November 2, 2020 By

Q&A: Death doesn’t take a holiday

Dear Liz: In a recent response, you wrote, “Your living trust should name a successor trustee who can take over managing your affairs if you should become incapacitated or die.” This sort of writing is not uncommon but it implies some people won’t die. It would have been better to write “… take over managing your affairs when you die or if you should become incapacitated.” This is important, since it is noteworthy how many people are unwilling to face the facts when it comes to being prepared and finances: None of us are going to get out of this alive.

Answer: Good point!

Filed Under: Estate planning, Follow Up, Q&A Tagged With: , ,
October 27, 2020 By

Tuesday’s need-to-know money news

Today’s top story: 5 credit mistakes that can haunt you. Also in the news: The benefits of a renovation refinance, 7 times you might want to product-change a credit card, and why you should name a guardian for your kids right away.

5 Credit Mistakes That Can Haunt You
Some mistakes are much worse than others.

Looking to Fund a Remodel? Consider a Renovation Refinance
Paying for home improvements with a renovation refinance loan has certain advantages — including a potentially lower interest rate.

7 Times You Might Want to Product-Change a Credit Card
Swapping your card, instead of closing it and opening a new one, can help you avoid an annual fee and hard inquiry.

Why You Should Name a Guardian for Your Kids Right Away
Life is unpredictable.

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October 13, 2020 By

Q&A: Finding someone to sell your stuff after you’re gone

Dear Liz: I have a question on how to have my affairs managed after I die. I am single, with no children or living relatives, so finding someone to handle my estate is a challenge. Do you have a recommendation for where I can find a person or business, such as a bank’s trust department? I have a living trust but need to have someone sell all my assets (many are collectible and worth the extra effort in their sale). Do I need to go through probate just to ensure none of my assets are “lost” by the executor? Should I make a list of valuable items that would easily be omitted from the sale and distribution? To ensure all items are accounted for, to whom would I now provide the list?

Answer: Your living trust should name a successor trustee who can take over managing your affairs if you should become incapacitated or die. The successor trustee will be the one who will pay your final bills and sell or distribute your stuff after you’re gone. A list of your valuable items, along with the names of experts who can help with their sale, could help with that process. You can store that information with your living trust.

The person you choose doesn’t need to be a collectibles expert or even particularly financially savvy as long as they’ve got common sense and integrity. Successor trustees can hire any help that they need.

But this should be a person you trust completely because you’re putting a lot of power and discretion in their hands. If you’re worried this person will “lose” or mishandle your estate, you probably should choose someone else or reconsider having a living trust. Allowing your estate to go through probate instead would provide at least some court supervision of an estate’s distribution.

You may be able to hire a successor trustee. Bank trust departments can serve as successor trustees, but they tend to charge significant fees and are unlikely to want the job if your estate isn’t substantial. Another option might be a private trust services company or a professional fiduciary. Neither are exactly cheap, but they’re likely to be less expensive than a bank. Any of these options require making arrangements in advance — you can’t just name a company or fiduciary and expect them to take on the work.

Filed Under: Estate planning, Q&A Tagged With: , ,
September 14, 2020 By

Q&A: Death, taxes and home sales: How to handle the mixture

Dear Liz: My wife and I bought our house 61 years ago in Southern California. The wife passed away seven years ago, and I became the sole owner. If I should die owning the house, I know my daughter will inherit and her tax basis will be the value of the house on that date. But if I sell the house, I’m not sure what my basis will be. Do I pick up the 50% of what the house was worth on the day my wife died and add to that the 50% of the original purchase price that would be mine? Or is my basis the original price of the house?

Answer: In most states, only your wife’s half of the home would get a new value for tax purposes at her death. In community property states such as California, though, both her half and yours get this step up in tax basis.

Tax basis determines how much taxable profit there might be when property and other assets are sold. For those who aren’t sure how tax basis works, a simplified example might help.

Let’s say Raul and Ramona bought their home for $40,000 in 1959. In 2013, when Ramona died, the home was worth $800,000. Today, it’s worth $1 million.

At her death, Ramona’s half of the home got a new tax basis. Instead of $20,000 (half of the purchase price), her half of the home now has a tax basis of $400,000 (half of its $800,000 value at the time).

