Category Archives: Estate Planning Basics

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.

Assets left by beneficiary designation are NOT part of the estate passing under your Grandmother’s Will

old-lady-107404_640Dear Liza: My grandmother passed away peacefully at 97 in February.  I am the executor of her will.  She had changed her will, legally, several times depending on who had made her mad at the time.  Instead of changing it again, she made me the sole beneficiary on some cd’s and mutual funds.  In her will, she left $15k or 15%, whichever was less to my half sister.  Do I have to count the funds that were left to me specifically as part of the estate? Your grandmother sounds like she was pretty sassy.  The assets that were left to you directly by beneficiary designation DO NOT count as part of the lesser of 15% or $15K gift your grandmother made to your half sister.

Only the assets that are governed by the Will count for that calculation and are considered to be part of the “estate.”  The assets left to you by beneficiary designation are separate from the assets that will pass to beneficiaries under your grandmother’s Will. If your grandmother’s Will has to go through probate, the assets that pass by beneficiary designation are not part of the probate estate, either.

Are Wills Drafted In Other States Valid?

arizonaDear Liza: I would like to know if my wife and I had a will drawn up in Colorado and now reside in Arzonia do we need to have it redone? If your Will was valid in Colorado, it will be valid in Arizona. Both states require that a Will be in writing, be written by someone over 18 years old, and be witnessed by two people.   Still, if you plan to stay in Arizona, you should consider doing a new Will in Arizona–certain provisions of state law differ and an estate planner in Arizona could tell you which ones.  Also, if you have moved to Arizona permanently, you should re-do your Durable Power of Attorney and Advance Health Care Directive–both documents name Agents to act on your behalf if you are incapacitated (one for health care and one for finance), and these documents tend to be state specific and you want them to be honored by state hospitals and banks without fuss. I’ve linked each document to a form that you can use in Arizona.

Annual Gifts and Lifetime Gifts

gift packageDear Liza, I would like to give my son $200k to upgrade homes.  Can me and my wife each give $13,000 to my son, daughter in law, and two grand children?  That would be $102,000, and then apply the remaining $98,000 to the unified tax credit.  Can I write it all in one check for the four of them? You can write one check for your son and daughter. You can now give $14,000 per person, so you and your wife can give, together, $56,000 to them, as an annual gift, and the remainder can be reported on your gift tax return, filed in April of the following year. If your grandchildren are minors, though, you have to give them a gift into a custodial account, a trust, or a 529 educational savings plan.  Children under the age of 18 can’t own property worth more than a nominal amount without a custodian to manage that money.