From left, CunninghamLegal trust, estate and tax-planning firm partner Jim Cunningham, Chronicle personal finance columnist Jessica Roy and YeskeBuie Financial founding partner Elissa Buie engage in a panel discussion at the Chronicle’s Aging and Longevity Summit on Feb. 23 in San Francisco.
Jessica Christian/S.F. ChronicleCalifornia does not tax Social Security benefits at the state level and has no state estate or inheritance tax.Homeowners 55 and older can transfer their lower property tax basis to a new home within the state up to three times.Surviving spouses benefit from a step-up in tax basis on assets, eliminating capital gains taxes on appreciation up to partner’s the date of death.
Living in a state as expensive as California can be challenging. But if you’re looking for the optimal place to die — financially speaking — it’s hard to beat, experts say.
At the Chronicle’s recent Aging and Longevity Summit, I moderated a panel on financial and legal strategies for retirement. It’s not the type of subject matter you expect to draw a lot of laughs. But I was joined by two panelists whose wit was as sharp as their professional acumen: Jim Cunningham, an estate planning, trust and probate law attorney and founder of CunninghamLegal; and Elissa Buie, a longtime certified financial planner and co-founder of financial services firm Yeske Buie, who is just two months into her own retirement.
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They’ve both decided to retire in California, and for reasons beyond the great weather, quality hospitals and breadth of cultural and outdoor activities. Cunningham said his firm has a lot of clients who ferry back and forth between California and other states where they own property, like Oregon, New York and New Jersey. He recommends they come back to California when the end is near.
“You want to be a California resident when you pass away,” he said. “Just die here. All wealthy people come to California to die.”
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“California: A great place to die,” I summarized, drawing a laugh from the crowd.
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The event was sold out in person, and more than 500 people watched the livestream. In addition to my panel, there were speakers from Stanford University, UCSF, the Buck Institute of Research on Aging, Kaiser Permanente and Modern Elder Academy, along with sponsored panels from Human Longevity and Acacia Clinics.
For those of you who weren’t able to be there, here are some of the financial and legal benefits my panelists shared about spending your golden years in the Golden State. (And if you’re interested in the rest, you can now watch it on YouTube.)
Stable property tax basis
Prop 13, approved by California voters in 1978, sets what you pay in property taxes based on the assessed value of your home when you bought it, not its current value, and caps how much those taxes can rise each year. Measures like Prop 19 have tightened the rules on how inherited properties retain their old tax assessments. But while you’re still here to enjoy it, the longer you’ve lived in California, the better deal you’re getting on property taxes.
• READ: Why the math on inheriting a home in California has totally changed in past years
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And Prop 19 created more value for retirees: Homeowners 55 and older can sell their home and carry their lower property tax basis to a new one elsewhere in California up to three times, with adjustments if the new home costs more.
No taxes on Social Security
Social Security recipients have to pay federal taxes on those benefits, but unlike a handful of other states, California doesn’t tax them at the state level.
Graduated income tax rates
California does have the highest all-in state income tax rate in the country — 13.3% for the highest earners, per the Tax Foundation — but we used a graduated income tax system, not one with a flat rate. So if your income is lower in retirement, you’ll pay a lower tax rate.
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No capital gains taxes on adjusted cost basis after a spouse dies
We are what’s known as a community property state. When a spouse dies, assets such as a house or stocks typically receive a step-up in tax basis to their market value on the date of death, meaning the surviving partner does not owe capital gains on the increase in value up to that point.
Cunningham explained how that works in practice: If you bought Apple stock for, say, $1, and it’s worth $100 on the day a spouse dies, the surviving spouse can sell it for $100 without paying capital gains taxes on that $99 increase.
No ‘death tax’
There are “no California death taxes,” Cunningham told the crowd. That means there’s no state-level estate or inheritance tax, though they still exist at the federal level for the very wealthy. He contrasted that with Washington, which charges graduated rates starting at 10% on estates worth more than $3.076 million, and Oregon, which charges rates starting at 10% on estates worth more than $1 million.
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Buie said her firm’s guidance to clients in Oregon is to move back to California and become a resident here again after a spouse dies, specifically to avoid that.