There is a huge benefit to transferring real property directly to children or grandchildren. In 1986, Proposition 58 became effective as a constitutional amendment in California. Its effect is to exclude from reassessment transfers of real property between parents and children.

Why is Prop 58 important?
In California, real property is reassessed at market value if it is sold or transferred. This means that if you bought your house for $100,000 in 1967, you're paying taxes on the property at a pretty low amount. But if you sell to a friend for $500,000 today, your friend will be paying higher property taxes because the property will be reassessed at the current value ($500,000). However, if you sell or transfer to a child, the child will get to keep the old assessed tax basis on the original $100,000 property value. This equals huge property tax savings. Proposition 193 passed in 1996 by California voters extends this exclusion to transfers between grandparents and grandchildren if the grandchild's parents (grandparent's children) are dead.

Which properties are excluded?
Transfers of the primary residence (no value limit) and transfers of the first $1 million of real property other than the primary residences. The $1 million exclusion applies separately to each eligible transferor.

Must the transfer be a gift?
No, the transfer can be a sale, gift, or inheritance.

Does a trust affect Prop 58/193 exclusion?
No, the property that is transferred from a trust will be eligible for the exclusion. However, you are well-advised to seek out the services of an experienced estate planner (such as myself) because if your trust contains a "sprinkle/spray" provision and names a beneficiary who is not eligible for the exclusion, like a nephew, then the exclusion will not apply for any beneficiary even if the trustee only gives the assets to a child who would normally be eligible for the exclusion.

If you have any questions about a transfer of real property to a child or relative, please feel free to call my office. Thanks for reading!

There are many codes of ethics that apply to mental health practitioners and that require them to make business plans that safe guard their clients in the event of their death or disability. Here are a few to give you an idea of the language that is used and the responsibilities that may apply to you.


Licensed Marriage and Family Therapists:

The California Association of Marriage and Family Therapists Code of Ethics (Section 1.3): "Marriage and family therapists, therefore, maintain practices and procedures that assure undisrupted care. Such practices and procedures may include, but are not limited to, providing contact information and specified procedures in case of emergency, or therapist absence, conducting appropriate terminations, and providing for a professional will."

The American Association of Marriage and Family Therapists Code of Ethics (Section 1.11): "Marriage and family therapists do not abandon or neglect clients in treatment without making reasonable arrangements for the continuation of such treatment."


Licensed Clinical Social Workers:

National Association of Social Workers Code of Ethics Rule 1.15: "Social workers should make reasonable efforts to ensure continuity of services in the event that services are interrupted by factors such as unavailability, relocation, illness, disability, or death."


Psychologists:

The American Psychological Association's Ethics Code (Section 10.09 and 3.12): "Psychologists make plans in advance to facilitate the appropriate transfer and to protect the confidentiality of records and data in the event of psychologists' withdrawal from positions or practice."

California Business and Professions Code section 2919: "A licensed psychologist shall retain a patient's health service records for a minimum of seven years from the patient's discharge date. If the patient is a minor, the patient's health service records shall be retained for a minimum of seven years from the date the patient reaches 18 years of age."


Licensed Professional Clinical Counselors:

American Counseling Association Code of Ethics Rule C.2.h.: "When counselors leave a practice, they follow a prepared plan for transfer of clients and files. Counselors prepare and disseminate to an identified colleague or “records custodian” a plan for the transfer of clients and files in the case of their incapacitation, death, or termination of practice."


Psychiatrists:

The American Medical Association and the American Psychiatric Association's Ethics Code (Opinion 8.115 Section I, IV): "Physicians have an obligation to support continuity of care for their patients. While physicians have the option of withdrawing from a case, they cannot do so without giving notice to the patient, the relatives, or responsible friends sufficiently long in advance of withdrawal to permit another medical attendant to be secured."

It's pretty safe to say that the confidentiality of client information is at the top of the list in terms of importance for most mental health practitioners. However, it's surprising to learn that many MFT's, psychiatrists, psychologists, and licensed social workers who handle individual clients in a private practice may not be very aware of the legal issues that would come up if they were to die or become disabled. 

Most of the time, without a proper business plan that takes into account the risk of death or disability, clients will likely learn about their therapist's health issues by showing up to an empty office when they arrive for their appointment. Clients will not have the opportunity to speak with someone knowledgeable about the situation who can help them cope with the sudden change in circumstances. Also, clients may not be able to receive their client files for some time and there would be a risk of losing their confidentiality if a family member of the therapist were to handle the client files. This scenario is not good!

Therapists are required by their ethical standards to have some plan in place that protects their clients in the event of their disability or death. A great idea is to create a professional will. Think of a professional will as a set of instructions for another licensed practitioner to follow if this scenario presents itself. They would need to know your passwords for your website and client files and have keys for your office. They would need to know how to contact your clients and what to say to them. And it's also good to set aside some money for this person so that they will be compensated for their efforts. Leaving this whole process up to a family member in charge of your estate is a bad idea and runs afoul of your ethical responsibilities.

I will be sure to list some resources that mental health practitioners can use to see if they are meeting their ethical requirements in a later blog post. Thanks for reading and feel free to call my office if you'd like more information.