Legal Question in Wills and Trusts in California

Re: Inheritance taxes in California

Currently the estate tax exemption is set to 2 million dollars. In 2009 it becomes 3.5 million, and then in 2010 the estate tax is set to disappear altogether. While it is set to go back to 1 million in 2011, most experts believe the estate tax exemption will be at least 2 million going forward.

The reason I am saying this, is that if your Mother's estate is less then 2 million dollars, and she has not made any large (over 10,000 dollar) gifts during life... then it is unlikely that there will be any estate tax due at her death.

If her estate is subject to gift tax, and the situation you described comes about... then the trust or will's terms would say who is responsible for paying the estate tax. Barring anything stated to the contrary, the value of the contingent life estate (what you are describing as your Mother's partner's share), would have a value set to it. That value, assuming there is estate tax, would have estate tax associated with it. If the trust or will says the person receiving the gift pays the estate tax, then your Mother's partner would be liable for the tax associated with it. You and your sister would be liable for the value of the remainder (essentially what the house is worth minus the contingent life estate's value). If the trust or will says gifts are to be made free of tax, then generally the trust or estate would pay estate taxes before the life estate is given to your Mother's partner. In either situation, either the estate/trust will pay the taxes, or your Mother's partner would pay the taxes. It is highly unlikely that you will be responsible personally for the gift your Mother is making.

As far as the value for estate tax purposes, except for a few exceptions, the value is generally set at the time of your Mother's death.

Sorry this was a long answer but the question was more complicated then a short answer would allow.

Re: Inheritance taxes in California

There is no estate tax except on estates greater than the estate tax exemption amount, $2 million in 2008 , 3.5 million in 2009, there is no estate tax if death is in 2010, so tell you mom to die that year, but after 2010, if the law does not change the exemption amount will become $1 million again. I'm reasonably certain it will be raised before then.