Category Archives: Estate Planning Basics

Dear Liza: It is my understanding that in order to preserve the “portability exemption” a surviving spouse must file an estate tax return  (706), which would not be required otherwise. It seems that 706 involves quite a bit of work and additional expenses. Do you think it’s worth the effort?  Surviving spouses of those who died in 2011 and 2012 have that decision to make. The problem is, there’s not an easy answer.  For those who don’t know what the question is, here’s a quick summary: Current estate tax law allows a surviving spouse to use any part of the $5 million exclusion from the estate tax that was available to their deceased spouse but not used by that spouse.  For example, if your spouse died in 2011, and their part of the estate was $1 million, you could use that extra $4 million dollars of unused exclusion to further reduce any estate tax due at your death. Your spouse’s exclusion would be portable to you. Except. There’s always an except. And this time there are couple of them, and they’re all pretty big:

• In order to make use of that exclusion, you do have to file an estate tax return nine months after your spouse has died.
• Estate tax returns require a detailed accounting of all of your spouse’s assets, which costs money and takes time to prepare.
• Once filed, the IRS can examine, without any limitation period, a deceased spouse’s estate tax return to adjust the amount of the deceased spouse’s unused exclusion amount passing to the surviving spouse. 
• There’s no guarantee that the additional, portable, exclusion will actually be available to you when you die, unless you die in 2012, because the current law expires in 2013.

In the end, you have to decide whether the time and cost involved are worth the potential tax savings down the road. For some people it is; for many, it isn’t.

Dear Liza: My father passed away last fall and I have not received any notification of a Will.  I am estranged from my family and my brothers have refused to tell me the name of any attorney or executor involved with the estate, and have refused to tell me if there is a Will.  Is there any way to demand this information?  There are state laws that require disclosure to you in certain circumstances, and if your family isn’t cooperating, those provide you the best chance to figure out what is going on.  If your father died and did have a Will, the Will is supposed to be lodged with (filed with) the superior court in the county in which your father died by the executor within a certain period of time (which varies from state to state, but is 30 days in California).  Once filed, the Will is a public record and you can get a copy by requesting it from the probate court.  If there is no Will and your father owned property worth more than a certain amount (this also varies state to state, in CA it is $100,000 now and will be $150,000 as of January 1, 2012) the estate has to go through probate before anything can be distributed, unless your father had a surviving spouse.  Probate is a court supervised settling of the estate: the Will is proven to be valid, the creditors are paid, the assets are appraised, and the estate is settled.  If a probate proceeding is opened, you are required to get notice of it, as a surviving heir.  Here’s a good summary of the California probate process.  But, if your father died without a Will, and had less than the minimum required for probate, I’m not aware of any state disclosure laws that would provide you with information about his assets.  If your father died without a Will,  even if there’s no probate, you would, as a surviving heir, be entitled to a share of his assets, but enforcing that without family cooperation will be difficult.

Dear Liza: A friend of mine recently had a stroke and cannot sign her name, nor make an X, and her conversation is garbled. She doesn’t have a Will, a Living Trust, or a Durable Power of Attorney. How can we get something in place to take care of her financially? It sounds like you are going to need a conservatorship for your friend. This is a court proceeding where a judge appoints a responsible person or organization (that’s the ‘conservator’)  to care for another adult (that’s the ‘conservatee’) who is no longer able to care for himself or herself or manage his or her finances. Here’s a link to the California Courts website on conservatorships. If your friend had signed a Durable Power of Attorney for Finances before she had that stroke, you wouldn’t need to go to court–which is why a Durable Power of Attorney is such an important document. Conservatorships are generally handled by elder law attorneys, and sometimes (but not always) by estate planning attorneys.  California Advocates for Nursing Home Reform (CANHR) has a good directory of elder law attorneys. Hope this helps.

