CALIFORNIA'S RIGHT TO DIE
In 2016, California enacted a new law that allows terminally ill residents to choose to end their own lives. Oregon, became the first to adopt similar legislation in 1997, and U.S. doctor-assisted deaths are currently legal in Colorado, Montana, Vermont, Washington and Washington D.C.
The California law, called the End of Life Option Act, became effective on June 9, 2016. The law requires that the patient seeking to utilize the right to die must be (1) a California resident; (2) at least eighteen (18) years old; (3) mentally competent and capable of making and communicating health care decisions; (4) diagnosed with an illness that will lead to death within six months; and (5) able to self-administer and ingest the prescribed medication.
Two doctors are required for the prescription: an “attending physician” who writes the prescription, and a “consulting physician” who confirms the diagnosis, prognosis and the patient’s capability to make an informed decision. If all the criteria have been met, the terminally ill patient must make 3 voluntary requests, two oral (at least 15 days apart) and one written, which must be signed by two witnesses. In addition, the patient must sign a “final attestation” form before ingesting the drug, stating that the patient is fully informed of the consequences and alternatives. Lastly, the patient must be able to swallow the medication yourself, as injection is not permitted. The patient can change his or her mind at any time and decide not to administer the drug.
In the first year since this new law came into effect, California health officials reported that 111 terminally ill people legally ended their lives pursuant to the law. According to the report, between June 9, 2016, and then end of 2016, 191 people who had six months or fewer to live, received life-ending prescriptions. According to the report, only 111 of them took the pills by the end of the reporting period in December. The report found that of the 111 who died, 58.6% had been diagnosed with terminal cancer, and 18% suffered from neuromuscular disorders like ALS and Parkinsons’.
CALIFORNIA BENEFICIARY DEED
Effective January 1, 2016, California law has changed to allow for owners of real estate to designate a “transfer on death” beneficiary on title to the real estate. Traditionally, it has been impossible to designate a beneficiary on title to receive ownership of real estate in California without requiring the expense of creating a revocable trust. Now, similar to the way a designated beneficiary works with investment accounts, an owner of real estate can execute a “transfer on death” beneficiary deed to indicate who should receive ownership of the property at the current owner’s death.
To be valid, the beneficiary deed must meet the following requirements: (1) The real property must be a single family home or condominium unit, or a multiple residence of not more than 4 residential dwelling units, or be a single family residence on no more than 40 acres of agricultural land; (2) the beneficiary deed must be signed and dated before a notary public to be effective and valid; (3) the beneficiary deed must be recorded within 60 days or less from the date it is signed; and (4) the beneficiary deed may be revoked by the transferor at any time.
For some people, this beneficiary deed may be the only cost-effective option available to unmarried property owners who wish to leave their property to a lifelong partner, family member, friend or loved one upon death, but who do not want to transfer a present interest (such as joint tenancy) or cannot afford to set up a trust.
Estate Tax Law Changes
The federal estate tax (or the so-called “death tax”) is a tax imposed by the federal government on the value of all assets and property left by a deceased person. Under the current law, the estate tax for 2017 will apply to estates that exceed $5,490,000 per person at a 40% tax rate. Consequently, the estate tax will impact only those individuals worth more than $5,490,000, or couples worth more than a combined $10,980,000. But these figures apply only for the remainder of 2017.
This estate tax structure has been in place since 2011. An interesting feature of the estate tax law is the “portability” of the individual estate tax exemption between married couples. For married couples, any unused portion of a deceased spouse’s federal estate tax exemption can be claimed by the surviving spouse. What this means is that upon the death of the first spouse, any left-over portion of the deceased spouse's exemption will carry-over to the surviving spouse, so that the surviving spouse’s estate will benefit not only from their own exemption, but also the additional left-over amount of their pre-deceased spouse’s exemption.
I will keep a close eye on any developments in this regard and will keep you informed of anything that might require an adjustment to your existing estate plan.
Gift Tax Law Changes
In addition to the estate tax, the federal tax law also sets forth provisions applicable to gift tax, or the tax that must be paid by the person making a gift, if the gift exceeds a certain threshold. The gift tax has not been changed for 2017. The gift tax and the lifetime exemption with the estate tax have been unified since the tax law changes in 2011. The gift tax now has a top rate of 40% and a lifetime exemption amount of $5,490,000.
With regard to the annual gift tax exemption, that remains $14,000 per recipient per year. What that means is simple: Anyone can give up to $14,000 in gifts to any one person in any annual period without any gift tax implications. Gifts to spouses (who are U.S. citizens) and payments directly to hospitals or educational institutions are excluded from gift tax and, therefore, may exceed the $14,000 threshold without triggering any gift tax or eroding the lifetime gift tax exemption.
COMMUNITY PROPERTY WITH RIGHTS OF SURVIVORSHIP
During 2001, California law changed to allow married couples to hold title to property in a new way that provides the advantages of both community property and joint tenancy. California law now allows married couples to hold title to assets as "community property with rights of survivorship." The advantages of this are obvious, first (just like joint tenancy) the asset avoids probate because ownership passes automatically to the survivor and second (just like community property) the survivor gets the benefit of a full step-up in basis upon the death of the first spouse. Of course, there are specific requirements for describing title to gain these advantages.
JOINT TENANCY VS. COMMUNITY PROPERTY
Most California married couples own their homes as joint tenants because they want the surviving spouse to own the entire home, without any formal court proceeding to confirm the ownership transfer. Unfortunately, holding title as joint tenants can seriously affect the taxation of any subsequent sale of the property after the death of the first spouse. This is because the United States Internal Revenue Code provides special treatment for property owned by a married couple as community property, but not for similar property owned as joint tenants.
When a person dies, his or her heirs are treated as if they purchased the deceased person's property for its fair market value on the date of death. However, if the deceased person owned only a one-half interest as a joint tenant, only that one-half interest receives this treatment (called an "adjusted basis").
To illustrate, a married couple, Edward and Mary, buy a house for $400,000 and take title as joint tenants. In such a case, the IRS considers that each paid $200,000 for their one-half interests. If Edward later dies, Mary automatically becomes owner of the entire house, and Edward's one half share of the house is re-valued as of the date of his death. If the house was worth $1,500,000 when Edward died, then Mary's adjusted basis in the house becomes $950,000 -- computed by adding her share of the purchase price ($200,000), to the value of Edward share when he died ($750,000).
In contrast, the IRS treats community property as if it were owned completely by the deceased spouse, in applying this special "adjusted basis" rule. Therefore, if Edward and Mary had owned their home as community property, and Edward later died, the entire house would be assigned a new basis at current fair market value.
The result is that if Mary decides to sell the joint tenancy house for $1,500,000 shortly after Edward's death, she would realize a taxable capital gain of $550,000 (the $1,500,000 sale price minus her $950,000 "adjusted basis," computed two paragraphs above). If the same house were owned as community property, however, she would recognize no capital gain, because her "adjusted basis" would be the same as the current market value. This amounts to sizable savings for income tax purposes.