Section 8: Further Financial Planning
Estate planning and financial planning are closely related. It is prudent to coordinate your estate plan with your financial planning in order to ensure that your overall goals are achieved.
Life Insurance
Life insurance provides immediate liquidity to support your family after your death, replacing your income, paying off debts, funding children's education, and covering final expenses. Consider how much life insurance you need based on replacing your income until your children are grown, paying off your mortgage and other debts, funding college education for your children, covering final expenses and estate administration costs, and
replacing household services you provide.
Coordinate your life insurance with your estate plan by reviewing and updating beneficiary designations to ensure they align with your overall plan, considering whether to name your trust as beneficiary to provide management for minor children's shares, and discussing with your insurance agent whether life insurance should be owned by an irrevocable life insurance trust to avoid estate taxes for larger estates.
Retirement Accounts
Retirement accounts like 401(k)s and IRAs have special rules about beneficiary designations and distributions that affect estate planning.
Tax Consideration
Estate and Inheritance Taxes
California currently does not impose an estate or inheritance tax; however, federal taxes may still apply in large estates. Estate tax is levied on the total value of a person’s estate before the assets are distributed to the heirs. Inheritance tax is paid by the individual receiving the inheritance (the beneficiary), based on the value they receive and their relationship to the decedent. Federal estate taxes apply to estates that exceed the federal exemption threshold. As of 2025, the federal exemption is $13.99 million per individual, and married couples can combine their exemption amounts. This is expected to decrease after 2025.
When a property owner passes away, their heirs receive a "step-up in basis," which adjusts the property's cost basis to its fair market value at the time of the original owner’s death. This effectively eliminates capital gains tax on any appreciation that occurred during the owner's lifetime. Heirs will only pay capital gains tax on the difference between the eventual sale price and the fair market value at the time of inheritance. For example, if the original purchase price was $100,000, the fair market value at death was $500,000, and heirs sell the property for $600,000, the taxable gain for the heirs would be $100,000 ($600,000 sale price - $500,000 fair market value at death).
Conversely, if property ownership is transferred to the heirs while the original owner is still alive, the heirs do not receive the step-up in basis benefit. In this scenario, the heir inherits the original purchase price as their cost basis. For instance, if the original purchase price was $100,000, the fair market value at transfer during life was $500,000, and heirs sell the property for $600,000, the taxable gain for the heirs would be $500,000 ($600,000 sale price - $100,000 original purchase price).
Capital Tax Gains
When a property owner passes away, their heirs receive a "step-up in basis," which adjusts the property's cost basis to its fair market value at the time of the original owner’s death. This effectively eliminates capital gains tax on any appreciation that occurred during the owner's lifetime. Heirs will only pay capital gains tax on the difference between the eventual sale price and the fair market value at the time of inheritance. For example, if the original purchase price was $100,000, the fair market value at death was $500,000, and heirs sell the property for $600,000, the taxable gain for the heirs would be $100,000 ($600,000 sale price - $500,000 fair market value at death).
Conversely, if property ownership is transferred to the heirs while the original owner is still alive, the heirs do not receive the step-up in basis benefit. In this scenario, the heir inherits the original purchase price as their cost basis. For instance, if the original purchase price was $100,000, the fair market value at transfer during life was $500,000, and heirs sell the property for $600,000, the taxable gain for the heirs would be $500,000 ($600,000 sale price - $100,000 original purchase price).
Property Tax Reassessments
In California, your property taxes are based on the assessed value of your home, which usually only increases by a small percentage each year under Proposition 13. However, when ownership changes hands, the county reassesses the property at its current market value, which often means a significant tax increase.
There are important exceptions to this rule. If you transfer property to your spouse or put it in your own revocable living trust (where you still control it), there's no reassessment because you haven't really changed who owns it. Under Proposition 19 (passed in 2021), you can transfer your primary home to your children without triggering reassessment, but only if they actually live in the home as their primary residence and the property value doesn't exceed your assessed value by more than $1 million. Transfers to LLCs usually trigger reassessment unless you are the sole owner before and after the transfer. For federal taxes, the key issue is "basis,” which is what the IRS considers your cost for calculating capital gains taxes when you sell.
When you inherit property, you get a "step-up in basis," meaning the IRS treats it as if you bought it at its current value, wiping out all the capital gains that built up during the previous owner's lifetime. This is a huge tax benefit. However, if someone gives you property while they are alive, you inherit their original low basis, meaning you'll pay capital gains tax on all the appreciation when you sell.
An example of "step-up in basis" when you inherit property when the original owner dies: Original Owner purchased home for $100,000. The fair market value of the home at the time of Original Owner's death is $500,000. Beneficiary sells home shortly after Original Owner's death for $600,000. Beneficiary's step-up in basis is $500,000 (the fair market value at death), meaning that Beneficiary will only pay capital gains taxes on the difference between the sale price ($600,000) and the stepped-up basis ($500,000), so Beneficiary will only pay taxes on $100,000 of gain.
