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Estate planning Category

Incapacitated parent? Tread carefully

May 04, 2009 | | Comments Comments Off

Dear Liz: My father-in-law was diagnosed with Parkinson’s disease a few years back and his condition has steadily worsened. He can no longer write checks or keep track of due dates. My mother-in-law now must step in to maintain the family’s books, which she has never done before. I hope to work with her to develop a basic budget, but therein lies another problem. My father-in-law has made a very decent living and until he became sick, neither of them needed to worry about basic daily expenses or even small luxuries. As the medical bills mount, she is concerned that expenses are outpacing income, but he is reluctant to economize. To develop a budget would mean confronting his illness head-on, something he has managed to avoid for almost four years. Do you have any advice on handling this process of ceding financial control from an ill spouse to the partner?

Answer: Incapacity is hard for everyone involved, but failing to acknowledge the new reality could leave your in-laws in dire financial straits.

It often helps to involve a trusted third party who is not a family member. Your father-in-law may well resent your intrusion into their finances but may be willing to work with an accountant or a financial planner, particularly if it’s framed as a way to help his wife deal with her new responsibilities.

Your in-laws also should consult an attorney experienced in estate planning and elder care issues. At some point, paying for long-term care is likely to be an issue, and an attorney knowledgeable in this area can make appropriate recommendations.

Whatever you do, tread softly. You don’t have this disease and can’t know how he feels — or how she feels, for that matter. Offer to help, give your support, research and recommend appropriate resources, but try not to judge or impose your idea of a solution on this couple. This is their path to walk, not yours.

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How can safe deposit box horror stories be avoided?

Jul 19, 2007 | | Comments Comments Off

Dear Liz: You’ve written a couple of times about how safe deposit boxes don’t necessarily keep your valuables safe. We wanted to tell you our story.

We recently went to put some papers into one of the two boxes we maintain at a bank where we’ve been customers for more than 20 years. We were given the box and I almost fainted when I discovered it was empty.

Apparently it had been drilled in error. After a week of searching, bank employees found part of our box contents tied up in a plastic bag. But property was missing that was historic, personal and irreplaceable. We had papers in there with our names on them, but apparently no effort was made to contact us.

It is a horrifying situation that a bank can be so casual and apparently unconcerned with property that most people assume will be secure. This should be made public more often.

Answer: As you’ve read here before, banks are required by law to make an effort to contact box owners before a safe deposit container is drilled and emptied, but sometimes those efforts are pretty cursory. (The fact that you were longtime customers and that your names were on papers in the box shows just how cursory.)

Some readers say they’ve tried to prevent situations like yours by putting their full contact information on a sheet of paper atop the contents of their boxes. In any case, you also should check on your box a couple of times a year and ask your bank during those visits whether you’re up to date on your box rental fees.

Many times, after a merger, banks begin to charge customers who used to have free box rental. Longtime customers may assume the charges don’t apply to them, because they’ve had free rental for so long, and fail to pay the bill. The bank could then decide the box has been abandoned and drill it open.

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Dear Liz: In a recent column you discussed the issue of fairness in gifting college funds to nieces and nephews. We have an issue closer to home in setting up our bequests to our grown children.

We have been giving our daughter financial assistance that we have not given our sons because we don’t feel they need it. Our daughter is in her mid-20s and has a learning disability. Our sons know we have been helping, but they don’t know the exact nature or value of the assistance.

We want to ensure that our daughter gets a larger inheritance to compensate for her disability, but how do we do that while being fair to the others? Our attorney helped us set up a family trust in which our three children will receive equal shares of the bulk of our estate.

At his suggestion, the special assistance will go to our daughter by naming her a sole beneficiary of one or more of our retirement accounts. Does this sound like a good plan?

Answer: Tread very, very carefully here.

There’s a fundamental difference between doling out assistance unequally while you’re alive and doing so once you’re dead.

While you’re alive, your sons are paying the “success tax” — not getting as much from you because they’re doing well. Many grown children in this position are able to accept the disparity because there’s an unspoken understanding that you would help them, too, if they fell on hard times.