In most states, Raul would keep the $20,000 tax basis on his half, so his combined basis in the home would be $420,000. If he should sell the home for $1 million, the profit for tax purposes would be $580,000.

In California and other community property states, the entire house gets a step up in basis to $800,000 when Ramona dies. If Raul sells the house for $1 million, the profit (or capital gain, in tax parlance) would be $200,000.

Of course, there would be no tax owed on this home sale, since Raul can exempt up to $250,000 of home sale profits. Raul could use Ramona’s home sale exclusion, and avoid tax on up to $500,000 of home sale profit, if he sells the home within two years of her death.

If Raul keeps the home until his death, on the other hand, it will get a further step up in tax basis equal to whatever the home’s fair market value is at the time (let’s say $1.2 million). If the daughter sells it for that amount, no capital gain tax would be owed.

Filed Under: Estate planning, Q&A, Real Estate, Taxes Tagged With: , , ,
August 12, 2020 By

Wednesday’s need-to-know money news

Today’s top story: What a payroll tax deferral may mean for your paycheck and taxes. Also in the news: 4 ways to end your car lease early, what to do if losing your job means losing life insurance, and don’t skip these estate planning moves during the pandemic.

What a Payroll Tax Deferral May Mean for Your Paycheck and Taxes
Things to keep in mind.

4 Ways to End Your Car Lease Early
You can transfer your lease, sell to a dealer or take out a loan to buy the car and then sell it yourself.

What to do if losing your job means losing life insurance
Consider your needs.

Don’t Skip These Estate Planning Moves During Coronavirus
Important moves to consider right now.

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July 14, 2020 By

Probate workarounds can save heirs time, money

A reader recently reached out after his elderly mother died, asking how soon he could distribute the $10,000 she had earmarked in her will for each of her two grandchildren.

Because she lived in California, I had to break the bad news: He won’t be able to hand over the money any time soon.

Probate is the court process to distribute someone’s estate after their death, even if there is a will, and is notoriously slow in California. A typical probate takes nine to 12 months, and court shutdowns related to COVID-19 mean the wait could be longer. Probate is also expensive in California: By law, an attorney could charge $11,000 in fees to handle the woman’s $400,000 estate.

In my latest for the Associated Press, what to keep in mind if you’re trying to decide whether to make the investment to spare your heirs the expense and hassle of probate.

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July 6, 2020 By

Q&A: Arizona mom doesn’t want a trust

Dear Liz: My mom is 93 and lives in Arizona. I’m in California. She refuses to complete a revocable living trust, and after several years, I have given up with the request. She states she has added my name to the deed to the house and her bank account. She believes she has done enough. She states she completed a will that she got at Office Max. What would be my first steps if she precedes me in death?

Answer: She may be stubborn, but she’s making mistakes that could impair her quality of life and saddle you with a big, unnecessary tax bill. Consider trying to persuade her to fix these errors before it’s too late.

Not having a living trust isn’t necessarily a crisis. Yes, a living trust would allow your mother’s estate to avoid probate, the court process that typically follows death. But probate in Arizona typically isn’t as long or expensive as it is in California.

What’s more important is having documents in place that allow you (or someone else) to handle her finances and make healthcare decisions should she become incapacitated. Without that, you might have to go to court, which could be a long and expensive process (especially now, with the backlog created by COVID-19-related shutdowns).

A living trust also would make it relatively easy for a trusted person to step in and handle her affairs if necessary. In the absence of a living trust, you should insist she fill out an advanced care directive that would allow a trusted person to make healthcare decisions for her. There are free versions for each state at PrepareForYourCare.org, along with instructions about how to make it valid. If she doesn’t have a computer, you can print out Arizona’s version and send it to her.

She also needs to create a power of attorney for finances. Offer to hire an estate planning attorney to do this, since it’s a relatively simple form and not likely to be expensive. There are online forms and software that can do this if she absolutely refuses to consult an attorney.

An estate planning attorney might also be able to help you get off the deed. When she added you to the deed, your mom signed you up to pay capital gains taxes you wouldn’t owe otherwise. All the appreciation in the home that happened during her lifetime would be taxable, when it doesn’t need to be.

