Dear Liza: I am a 61 single retiree who has a single family home, an IRA, life insurance and a small pension. With my siblings as beneficiaries to these instruments. Is a living trust/will needed anyway? So, it’s true that if you have named beneficiaries for your IRA, life insurance and pension, those assets will go to those beneficiaries and your Will or Living Trust would have nothing to say about that part of your estate plan. But, here’s the thing–in most states you cannot name a beneficiary for a house. In those states, the only way to leave your house to certain people and avoid having to go through probate to do it, is to set up a living trust and transfer your house to that trust. Click here for a list of the states that do permit the transfer of a house by naming beneficiaries on a deed–called a transfer-on-death deed. Sadly, California is not one of them.
Category Archives: Wills
Dear Liza: I am divorced and own a second vacation cabin that I want my children to have when I die. Is there a way for me to retain rights, ownership and control while I am alive and of sound mind but pass the property to them when I die that doesn’t have a bunch of overwhelming taxes? Yes. Upon your death you can leave the kids the cabin either outright or in a trust. If you leave it to them outright, as tenants in common, each will own 1/2 and can leave their half to whomever they choose when they die. If you leave it to them in trust, you can control how it’s managed and how it would be transferred upon their deaths (as in maybe it has to go to their children or be sold to other family members.) The tax treatment of the gift is that it will go to them free of tax — if there’s a tax to pay, it falls on your estate, but they inherit what’s left free of tax. The capital gains tax basis on the property will be what it is on your date of death, so if they sell it someday, they’ll owe tax on the gain in value from your date of death to the date of sale. I don’t know what state you live in, but in California, where I practice, a gift from parent to children is also excluded from reassessment of property tax, so they get the property tax rate you were paying.
Dear Liza: I am trying to prepare a living trust on behalf of my father. He owns his home and vehicles outright and also has two bank accounts. I am the POD beneficiary of all of his accounts, as well as being a secondary signer on his checking and savings accounts. My confusion comes from not knowing what assets should be put in the living trust. Should it just be the home, since that has the highest value? Or should the cars and bank accounts also be included? Or can everything but the house be designated in the pour-over will that I also intend to create? Your father’s living trust has just one purpose: to allow his estate to avoid probate upon his death. If your father’s assets are owned by the trust, not by him, when he dies, then his estate won’t need to go through probate. Not all items are subject to probate, though: retirement accounts, life insurance policies and bank accounts with designated beneficiaries (that’s what a POD account is), go directly to the named beneficiary. Cars can be transferred via the DMV, and so don’t need to go through probate either. So, for your Dad, that leaves his house. You should transfer legal ownership of the house to his trust by filing a trust transfer deed with the county. When you record the deed, you’ll also need to file a Preliminary Change of Ownership Form (PCOR). This form tells the county assessor what kind of transfer just happened; the assessor wants to know if they can raise property taxes on that property, which they can’t, because a transfer to or from a living trust is NOT a change of ownership under Proposition 13. That pour-over Will is just a backup for your Dad. If he doesn’t transfer his house to the trust, and then dies, the Will says transfer whatever property he owned at death to this trust (that’s the pour-over part). But, if the value of that property is more than $150,000, you’ll need to go through probate to make the transfer. Put another way, the Will makes sure that all of your father’s assets get distributed as directed by the trust, but it won’t help his estate avoid probate first.
Hello Liza, My husband and I need to update our wills, they are terribly out of date. Our dilemma is around the question of who should be Executor/Co-Executor of the estate. Obviously we would be the executors of one an others estates, however, if something were to happen to both of us, we need a third party Executor/Co-Executor. We have no obvious relatives, or even close friends that we feel could ask to be an Executor. We’ve understand that a law firm, bank, financial planner, etc.can act as an Executor (or co-Executor). Our question is, what is the financial obligation for doing so? Trust companies, trust departments of banks, and individuals, called professional fiduciaries, can serve as the executor of your estate. There’s no up front fee for nominating an institution or professional to serve in that capacity. They would charge the estate a fee for their services if they are appointed to serve after the death of the second of you. Often, these fees are a percentage of the estate. If your estate goes through probate, your executor is awarded statutory fees based on state law, which are usually a percentage of the value of the estate. Attorneys sometimes serve in this capacity, but, at least in the state where I practice (California) there are strict rules about doing so, because in the past unscrupulous lawyers wrote themselves into client’s documents to generate future fees. Financial advisors often cannot serve due to conflict of interest rules in their companies, but some can. I would advise you to ask your local bank or financial advisor what their fees would be for this service, or if they can recommend anyone in your area who could serve.