However, if Original Owner conveys the property to Beneficiary while Original Owner is still alive, Beneficiary will not benefit from the step-up. Using the same example, Beneficiary receives Original Owner's original basis of $100,000 and will pay capital gains taxes on $500,000, the difference between the sale price ($600,000) and the carryover basis ($100,000).
Property Ownership
Note how you own property. Depending on the title of the property, it may affect how it aligns with your estate plan. For example, if you own property as joint tenants with rights of survivorship with another person, upon your death, your interest automatically transfers to the surviving joint tenant, overriding any conflicting instructions in your will or trust. While this is common for married couples, it can cause issues for other groups who may not realize the implications of the title and intended for their share to pass elsewhere.
Alternatively, with tenancy in common, each owner holds a distinct share of the property. This share passes according to the owner's will or trust and does not automatically transfer to the other co-owners.
If you have created a living trust, real estate typically should be retitled to the trust. If you own property jointly, understand how it will pass at death and whether that aligns with your overall plan
Business Succession Planning
Business succession planning addresses who will own the business after your death, who will manage day-to-day operations, how the business will be valued for estate purposes, how your family will receive value from the business, and what happens if you become incapacitated before death. The specific planning needed depends on your business structure, whether you have partners or co-owners, whether family members are involved in the business, and your wishes for the business's future.
Sole Proprietorships
The business is not a separate legal entity, so business assets pass through your estate like other property.
Partnerships
Partnership agreement likely addresses what happens when a partner dies or withdraws. Review this agreement carefully to understand whether your partnership interest passes to your heirs or must be sold to remaining partners, how the business will be valued, whether there are restrictions on who can become a partner, and what happens to your share of business income and assets.
Corporations and Limited Liability Company (LLCs)
Ownership is represented by shares or membership interests that can be transferred to your heirs. Consider transferring business ownership to your revocable living trust during your lifetime to avoid probate and ensure smooth transition of ownership at death.
Real Estate Other than Your Primary Home
If you own real estate beyond your primary home, such as rental properties, vacation homes, land, or even property outside of the United States, these assets require special attention in estate planning.
California passed Proposition 19 in 2021, which changed how property taxes work when parents leave property to their children. Under the new rules, if you inherit a rental property, vacation home, or investment land from your parents, the property will be reassessed at today's market value, which usually means much higher property taxes. The old law let parents pass these properties to children without any tax increase, but that's no longer the case. The only way to avoid reassessment is if the property is your parent's primary home AND you move in and make it your primary home within one year of inheriting it, AND the property value doesn't exceed the parent's assessed value by more than $1 million. Because of these new rules, inheriting rental properties or vacation homes often comes with a big property tax bill that your heirs need to be prepared for. When planning your estate, think about whether your children can actually afford the higher taxes on inherited properties, talk to them about whether they even want to keep the properties once taxes go up, consider whether it makes more sense to sell properties now or after you pass away, and factor in these tax consequences when deciding which child gets which property.
With regards to property owned outside of the United States, you will need to consult with an attorney from that country as different laws will apply.
For all real estate, document important property information for your heirs, including legal descriptions and tax parcel numbers, copies of deeds and title insurance policies, survey documents and property boundaries, information about mortgages, liens, or encumbrances, property tax bills and payment schedules, insurance policies and agents, maintenance schedules and service providers, utility account information, homeowners association rules and fees if applicable, and relevant permits, zoning information, or development restrictions.
Other Significant Assets
Beyond traditional assets like bank accounts, real estate, and businesses, many families own other valuable assets that require special estate planning attention.
Intellectual Property
Patents, trademarks, copyrights, and trade secrets
Royalty Interests
Books, music, inventions, mineral rights, or other sources
Digital Assets
Email accounts, social media accounts, online photo storage, cryptocurrency and digital wallets, online banking and investment accounts, digital files and cloud storage, websites and domain names, digital businesses or e-commerce stores, online gaming accounts and virtual property, and loyalty program points and miles
Collections and valuable personal property
Art, antiques, jewelry, coins, stamps, classic cars, or other collectibles may have substantial monetary or sentimental value. Have valuable collections appraised for insurance and estate planning purposes.
Long-Term Care Planning
As people live longer, the likelihood of needing long-term care increases substantially. Long-term care planning addresses how you will pay for care if you need assistance with daily living activities due to aging, illness, or disability, and how to protect your assets while ensuring you receive quality care.
Medicare and Medicaid
Medicare does not cover most long-term care costs. Medicare only covers short-term skilled nursing care following hospitalization (up to 100 days) and limited home health care for specific medical conditions. Medicare does
not cover custodial care, which is assistance with daily living activities that most long-term care recipients need. Many people mistakenly believe Medicare will pay for nursing home care, leading to inadequate planning.
