We have two minor kids and own our house and bank accounts here in California. We plan to buy another house in Texas. Which is a better option? Should we have a CA will and trust or a Texas one? Or can we have one each in each state, with different assets in each of them? Texas doesn't have state taxes, so will it be better for estate taxes in the future?
One of the good things about trust planning is that you don't need one for each state you have property in. You can draft a trust here in California and it would be valid in Texas and vice versa. Both states are community property states so the planning for Texas attorneys is fairly similar to planning done by California attorneys. That said, I would chose to have the trust drafted and executed in the state that you are more likely to spend most of your time in, or where most of your assets are. Lawyers know that trusts will be valid in other states because of the full faith and credit provision in the US Constitution. That said, 90% when you are using a trust, it won’t be with a lawyer, it will be with a non-lawyer escrow officer, banker, stock broker, etc. They are not likely to know the law and because they are not used to working with an out of state trust they will probably either give you one of two answers. The first, most common and worst is, "you can't use it here" (pure ignorance but not wanting to admit they don't know the answer) or two, the biter answer" i don't know i will have to check with my (supervisor, legal dept, crop office, broker dealer, etc.) This will just cause a slight delay. If you have a document drafted in the state you are operating in then you are less likely to have problems. A good estate plan should include powers of attorney, and while the same rules apply for powers of attorney, i will often recommend that people get powers of attorney for each state they are in. You just have to be careful that the powers of attorney don't void the other power of attorney, many form powers of attorney have boilerplate that voids any other power of attorney. I recommend against two revocable trusts as that will likely cause confusion. When it comes to funding the trusts I recommend you have an attorney in each state help you. There are issues involved with funding real property that can have significant tax effects and they very from state to state. Some clarification--neither TX or CA have estate taxes. (at least right now it is possible they might in the future) But CA does have high income taxes. Your Federal Estate Tax (death tax) will not be effected by living in either CA or TX. Under the current law you should only be concerned about Estate Taxes if your estate is likely to be greater than $2,000,000 on your death. (Assuming you are married and have what is known as an A/B or disclaimer trust) If you have assets greater than $2,000,000 you should be talking to a knowledgeable attorney who has a strong background in tax law, especially estate and gift tax law, but also capital gain, income, and property tax law as well. In Texas i recommend Julia Nickerson, Esq., in Austin. There are many "estate planning" attorney's but many do not have the experience working with larger estates or estates with significant tax issues. Make sure whomever you work with has significant experience with taxable estates.
I would have the trust drawn up in the state which will be your primary residence: where your kids will be going to school, where you will be voting, etc. If the primary residence will be in Texas, the California property can potentially be put in your Texas trust once it's drafted by a California attorney who will draw up a deed and preliminary change of ownership report stating that you as trustees of your Texas trust are now the owners of the property. Whoever does your trust in Texas will be able to instruct you about this. This will avoid an ancillary probate in California when you pass away, since at death real estate is usually administered in the state where that property is located.
Many attorneys now use Choice of Law clauses in their trusts so that the administrator will have some degree of discretion as what law is most favorable given the snapshot of the estate at the time of death. This can partly answer some of your concerns about taxes, which are unclear from your facts.
Finally, always choose an attorney for trusts and estates matters who practices predominantly in that area and doesn't do a dozen other things. Keeping up with the laws in the area is difficult enough for a specialist, let alone a person who only does the occasional trust here and there.
Your inquiry mixes apples, oranges, and avocados. Your reference to State taxes really goes to taxes on income. Unless you are enormously wealthy, I cannot imagine that your residence, whether it be in California or Texas is going make much of a difference in regard to any potential State tax which may be presently unlikely in either State. You are basically asking for Estate Planning advice with very little factual statements for one to review and consider. Generally speaking, in whatever State you own your primary asset would probably be he best place to establish your Trust.
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