CONFUSED? LOOK AT THE BIG PICTURE.

If you think estate planning is confusing given the present lack of any federal law that explains if the estate tax has been repealed, or replaced by heirs having to pay the capital gains based on their parents’ original cost basis of their family home, then just wait for next year when the 2001 Reconciliation Act has truly come to an end. Congress has to do something. Meanwhile, think about this:

What makes it impossible to write a thorough analysis of all the twists and turns of estate planning as they apply to every state in the USA is that although a great number of people may live in community property states, their laws differ from each other as much as other states’ laws that are considered not community property states. Each state has different and complex laws. Even community property states have vast differences in the law.

For example, there are nine community property states, including California, Arizona, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. (In Alaska you can choose whether or not you want a community property estate.)

In Idaho, Louisiana, Texas and Wisconsin if you own separate property, the income from that property is considered community property. That is not the law in California, unless you commingle it with community property funds with your spouse. If necessary, it can always be traced back to separate property in case of a divorce. But this same property is not traceable in the case of death.

Another example is that in most community property states, if you stop living with each other, your income becomes separate property, but not in all of the states.

So, in different states, there are going to be as many different ways of determining what is, and what is not separate or community property. State laws have the final say on how your property is going to be characterized before it is distributed according to federal law, also known as the Internal Revenue Code. State laws vary and can be easily misunderstood. Local law should always be consulted for applicability to your personal situation.

A specific example of confusing state laws can be found in the concept of “quasi-community property.” This type of property evolves when you lived in a non-community property state and acquired separate property that would have been community property had you been domiciled in a community property state such as Washington, California, or Arizona when you acquired the separate property. These states will treat it as community property and it will be characterized as such in your estate plan or divorce.

Regardless of the fact that the terms remain the same, they can be interchanged and treated much differently depending on what state you moved to when you wrote your Revocable Trust, and under the laws of the state in which you come to rest.

Adding to this state law confusion, eighteen states have adopted the “Uniform Probate Code” (at least in part, and some with substantial changes). This Code is intended to allow all citizens to walk to the beat of the same drummer when entering probate court. Three community property states have adopted it, but 32 other states, such as California, have not adopted it at all. In fact, California has its own set of probate rules and procedures operating their superior courts the same as Texas and Florida have their own rules operating their higher courts.

What this means is that all the federal estate planning tools are all well defined and interpreted with some similarity in federal courts, but in all likelihood your case is never going to get there. All probate matters begin in state courts which for the most part are operating under different state laws and “Rules of Court.” These rules of concept, analysis and implementation are created by state legislators.

Breaking it down further, every county in every State has “Rules of Court” pertaining particularly to how things will be handled by the courts in their particular county. There are 58 counties in California and many of them have rules quite different from the others. The differences may not be so substantial as to change the outcome of a case, but on every court bench there sits a different personality with his or her set of personal rules and bias.

The important thing to remember is that you must always get the opinion from an attorney in your state before implementing the federal estate tools you may read about in books such as “Estate Planning: The Heroes Way for Baby Boomers. Not even Suze Orman would ever disagree with that advice, just read her disclaimers.