Once you’re gone, though, there are no more opportunities for help. How you bequeath your estate is pretty much the last word, and your kids may very well see in your distributions a reflection of your love for them.

That’s why even minor inequalities in estate distribution can set off nasty, hugely emotional battles among heirs. These bad feelings can, unfortunately, translate into lifetime estrangements, which is surely not an outcome you’d want.

Of course, if your daughter’s disability is severe and will clearly affect her lifetime earning potential, then an unequal distribution may well be justified. You shouldn’t necessarily assume, however, that her disability will translate into failure. Plenty of successful people have overcome learning disabilities, including Virgin Atlantic Airways founder Richard Branson, inventor Thomas Edison, actress Whoopi Goldberg and artist Pablo Picasso.

You also can’t assume that your sons’ success will continue unabated. Accident, illness and business reversal can affect anyone, so that the child who seems like a highflier now could be the one who needs the most help in the future.

If you do decide on an unequal distribution, consider discussing your estate plans with your children.

This is probably a talk you’d rather avoid, but openness now will avoid an unpleasant shock later and give all concerned a chance to discuss their feelings about the situation. You may or may not hear something in this discussion to change your mind, but at least you’ve given your heirs a chance to be heard — an opportunity that’s obviously lost once you’re gone.

Categories : Estate planning, Q&A
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Dear Liz: My brother and I are nearing our mid-50s. He is married; I am not. Neither of us has children. When our parents died 11 years ago, we inherited their house equally.

I live in it; my brother and his wife live in another state. He and I share taxes, insurance and a home equity loan. Other than that, all expenses are — and should be — my responsibility. He is livid that I am not leaving him my half of the house when I die, even though he is leaving his half to his wife — which I completely understand.

When I realized he was furious about this, I offered to make him the sole beneficiary of the house in my will if he will do the same for me. He will not, yet he remains angry, somehow believing that my being single should restrict my choice of beneficiaries. What am I missing here?

Answer: Once you step back a bit from the spat, you might see that neither of your positions is entirely unreasonable.

A home is typically a major asset, and you want to be able to leave it to a beneficiary of your choosing. So does he, and his wife is the natural choice.

But he’s also probably dreading the idea that you’ll die first and he’ll end up owning the property with someone else. The constant negotiations and decisions required in homeownership can be excruciating and a cause for major conflict even when you have familial ties to bind you. It can be much worse when you don’t.

The other problem with your solution — “I’ll leave you mine if you leave me yours” — is that you’d need to have a lawyer draw up what’s known as a will contract to make your promises binding, said Los Angeles estate planning attorney Burton Mitchell.

But remember, things change, and your agreement may not seem so good years later.

“The sister could always marry in the future. The brother could always get a divorce. Either could adopt a child,” Mitchell said. “No one should assume that the future is static and the facts won’t change.”

Before you do anything, you should check how your home is currently titled. If you and your brother are joint tenants, then he typically would automatically inherit, regardless of what your will or other estate planning document says.

If you want to leave your share to someone else, you probably would need to hold title as tenants in common.

There are a number of options you might want to consider and discuss. Among them:

  • Take out a mortgage and buy him out. This could have financial implications for both of you. You might have trouble making the payments on a new loan, and he probably would owe capital gains tax for half the appreciation since your parents died.But he would get his share of the asset in cash, and you should be relieved of any future recriminations on the beneficiary issue.
  • Sell the house and split the proceeds. This means that you’ll have to move and that both of you could have a tax bill. (Because this is your primary residence, you’re allowed to avoid paying tax on up to $250,000 of the gain since your parents died. If your profit is more than that, you will owe capital gains tax on the excess.)But this could solve the issue of who leaves whom what.
  • Wait a decade or so and then get a reverse mortgage to buy him out. Reverse mortgages allow you to tap the equity in your home without having to repay the loan until you move, sell the house or die.You can get a lump sum, a line of credit or a stream of monthly checks. The older you are when you apply, the more money you can borrow, although there are limits depending on where you live.