Dear Liza, My husband and I are having a disagreement about how to set up our living trust. (We are using online trust software.) He says that our will designates how to disperse the trust, after both of us die and the two designated trustees who are in charge of the trust will need to follow the will’s direction and that the trust is merely a holder of property and we don’t “need” to add all the beneficiaries to the trust document, that the will suffices. I say that we need to designate all the beneficiaries in the trust itself and clarify that all the property in the trust, unless specifically designated otherwise, will be inherited equally by our six children and that the will is for designating who gets the red pot or the carpet, etc., that sort of thing. Who’s right? So, one of the really nice things about being an estate planning attorney is that I hardly ever have to weigh in on marital disputes. On this one, though, I’m on your side. As a general rule, a living trust is designed to hold your property that would otherwise be subject to a probate proceeding at the death of the second of you–usually your house and your large brokerage and bank accounts. The assets in that trust pass by the terms of the trust itself. The ‘Trustees can’t follow the instructions in the Will, they have to follow what the trust says.
The Will, in this scenario, is designed to transfer any assets that you owned at death that weren’t in the trust into the trust at that point. That’s why this Will is often called a ‘pour-over’ Will– like the saucer under a teacup, it picks up the property you’ve left outside of the trust and pours it into the trust (the cup) after your death. Often, too, your tangible personal property (jewelry, furniture, red pot, clothes, etc) are distributed under the terms of the Will, but sometimes these assets also pass into the trust to be distributed there. So, make the trust the document that contains your wishes for the distribution of your estate, and let the Will just do the cleanup job for you.
Dear Liza: I am the executor of my aunt’s estate in NJ. She left a number of payable-on-deaht (POD) accounts to me but her intention was that most of these funds/accounts be given to charity. I am trying to avoid paying estate and inheritance tax on them, because then the charities will get less. Is there a way I can redirect them to the charities before they come to me so as to avoid the taxes? When someone gives you something in a Will, or by beneficiary designation,you can always say, “No Thank You” and not accept the assets, provided you don’t make use of the asset first, and that you do this within 9 months of the death. This is called ‘disclaiming’ the assets. Legally, it’s as if you died first — the asset is then given to whomever is named as the next beneficiary. In that case, the gift is from the person who died, not from you. What you can’t do, however, is direct where the assets go next. So, if your aunt left a Will that said everything in her estate was to go to you, then to charity if you did not survive her, your disclaimer would direct those assets to the charity, via that Will. However, if your aunt’s Will did not specify charities as the next beneficiaries, or did not have a Will and simply left those payable-on-death accounts directly to you, and named no second beneficiary, the only way you can give those assets to charity would be to do it directly as a gift from you. If you disclaimed those assets, they would pass to your aunt’s surviving heirs under New Jersey’s law of intestate succession, not to charity. You can give $13,000 per year to any beneficiary free of the gift tax, or $26,000 if you are married and your spouse agrees to make the same gift.
Dear Liza: My mother is 79 years old and is on social security. She and her brother own a house together. At this point, I really don’t care if her brother has control of the property. But I do care if the contents of the house are legally given to him. Does he have rights to the contents of the furniture in the house? Does my mother need a Will and would that Will prevent her estate from going into probate? Your mother’s furniture and furnishings are what’s called “tangible personal property.” This is lawyer-speak for all the stuff in her house: pots, pans, rubber bands, and the couch. That property will pass to you and your siblings if your mother executes a simple Will and gives her tangible personal property and any other assets she owns to her children. If the house is owned in joint tenancy, the surviving joint tenant (your uncle) would own the property upon your mother’s death, by what’s called “right of survivorship.” The house passes to him because of the way he and your mother owned it. But the tangibles, and anything else your mother owned other than the house, would pass to her kids via her Will. If all she really has at this point are those tangibles, no probate would be required because states exclude small estates from the necessity of a probate proceeding. Nolo offers a simple Will that would do the trick.