Many California residents include trusts in their estate plans because they give them greater control over how their estates will be administered and allow their assets to be distributed without first going through the probate process. Trusts are flexible estate planning documents that can reduce estate taxes and protect privacy, and they are recognized as valid legal contracts in every state. However, there are situations where grantors who move to a different state would be wise to draft new trust documents.
Estate and inheritance taxes
California does not collect estate or inheritance taxes, but several states do. State estate tax exemptions are usually far less generous than the federal exemption, which means California residents with estate plans that include revocable trusts should consider replacing them with irrevocable trusts if they move to a state that collects an estate tax. Irrevocable trusts cannot be changed after they have been created, and the assets placed into them are no longer owned by the grantor. This means that assets in irrevocable trusts are not subject to estate taxes.
Community property
California is a community property state. This means that all of the assets owned by a married couple in the Golden State are shared equally. This affects estate planning because spouses in states like California only have the right to transfer half of the community property. When a spouse in an equitable distribution state moves to a community property state, they should revise their estate plan accordingly. Failure to do so could lead to protracted and costly trust litigation.
Moving chores
People who move to and from California have many chores to take care of. They must get new driver’s licenses and reregister their vehicles, and they should revisit their estate plans. Redrafting trusts after a move could reduce estate tax exposure and ensure trust documents comply with community property laws.