    If you’re interested in this possibility, check out the information about reverse mortgages at the AARP website or consult Tom Kelly’s book “The New Reverse Mortgage Formula” (John Wiley & Sons, 2005).

  • Do nothing. This is always an option. You should be advised, though, that your brother may have a trump card whether he knows it or not. As a co-owner, he could sell his share of the house or go to court to force a sale of the property. If that’s not an outcome you want, you’ll need to find a solution that works for both of you.

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Do gifts during life differ from bequests at death?

Feb 21, 2007 | | Comments Comments Off

Dear Liz: You recently wrote a column that endorsed an aunt’s plan to give more money to her less affluent sibling’s children for their future college education than she would give to her other, better-off nieces and nephews. I’m an estate planning attorney who has advised clients on their inheritance plans for over 45 years and I’ve found that allocating one’s wealth unequally among family members is a recipe for disaster. No one disputes that people can leave all or a portion of their money or property any way they like. However, in my many years of experience, unequal allocation will ultimately lead to conflict, disharmony and bad feelings no matter the economic or other disparity between one’s heirs.

Answer: When it comes to parents bequeathing money and property to their own children, I wholeheartedly agree. As I explained in a more recent column, these final gifts are often interpreted, rightly or not, as the parent’s last word about how much each child was valued. Even parents who feel justified in making unequal financial gifts during life–usually because they believe one child needs more than the others–should think long and hard before making lopsided bequests after death.

More distant relatives shouldn’t be held to the same standard, however, particularly when we’re talking about gifts to further a specific goal like a college education. As the aunt noted, her other siblings are able to save for their children’s educations, while she fears that at least one of her nieces won’t attend college at all if not for the aunt’s financial support.

If the money had no restrictions on its use, or if the aunt were passing out birthday checks, then yes, the amounts should be roughly equal. But to ask her to reduce her gift to the neediest child so the others can have a surplus of money for the same goal–a college education–seems the opposite of fair.

Might some relative object to receiving less or nothing at all from Auntie? Of course, but most reasonable people will understand her actions if she decides to gift according to need. At worst, they may suspect Auntie of favoritism, but that kind of partiality is a lot easier to take from a parent’s sibling than from the parent.

Categories : Estate planning, Q&A
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Getting on the Will for Helping Now

Nov 13, 2006 | | Comments Comments Off

Dear Liz: A distant relative who is 75, single and blind asked me to help with her financial affairs because she trusts me and no one else. After a year, I realized that taking care of her required more time than I originally anticipated. Recently, I asked her 40-year-old son to take over because I wanted out. The son said he did not want anything to do with his mother because she is an obnoxious person, and no relative can get along with her. However, he does want to inherit her assets, including three properties: a house and two condominiums.


It’s true that she is obnoxious and cheap she gave me a check for $100 for all the hours I put in for her last year; I gave the check back to her. I don’t want any of her money while she is alive. Is there a legal way for me to ensure that I will inherit one of the properties after she dies? I’m worried that if she writes me into her will she could always change her mind.


Is there a legal document other than transferring ownership right now that guarantees I will take ownership of one of the properties after she dies? I wouldn’t want her to be able to sell, give that property away or borrow against it during her lifetime. I am willing to keep helping her, but only if I am assured that I will inherit one of the properties. If that is not possible, then I really do not want to be involved in her life any longer.


Answer: The only way for you to get what you want, said Pasadena elder law attorney Ruth Phelps, is to persuade her to place the real estate in an irrevocable trust with you as the beneficiary.


There are a few problems with this scheme. Given that she’s not exactly the trusting type, she most likely will not agree to this. If she did, the transfer could be considered taxable income to you, Phelps said, since you’re receiving the property in return for services rendered.


After her death, you might well face a claim of “undue influence” from the son, who could argue that you forced her into this transfer. Of course, you might be able to discourage a court fight if she included a “strong, comprehensive no-contest clause,” Phelps said, that would cause the son to lose any inheritance if he disputes yours.


