Estate Planning
Real Estate & Estate Planning
Real property is often a family's most significant asset — and one of the most complex to transfer at death. Proper planning ensures your home and investment properties pass to your heirs efficiently, without probate, and with minimal tax consequences.
For most families in Lafayette, Lamorinda, and across the SF Bay Area, real estate represents the largest component of their estate. Yet real property is also one of the most complicated assets to transfer at death. Without proper planning, a home or investment property may be subject to California probate — a public, time-consuming, and expensive court process. With the right plan, real property can pass directly to your heirs, preserve valuable property tax protections, and avoid unnecessary costs and delays.
Holding Real Property in a Trust
The most effective way to avoid probate on real property in California is to transfer it into a revocable living trust. Property held in trust passes directly to your beneficiaries at death, without court involvement. The transfer is accomplished by recording a new deed that conveys the property from you individually to you as trustee of your trust. This is a straightforward process that does not affect your ability to sell, refinance, or otherwise deal with the property during your lifetime.
Proposition 19 and Property Tax Implications
California's Proposition 19, effective February 2021, significantly changed the rules for transferring real property between parents and children. Under current law, a child who inherits a parent's home can only retain the parent's lower property tax base if the child uses the home as their primary residence — and even then, only up to a limited amount. Investment properties and vacation homes no longer qualify for the parent-child exclusion. Proper planning is essential to minimize property tax consequences for your heirs.
Step-Up in Basis at Death
When real property passes at death — whether through a trust, a will, or joint tenancy — the heir generally receives a stepped-up income tax basis equal to the property's fair market value at the date of death. This means that if the heir sells the property shortly after inheriting it, they may owe little or no capital gains tax, even if the property has appreciated significantly during the decedent's lifetime. Proper planning can maximize this benefit for your heirs.
Joint Tenancy: Convenience vs. Planning
Many couples hold real property in joint tenancy, which allows the property to pass to the surviving owner automatically at death without probate. While convenient, joint tenancy has significant drawbacks: it does not allow you to control who ultimately receives the property after the surviving owner's death, it can create gift tax issues if added to a non-spouse, and it may complicate Medi-Cal planning. For most families, holding property in a revocable trust is a more flexible and comprehensive approach.
Investment Properties and LLCs
Owners of investment real estate often hold properties in limited liability companies (LLCs) for asset protection and liability management. Estate planning for investment property owners must address how LLC interests are transferred at death, how the operating agreement interacts with the estate plan, and how to coordinate the LLC structure with the overall trust plan. Proper coordination ensures that investment properties pass efficiently and that the liability protection of the LLC structure is preserved.
Out-of-State Real Property
Real property located outside California is subject to the laws of the state where it is located — including that state's probate process. If you own real property in multiple states, your estate may be subject to ancillary probate proceedings in each state where property is located. Transferring out-of-state real property into a revocable living trust can avoid ancillary probate and simplify the administration of your estate.
Own Real Property in the Bay Area?
Wagley Law helps property owners in Lafayette, Lamorinda, and throughout the SF Bay Area integrate real estate into their estate plans — avoiding probate, preserving property tax protections, and ensuring efficient transfer to heirs. Contact us to discuss your situation.
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