2020 has been a year to remember for so many reasons: a global pandemic, the race to a vaccine, and an election with record-breaking voter turnout.

President-elect Joe Biden and his running mate Vice President-elect Kamala Harris campaigned on a platform of detailed proposals, including changes to certain areas of tax law. Here are some reforms that we might see during a Biden presidency, and the effects those changes might have:

Eliminating the step-up in tax basis

Biden has proposed that the current step-up in tax basis upon death be eliminated. This means that a beneficiary would take the decedent’s basis.  Here’s an example of how the step-up works now, and how it would change under the new proposal.

Let’s say that my neighbor purchased her San Francisco home in 1949 for a whopping $50,000, and the property has appreciated throughout her long life. If she decides to sell her house prior to passing away, the $50,000 purchase price would get a full step-up to the current value of $1,050,000, and that would incur $1,000,000 in long-term capital gains.

However, if she decides to bequeath the house to her children and they sell it after her death for the same amount ($1,050,000), they would not need to pay any capital gains tax because the basis is the fair market value (selling price).  This would be a huge tax break for my neighbor’s children. (For the purposes of this article, this example excludes the $250,000 homeowner exemption.)

Biden proposes getting rid of this exemption, so in our example, the $1,000,000 in capital gains tax would need to be paid regardless of whether the house was sold before or after my neighbor’s death.  It would still be possible to defer the tax by holding the property as a rental.  However, Proposition 19 (passed in the 2020 California elections) would reassess this property as fair market value increasing the property tax from around $600 per year to around $15,000 per year.

Reducing the exemption

Currently the estate tax exemption is $11,580,000 per person and is set to increase to $11,700,000 in 2021.  The exemption is scheduled to “sunset” in 2026 and decrease to around $6,000,00 per person.  This means that for 2020 up to $11,580,000 (or $23,160,000 if  married) can be passed to beneficiaries (reducing this amount by taking into account lifetime gifts) without paying any estate taxes for estates under this amount.  Currently 99.8% of Americans fall under the exemption.

Biden campaigned on lowering the exemption to around $3,000,000 per person, which would mean that beneficiaries of Americans with estates of $3 million ($6 million for couples) could face paying estate tax on their inheritances.

These proposals are based on Biden’s campaign promises and interviews. We will continue to update you as the Biden presidency progresses. If you’re interested in discussing your options, please contact us here at Weintraub Tobin.

When Karl Lagerfeld passed away in February of 2019 in France, many speculated that his cat, Choupette, was well provided for as part of his estimated $150 million estate. This pampered feline was much loved by Mr. Lagerfeld during his life, and appeared in photoshoots and featured in many high-end fashion magazines. However, over a year after Mr. Lagerfeld’s death, certain media outlets have reported that the administrator of Mr. Lagerfeld’s estate has “disappeared.” Based on these reports, many question whether Choupette will ever be able to dig her claws into her alleged inheritance.

Continue Reading The Tale of Choupette the Cat and Other Common Issues in Trust and Estate Litigation

In advising clients regarding the rights afforded to joint tenants on a bank account, most practitioners would say that the agreement with the financial institution generally would control, with the surviving joint tenant succeeding to the funds remaining in the account on the death of the other joint tenant. California’s Multiple-Party Accounts Law (Prob. Code, §§ 5100, et seq.) governs ownership of accounts with multiple parties and the disposition of those accounts upon the death of one of the parties to the account. Probate Code section 5302, subdivision (a) provides, in pertinent part, that, “Sums remaining on deposit at the death of a party to a joint account belong to the surviving party or parties as against the estate of the decedent unless there is clear and convincing evidence of a different intent. (Prob. Code, § 5302(a).) Subdivision (c) further provides that, “A right of survivorship arising from the express terms of the account or under this section, a beneficiary designation in a Totten trust account, or a P.O.D. payee designation, cannot be changed by will.” (Prob. Code, § 5302(c).)

Continue Reading With Right of Survivorship – or Perhaps Not?