Don’t Overlook This Huge Tax Benefit for California…and 8 Other States

Aug 8, 2023 | Uncategorized

Watch My Video Here

While the title might have kept you from watching, you’re still going to want to understand the information because there is probably a good chance you’ve lived, or will live, in a Community Property state. 

In that video, I referenced a blog post from estate planning attorney extraordinaire, Martin Shenkman. I’ve been following this guy for over 15 years now and have learned a ton from him.  You should sign up for his FREE newsletter. Trust me, if you read him you’ll know more than probably 80% of the financial planners out there. 

What Shenkman referenced in that article was the amazing step up in basis rules that apply to Community Property states that Joint Tenancy doesn’t offer.

Example: Husband and Wife live in a community property state and own a rental property that is worth $1 million that they purchased jointly for $200,000 and fully depreciated. The income tax basis in that property is now zero. Husband dies. The entire interest in that rental property is stepped up to $1 million and if wife sells the property the next day there should be no capital gains to report and no tax to pay.” 

Folks, did you read that? Do you understand the significance of this? I certainly hope so.  Shenkman also says “If you live in a community property state with your spouse, or if you had lived in a community property state with your spouse for any prior period of time, the assets accumulated while there have special rules that may have important impact on your planning.”

So while you may not live in a Community Property state today, this rule may still be applicable to you if at some point the future, or the past, you will or did. 

Let me take you to how I first learned of this tax planning opportunity. It was in Henry Abts books “The Living Trust”, which you can get here.  Abts states the same thing as Martin Shenkman except this time on your primary residence. Pages 44-46 have example after example of how your primary residence can avoid capital gains at the death of the first spouse and this is beyond the current $500k exemption!

Another book on Living Trusts, and estate planning in general, I recommend is Vickie Schumacher’s “Understanding Living Trusts”.  

I have both of these books on my bookshelf and refer to them somewhat frequently. Schumacher has updated her book whereas I’m not sure Abts has done the same. 

Interestingly was that it was a crusty, old life insurance guy who set me on my path of REAL financial planning by introducing me to the concepts found in these books. I had been in the biz well over a decade and had my CFP for 5 years already before I had any concept at all how trusts worked. It took a life insurance guy to set me straight. How funny is that?  Years at Vanguard, Schwab and Legg Mason/Smith Barney and…nothing. It was a life insurance guy. It’s a crazy world. 

Lastly, if trusts are something you’re considering especially when it comes to naming a Living Trust as your beneficiary or setting one up via a “pour-over Will” that will manage your retirement accounts, I highly recommend you read Natalie Choate’s book. Life and Death Planning for Retirement Benefits. 

Yup, these books aren’t cheap, are they? You know why? Because the value you get from these books will be well, WELL, more valuable than the couple hundred bucks you pay.  It’s called EXPERIENCE, folks! You are paying for people’s experience; They’re commitment to their field, the time they spent in the trenches. It’s amazing to me how many people want someone with decades of experience but will only offer a rookie fee. Don’t be that guy. 

Some people will say “But Josh, why do I need to know this? Won’t my guy know this?”  Maybe. But if you’ve been around as long as I have, you can’t help but be a paranoid financial planner.  I should change the name of my Youtube channel from Heritage Wealth Planning to “The Paranoid Planner”. Of course, The Caveman Planner is a good one too. 

When it comes to my money and my family’s financial situation, let’s just say I trust NO ONE until they prove they can be trusted.  Just because they have certifications mean nothing to me.  Do you not remember the Plandemic? Lots of “certified” docs spouting off bad info, the most obvious being one Dr. Tony Fauci.  Don’t even get me started on Frances Collins.  May both their names go down in infamy.