Excluding Someone From Your Will

Will being signedDear Liza:  I am helping my friend make a Will. It’s very simple, with one heir. She wants to make sure her brother, who is her only living relative and from who she has been estranged from since they left home (she’s 75 ) is not able to challenge the Will.  She wants to specifically exclude him in the Will. Is there wording for this and is it necessary? It is very nice of you to help your friend draft her Will.  The best way to make sure that her brother can’t challenge the Will is for her to be explicit about excluding him.  She can state simply that she is deliberately leaving nothing to her brother, for reasons know to him, or something to that effect.

As her brother (not her spouse or a child), he can’t make an argument that he has a legal claim to her estate simply by reason of their relationship to each other, however, it never hurts to make it QUITE clear that you are excluding someone if that is important to you.  In addition, your friend should be careful to properly sign her Will before witnesses as required under her state’s laws.  If she has no other legal heirs than her brother, the legal challenge that he might make is simply to invalidate her Will altogether (then inherit as her only legal heir since she would then have died without a Will at all)–so, she should be sure to have the witnesses be able to state that she had the mental capacity to make the Will and that she was under no duress to do so.

Adding That New Baby

baby-20339_150Dear Liza: My wife and I are the proud parents of two young boys.  As a part of our estate planning we have created a Joint Living Trust and funded it with the title to our home, our life insurance policies as well as a few other things. We are now, however, expecting a third child next year! While this is exciting, I am wondering what the implications for our estate planning will be. Specifically, right now, if my wife and I both die, we have our assets divided up 50/50 between our two current children. However, when our third child is born, obviously we want him or her to be included and our assets divided up 1/3 each. Is there a way to make an “addendum” or revision to our Joint Living Trust, so that our current one is still viable, but we only make that small change? We want the same people to be the executors, guardians, etc., but just change the primary beneficiaries from 1/2 each to 1/3 each. Since we have already funded the trust, it would be a pain to go back and change the funding of the trust to a new one, because the “date of execution” of our trust would be different. Congratulations! Yikes! Three kids is enough to keep anyone busy. Before you change your trust, read it. It might say that the definition of “children” includes the two boys you have now and any future children born to you. If so, the trust should also say that your estate is to be divided in equal shares for each of your living children, and one share for any deceased children.  If it’s written that way, your new baby is already part of the story. If not, you can either amend your trust to add the new baby, or restate your trust–which is a way to have a whole new trust, but keep the same name and original date, for the very reason that you articulate in your question, so that you do not have to re-title assets already transferred into the trust.

Should We Get Married? Estate Planning for Same Sex Couples Now

wedding-91797_150Dear Liza: My long term domestic partner of 30 years and I were registered domestic partners for a few years and then she decided she wanted to be totally financially independent of me so we terminated the agreement last year.  We are still together as a couple and live five minutes away from each other.  Our intention is to leave everything we own to each other and have named each other as executors in our wills.  She owns a house that she may or may not be selling but in general our estates are pretty modest.  I am wondering since we are still a couple is there is an advantage in terms of avoiding probate in getting married versus doing a living trust? First, can I just say I love being able to have this conversation! Now, down to business. There’s a lot packed into your question. I’m going to answer on a general level, but I think it would be worth it for you and your partner to sit down with an accountant and an attorney and see how my advice addresses your particular concerns.

There are three key  estate planning advantages to getting married for same sex couples now, but I wouldn’t frame it as a living trust versus marriage. That’s kind of apples and oranges.  A living trust will still allow you to transfer your assets to each other without probate, regardless of whether or not you marry. But being married has two key federal and one state TAX advantage, all of which you’d realize with or without a living trust.

1.  Married couples get a step up in basis when one spouse dies on all community property assets. That means that the surviving spouse won’t have to pay capital gains on any appreciated assets that she sells after the first death, other than any gain that happened after the death of the first spouse.  For example, if your partner’s house has appreciated a lot since she bought it, and you marry and make that house community property, when one of you dies, that house would be valued at its date of death value, not the original purchase price.

