About: Liza Weiman Hanks

Recent Posts by Liza Weiman Hanks

Avoiding a Lump Sum Inheritance

pot of goldDear Liza My father wants to leave some of his assets to my brother and sister, however neither of them is particularly adept at handling money and he doesn’t want to hand them a large, lump sum. Can a Will stipulate that they receive payments on a predetermined basis, almost like an allowance? If not, can this be accomplished through another vehicle?

Your father isn’t the only parent worried about leaving money outright to kids.  He has a few options. Your father can leave money in his Will to a trust for the benefit of your brother and sister, and specify how the money is to be distributed to them. The trust itself is a part of the Will.  Leaving money in a trust by way of a Will is called a “testamentary trust,” because the trust is established after your father dies. This will require a probate proceeding in most states.

Alternatively, your father can create a trust now, and in that trust he can distribute assets to trusts for your siblings as well. This will accomplish the same result, but avoid a probate proceeding at your father’s death. Lastly, your father could, in a Will or a trust, instruct the executor or Trustee to purchase an annuity for your siblings upon his death, that pays out a certain amount of money over a certain period of time, or, he could purchase an annuity like that during his lifetime, to be paid upon his death.

What to Do When One Parent Lacks Capacity

happy father and daughterDear Liza, my parents do not have a living trust in place. I need to help them set one up. My father and mother are 91 and 83 respectively. My father has a form of dementia that prevents him from making decision about his property. My Mother is fully capable. Does my Mother have the right to make decisions about a living trust for both of them? Does my father have to sign anything?  I’m sorry that your father is no longer capable of making decisions about his property. Because your father lacks the capacity to understand the nature and consequences of his decisions, he can no longer do any estate planning on his own, even if he’s physically capable of signing his name.

Here’s my  short answer as what kind of estate planning options are available now: your mother can only create an estate plan that includes your father’s property if your father already has a Durable Power of Attorney in place that authorizes her, as his Agent, to create a living trust on his behalf. Not all Durable Powers of Attorney authorize that power, many authorize an Agent to transfer assets into a trust that’s already been created, but not to create a new one.

If your father didn’t sign a Durable Power of Attorney authorizing the creation of a trust, then your mother has two choices:

1) She can create a living trust that holds her 1/2 of the community property. She can leave your father’s property out of that trust. If he dies first, she can have his property transferred to her via a Spousal Property Petition (this is a very simple probate procedure that a surviving spouse can do), and put his property into her trust at that point. This isn’t a perfect solution, because if your mother dies first, your father has no estate plan in place.

     2) She can go to court and have herself named as your father’s conservator – this is a court procedure that, essentially, strips your father of the ability to make legal decisions and allows someone else, a conservator, to do so for his benefit under the supervision of the court. This is expensive, public, and potentially adversarial, but it’s the only way to create a Will or a trust, for someone who now lacks the legal capacity to make their own decisions.

Sorry that I can’t offer you better news, or more options. Good luck.

Can the Executor Give Away Estate Assets?

historic houseDear Liza: My husband is the sole executor (and only child) of his mother’s Will.  There are no other beneficiaries listed in her Will.  The only asset she had was a home which is valued at about $300,000.  Does he need to probate her Will?  As the executor can he sell the home to one of our children for $1.00? Whether or not your husband has to probate the Will depends upon your state’s small estates limit. In most states, an estate that falls below a certain threshold doesn’t have to go through a formal probate. To find out about your state’s small estate limit, click here. But my guess, is yes, a piece of real property that’s worth $300,000 doesn’t fall below that limit in any state that I can think of.

Whether or not your husband can sell the house for a dollar raises a different issue. The short answer is “No.” Your husband, as the executor, has to follow the terms of the Will (as does the probate court). So, at the end of the probate proceeding, the Court will distribute that house to your husband, since you’ve said that he’s the beneficiary under the Will. At that point, if he wants to sell it for 1$ to your kids, he can do so, BUT, the IRS will consider that a gift of the fair market value of the house, minus that one dollar. Essentially, your husband is giving the house to your kids, and pretending that he sold it to them, right? The IRS gets that, they’ve seen it before.

I’d advise your husband to consult with an estate planning attorney. Depending upon the terms of the Will and the time that’s passed since his mother died, he may be able to disclaim the gift and have it pass directly to your children, as a gift from their grandmother directly. A disclaimer is a legal no-thank-you that must be properly executed within nine months of the date of death and before a person has accepted any benefit from that gift. The house would pass to your children only if the Will says that, if your husband died first, it would then pass to his issue. (Not all Wills would say that, so this depends on what it says.)

