About: Liza Weiman Hanks

Recent Posts by Liza Weiman Hanks

Will or Trust, Which is Better?

courthouse_2Dear Liza: My husband and I have one adult daughter – 20 years old.  We are in our 60’s and want to set up a will or a trust to ensure that 100% of our property and investments goes to our daughter, and that she inherits the assets with the least amount of taxes/probate as possible. What’s better a Will or a Trust? I don’t know what state you live in, and that makes this a hard question to answer completely. Here’s why: the value of doing a living trust depends on the cost and inconvenience of probate in your state.

Both a Will and a trust can ensure that your property passes to your daughter. Both a Will and a trust can incorporate tax planning to minimize any estate taxes that might be due at the death of the second of you (though these days, you’d have to have more than $10 million before worrying about the estate tax, so let’s assume that this is not an issue for you).  Really, the difference between which kind of an estate plan to create isn’t so much a “what” question; it’s really a “how” question, as in “how much” and “how long” will it take to settle your estates.

This is because a Will requires a probate proceeding before a distribution to your daughter, while a trust will allow you to bypass probate.  This means that if you do a Will, and your estate exceeds the small estates threshold in your state, your daughter won’t inherit anything until the court issues an order for distribution, which is how a probate ends. If you do a trust, and the trust is properly funded at your death, holding title to your major assets, your daughter will be able to inherit those assets as soon as they’ve been identified, taxes and creditors have been paid, and all of the beneficiaries and heirs have been notified.

In states that have adopted the Uniform Probate Code, currently that is 18 states, click here for a list of these, probate has been streamlined and is relatively inexpensive. In states that have not adopted this code, like the one that I practice in,  probate takes longer and costs far more than it costs to administer most living trusts. So, in order to sort out what’s the best estate plan for you, you need to find out the cost and delay in going through probate where you live. If you live in a state where probate is relatively easy and fast, you should be fine with just a Will. If you live in a state where probate is expensive and slow, a trust will be the better choice.

Who Can Order Death/Birth Certificates?

Last WillDear Liza: My uncle just died and I and a cousin are co-executors and equal co-heirs. A will is known to exist in a safe deposit box, but we have neither keys nor legal permission to open the box. There are no disputes and the estate is certainly below the tax level.The Mexican authorities seem to want a Birth Certificate in order to issue a Death Cert. As a niece, I am not entitled to get one, and there is no closer relative. What do I do? While it is true that only close family members can order vital records, you, as the executor, are also entitled to order them. In addition, an attorney that is working with you can also order such vital records. In California, where I practice, you must submit a sworn statement saying that you are the executor, and many states have a similar system.  You can contact the county vital records office where your uncle was born to request his birth certificate. Here’s a link to a commercial service that makes ordering such documents easy as well. Also, I would ask the bank what the rules are in your state for opening that safe deposit box. In my state, there’s a law that allows bank officials to open the box for the sole purpose of removing a Will, since there’s a certain chicken-and-egg problem if the executor must have the Will to be authorized to open that box.

Who Pays Taxes on an IRA?

tax dollarsDear Liza,  I am the personal representative for my mother’s estate in Maryland.  My mother, who is deceased, was the beneficiary of a small IRA. My mother’s estate is to be divided among her three grown daughters, myself included.  Who pays the tax on the IRA when it is withdrawn? The beneficiaries (you and your sisters) will be responsible for the income tax due on the IRA when you withdraw it. You will each get what’s called an “Inherited IRA.”  Check with your plan administrator to find out what your options are for those withdrawals. You probably will have to withdraw the money within five years of your mother’s death, you will definitely have to start withdrawing the money within the first year.

How long can custodial accounts last?

Stock PhotoDear Liza: If I’d like to designate my young child as beneficiary on a retirement account and bank account by naming a custodian under CUTMA, how do I specify that I want the custodial account(s) to last until my child is 25? Naming a custodian under CUTMA (which stands for California Uniform Transfers to Minors Act) for a gift to a child under the age of eighteen is an excellent idea. If you don’t, and you just name a minor directly as a beneficiary, and if the gift is more than $5,000, a guardian of the estate will have to be named by a court before the financial institution will release the funds.

But, clearly, you already know this, or you wouldn’t have asked! And you also know that a CUTMA account can last longer than age 18. In California, where I’m licensed to practice, the longest you can make a CUTMA account last for a gift made during your lifetime is 21. A CUTMA account can last to age 25 only for gifts made in a Will or a trust, or on a beneficiary designation that applies after death.

The way you’d do this is to write down: “________(THE ADULT), as custodian for ________(THE MINOR) until age 25 under the California Uniform Transfers to Minors Act” on the beneficiary form.

All states except Vermont and South Carolina have adopted the Uniform Transfers to Minors Act law, which allows you to name a custodian for a minor’s property. Some states terminate such accounts at 18, most terminate at 21, and some, like California, allow them to last to age 25 in certain circumstances. Here’s a link to a guide to all of the states that have adopted this law and the age limits applicable in each state.


				

What Capacity Is Required To Change Beneficiary Designations?

grandfather-506348_640Dear Liza: Can someone with stage four Parkinson’s change the beneficiary on their life insurance? My answer is: it depends. That’s a pretty lawyerly answer, I know, but the thing is that whether or not someone has legal capacity is fact-dependent and unique to each individual, and, in addition, it depends on what kind of legal document a person is signing.

Changing a beneficiary designation is changing a legal contract, and for that act, a person must have what’s called ‘contractual capacity.’  As a practical matter, this means that someone must have the capacity to understand the meaning and effect of the words in the contract that they’re signing.

In a more formal sense, under California law (that’s where I’m licensed to practice, but all states will have a definition in their Probate Code), someone who has a deficit in one or more of a long list of abilities that include such things as long and short term memory, the ability to understand and communicate with others, and the ability to understand and appreciate quantities, would be considered someone without contractual capacity.

So, a person may have Parkinson’s, but still have the capacity to understand what they are doing when they are changing a beneficiary designation.  Being sick, all by itself, doesn’t determine capacity. It gets down to what that person could understand at the time that they made the change in the contract. And being able to understand and communicate that understanding is what’s required. If that person can’t physically sign their name, for instance, an Agent, acting for them under a Durable Power of Attorney, could make such a change at their direction, as long as such an act was authorized under that Durable Power of Attorney.

If someone with a serious illness wants to change their beneficiary designations on a life insurance policy, and wants to avoid a challenge to that change in the future, they could have a doctor state, in writing, that they still have the capacity to contract, and could sign the beneficiary change form in front of witnesses who could verify that, in fact, the person knew what they were doing and why they were doing it.

 

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