Dear Liza: My father recently died. My dad had a trust set up naming me as the trustee and my brother, sister, and I are to split my dad’s assets evenly. I have set up a trust account at his bank (B of A) and have funneled funds into that trust account from his other bank accounts. I mailed off claim forms to a few companies in regards to his stock and annuity assets. Met Life is saying that we need an “ESTATE” and it needs to list me as the executor of the estate. She said that an estate and a trust are two different things and they needed an estate not trust. What is she talking about? It sounds like you are doing a good job as Trustee. It also sounds like the annuity at Met Life may not have a named beneficiary, which would mean that is passes to your father’s estate (and not to the trust).
Here’s the overview: your father had certain assets in his trust. But he, like most people, also owned assets NOT held in the trust, most typically these are retirement accounts (like IRA’s and annuities) or life insurance policies which have named beneficiaries.
When a person dies, these assets go the named beneficiaries. But if a person didn’t name a beneficiary, or named a spouse who then died first and forgot to update the form, these assets then usually pass to a person’s estate (though that’s up to each company’s rules).
In California, where I practice, if that annuity is worth less than $150,000, there’s a simple way to get MetLife to transfer it to you, as Trustee of his trust using a Declaration allowed by the Probate Code. If that annuity is worth more than $150,000, though, you will either have to open a probate proceeding and be named as the executor and then work with MetLife to transfer the asset, or use a court Petition to transfer the asset to the trust via his Will (if it was what’s called a Pour-Over Will, which would be typical).
Each state has a similar threshold, called a Small Estates limit. To find out what your state’s limit is, visit Legal Consumer.com and go to the Inheritance Law Section, which I wrote. (Full disclosure). Enter your zip code and you can find out your state’s small estate limit.
The first step is to ask MetLife who the beneficiary of the policy is. Then, if your father didn’t name anyone, you should probably seek professional help to chart the next steps.
Dear Liza: My relative passed away and I am the only surviving close relative. She left a will that listed me as the beneficiary of her real property. Her only assets were a small house tax value, $37,500 and 2 joint bank accounts totaling $20,000.00 with right of survivorship. The property is in North Carolina. Will this have to go through probate? Based on what you’ve told me here (and with the caveat that I’m not licensed to practice law in North Carolina), yes, this estate will need to go through probate because the value of the house ($37,500) exceeds the North Carolina small estate’s limit of $20,000 and you are not the surviving spouse. The two joint bank accounts will pass to the surviving joint owner outside of probate, but to transfer the house you’re going to need a court order, which is what probate ends with: an order by the court transferring the property to you, as the beneficiary under the Will.
If the house was worth $20,000 or less, you could have avoided probate by using North Carolina’s small estates procedure, which lets you use an Affidavit to transfer small amounts of property. But, since the house is worth more than that, you’re going to need to go through probate.
Dear Liza: I’m an executor of a trust and was added as co-trustee on the trust while my mom was alive. She is now at peace with dad. Can I now just distribute the funds per the trust without changing the trust first to an irrevocable trust and providing a new TIN to the credit union prior to the distribution? Sorry. That’s not going to work. Now that your mother is dead, the trust is already irrevocable and you can’t use her Social Security number to report income, that’s why you need to get a new tax identification number for the trust. But it’s handy to have. Here’s why.
From the date of her death to the date that you distribute all of the trust’s funds, any income earned by the trust must be reported under that new tax identification number. Now that the trust is irrevocable, you’ll also need to file a 1041 tax return if the trust earns more than $600 worth of income in a year. Also, you’ll need that tax identification number to open up a bank account in the name of trust, which you can use to consolidate the trust’s assets prior to distribution and to pay its expenses.
And if you are thinking that you will avoid all of this by instantly distributing the trust’s assets, don’t. You shouldn’t just immediately distribute all of the trust’s funds, please wait until you’re sure you’ve paid all of the expenses and taxes due first. If you do distribute all of the assets, and then find a trust liability that you didn’t know about before, you as Trustee, must either personally pay that liability or go back to the beneficiaries and try to get the money back.
To find out how to get an EIN, visit the Inheritance Law section of Legal Consumer.com, put in your zip code, and read the article that explains how to do it. (Full disclosure, I wrote that too).
Dear Liza: Can real estate that still has a mortgage on it be placed in a trust? Yes, you can place real property with a mortgage into a revocable living trust. That is, in fact, quite common. Most people, after all, don’t own their houses free and clear when they set up their living trusts. But transferring real property into the trust does not change your obligation to continue to pay the mortgage–if you don’t pay, they can still take back the house. And, if you refinance the house at some future time, the lender may ask you to take the house out of the trust to get the new loan, then put it back in. This is annoying, but not a deal-breaker. Not all lenders require this, but many do.
Federal legislation passed in the 1980’s (the Garn-St. Germain Depository Institutions Regulation Act) says that the transfer of real property into a revocable living trust does not trigger what’s called a ‘due on sale’ clause in a mortgage–which would allow the lender to demand that you repay the loan in full, as if you’d sold the property to a new owner.
So, to summarize, it’s fine to put your house into a revocable trust to avoid probate, even if that house is subject to a mortgage.