Let’s say she bought the home for $25,000 and it was worth $250,000 when she died. If you inherited the home and sold it for $250,000, you would owe no capital gains taxes.

If she gives you the home before her death — which she essentially did by adding you to the deed — you don’t get the valuable step-up in tax basis that keeps you from having to pay capital gains taxes on the appreciation that happened during her lifetime. Instead, you would owe capital gains taxes on the $225,000 appreciation. (This is a simplified example meant to help you and her understand the magnitude of the blunder.)

Arizona is one of the many states that has “transfer on death” deeds for real estate. These deeds would allow the house to avoid probate and come directly to you. That’s almost certainly a better solution than the one she chose.

Filed Under: Estate planning, Q&A Tagged With: , ,
June 22, 2020 By

Q&A: How the COVID-19 pandemic is delaying inheritances

Dear Liz: My mother passed away in March due to old age. She lived in California. I live out of state and couldn’t travel because of the pandemic. My siblings took care of her burial. Her will named me executor. I’d like to know how long I have to settle her estate and whether I will need an attorney. Her house was her major asset and was assessed at $400,000. There’s no mortgage. The house goes to an older brother and me, and two grandsons each get $10,000. I want to make sure the grandsons get their inheritances as soon as possible.

Answer: Your grandsons will have to wait awhile. California probate is slow at the best of times, with a typical case taking eight to 12 months or more. Pandemic-related court closures are adding many months to the process. Courts are slowly reopening but dealing with a significant backlog of filings.

Your mother’s will should be filed with the appropriate county within 30 days of her death and the county tax assessor should be notified within 150 days because she was a property owner, said Jennifer Sawday, an estate planning attorney in Long Beach. Though most counties allow electronic filing for probate matters, it’s typically not the most user-friendly process and you may want to consult a probate attorney. The initial consultation is usually free. Hiring an attorney to handle the whole process probably won’t be cheap: By law, probate attorneys can charge 4% of the first $100,000 of the estate, 3% of the next $100,000, 2% of the next $800,000, 1% of the next $9 million, and 0.5% of the next $15 million.

Your mom could have avoided probate entirely if she’d created a revocable living trust, or if she had taken other probate-avoidance measures. In California and many other states, real estate can be passed on with a “transfer on death” deed that avoids probate. She also could have set up bank accounts and designated your grandsons as beneficiaries to avoid probate.

It’s too late now, obviously. But whatever you do, don’t jump the gun by making distributions, Sawday warned.

“If there is a will, under no circumstances should he make the cash gifts to the grandsons until the court admits the will, appoints him as executor and probate actually commences,” Sawday said.

Filed Under: Inheritance, Q&A Tagged With: , , ,
June 10, 2020 By

Wednesday’s need-to-know money news

Today’s top story: 5 reasons it’s smart to lease a car right now. Also in the news: How to free up cash in your budget, how to decide what to leave your kids, and all the ways to get Amazon Prime for free.

5 Reasons It’s Smart to Lease a Car Right Now
Keeping your financial options open.

Can’t make money right now? Free up cash in your budget
Time to check every dollar you spend.

Should you be ‘fair’ with the inheritance you leave to your kids?
Think carefully about the message you’re sending.

All the Ways to Get Amazon Prime for Free
How to score that sweet free shipping.

Filed Under: Liz's Blog Tagged With: , , , , ,
June 8, 2020 By

Q&A: Picking your estate’s executor

Dear Liz: One issue in a recent column was about a sibling who did not follow the will. As executor, the sibling took two thirds of the estate instead of the will’s specification of half.

This is why, when my wife and I had our estate plan created, we told the attorney that none of the beneficiaries should be the executor of our wills and none should be a trustee of our trusts. Indeed, our trusts — which own almost our entire estate — cannot have the spouse, child, parent or in-law of a beneficiary as a trustee.

Answer: Yours is certainly one solution, if you can find the appropriate people to serve. But naming an heir as executor or trustee doesn’t have to be a disaster, as long as you name the right person — someone who is honest, dependable and able to serve with integrity.

Filed Under: Estate planning, Q&A Tagged With: , ,