Category Archives: Estate Planning Basics

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.

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.

The Right Plan for Now: Living Trust

living trustDear Liza,  I’m a young professional and would greatly appreciate your feedback on what type of trust, if any, would suit me well given my current financial and life position.  I’m single, 29 years old (30 later this year), with cash, stocks, and a stake in a high-growth company.  My goal is to protect my assets while maintaining control and flexibility over their allocation / disbursement over time, especially in the event of unexpectedly passing or a disabling event (transfer to immediate siblings and parents).  I’m single and have no plans for marriage or children within the next 5-8+ years, but I would like to protect these going into a marriage as well as the value will likely be a magnitude greater than they are today). Those are all good questions, and congratulations for asking them way before most people give estate planning any thought (including, to be honest, me!)
A revocable living trust will, combined with a pour-over Will and a Durable Power of Attorney for Property Management,  accomplish most of the goals you’ve listed above. An estate plan like that will provide flexibility for you during your lifetime, keep your property separate when you do marry (if you do marry), allow someone (your successor Trustee and Agent under a Durable Power of Attorney) to manage your assets for you if you are incapacitated and transfer your assets to your siblings and parents if you die an untimely death in an efficient and relatively quick manner.
Here’s what it won’t do: protect your assets from creditors.  Revocable trusts exist to avoid probate upon your death and to allow others to manage assets for your benefit if you’re incapacitated, but, because they can be revoked by you at any time, the assets in that kind of trust are available to your creditors.  Business folks create entities, like limited liability partnerships, and corporations, to shield their personal assets from business risks/creditors, but an estate plan doesn’t do that. Hope that helps. Good luck.

Getting Good Advice When You Are The Beneficiary

Will being signedDear Liza: After dealing with an unexpected death of my spouse my head is still spinning.. My spouse was very private after a divorce  and we kept our affairs separate. Now the Will, of which I was unaware, allows me to stay in our home and if I choose to leave or pass it goes to her children. The attorney who handled the will  said I have control of what happens;

1) I can stay in house till death and take 20% of non probate

2) I can take 1/3 of elective share and no house

3) Or I can select make children offer to buy house based on actuarial tables and 20% of non probate.

How do I get that info to make a good decision? Will says to maintain house in good repair, so does that mean I have to put another $20K for a new roof? I’m sorry that you have to make such important choices and were taken by surprise by them, on top of the grief that comes with losing a spouse. Here’s my advice: hire an attorney to represent you, as the beneficiary under the Will. You need someone who can advise you on your options and explain to you what the Will means — not just in regard to what “good repair” means, but also as to what your elective share rights are, for a start (these are determined by state law).
Please ask that attorney how a Will can offer you twenty-percent of “non-probate” assets, as these generally are assets that pass by beneficiary and are not controlled by a Will at all. If your spouse named you as the beneficiary of her retirement assets or if you owned property with her as a joint tenant, these assets would pass to you by virtue of that, not by the Will at all.

Planning Beats Avoidance

rural-216371_150Dear Liza: We live in Nebraska.  I own a ranch with my brother.  Part of it we inherited and a small part we purchased from family members.  The total value of the ranch is $2.7 million.  We have a buy sell agreement between us.  We have estate questions and aren’t sure where to go.  We each have other assets of approximately $2 million and $4 million respectively.  We have considered a trust; however I have two children and my brother has a second wife and four children.  We do not want our offspring to have to deal with each other.  

So, that’s a REALLY interesting question, and one that involves trusts, but only tangentially, really. The thing is, regardless of whether your estate plan consists of a Will or a trust, your families are most certainly going to have to deal with each other upon the death of you and your brother. You wrote that you own the ranch together….usually, siblings would own a ranch like that as tenants in common, which means that you each own one-half of it and are free to leave it to whomever you’d like to leave it to upon your death. (The less usual alternative, for siblings, would be as joint tenants, which would mean that the survivor would own the entire property at the death of one of you.)

Assuming you each own your half and can leave it at death to others, how on earth are you going to avoid each family having to work something out? Even a buy-sell agreement will require, at a minimum, that one family buys and the others sells, right? Placing your property into a trust will avoid having to go through probate, and gives you the opportunity to try and plan for reducing conflict down the road.  You can each place your interests in different trusts, and specify how each half should be managed upon your deaths.

If you don’t do a trust, then your estate will go through probate, and that in no way reduces the possibility of inter-family conflicts–in fact, it almost invites it, because probate is public, and all interested parties are required to get proper notice and have an opportunity to object to the proposed distribution. With a multi-million property on the table, I would advise you and your brother to hire a good estate planning attorney now to do what you can to anticipate problems and structure the management of the property down the road.

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.