Dear Liza: My parents both have recently passed away. They had a revocable trust. What type if tax ID do I need? I created one for the “Estate” type, but should I have made it for the “Trust” type? I am the trustee. Getting a new tax identification number for a trust that has become irrevocable due to the death of the settlor is a task every new Trustee has to face. The trust needs a new tax identification number to report income earned from the date of death of the settlor to the time when when the trust is distributed to the beneficiaries.
After the last settlor dies, you can’t use their Social Security Number any longer (because they’re dead), so you have to get a new tax id. It sounds like you went online to get the tax id from the IRS. You are right, you should have asked for the number to be set up for an irrevocable trust, not an estate. Don’t panic though, just follow the instructions here to correct that error.
For more information on how to deal with taxes and other trust administrative issues, the Trustee’s Legal Companion (which I co-wrote) is a great resource (honest, it is). For a step-by-step guide to getting an EIN, go to Legal Consumer.com. You’ll find free inheritance law information (which I wrote, too) for all states except Louisiana–just enter your zipcode and look for the article entitled “How to Get a Tax ID number.”
Dear Liza: If my mom gifts $14,000 to me and my 5 children and does this by writing each individual separate checks for $14,000 which are then deposited in each separate child’s account, will it also be deemed a gift to me if I am a joint owner? Probably not. Your mom can give up to $14,000, per year, to you, each of your five children, and everyone who lives in Miami, if she’d like to. As long as none of these gifts exceeds that annual gift limit (currently $14,000), she doesn’t need to report this on a gift tax return. However, since these gifts are to be deposited into joint accounts and you are a co-owner, make sure NOT to withdraw money from these accounts for your own use. If you withdraw money from these accounts for your own use, it could be considered a deemed gift from your mother to you–and, since you’ve already received a gift of $14,000, that extra gift would need to be reported. Your mother wouldn’t owe any gift tax on that gift, she’d just use up some of her $5,450,000 lifetime exclusion from the tax, but it would still be an extra return to prepare and file.
Better yet, why not just open up custodial accounts for each of the kids, and put these annual gifts in those accounts? You can be the custodian for each account and use the money for your children’s benefit without any concern about a withdrawal being deemed a gift from your mother to you.
Dear Liza: My mother recently died and I am the Trustee of her trust. She left everything to me and my brother, equally. I live far away from California, where she lived. My brother lives in her house. The bank told me that I need to get a tax identification number for my mother’s trust, is that true? Also, I’m worried that my brother is going to take her furniture and other things in the house before I have the chance to get there. I really don’t know where to start or how to get help. So, first things first. Yes, you DO need to get a tax identification number for your mother’s trust now that she’s died. That’s because now her trust is irrevocable, and, until you distribute the trust property to yourself and your brother, any income earned by the trust during this interim period needs to be reported under this new tax identification number, which is called an ‘EIN’ (employee identification number). You can apply for it online at this website. I’ve written about how to do this on Legal Consumer, which offers national probate information, organized by zip code–click on the article about how to get a tax id number.
Next, you, as Trustee, are responsible for gathering and protecting the trust’s assets until they are distributed to the beneficiaries. That’s the legal answer — but in real life, this can be tricky, especially when you are far away and you two are the only beneficiaries. I would advise seeing how cooperative your brother will be — after all, he benefits from having the house clean and sold for a good price. Ultimately, if he won’t cooperate and you can’t get him to move out, you should seek to have him removed by the local law enforcement authority, but I would hope it doesn’t come to that.
Finally, in terms of getting help, I’d advise you go find an estate planning attorney to advise you on your duties as Trustee. If there are trust assets other than that house, you can use trust money to pay for this advice, and it will be well worth it, since you have to do the job properly or risk personal liability. Nolo has a lawyer directory that should be helpful here.
Dear Liza: My Stepmother had a pension, my father was the beneficiary after she died. He made me beneficiary after his death. After he died, I received the pension. Now my stepmother’s sister wants it. She is not a beneficiary. Is she entitled to it? Can she try to fight it? Your stepmother’s sister, based on what you’ve written here, is not entitled to that pension. If she isn’t the named beneficiary, she’s not entitled to the money. It’s that simple. When an account or a pension has a named beneficiary, that beneficiary is the only person entitled to that asset. Period. Unless your father didn’t have the right to name a beneficiary after his death, or was somehow named improperly by your stepmother, no one else but you would be entitled to the money. In other words, if a beneficiary is improperly designated, then that beneficiary designation itself can be challenged. But otherwise, the account holder’s designation of a beneficiary is the last word.
Dear Liza: My uncle recently passed away. He named both my grandmother and myself as Personal Representatives of his Will, with a clause stating that if a guardian is needed to care for his children or their property, he named me and my grandmother. The clause also states that if any of his children are under the age of 21, the guardian shall serve as custodian for his or her property under the Uniform Transfers to Minors Act until she reaches 21. His 17 year old daughter is the sole beneficiary on his life insurance policy form his employer. Will we be able to utilize this policy to assist with his funeral arrangements? I’m sorry to hear about your uncle. And I’m sorry to answer your question with a resounding, “nope!” Your niece is the beneficiary of that life insurance policy, and you, as the custodian for that property, can only use it for her benefit, not for the funeral arrangements of her father. Money left in a custodial account can only be used for the benefit of the minor, not anyone else. You’ll have to find another way to pay for those funeral arrangements.