Hey everybody, what’s going on? It’s Chris Small from CMS Law Firm.

I’m going to do this real quick, because Facebook was broke today, so I didn’t have a chance to get to it when I was at the office, but now my phone is about to die, so we’re going to go fast.

What I want to talk about today was a step up in basis when you have community property and a spouse passes away.

So, as you know Washington state is a community property state. That means when you’re married, as you accumulate property, one spouse owns half the other spouse owns the other half.

So technically when the first spouse dies, only half of that property is given and goes to somebody. So, there sometimes can be some confusion about whether or not there’s a step up in basis, or just that half of a house, for example, or the whole house. Today we’re here to answer that question.

By the way, if you want to know a little bit more about estate planning in general, I put together a little short, runs about 20 minutes, video about estate planning and sort of in general everything you need to know about the basics. So if you don’t have an estate plan, and you’re wondering about, do you need a will or a trust, what does a power of attorney do? This video does that. If you already have an estate plan, and you’re still wondering, what do all these things do? Go check it out. Estateplanningvideo.com. You can click the link, or you can just type the URL in.

And I’m trying to go super fast, so fast I can’t even talk. But let’s talk about step up in basis in community property.

So if you recall from a couple of days ago, I did a video about the basis, and what that is, and the step up in basis when somebody dies and property is transferred to someone else. Via a will or trust or anything like that. Basically, let’s say I buy a property for 100 bucks and it appreciates to $1 million.

If I would sell that property at $1 million, or if I would give it away while I was alive, and the person I gave it to would sell it for $1 million, they would take it at a tax basis of $100. Which means they would have to pay capital gains tax on that $990,000 of gain that they had. But when you pass away and you give your property to someone, you get what’s called a step up in basis, which means that $100 basis now becomes $1 million on my property. You basically get the property at the current value. And when you sell it, you would only pay capital gains tax on the value or the appreciation that has happened since you received the property.

So this is important when you’re talking about community property, because let’s say you’re married and you bought a house 50 years ago in Seattle. You bought it for 10 grand. Now it’s worth $1 million. If you and your spouse were going to sell that property for $1 million, you would, again, you would have $990,000.

Well, you’d have $980,000 of gain that you would potentially be paying tax on at least $400,000 of that, which is a lot. Okay? Not to get too much into the numbers.

But if you held onto the house when the first spouse died, you are going to get a full step up in basis on that property, which is pretty cool. What that means is if you own that $10,000 house and it’s now worth a million bucks when the first spouse dies, the surviving spouse can sell that house for 1 million bucks, pay no capital gains tax on it, which is pretty cool. Not cool that the spouse died, but cool that you get to step up in basis. And something that people worry about or think about frequently.

The way that you ensure that this happens is when the first spouse passes away, you’re going to want to make sure that you get some sort of evaluation of the property that you’re talking about at the time that the person died.

You could do this with just a letter from a real estate agent, where they do sort of a comparable market survey, and they tell you what the property is worth. You can go full blown appraisal, if you’re going to be facing some estate tax consequences potentially, and you really want to lock that in, you can go and just pay a couple hundred bucks and get a formal appraisal.

All right, so step up in basis though is a super important concept when it comes to the state planning. When it comes to gifting, before you die or after you die, and it’s just good stuff to know, right? Once again, if you …

And by the way, if you like this video, hit the like button. I saw somebody already did. I seen Moe Parks, one of my old high school buddies, basketball buddies is on here. Hope your doing well. If you like this video, hit the like button. If you want to know more about estate planning in general, you can go to estateplanningvideo.com and check that out.

Sort of my normal spiel, my regular little spiel that outlines sort of the basics of estate planning. What each thing does in the foundational plan, what they don’t do, and where you might want to go if you think that you want to learn a little bit more about estate planning.

Hi Alison, that’s my wife. She’s on there too. Hello.

But anyway, I hope you guys have a good night.

Facebook is back. I’m so pumped. And hopefully whatever happened to them today does not happen anymore.

But that’s it. So, have a great night. Again, if you like this, hit the like button. If you know someone that cold use this, hit the share button. Otherwise, I’ll be here to talk to you again tomorrow.

All right? See ya. Bye.