There are many ways estate planning can provide the right way of leaving wealth to your children. However, some parents assume that what they get from their own research is enough information for them to plan their children’s inheritance. A proper way of doing this is to seek information from an experienced professional such as an estate planning attorney. Here are some examples that are all too common of what not to do:

“Oral Wills”

This is a way where you simply tell your beneficiaries your wishes and how to handle your estate by vocally expressing them in words. This is certainly a strategy that is bound to make a mess in your estate and your children’s inheritance. Even if you have a good relationship with your family or don’t have many assets, this does not matter because “oral wills” does not have weight in court. Without a written document, all of your estate must go through probate. The judge and the intestate laws written by the legislature will be making decisions about who gets what, not your children or loved ones.

Joint Tenancy

Instead of creating a trust, some people thinks it’s okay to put their children as joint tenants on their properties. Their intent is to have their children assume full ownership when the parents die and skip the probate process. It makes sense to them, what they don’t know is the property is not safe because it is not protected from taxes, creditors and including the children’s creditors if they have financial troubles. Their troubles could force them to put the property for sale.

Here is another issue and this time, Uncle Sam comes in the mix. Having joint tenancy with your children reveals you to otherwise avoidable capital gains taxes. Uncle Sam will tax you when you sell certain assets like your real estate on the capital gains. You can deduct the cost basis from the selling price, the amount of money you originally bought your real estate with. For example, if you and your spouse bought a land for $220K and later sell it for $330K, there are capital gains taxes that needs to be paid for, $110K.

Here’s the good point, having a trust instead of a joint tenant will get your beneficiaries a big break on taxes. For example, you bought a land for $220K, let’s say after you died, the fair market value of the land was $300K, and since you have set a trust, your spouse’s cost basis will now be $300K, not $220K. The basis for the beneficiaries of the trust gets “stepped-up” to its value at your death. Now if the surviving spouse sells the land for $320K, the capital gains tax that needs to pay is $20K, which is the gain that happened after your death! With a joint tenancy, the surviving spouse would have to pay $100K for capital gains tax!

Giving Away the Inheritance Early

This is a strategy that comes with many hidden dangers, some parents give it all away because they do not know the consequences and they lack proper advice. Each year, you are limited to give each child $14K to avoid high gift taxes. If you give more than that, you must file a gift tax return. Another hidden danger, if you give small amounts each year, it is possible for them to spend it rather than invest because they lack wisdom and you lose your chance of leaving a legacy when you pass. Lastly, life happens and it is possible for you to have unforeseen circumstances that will cause you to re-evaluate your allocations and it will be too late. You don’t want to be in a position of being dependent for them to give back your money for your own needs.

Shortcuts and ideas like these have been discussed many times in our consultation. They seem to look so appealing on the surface, when in fact, they do more harm than good. MMZ LAW can help you find better strategies to prepare you and your families’ future. Give us a call, (909) 256-6702 for your FREE consultation. We are located in the Claremont Village in Claremont, near Upland, Pomona and La Verne. We service throughout Orange, Riverside, San Bernardino and LA Counties.



341 W. 1st St. Suite 100
Claremont, CA 91711

MARIVEL M. ZIALCITA is the founder of MMZ LAW, A Professional Corporation, where she practices in the areas of trust and estate, elder law, special needs, conservatorship, trust administration, and probate. Ms. Zialcita is a frequent speaker on trust and estate matters and holds memberships in the State Bar of California, Trust and Estate Section, The San Bernardino County Bar Association, Wealth Counsel and Elder Counsel. She currently assists in the pro bono legal services program at the James L. Brulte Senior Center in Rancho Cucamonga, California. She is based in Claremont but assists clients throughout Southern California.

This information is educational information only and not legal advice.