If you discover your parents have not updated their estate plan in 20 years, you may feel a sense of relief that a plan exists. However, many older trusts in Northern California contain clauses that do not align with current state or federal tax codes. These outdated documents can trigger massive, unnecessary tax bills for adult children during the inheritance process.
The loss of the second step-up in basis
Many trusts written two decades ago used a mandatory “AB” split to avoid federal estate taxes. While this was standard then, it often creates a disadvantage for heirs today.
Under this structure, assets in the “B” trust receive a step-up in basis at the first spouse’s death but do not receive a second step-up when the surviving spouse passes. This oversight can lead to significant capital gains taxes when you eventually sell the family home.
Property tax reassessment and Proposition 19
California real estate laws shifted dramatically with the passage of Proposition 19. If you do not move into your parents’ home as your primary residence within one year, a full property tax reassessment is mandatory.
No amount of trust language can bypass this constitutional requirement. A modern review is essential to identify these risks and help your family decide if keeping a property is financially viable under these strict residency rules.
Navigating the new Medi-Cal asset rules
As of Jan. 1, 2024, California eliminated the asset limit for Medi-Cal eligibility. This means an outdated trust’s lack of “asset protection” language is no longer a barrier to your parents qualifying for care.
However, the trust must still be reviewed to protect against estate recovery after they pass. Ensuring a plan accounts for current tax law is the only way to safeguard what remains of the estate.
Secure your family legacy with a modern plan
A trust is not a static document. It is a tool that must evolve alongside changing legal environments. Taking the time to analyze these complex puzzles now prevents expensive legal surprises during an already difficult time. Professional guidance helps clarify how current regulations impact your specific real estate law concerns or inheritance goals.