Medi-Cal is California's Medicaid program that does cover long-term care for people with very limited income and assets. Medi-Cal has strict financial eligibility requirements, typically requiring applicants to have less than $2,000 in countable assets and limited income. Medi-Cal also has a 30-month look-back period (60 months for certain trusts), meaning the government reviews asset transfers before application to ensure people did not give away assets solely to qualify for benefits. Transfers during the look-back period can result in penalties that delay eligibility. This look-back period makes advance planning essential for those who may need to rely on Medi-Cal for long-term care.
Medi-Cal Planning Strategies
For California residents who anticipate the potential need for Medi-Cal coverage, advance planning can help protect assets while ensuring eligibility when needed. Working with an experienced elder law attorney is essential as Medi-Cal planning is complex and must comply with strict legal requirements.
Certain assets are exempt from Medi-Cal eligibility calculations, meaning you can retain them and still qualify for benefits. These typically include your primary residence (with equity limits), one vehicle, personal possessions and household items, certain life insurance policies, and irrevocable prepaid funeral and burial arrangements. For married couples, IRA and pension accounts in the name of the community spouse are not countable, and the community spouse does not need to be receiving periodic payments to exclude these retirement accounts.
For married couples and registered domestic partners, California's spousal impoverishment protections ensure that the spouse or partner who is not receiving care (the community spouse) retains sufficient income and assets while the other spouse qualifies for Medi-Cal. These protections apply both to nursing home care and to Home and Community-Based Services programs. As of 2026, the community spouse is permitted to retain a Community Spouse Resource Allowance of $162,660 in countable assets, while the Medi-Cal spouse can have up to $130,000 in their name as a property reserve. These limits are adjusted annually.
Advance planning allows opportunities for asset protection. Gifts and transfers made more than 30 months before application (or 60 months for certain trusts) are generally not penalized. This creates an incentive for early planning, as transfers of assets to family members or properly structured irrevocable trusts made well in advance of potential care needs can ultimately allow Medi-Cal eligibility while preserving family wealth. However, such transfers must be carefully planned as they involve giving up control and access to assets.
Long-Term Care Insurance
Long-term care insurance is specifically designed to cover the costs associated with long-term care services that Medicare does not cover. These policies provide financial protection against the potentially devastating costs of extended care, which can easily exceed $100,000 per year for nursing home care. Long-term care insurance helps preserve assets, provides flexibility in care choices, and prevents families from bearing the full financial burden of care.
Traditional standalone long-term care insurance policies are designed solely to cover long-term care expenses and often offer inflation protection to ensure benefits keep pace with rising care costs. Hybrid or linked-benefit policies combine long-term care coverage with life insurance or an annuity, addressing the "use it or lose it" concern with traditional policies. If you never need long-term care, a hybrid life insurance policy will pay a death benefit to your beneficiaries. If you do need care, the policy accelerates the death benefit to pay for long-term care expenses. Hybrid policies typically have level premiums that cannot be increased by the insurance company, providing more cost predictability than traditional policies.
Levels of Care and Choosing Appropriate Settings
Understanding the different levels of long-term care available helps you plan for appropriate care settings and associated costs. Home care allows individuals to receive services in their own homes, ranging from a few hours of help per week to 24-hour care. Adult day care programs provide care and supervision in a group setting during daytime hours, allowing caregivers to work or get respite while ensuring their family member receives care and social engagement.
Residential Care Facilities for the Elderly (RCFEs), commonly called assisted living facilities, provide housing, meals, and assistance with activities of daily living in a residential setting. RCFEs are licensed and regulated in California and appropriate for those who need assistance but not the intensive medical care provided in nursing homes. Costs vary widely but generally range from $4,000 to $8,000 or more per month depending on location and level of care needed.
Continuing Care Retirement Communities (CCRCs) offer a continuum of care, allowing residents to transition from independent living to assisted living to skilled nursing care as needs change, all within the same community. CCRCs typically require a substantial entrance fee plus monthly fees, but they provide security and continuity of care.
Nursing homes, also called skilled nursing facilities, provide the highest level of long-term care with 24-hour skilled nursing, medical care, rehabilitation services, and assistance with all activities of daily living. Nursing homes are appropriate for individuals with serious medical conditions, significant cognitive impairment, or extensive care needs. In California, nursing home costs often exceed $10,000 to $15,000 per month for a semi-private room.
Memory care facilities are specialized settings designed for individuals with Alzheimer's disease and other forms of dementia. These facilities provide secure environments to prevent wandering, specially trained staff, and programs tailored to cognitive impairment. Memory care can be a standalone facility or a specialized unit within an assisted living facility or nursing home, and costs are typically higher than standard assisted living.