will, also known as a last will and testament, is a legally binding document that establishes how your assets—including real property, bank accounts, and belongings—are distributed and used after your death. You do this by creating a descriptive and detailed will: naming your beneficiaries and what they are to receive from your estate. I understand how complex estate planning can be, which is why our Ventura estate planning attorneys are here to provide you with the sound legal advice you need. We also serve residents of Los Angeles County, Santa Barbara County, and throughout the entirety of Southern California.

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