Category Archives: Estate Planning Basics

When does a Will Make Sense?


pot of goldDear Liza: A friend of mine is considering a living trust.  The only property he has is a coin collection maybe worth around $15,000.  He has an adult daughter who he doesn’t communicate with and does not want her to get anything.  He would like to leave the collection to me.  Is a living trust a good way to go listing me as the trustee or the beneficiary?  Or is doing a Will just as good? If the only property that your friend has is a coin collection, a simple Will should accomplish his goals.  A Will allows your friend to clearly state who should receive that collection upon his death. Assuming that $15,000 falls below the probate threshold in his state (called the “Small Estates Limit”), no probate would be required upon his death to transfer the collection to you. A living trust is just a way to avoid probate, but really serves no purpose in an estate that’s below the probate limit anyway. To determine the probate threshold in your friend’s state, start here.

Who Inherits When There’s No Beneficiary?

IRA moneyDear Liza: My dad named his mother as his beneficiary, but she passed away in 2004.  My dad died in 2013 but didn’t change his beneficiary. I am my father’s only child and he has no wife, so who gets the money ? When a person dies and there’s no surviving beneficiary named for an account, the assets would go that person’s “estate.” You don’t say what kind of account this is, but the most common kind of account with beneficiary designations would be a retirement account, so I’ll make that assumption (though most beneficiary accounts work the same way).

What that means is that, if your father left a Will, the assets in the account that you are describing would pass to the beneficiaries under that Will. If he had no Will, and you are his only child, you would be the beneficiary under the laws of the state that your father lived and died. (These are called “intestacy” laws, and they spell out who inherits if there’s no Will.)

But here’s the thing, your father’s estate may have to go through probate before the assets can be transferred to you. This depends on the size of your father’s estate, and where he lived and died. All states have what’s called a “small estates limit,” and if an estate falls below that limit, no probate is required.  I can’t tell from your question how big or small your father’s estate was, or where he lived. But that’s the relevant question for you to ask. If you don’t need to go through probate, there’s a way for you to request that the account be transferred to you without a court order; if you do need to go through probate, you’ll need a court order (which is how probate ends) to have the assets transferred to your name.  To find out the probate small estates limit in your father’s state, and how to transfer assets if his estate is under that limit, start here.

Capital Gains Taxes on Appreciated Property

houseDear Liza: My mother gave her house to my sister just before she passed away.  My sister is going to sell the house. Do we have to pay taxes on that? If your mother’s house had appreciated in value between the time your mother purchased it, and her death, then the answer is yes. I can’t answer even a fraction of the questions that people send to me, so I try to pick ones that I think will have value to many people. Your sister is going to owe capital gains taxes on the difference between what your mother paid for that house and what your sister sells it for. Capital gains taxes are levied on the difference between what someone paid for an asset (that’s called the basis) and what they sell that asset for later (they’re taxed on the gain, or difference between the basis and the sale price.)

Because your mother gave the house to your sister before her death, your sister received that gift with your mother’s original tax basis. For example, if your mother purchased her house in 1976 for  $65,000, and your sister sells it in 2015 for $365,000, your sister is going to owe capital gains on the $300,000 in value that the house gained between 1976 and 2015. (There’s a $250,000 exclusion from this tax for the sale of a primary residence if you’ve lived there for 2 of the last 5 years, but I don’t know if that applies to your mother’s house here. It could, I suppose.)

If your mother had instead gifted that house to your sister upon her death, via a Will or a trust, your sister would have inherited it with a stepped-up basis, which means that her basis in that house would have been the value the house had at your mother’s date of death. In the example I just used, if your sister inherited the house with a value of $365,000 (as shown by a qualified appraisal) and then sold that house for $365,000, she would have owed zero in capital gains taxes. That’s the difference between lifetime gifts (donor’s basis) and gifts made as a result of death (date of death value basis).

Amending a Survivor’s Trust

grandfather-506348_640Dear Liza: My parents have a revocable Trust that is very outdated and we want to make amendments to it. I understand most of the Trust but am having trouble with the Survivors Trust. I was surprised to see that upon the death of one spouse a Survivors Trust may be established. Is this really a necessary part of a Trust. Isn’t being the Co Trustee basically the same thing? A Survivor’s Trust is often created for tax planning. It’s common.  Many living trusts, especially those drafted prior to 2012 (when tax laws changed) are designed to minimize the estate tax at the second death. Trusts like that typically divide the trust estate into two trusts when the first spouse dies: one trust holds the decedent’s assets and is often called the Bypass Trust (or the Credit Trust); the other trust holds the survivor’s assets, and is called the Survivor’s Trust. Usually, the survivor can use assets in both trusts, but, to the extent that they don’t use up all the money in the Bypass Trust, that money passes estate tax free to the beneficiaries.  If your parents don’t have more than $10 million (like MOST people), their trust can most likely be simplified to just hold all of the assets in one, revocable trust after the first death. This trust is still often called the Survivor’s Trust. But this is all completely separate from who manages the trust, whatever it is called. That person is the successor Trustee, or, if appointed during your parents’ lifetimes, a co-Trustee. If you are helping your parents take care of their finances, and they’d like to help them manage their affairs, they can appoint you to serve with them now as a co-Trustee, or even resign, and let you take over as sole Trustee now.

How to Store That Plan

punch-402558_640Dear Liza: I’ve just completed my estate planning documents using the latest edition of WillMaker Plus, including the will, health care documents, power of attorney, final arrangements, etc. I think all totaled it comes to over 65 pages. I’d like to leave all the documents well-organized so they’re not just a pile of papers that would overwhelm the executor. I’d like to put the documents in a three-ring binder with a table of contents and tabbed for the different sections. Is it legal to hole-punch these documents, either before or after they’re singed and notarized? Would that vary by state? I have never heard of any law that would invalidate documents that were otherwise valid because there are physical holes in the paper. Sometimes my clients make a copy of their documents, hole punch those, and put the copy in a binder, then put the originals in a safe deposit box or safe in their house. It’s great that you are trying to make things easier on your loved ones. Here’s a few other things you could put in the binder: a list of your passwords to online accounts; a list of your accounts, life insurance policies, and other assets; contact information for your heirs and beneficiaries; and a list of people that you work with, if any, such as tax preparers and financial advisors.

Do I Need a Special Needs Trust for a Son on SSDI?

Disability symbolDear Liza:
I have an adult son who is developmentally disabled. He is able to work and receives Social Security Disability Insurance as well as Medicare. Does he need a Special Needs Trust?


I love it when someone asks me a question with a clear answer! Here, the answer is probably not. Your son receives Social Security Disability Insurance (SSDI), which is a benefit that he receives because he was able to work and pay into the Social Security system. This is not a needs-based program like Supplemental Security Income (SSI), which people receive when they are permanently and severely disabled and qualify for this assistance because their resources are limited.  Medicare is an age-based health insurance program, so it’s not needs based either.

Special Needs Trusts are designed to allow parents (and others) to create a trust for the benefit of someone on SSI that can be used to supplement this government benefit without disqualifying someone from the program (and from Medicaid programs, which offer health insurance to those who qualify for SSI). If your son is not going to need SSI in the future, and will continue to receive SSDI and Medicare, then a Special Needs Trust won’t be necessary to protect his ability to continue to receive those benefits. That being said, of course, it still sounds like you need to leave him assets in a trust, with a Trustee who can manage resources for his benefit. This trust, however, does not need to meet the stringent requirements of a Special Needs Trust.


To read more about Special Needs Trusts and the differences between SSDI and SSI, take a look at Special Needs Trusts (Nolo, 5th edition).

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.

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.