USA – CALIFORNIA Law and Practice Contributed by: Jennifer Jordan McCall, Matthew Perotti, Maria Williams and Alexandria Marx, Pillsbury Winthrop Shaw Pittman LLP
2.4 Marital Property California Community Property
Spousal Exclusion All transfers of real property between spouses, wheth - er by gift, sale, inheritance, or pursuant to divorce, are exempt from reassessment. Parent–Child and Grandparent–Grandchild Exclusion California real property owners may avoid the prop - erty tax increases for certain transfers to children. However, after Proposition 19 passed in 2021, trans - fer exclusions between parents and family members became significantly limited. Following implementa - tion of Proposition 19, transfers of a primary residence between parents and children are exempt from reas - sessment, but only up to the property’s factored base- year value plus USD1,044,586. In the case of transfers by trust qualify for the exclusion when beneficial own - ership changes from parent to child. 2.6 Transfer of Assets: Vehicle and Planning Mechanisms California public policy is designed to prevent trusts from existing indefinitely to encourage money to be used and to circulate in commerce rather than remain in a trust. A California trust is subject to the Rule Against Perpetuities, and therefore exists for the lifespan of the youngest individual alive at the time the trust is established, plus an additional 21 years, which results in a trust duration of approximately 90 to 100 years. (California Probate Code, Section 21205.) At the end of the period, the trust assets must be dis - tributed and the trust ends. State laws differ regarding the permissible duration of an irrevocable trust, for example, Wyoming allows an irrevocable trust to last for 1,000 years (Wyoming Statute, Section 34-1-139 (b)), and in Delaware personal property may be held in trust indefinitely (25 Delaware Code, Section 503). California families often opt for Wyoming and Dela - ware trusts to take advantage of this, combined with zero state income tax rates there. 2.7 Transfer of Assets: Digital Assets Transfer of Digital Assets California and most states have adopted the Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA) (2015), which applies to wills executed and trusts created before, on, or after 1 January 2017. Under the rules, a custodian of the digital asset
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. If 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 upon marriage. (Cal. Fam. Code Sections 1613 and 1615.) A California matrimo - nial 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.
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