2. Married couples get an unlimited marital deduction from federal estate and gift tax.  That means that you and your spouse can give an unlimited amount of assets to each other, at death or during life, and no federal estate or gift tax will be due for those gifts. For those with modest estates (which are most of us) this isn’t as big a concern now that the federal estate and gift tax exemption is $5.25 million, but that number may be reduced by Congress in the future, and it is a benefit that only spouses receive.  This, in fact, was the basis for Edie Windsor’s challenge to DOMA.

3. Married couples can pass real property to each other in California without a change in property tax rates.  A transfer between spouses is an exception to Proposition 13′s reassessment requirement.  Since you and your partner terminated your Registered Domestic Partnership, and it sounds like she purchased the property alone, her transfer of the house to you via a Will would trigger a change of ownership and reassessment for at least 1/2, if not all, of the property, depending on how she holds title at her death.

My Aunt Just Died. Can I See the Will?

mourning-108781_150Dear Liza: My wife’s Aunt just died. We went to the funeral because they had been rather close and she wanted to represent her mother’s side of the family. While attending there was a passing reference to how she and some other members of her family were in the Will. What should we expect at this point? Whose obligation is it to notify us? Do we have specific rights in this matter? I’m sorry to hear about your Wife’s Aunt. And all of the questions you are asking are such good ones!  Rules vary a bit state to state, but the general idea is that the person who has custody of the Will is required to lodge that Will with the probate court in the county where your Wife’s Aunt lived.  In California, where I practice, this is supposed to be done within 30 days of the death.  Once the Will is lodged (which means filed with the court), it is a public document, so you, your Wife, and anyone else can get access to it.

If your Wife’s Aunt had sufficient assets to require a probate proceeding, again this amount varies from state to state,  the executor named in the Will would petition the court to open a probate proceeding. This will require publication in a newspaper in the town the Aunt lived in — the idea is that probate is a public proceeding and publication gives notice to creditors who may want to file a claim against the estate.  Also, all of the Aunt’s heirs and beneficiaries would be notified of the probate, and, if anyone objects to the appointment of the executor or the validity of the Will, they can file their objections with the court.

If the Aunt’s assets fell below the limit for a probate proceeding, and here’s a list of the limits for various states, then no probate proceeding needs to be opened, but the Will should still be filed.

Assets left by beneficiary designation are NOT part of the estate passing under your Grandmother’s Will

old-lady-107404_640Dear Liza: My grandmother passed away peacefully at 97 in February.  I am the executor of her will.  She had changed her will, legally, several times depending on who had made her mad at the time.  Instead of changing it again, she made me the sole beneficiary on some cd’s and mutual funds.  In her will, she left $15k or 15%, whichever was less to my half sister.  Do I have to count the funds that were left to me specifically as part of the estate? Your grandmother sounds like she was pretty sassy.  The assets that were left to you directly by beneficiary designation DO NOT count as part of the lesser of 15% or $15K gift your grandmother made to your half sister.

Only the assets that are governed by the Will count for that calculation and are considered to be part of the “estate.”  The assets left to you by beneficiary designation are separate from the assets that will pass to beneficiaries under your grandmother’s Will. If your grandmother’s Will has to go through probate, the assets that pass by beneficiary designation are not part of the probate estate, either.

Are Wills Drafted In Other States Valid?

arizonaDear Liza: I would like to know if my wife and I had a will drawn up in Colorado and now reside in Arzonia do we need to have it redone? If your Will was valid in Colorado, it will be valid in Arizona. Both states require that a Will be in writing, be written by someone over 18 years old, and be witnessed by two people.   Still, if you plan to stay in Arizona, you should consider doing a new Will in Arizona–certain provisions of state law differ and an estate planner in Arizona could tell you which ones.  Also, if you have moved to Arizona permanently, you should re-do your Durable Power of Attorney and Advance Health Care Directive–both documents name Agents to act on your behalf if you are incapacitated (one for health care and one for finance), and these documents tend to be state specific and you want them to be honored by state hospitals and banks without fuss. I’ve linked each document to a form that you can use in Arizona.

