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Lily has a good relationship with her kids, so she can title the apartment in their names. Sometimes there is truly a gift-tax issue when transferring ownership of an asset to child. I almost never recommend adding a child's name in the home, however in this case it is smart and she shouldn't incur any tax liability.
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While the condition of California may benefit from an estate, it is only the "heir" of last location. Property goes to the state when there are no known heirs at law (the transfer to a state's treasury is called "escheat").
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