USA – CALIFORNIA Law and Practice Contributed by: Jennifer Jordan McCall, Ashley Huh and Matthew Perotti, Pillsbury Winthrop Shaw Pittman LLP
2. Succession 2.1 Cultural Considerations in Succession Planning In the US and California, high net worth families often engage in strategies with skilled advisers to seek to reduce the high transfer tax, which can decimate their family’s often hard-earned assets. Many such strategies, when correctly implemented, can be very effective. However, there is concern in that younger generations may become disincentivised to work if they receive too much gratuitous wealth, and trusts are often used to limit unfettered access to inherited wealth, while also protecting assets from potential attacks from third party creditors or others seeking to obtain the assets. As the cost of living, education, and taxes continues to escalate, many families in the US tend to have fewer children than was historically the case. 2.2 International Planning Individuals and entities subject to California law rou - tinely have businesses and families in multiple other jurisdictions. Planning for succession and wealth transfer for these family members is done in compli - ance with the laws of the relevant jurisdictions, and in consultation with local counsel as required. 2.3 Forced Heirship Laws California does not have a forced heirship regime, however, in some cases, California courts may apply the law of another jurisdiction to an estate adminis - tered in California which may include a forced heir - ship regime. For example, the State of Louisiana has rules to prevent a testator from disinheriting his or her children. California’s community property laws essen - tially entitle a spouse to one half of the other spouse’s assets earned during marriage, whether at death or in a divorce. In addition, one spouse generally cannot sell the primary residence which is community without the consent of the other spouse. 2.4 Marital Property California Community Property In California, all property earned by either spouse dur - ing the marriage is presumed to be community prop - erty, owned 50/50 by each spouse. The presumption is rebuttable. The spouses may agree in writing to
transmute separate property to community property or vice-versa. Separate property includes property acquired before the marriage and separate during the marriage, gifts and bequests made to only one spouse, and a portion of personal injury settlements. Separate property that has been comingled with mari - tal assets can become community property. In California one spouse cannot transfer marital prop - erty outside the community without the consent of the other spouse. California Prenuptial Agreements California prenuptial and postnuptial agreements are governed by the California Uniform Prenuptial Agree - ment Act. This prescribes the requirements for how such agreements may be created and addresses what can and cannot be set forth the contract. As long as the parties have drafted and executed their prenuptial agreement in compliance with the Act, and a Cali - fornia court finds no fraud, duress, non-disclosure of assets, or unconscionable terms, then the prenuptial agreement is enforceable. A California matrimonial attorney should be consulted before entering into such an agreement, as certain terms are advisable to include, to ensure the agreement is enforceable and not deemed to be unconscionable. 2.5 Transfer of Property Reassessment on Transfer Taxes In California, real property is reassessed at its fair market value when it is sold, transferred by gift, or inherited at death. It may be deemed to be sold and therefore subject to being re-assessed upon transfer of a certain percentage of ownership if held in certain entities and under certain fact patters. Complex rules apply to such transfers and to requirements for fil - ing various informational returns such as the Form BOE100-B with the California Board of Equalization. Spousal Exclusion All transfers of real property between spouses, wheth - er by gift, sale, inheritance, or pursuant to divorce, are exempt from reassessment.
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