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Facebook and Estate Planning – Why the Two are “Friends”

Facebook just can’t seem to get out of the news these days: there is controversy over it’s recently held IPO, it’s founder, Mark Zuckerberg, recently wed his longtime sweetheart, and now there’s even talk that it is creating its own smartphone.

All these recent happenings prompted several articles to be written, and one of them was a very well-written explanation by Forbes’ Deborah L. Jacobs of the legal ramifications of Mr. Zuckerberg’s marriage to Priscilla Chan, entitled Mark Zuckerberg Ties the Knot, But It Isn’t All Love and Roses. While the couple’s marriage took place in California, the legal principles are generally the same for Arizona.

California and Arizona share one common thread – both are community property states. There are nine states all together in the United States (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin) that have community property laws.

Community property has more significance than just being another way that a married couple can hold title to property and assets. As Ms. Jacob’s article points out, community property can have an effect on prenuptial agreements and, ultimately, the couple’s taxes when the first spouse passes away.

Community property means that anything that is earned or acquired during a marriage (except for gifts or inheritance) is part of the community, and thus, each spouse owns a one-half interest of the community. While this is the general principle, a prenuptial agreement can stipulate otherwise. No one is sure whether the newlyweds executed a prenuptial agreement prior to their marriage, but most commentators believe that this would have been (or better said, should have been) a consideration on the mind of the Facebook founder with an estimated worth in the billions.

Ms. Jacobs did a fantastic job in her article of describing the tax benefit associated with community property assets, namely a step-up in cost basis. Here’s a simple demonstration of how this works and why owning property as community property is so critical. Let’s imagine that a married couple owns an asset that was purchased for $40,000. The first spouse passes away and the asset has an appreciated value of $100,000 as of the spouse’s date of death. If this asset was held in joint tenancy and is now sold by the surviving spouse, the decedent’s half-interest ($20,000 – half of the original price of $40,000) has now appreciated to $50,000 (half of the new price of $100,000). This $30,000 difference will receive a step-up in basis to the date of death value and there will not be any capital gains tax owed on the decedent’s half. But the surviving joint tenant also had an appreciation of $30,000 in his or her half-interest, and capital gains tax will be due on this amount.

But what happens if the asset were held in community property rather than in joint tenancy? Both halves of the asset’s value (the decedent’s and the survivor’s) receive a step-up in basis and there would not be any capital gains tax due.

Planning for life’s major events, such as a marriage, is not just for the super-wealthy. Our firm’s slogan is “If you have a family, you have a reason.” Please call us today at 888.222.1328 to schedule a free consultation.


MH_iphone_splashWhat the Attorneys of Morris Hall Can Do For You:

The attorneys at Morris Hall have 100’s of years of combined experience ensuring that families’ assets are protected from probate, unnecessary taxes, creditors, ex-spouses and Medicaid spend-down.  The attorneys also help those in Arizona and New Mexicoto apply for and receive Medicaid assistance and Veterans Benefits.  Our Arizona offices are located in Phoenix, Mesa, Scottsdale, Tucson, Prescott, Flagstaff and Arrowhead.  Our New Mexico offices are located in Albuquerque, Las Cruces and Santa Fe.  Contact us today at 888.222.1328 to schedule an appointment!

This blog should be used for informational purposes only.  It does not create an attorney-client relationship with any reader and should not be construed as legal advice.  If you need legal advice, please contact an attorney in your community who can assess the specifics of your situation.

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