About: Liza Weiman Hanks
Recent Posts by Liza Weiman Hanks
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.
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About Liza Weiman Hanks
Liza is an attorney who specializes in estate planning for families of all ages. She is a Certified Specialist in Estate Planning, Trust, and Probate Law by the State Bar of California Board of Legal Specialization. A graduate of Stanford Law School, she has also served as an instructor at the Santa Clara University Law School and practiced with the state of California and a prestigious Silicon Valley firm. Liza is also the author of Busy Family's Guide to Estate Planning: 10 Steps to Peace of Mind. She lives with her family in Campbell, California.
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