Hi Liza,  I read from FAQ on the nolo website, “The $5 million exemption applies to property you give away during life or leave at your death. In other words, you can transfer, either while you are living or at your death, up to $5 million of property tax-free.” So, does it mean that I can pass a $1 million house to my children without any costs? now? If yes, what time is used as the tax basis? Yes, until the current law expires at the end of 2012, you could absolutely give that house to your children free of gift tax. But they would also get YOUR basis in the house for capital gains tax purposes. In other words, if you purchased that house for $25,000 in the 1970′s and now it’s worth $1 million, if you give that house to your kids, and they sell it, they will owe capital gains taxes on all of that gain. If you give them the house only upon your death, their basis in that property would be the fair market value of the property at your death, so all of that gain goes away.  If you make the gift now, also, don’t forget to file a gift tax return by April 15th of the following year.  You are still required to file that return, even though no tax is due.

Dear Liza, is it necessary to have both a last will and testament if you have a living trust? Yes, that’s the way it is usually done. There are two main reasons for this.  First, if you have minor children, the Will is where you nominate guardians for them.  But also the Will provides an important way to make sure your trust is the one set of instructions for who gets what and how it’s managed.

 Here’s why: your trust holds the property that you transfer into it during your lifetime. You do this by either recording a deed (for real property) that transfers ownership from you as an individual to you as Trustee, or, in the case of a brokerage or bank account, by filing out paperwork that states that the account is owned by you, as Trustee.  (These are called Change of Title Forms at most institutions; sometimes Trust Account Applications or something similar.) However, most people don’t actually transfer all of their assets into such a trust.  When they die, often there are everyday checking and savings accounts, cars, or other assets outside of that trust.  Sometimes they have simply forgotten to transfer accounts that should have gone into the trust or refinanced a house and taken that house out of the trust in the process, then forgotten to put it back in. So, that’s where the Will comes in–it’s usually a special kind of Will, called a ‘pour-over Will’–and it says that all such property should be poured into the trust/transferred into the trust after a person’s died. That way all of a person’s property will be distributed via the trust.  A note of caution: if too much property is held outside of the trust, you will need a probate proceeding before you can transfer ownership to the trust (the trigger amount varies from state to state). So, don’t rely on that Will to make things work–make sure that your major assets are held by the trust during your lifetime.

Dear Liza:  My mother in law passed away a couple of weeks ago, she lived in Nebraska.   But I am aware Mom had a will, and although we are on good terms, as the sister in law, I did not mention the reading of the will as it sounded like this would happen.  Do my daughters have a right to know what the will says and can we get a copy of the will from the court or where ever it was filed?  In movies there’s a dramatic reading of the Will. In real life, that doesn’t happen hardly ever. Instead, the Will is supposed to be filed in the probate court in the county where the person died. Once filed, that Will is a public record and anyone can get a copy. Here’s a link to information about Nebraska probate law. Good luck.

Dear Liza:
I live in Massachusetts as well as my 3 other sisters and our parents who are in their 80s live in Florida. My father’s only  brother from South Carolina passed away 3 years ago (they were very close) We recently learned from a friend in SC of a CD in the amount of 67k that was my uncle’s. This CD was in a bank in Connecticut. We assumed this money belonged to my father being the only immediate family (next of kin). However since we did not have a will (the Will is lost) my father was not able to directly receive the money. So one of my sisters took it upon herself to take some legal action and moved that money into “an estate” checking account. She is the “owner” of this estate. I don’t have all the details from her as she is being very secret about it. I do know that she said she has to go to “probate court”? My dad is a vulnerable and passive type of person and unfortunately my dad and I are not fully clear on how this works and having a hard time understanding the process that my sister is doing. My dad being elderly is confused (I’m confused a little too) yet wants to trust my sister that she is doing the right thing and not spending that money.  Based on what you’ve outlined here, it sounds like your sister petitioned the probate court in South Carolina to be named the administrator of your uncle’s estate. (That’s like being the executor, but when there’s no Will; also called the Personal Representative).  And that would make sense, because you’d need a probate to transfer an asset that large.  If that’s what she did, and the court did appoint her administrator, she could take the paperwork issued by the court, and use it to open an estate account. But she’s NOT the owner of the money, she’s in charge of safeguarding it until the probate process is completed.  That process requires that all creditors be notified, all assets identified, all heirs be notified, and all debts paid.  At that point, the court will issue an order distributing that money to the appropriate people under that state’s law of intestacy.  What’s confusing is that your father, as the only living heir, should have received notice from the court of your sister’s petition to be named administrator.  To find out what’s actually happened, you should call the probate court in the county where your uncle died to find out about any proceedings there under his name.  Here’s a helpful article on settling an estate in South Carolina as well.

