USA – CALIFORNIA Trends and Developments Contributed by: Jennifer J. McCall, Pillsbury Winthrop Shaw Pittman LLP
context of marriage, it is difficult to distinguish “undue influence” from love and affection. For this reason, it is extremely important to consider who the client would wish to have serve as conservator and make that clear in a signed document prior to becoming vulnerable. Care must be given to who can handle this role as the conservator could have a conflict of interest – note that they can sell real property and gain a brokerage commission, so there are many areas for potential abuse. Reinstatement of Medi-Cal Asset Test on 1 January 2026 While this asset test was paused in California for long- term care and non-Modified Adjusted Gross Income (MAGI) eligibility categories, the test has been rein- stated as of 1 January 2026. Under the new rules, the asset limit will now be USD130,000 for a single person and USD65,000 for each additional household mem- ber, up to ten persons. This requires planning for those who are seeking long-term care eligibility and those who have made asset transfers in 2024 and 2025. Expanded Notice Obligations under CA Probate Code, Section 9202 Assembly Bill 1521 expanded the notice obligations under the Probate Code, Section 9202 for Letters first issued on or after 1 January 2026. The statute allows notice to the Director of the Depart- ment of Health Care Services (DHCS) to be submitted electronically as well as permitting mailing procedures as before. The statute added a new subdivision, Probate Code, Section 9202 (e), requiring the personal representative or estate counsel to provide notice of the decedent’s death to the Director of the California Department of Child Support Services (DCSS) within 90 days of the issue of Letters if they have knowledge that the dece- dent had outstanding child support obligations. Increased estate tax and Generation-Skipping Transfer (GST) tax exemptions under One Big Beautiful Bill Act (OBBBA) Given the increase in the federal exemption and the current law’s intention for this to be “permanent”,
estate planning has expanded further for those with taxable estates. Many California residents have chosen to take advan- tage of the opportunity to create a long-term GST- exempt trust in a state which permits assets to be held in trust for an extended maximum period provided under the laws of that state. While California maintains a traditional (shorter) Rule Against Perpetuities, many states such as Wyoming permit trusts to last for 1,000 years and Delaware permits trusts to last indefinitely. Given the increased exemption amounts, some Cali- fornia residents have chosen to receive distributions from an earlier created GST exempt trust which will terminate in the near future and then use their own increased exemptions (a married couple may transfer an aggregate amount up to USD30 million free of gift and GST tax) to a newly created long-term trust in a state with favourable trust planning laws – the longer permitted term of the trust combined with a state with no state income tax. Note that California will never- theless tax income on a trust if a California resident is the trustee of the trust (and a pro rata share of income will be subject to California state income tax in pro- portion to the number of California resident trustees compared to the total number of trustees). In addition, if distributions are made to a beneficiary who resides in California, this may attract either cur- rent or “throwback” California state income tax, with respect to “distributable net income” (DNI) included in the distribution. Care must be taken to carefully analyse the state income tax implications, including whether or not the trust is a grantor trust. When the income of the trust is taxed to the grantor due to cer- tain provisions in the trust, the grantor who resides in California will nevertheless pay income tax on that income. A grantor trust permits flexibility, in terms of selling assets to the trust in exchange for a note, without gain recognition, which can be useful (in the short term – later, the Grantor, if a California state resident, for example, may wish to terminate grantor trust status to avoid California state income tax) to leverage the use of the GST and gift tax exemptions. Note that the trust must include from the outset, if desired, a provision permitting (but not requiring) the trust to reimburse the grantor for such income tax paid on the income of the trust, since adding that provi-
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