| Sargent & Lundy Savings Investment Plan |
| STATE LAWS AND ESTATE PLANNING |
| The following excerpts are from an article in the August
1998 issue of "Retire With Money" newsletter. The opinions of
the author, Jim Frederick may or may not reflect those of the SIP Committee.
If you retire into or out of one of nine states with community property laws, you may have to revise your estate plan. The doctrine of community property says that spouses share equally in every asset acquired while married and living in a community property state, regardless of who paid for the asset or whose name goes on the title. (There are a few exceptions: Community property, for example, doesn't apply to assets obtained by one spouse from an inheritance or gift.) The nine states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. thus in these states, if you want to bequeath an asset to someone other than your spouse, he or she must sign a so-called separation of property agreement that makes you the sole owner of the community asset. This document must then be filed away with your will. That's a nuisance - but community property states offer one huge benefit that you don't get elsewhere. Assume, for example, that you and your spouse live in a community property state and you paid $100,000 for stock that now is worth $200,000. When you die, your spouse becomes the sole owner of the securities - and gets a new basis price for the portfolio that is stepped up to the shares' value on the day you died. Thus he or she can sell the entire portfolio for $200,000 and owe no capital-gains tax - not federal, state or local. By contrast, in the 41 noncommunity property states when one spouse dies, the surviving joint owner gets a stepped-up basis only on the deceased spouse's half of the portfolio. Using the above example, if the survivor sold the stocks, he or she would owe capital-gains tax on $50,000, since the basis would be $100,000 for the deceased spouse's shares plus $50,000 for the survivor's. "If you're moving into or out of a community property state, soon after moving you need to see an estate planner for an initial consultation about revisions you may need to make in your new state," urges estate lawyer Alvin Golden in Austin. An initial consultation will cost from $150 to $600. Here are the major issues to consider: If you're moving out of a community property state. The property you acquired before moving is generally treated as community property no matter where you live in the future, meaning you'll retain the tax advantage on those assets when one of you dies. Here's the catch: You must inform your estate-planning attorney and estate executors where your assets were acquired. To retain the capital-gains tax advantage for your assets in a noncommunity property state, your will or living trust document should stipulate which assets are community property. Because many estate lawyers in noncommunity property states are only passingly familiar with community property laws, your lawyer may need to confer with a professional from your old state to nail down all the legalities. If you're moving into a community property state. Check with a lawyer in your new state. You may be able to convert some noncommunity assets into community property. To do so, have a lawyer prepare a property conversion agreement that specifies which assets are separate and which are community. Experts warn, however, that in a divorce your ex-spouse would have a claim to half of your converted assets. |
This page updated on 7/1/98