Orange County Probate and Estate Planning Blog

Minimizing Your Taxes through Thoughtful Planning

Posted by Mary G. Finlay | Jan 24, 2017 | 0 Comments

President Trump has vowed to overhaul the tax system. Aside from reducing the federal tax rates, Trump has proposed eliminating most deductions including the state tax deduction. As California has the dubious distinction of extremely high tax rates, Trump's proposal could have serious consequences for many Californians. As such, it would behoove everyone to make sure that they avail themselves of as many legitimate tax breaks as possible. Below are a few common mistakes that I come across in my practice where my clients could save money by planning better.


Many married clients take title to their property as joint tenants. The advantage of joint tenancy is that if one joint tenant dies, the deceased person's interest passes to the other joint tenant (or tenants) as a matter of law without the need for a probate. Although holding title as joint tenants avoids probate, as detailed below, a married couple who holds title as community property with rights of survivorship could be fare better tax-wise.

When you buy a property, your basis is equal to your purchase price plus the amount you spend on any major improvements. When you sell a property, your gain is measured by the difference between the sales price and your basis. When a joint tenant dies, the survivor gets a step-up in basis to date of death value on the half of the property that passes to that survivor. However, had the homeowner held title as community property with rights of survivorship, the survivor would receive a double-step up to date of death value for purposes of capital gains. The survivor's new basis would be the current value of the home. As a result, merely holding title as community property instead of joint tenancy could result in substantial savings.


Proposition 13 resulted in many long-time homeowners paying lower property taxes. Children (and in some cases grandchildren) can continue to enjoy those low tax rates as long as they timely claim the parent/child exemption. However, I have seen numerous situations where the exemption is not fully utilized.

Take for example when a parent dies survived by two children. The family trust provides that the children share everything equally. The trustee then transfers the family home to the two children. The children apply for and receive an exclusion from reassessment. Later, the brother decides to buy the sister out of the home. When sister deeds the property over to the brother, however, the assessor reassesses half of the property to the current fair market value. This is because the exclusion does not apply to transfers between siblings. Had the trustee distributed the family home to the brother and other property and/or a promissory note to the sister, the brother could continue to fully enjoy that low property tax rate.

Hopefully, these two tips can help you save some tax dollars. Who knows, if Trump ever releases his tax returns, I may acquire some additional methods to avoid tax. I'll keep you posted.

About the Author

Mary G. Finlay

Orange County Estate Planning Lawyer When I was in law school, all my friends and family were so supportive and proud of me. Once I graduated from law school and passed the bar, however, I suddenly became a member of one of the most loathed professions in the world. Everyone clamored to tell me ...


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