If he can’t disclaim, he’s absolutely free to make such a gift himself. He’ll have to file a gift tax return by April of the following year, reporting the gift, but he won’t owe any gift tax on the gift because your husband, like all of us, currently has the ability to give up to $5.34 million during life or at death without paying any gift or estate tax.  The gift of $299,999 will use up that much of his available exemption, leaving him with a bit over $5 million more to use.

You also need to find out whether or not your state imposes an inheritance or estate tax. You’ve told me that you live in Pennsylvania, which does impose such a tax. Click here for a general guide to state inheritance and estate taxes, including Pennsylvania.

Disinheriting a Child

Last WillDear Liza: My husband and I both have a will that states we are each other’s beneficiaries and executor’s and our son as 100% beneficiary of both of us died,. My husband has a daughter by a previous marriage.  If my husband dies before me does she have rights to our assets? I often tell my clients the sad irony of estate planning: You can pretty much do whatever you want to do, you just have to die first.  So, in your husband’s case, he is not legally required to leave any money to his daughter from a previous marriage. I am assuming that she is not a minor and he has no other obligations to provide for her via a divorce settlement or the like.

What he needs to do, though, is acknowledge his daughter as his child in the Will, and then to say, explicitly, that he is deliberately choosing NOT to leave her anything under his Will. That way, she (the excluded daughter) cannot make a claim that he simply forgot to include her and make a claim based on her relationship to him. Mind you, she may very well not be happy about this and she may try and challenge the Will as being invalid in some way, but that’s a pretty hard thing to prove: your husband would either have had to lack the legal capacity to understand what he was signing or have been placed under undue influence to execute that Will (i.e. forced to sign) .

But there’s no keeping unpleasant secrets forever.  She’s going to know that she’s been excluded, when the time comes. Notice requirements vary state to state, but generally speaking, upon your husband’s death, she, as his daughter, will be entitled to notice of the probate proceeding and will be able to see a copy of the Will, even though she doesn’t inherit anything under the Will.

Creditor’s Claims and Trust Administration

debtsDear Liza: I am the successor trustee of my parents trust.  The have both passed and I was told before I disburse the assets I need to advertise a Notice to Creditors. How long and how many times do I need to advertise?  

Since I don’t know which state you live in, I can only provide you with a very general answer.  In most states, although not California, where I live and practice, if you are administering a trust, there’s no special creditor’s claim process that requires publication. Instead, creditors have a limited period of time in which to make a claim, and after that, it’s just too late. In California, again, that’s one year. In your state, it could be more, you’ll have to find out what the statute of limitations is after a death, you can try typing in “statute of limitations for claims against estate in _____” to your favorite web browser.

If there is a creditor’s claim process, that’s a way to accelerate the discovery and payment of creditors. Usually, that does involve publication that a person has died, and then there’s a specific number of days in which any creditors can make a claim against the trust’s assets (and this is less than the time allowed by that state’s statute of limitations). Once that claim is made, the Trustee has a certain number of days to either pay, or deny that claim. If a creditor fails to make a claim within the required time period, they are then barred, forever after, from making a claim.  This is similar to how creditor’s claims are handled in probate — a notice is given, a time limit runs, there’s a process for paying or contesting a claim, and then a creditor is barred. This is all an attempt to have some finality after a death, so beneficiaries can inherit without the fear of lurking liabilities out there.

As a general matter, you do need to pay the creditors that you know about, so all of the bills that have come due since your parents have died should be paid before you distribute anything from the trust to other beneficiaries. Also, please make sure to pay the taxes first, before any other creditors.  You should also know that secured debts, like a mortgage, do pass with the property that they are secured by. So, for example, if Sam inherits the house, and there’s a mortgage on that house, Sam is going to have to either pay that mortgage off, or get the lender to let him assume that mortgage himself (And that’s up to the lender…sometimes they will do it, sometimes they won’t. That depends on Sam and also on the terms of the mortgage.)

Finally, although you should, of course, pay outstanding credit card bills, you should know that the trust’s beneficiaries are NOT personally liable for such unsecured debts if the estate/trust has insufficient assets to pay those bills. I share this with you because bill collectors often neglect to make it clear that unsecured debts, like credit card debts, do not pass to the beneficiaries.

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