Change of Ownership Means Reassessment

house from momDear Liza:  I live in California. I have no children or family. If I leave my house to a friend will the property taxes go up under Prop 13? I just find information about kids and trusts, but not unrelated persons inheriting.  Yes, if you leave your house to a friend, the property taxes will be reassessed. The way Proposition 13 works is that any “change of ownership” results in a reassessment of that property based on its current fair market value, unless an exception applies.  There are exceptions to reassessment for a transfer of property from parents to children (or children to parents).  There is an exception to reassessment for a transfer of property from an individual to a revocable trust for his or her benefit.  But there is no exception for a transfer from you to your friend.

Annual Gifts and Lifetime Gifts

gift packageDear Liza, I would like to give my son $200k to upgrade homes.  Can me and my wife each give $13,000 to my son, daughter in law, and two grand children?  That would be $102,000, and then apply the remaining $98,000 to the unified tax credit.  Can I write it all in one check for the four of them? You can write one check for your son and daughter. You can now give $14,000 per person, so you and your wife can give, together, $56,000 to them, as an annual gift, and the remainder can be reported on your gift tax return, filed in April of the following year. If your grandchildren are minors, though, you have to give them a gift into a custodial account, a trust, or a 529 educational savings plan.  Children under the age of 18 can’t own property worth more than a nominal amount without a custodian to manage that money.

Probate for U.S. Assets; Estate Tax for Non-Resident Aliens

pot of goldDear Liza: My brother and I are dual citizens (Japan and US).  We both reside in the US. Our Japanese mother recently passed away. She had some cash/ stock/ annuities/ mutual funds in the US, and some property in Japan that we will inherit jointly, with no disputes. She has a social security number and had a green card at one time, many years ago. She has not lived in the US for over 30 years. There was no will. Given that she was a non-resident foreign national, do we have to go through probate to distribute her US assets (around $650,000)?  Sorry about your Mom. To settle your Mom’s U.S.-based estate you are going to need a probate proceeding to transfer the assets because your mother didn’t leave a Will. This is not because she was a non-resident alien.  This is because she owned significant property in her own name.  That means that you and your brother are going to inherit her property as the intestate heirs (that’s state law for who inherits when someone dies without a Will). Because she owned property worth more than a minimal amount, you will need a court order to get those assets transferred to you, which is the end result of a probate proceeding.

The issues that relate to her citizenship status is this: your mother’s estate is going to have to pay U.S. estate tax.  The rules for non-resident, non-citizen owners of U.S.-based property are complex, but basically, her estate will be taxed on U.S. assets worth more than $60,000. Japan, though, has a taxation treaty with the U.S., so her estate won’t be subject to double estate taxation (in both the U.S. and Japan).   Click here for a link to an IRS summary of these rules.

Your Mom May Need a Conservatorship

nursing homeDear Liza:  My mother, suffering from Alzheimer’s, is completely mentally incompetent and living in a nursing home in Arkansas.  I have only recently learned – surprise! – that she does not have a will.  With my father and brother already deceased, I am her only legal heir, but I fear the difficulties in settling her estate upon her death.  Is there anything I can do now to ease that transition, or I am simply going to have to bite the bullet and hire an attorney?  I do hold her Power of Attorney, but I know that does not grant me the right to write a will on her behalf. I am sorry to hear that your mother is no longer able to manage her own affairs.  You are absolutely correct that, at this point, you don’t have many options in terms of putting a Will in place for her. She can’t write her own now that she doesn’t understand what she would be signing, even if she’s still capable of physically signing a document.

The only legal avenues available to you both involve working with the probate court in the county where your mother lives (and, unfortunately, this also probably involves working with an attorney). You could petition the court to be named your mother’s conservator.  If this petition is granted, you would then be  your mother’s legal guardian, and in a position to have a Will drafted for her, but conservatorship is a long and complex process which will require court hearings, proper notice, and an investigation to determine your mother’s competence and your suitability as her conservator. If you are her only  heir, you could also wait until she dies, then  inherit under your state’s intestacy statutes, which would require a probate proceeding upon your mother’s death, if her assets exceed the small estates limit in Arkansas, which is currently $100,000.