You have a couple of other options. You could keep track of your hours and expenses, Phelps said, and make a claim against her estate after she dies. You have no guarantee your claim will be honored; if it’s rejected, you’ll have to decide whether to sue.


You can also charge your relative a reasonable hourly fee for the work you do for her. You say you don’t want to take her money during her lifetime, but it’s hard to see how scrambling after an inheritance is a better or a more honorable  option. Family members really should help each other without demanding a condo.


And don’t forget that you can just back out now. If this woman can’t handle her own affairs and her son refuses to step in, the court can appoint a conservator to take care of her. In most families, there are better courses of action than to involve strangers, but that might not be true in yours.

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Do Dead People Have to Worry About ID Theft?

Nov 06, 2006 | | Comments Comments Off

Dear Liz: Do dead people have to worry about identity theft?

I ask because I’m dealing with all of the papers that my recently deceased husband left behind, including canceled checks and statements going back to the 1970s, as well as all the pay stubs from his entire working career.

He also had a bunch of paperwork from his deceased parents. Do I have to shred his parents’ stuff? Or can I just throw it into the recycle bin?

In addition, my husband had a lot of annuities and 457 deferred compensation plans, which were converted to additional service credit on his pension or rolled over into IRAs before he died. Can I shred the statements for those? They go back 20 years! Can I shred most of those old canceled checks? All of the pay stubs? The really old tax returns? Help!

Answer: First of all, condolences on your loss. And I’m especially sorry you have to sort through such a mound of paperwork while you grieve.

There are, indeed, scam artists who target the identities of the recently deceased. That’s one of the reasons it’s important for the executor of an estate to inform all the deceased person’s creditors of the death.

Typically, that information is then relayed by the creditors to the credit bureaus. The bureaus also consult a death list maintained by the Social Security Administration, although it often takes a few months for a name to show up on that list.

In any case, you’ll probably want to pull your husband’s credit reports from the three bureaus (Equifax, Experian and TransUnion) to see whether he’s properly listed as deceased; if not, request that the notation be added.

Most of the time, being listed as dead will shut off opportunities for identity theft as many people who’ve been incorrectly listed this way will attest. (Some people have found themselves with “deceased” notations on their credit reports after a joint account-holder died and the creditors reported the information incorrectly to the bureaus.)

But you still want to be careful about handling any paperwork that has private personal information on it. When in doubt, shred.

Given the amount of paperwork you need to process, you might consider hiring a professional shredding service that can come to your house and zip through your piles in a matter of minutes. (A local accountant, bank or mortgage lender may be able to provide you a referral.)

For guidance on what you need to keep, I consulted John W. Roth, senior federal tax analyst for tax research firm CCH Inc.

“Generally speaking, all the [canceled] checks can be shredded except for those that are needed to substantiate deductions on their tax returns for the last three years,” Roth said. “Keep the W-2 and 1099 statements that relate to the last three years of tax returns.”

Roth recommends you hang on to older tax returns as well, although you can shred any accompanying documentation. You may need to keep the annuity and 457 paperwork as well, since those can help establish how much of his (and now your) retirement benefits are taxable. Consult a tax pro for details.

You also might want to consult a professional in this case an estate planning attorney about whether to keep any of your in-laws’ documents.

Finally, consider whether you plan to apply for Social Security someday based on your husband’s earnings. If so, you’ll want to make sure his earnings were properly recorded with Social Security before shredding the pay stubs.

This doesn’t have to be an onerous task; just check the earnings record in his latest Social Security benefit statement, the one that every worker receives annually. If you see any problems, such as a year in which he worked but wasn’t credited with any earnings, you can dig out the pay stubs from the appropriate year to correct the record with the Social Security Administration.

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Are Probate Laws Same in All States?

Oct 09, 2006 | | Comments Comments Off

Dear Liz: Are laws regarding probate the same in all states? Do all estates have to go through probate upon the owner’s death, or does the estate go through probate only if it is above a certain value? If the rules vary by state, how do I find out the procedures for my state?

Answer: Probate is the legal process in which a court oversees the distribution of a dead person’s property.

