Dear Liza: If there is no or very little property left under a will (because almost all was left under a revocable trust), and there are no known outstanding debts, is it necessary to file the will with the probate court (New York)? If it is necessary, are probate court proceedings necessary? Check with the probate court in your county (called Surrogates Court in New York) as for Will filing requirements. But it doesn’t sound like you’ll need to open a probate. Most states have some way for small estates to bypass a full-blown probate proceeding. In New York, if the property left is worth less than $30,000, you can settle the estate with what’s called a summary probate proceeding. Here’s a link to more info. In other states, like California, if the total value of property is less than a certain amount, you can transfer the assets using what’s called a Small Estates Affidavit, after waiting for a certain number of days after the death.
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.
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: Does a gift to a living trust (with children and grandchildren – total of 9 beneficiaries) take a total of $13k annual exclusion or is the annual exclusion based on the beneficiaries? Good question. Before I answer it, a little background for my loyal readers: the annual exclusion is the amount of money you are allowed to give to someone free of gift tax. As we reach the end of the year, now is a good time to make such gifts, since each year you get a new exclusion to use. These annual gifts are in addition to the amount of money you are also allowed to give away free of gift tax over your lifetime (currently $5 million). By skillfull use of the annual exclusion, you can transfer a lot of money to those you love without ever having to use up that lifetime exclusion–it’s a great idea, if you can afford it.
You are allowed to give $13,000 free of gift tax to EACH recipient each year. So, one person could, if they wanted to, give each person in their city $13,000 (or less) without having to report any of the gifts. However, if any one gift is more than $13,000, all of the gifts would have to be reported on a gift tax return by April 15th of the following year. And, a gift has to be a completed gift to count–a gift to a living trust is not a completed gift (because the donor could always revoke the trust at a future point). That’s why, if a person wants to make annual gifts to children and grandchildren in trust, that trust has to irrevocable and has to be what’s called a “Crummey Trust”–which means that each beneficiary has a certain amount of time to withdraw that annual gift after it is made. If they don’t (and, of course, they don’t), the money stays in trust and the donor gets to use that annual exclusion from gift tax for each trust beneficiary.
Dear Liza: My wife and each have two children from prior marriages. One of her children is a homeless alcoholic who has no desire to become sober. I wish to prevent the 401k money from going into my wife’s estate which would have only her two children as default beneficiaries. This would allow the irresponsible child to inherit half of the estate. I want the to have the final beneficiaries to be the 3 responsible children. Can I do that? 401(k) plans are regulated under federal law. You must name your spouse as your primary beneficiary, unless she signs an effective waiver. (But if she needs that money to live on after your death, she probably would not agree to waiving her rights in that way.) You could name a trust as your secondary beneficiary, and, the three ‘responsible’ children could be the beneficiaries of that trust, but, if you do that, you are going to limit their ability to withdraw that money in a tax-efficient way. They will have to use the age of the oldest trust beneficiary to determine how much money they have to withdraw each year: which means that the younger ones will have to take money out more quickly (and pay more tax) than they otherwise would. And, if your spouse survives you, she will be able to roll that 401K into her own IRA, and then name whichever beneficiaries she chooses. But she doesn’t have to name both of her children as her beneficiaries. She can structure her estate in a way that makes sense for both of her children. She could, for example, name only her responsible child as the beneficiary of her IRA, or she could leave the share for her troubled child in trust for his or her benefit via a living trust or a Will.