Dear Liza,
 My husband and I are both in our mid-60s and both retired. We want to put a living trust together.  My husband has two daughters (and two grandchildren) from his previous marriage.  I have no children of my own, but have a sister and nieces and nephews.  My husband feels that his daughters should receive two-thirds of our estate, and my family (nieces and nephews) should divide the remaining one-third.  In your opinion, do you think this is fair?  I feel that I have contributed as much as he has over the years and that it should be a 50/50 split.  I hope you are able to give your opinion.  I can, and I will: I’m on your side, if you feel that you’ve each contributed equally to the property you’ve accumulated together during your marriage.  If you lived in a community property state, that’s how you’d have to divide your assets: 50/50.    But it’s not easy to discuss equity with a spouse, and he may feel that his children ‘deserve’ more somehow than your nieces and siblings.  Still, it’s worth working it out together so that your estate plan reflects your wishes, rather than state default rules, which will kick in if you die without a plan at all.   Maybe if you work with a compassionate and wise attorney (honestly, there are some….) he or she can help you two to articulate your views and come to a fair resolution.

Dear Liza , My partner and I have each executed our wills, naming the person to be legally responsible for our minor son (age 12) and indicating that our assets would flow first to one another, then to our son in the event of our deaths.  We assumed that the person we have named guardian for our son would have control over these funds, but recently learned that may not be the case.  The person we have named guardian is not a blood relative, and there are blood relatives living who may not want the guardianship responsibility, but want to control the funds.  Also, we would not want our son to have access to all the funds upon attaining age 18, but would want funds to be able to be spent for college expenses, etc.  We completely trust the guardian named to make the right decisions, but need to know how to best make this happen from a legal perspective.  You, like any parent, have two different problems to solve. The first is, “Who is the best person to raise my son to age 18?”  The second is what’s the best way to manage the money my son will inherit and who is right person to take care of that money?” Nominating a guardian of your son in your Will solves problem number one. To solve problem number two, you need your Will to establish a trust for your son, to hold his money until he’s older, say 25 or 30, and name a Trustee of that trust to manage the money until that time. The alternative is to name a guardian of the estate, this person would manage the money for your son, but only until age 18, when he becomes a legal adult.  You can certainly name the same person to both roles, many people do. But, if the best person to raise your son would spend his college money on a pony, naming someone else is a better choice.

Hi Liza,  I have a living trust and I’m the trustee in the trust.  I have a will in the trust.  I wanted to make some changes to the will and I’ve been told by my lawyer that I would have to
make another trust if I want to change the people in my will.  If the will doesn’t have to go to probate why can’t I just make the changes in the will and have my designated
trustee distribute my estate after I’m dead?  One of the people in my will has died, one is in a nursing home and two I haven’t heard from in years.  This doesn’t make
any sense to me.  Can you explain this to me? Well, truthfully, now I’m a tiny bit confused. It sounds like you have a trust, and in that trust you leave assets to various people. (I think that’s what having a “will in the trust” means.) Assuming that you are the Grantor of that trust (the person who established it) and it’s a revocable trust, you can certainly amend the trust to reflect your current intentions. It is common that we lose touch with people over the years, or change our minds about what we want to do with our assets over time. To make a small change to an existing document you would have your lawyer draft a trust amendment for you to sign, changing whatever sections of the existing trust needs revising. If you are making a lot of changes, you’d do what’s called a Restatement of Trust, which is like having an all-new trust with all current terms, but with the same name as the old trust, so you don’t need to retitle assets that are already in it. Maybe that’s what your lawyer meant by a “new trust.”