The basic process is the same in every state: Assets are identified, creditors and taxes are paid, fees are distributed to attorneys, appraisers, accountants and others handling the estate. Whatever remains is distributed to the heirs.

You can avoid probate in all states by taking certain actions, such as creating a living trust or holding all your assets in ways that bypass probate, such as joint tenancy.

Otherwise, the rules about which estates must go through full probate, and which can avoid it, vary considerably by state. Some states have affidavit procedures that allow small estates to bypass probate entirely, but the definition of “small” ranges from $5,000 in New Jersey to $150,000 in Wyoming.

Other states offer simplified probate procedures for certain estates. In California, for example, estates worth $100,000 or less can qualify. California also has a “community property petition” that allows property of any amount to be transferred to a surviving spouse without going through full probate.

The Nolo Press Book “Plan Your Estate,” by attorneys Denis Clifford and Cora Jordan, includes a brief summary of state probate laws. You’ll find more complete details for each state in Nolo’s “8 Ways to Avoid Probate” by Mary Randolph.


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Be Cautious with Reverse Mortgages

Jul 18, 2005 | | Comments Comments Off

Dear Liz: This is not a question, but a comment on a recent column regarding reverse mortgages. Although your information was factual, reverse mortgages are not a prudent choice and should be considered as a last resort only. I investigated this option for my parents, and the fees are unbelievable: a minimum 2% origination fee and an annual 0.5% service fee to send out their checks. This does not factor in the other closing costs (title, escrow, appraisal, etc.). If you understood the usury involved by the lenders, you could not recommend it in good faith.

A: The fees that come with reverse mortgages can be steep compared with a conventional mortgage, which is why it may not be the best option for many borrowers.

That’s one reason borrowers applying for a federally insured reverse mortgage must undergo special counseling to help determine whether these loans are the best choice. You can call the Department of Housing and Urban Development at (800) 569-4287 for a referral to a HUD-approved housing counseling agency.

Origination and servicing fees can vary substantially from lender to lender. That is why it’s important to shop around to get the best deal.

The earlier column mentioned the AARP booklet “Home Made Money,” which you can download from its website (www.aarp.org) or order by calling (800) 209-8085. If you have any questions after reading the booklet, you can call the same number to be directed to the AARP Foundation’s Reverse Mortgage Education Project.

You might also check out the website maintained by National Center for Home Equity Conversion, an independent, not-for-profit organization that provides consumer information at http://www.reverse.org .

Reverse mortgages can be a prudent option for elderly homeowners who want to remain in their homes, but you’re right that they should understand the costs before they proceed.

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About Reverse Mortgages

Jul 04, 2005 | | Comments Comments Off

Q: My mother, who just turned 77, lives on Social Security. Although she’s grateful for her checks, they’re just not enough to ease her financial worries. I am able to help her pay for some of her medications each month, but she still barely makes ends meet. She invested in an IRA while she was working, but this year she will draw the last of her money from that account. Is there a safe and smart way she could borrow money against her house, which is paid off? Would she have difficulty getting a loan because of her age?



A: There’s at least one kind of loan where your mother’s age will actually help her get more money than she might otherwise: a reverse mortgage.


Reverse mortgages allow older people to borrow against the equity in their homes and receive either a lump sum or a monthly check. The older you are, the larger the amount you can typically receive. If your mother’s home is worth $200,000, for example, she could boost her monthly income by $699 to $777 with a reverse mortgage. If she were 10 years younger, the amount she would get could be as low as $319 a month.


These payments would continue until she dies, sells the home or permanently moves out, at which point the loan must be repaid. Typically, the repayment comes from the proceeds of selling the house; any remaining equity in the home would go to her heirs.


AARP has a free booklet about reverse mortgages called “Home Made Money” that you can download from its Web site (www.aarp.org) or order by calling (800) 209-8085. You might also check out Tom Kelly’s book, “The New Reverse Mortgage Formula” (2005, Wiley Publishing) for help in evaluating the various reverse mortgage products.

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