January 29, 2018 By

Q&A: Don’t rush when setting up your living trust

Dear Liz: Your column recently answered a question about whether a living trust was the right move, and I thought you mentioned a free online form or worksheet that one could download and fill out. Where can I find that?

Answer: Many sites offering free software or forms are actually subscription services. You typically use a credit card to sign up and are charged a monthly fee after the free trial period ends. If you can wrap up your estate planning in short order and cancel before the fee kicks in, your trust may be free — but given what’s at stake, it’s not a good idea to rush.

After all, if you make a mistake with your estate planning that’s revealed after your death, you can’t come back and fix it. That means your desire to save a few bucks could cost your heirs dearly.

At a minimum, you should consider consulting with an attorney to ensure you’re not making obvious errors. Some of the do-it-yourself sites, including LegalZoom and RocketLawyer, offer the option to consult with a lawyer. RocketLawyer, a $40-a-month subscription service, has a seven-day free trial. LegalZoom sells a $269 living trust package that includes a 30-day free trial of its subscription advice service. After the free trial, the subscription costs $15 a month. Legal self-help site Nolo has an online living trust form for $60 that doesn’t include advice, but you can use Nolo’s attorney directory to find an expert you can hire for a review.

If your situation is at all complicated — blended families, special needs children, contentious heirs, family businesses, foreign assets and large estates all count — then it’s best to seek out an experienced estate planning attorney to draft your paperwork.

Filed Under: Estate planning, Q&A Tagged With: , ,
January 8, 2018 By

Q&A: Why setting up a living trust may be wise, especially in California

Dear Liz: Is there a minimum amount of assets required before a revocable living trust is advisable? I am retired but my wife is still working. If we do not include our 401(k) plans, our total liquid assets (my wife’s monthly salary, my monthly Social Security benefit and my pension check) are below $100,000. We do not own a house or other real estate and do not have any major outstanding loans. We own our only car, a 2009 non-luxury vehicle.

Assuming we need a trust, do we still need to make out a will? If so, can we use a state-specific form online or just make out a handwritten will? Lastly, can a will be “until further notice” or do we have to update it each year? It should be obvious that we are trying to save expenses where we can.

Answer: Living trusts allow estates to avoid probate, the court process that otherwise oversees the paying of creditors and distribution of someone’s assets. (The sources of income you listed aren’t considered assets, by the way, since those will cease upon your deaths and can’t be transferred to other heirs.) Living trusts offer privacy, because probate is a public process, and can make it easier for a designated person to take over for you if you should become incapacitated.

There’s no specific dollar amount of assets for which a living trust becomes a good idea. In many states, probate isn’t a big deal, while in others — including California — probate is expensive enough that the cost of setting up a living trust can be worthwhile. Even in California, smaller estates (those under $150,000) can avoid probate or qualify for a streamlined process that can make living trusts unnecessary.

Those with larger estates may be able to avoid probate using other methods.

The money in your 401(k)s, for example, will pass directly to the beneficiaries you name. In many states, you also can name a beneficiary for a vehicle right on the registration form so your car could avoid probate. Some states also offer this “transfer on death” option for real estate.

“Plan Your Estate,” an excellent primer from self-help legal publisher Nolo, details your options.

Living trusts typically replace the need for a will, although a lawyer likely would recommend creating a “pour-over” will to include any assets accidentally left out of the trust. If you don’t have a living trust, you’ll definitely need wills to outline how you want your property distributed.

You also should create powers of attorney for healthcare and for finances, so that someone you name can make decisions for you should you become incapacitated. These documents are probably more important than a will because they can determine your quality of life at the end of your days rather than just what happens to your stuff when you’re beyond caring.

Do-it-yourself options are fine if your estate is small, simple and unlikely to be challenged by contentious heirs. Each state has specific requirements for making a legal will, which will be detailed in the software or online forms you use. You don’t have to update a will yearly but it’s a good idea to at least review your estate documents annually to see if any changes might be needed.

Filed Under: Estate planning, Q&A Tagged With: , , ,
November 19, 2017 By

Q&A: More reasons why adding an adult child to a deed is a bad idea

Dear Liz: I’m an estate planning attorney and I agree with your warning to the couple who wanted to add their daughter to their house deed to avoid probate.

The daughter’s share of the home would lose the step-up in tax basis she would get if she inherited instead, plus there are several other issues. What if the daughter gets sued or has creditor problems? The house could be at risk.

The parents also may not have thought through what might happen if the daughter marries, divorces or dies before they do. A living trust would cost some money to set up but would avoid these problems.

Answer: A revocable transfer-on-death deed is another option for avoiding probate, but a living trust is a more all-encompassing solution that also can help the daughter or another trusted person take over in case of incapacity.

In any case, they should consult an estate planning attorney, who has a far better understanding of what can go wrong after a death and how to prevent those worst-case scenarios.

Filed Under: Estate planning, Inheritance, Q&A, Real Estate Tagged With: , ,
October 23, 2017 By

Q&A: To give or not to give can be a taxing question

Dear Liz: A good friend who is childless wishes to give his property to my daughter before his death. He has been an informal uncle for the whole 50 years of my daughter’s life, and we are, in effect, his family. However, I am concerned that the gift tax may be more than he bargained for. He is not tax-aware, and earns very little, so his tax knowledge is skimpy. He owns his property outright, however.

I know that someone can give as much as $14,000 without having to file a gift tax return and that there is a “’lifetime exemption” of more than $5 million. If his property is worth, say, $500,000, can he be tax free on a gift of that magnitude by, in effect, using his lifetime exemption?

Answer: Essentially, yes, but he may be creating a tax problem for your daughter.

Gift taxes are not something that most people need to worry about. At most, a gift worth more than $14,000 per recipient would require the giver to file a gift tax return. Gift taxes wouldn’t be owed until the amount given away in excess of that annual exemption limit exceeds the lifetime exemption limit of $5.49 million.

Capital gains taxes are another matter and should always be considered before making gifts. Here’s why.

Your friend has what’s known as a “tax basis” in this property. If he sold it, he typically would owe capital gains taxes on the difference between that basis — usually the purchase price plus the cost of any improvements — and the sale price, minus any selling costs. If he has owned the property a long time and it has appreciated significantly, that could be a big tax bill.

If he gives the property to your daughter while he’s alive, she would receive his tax basis as well. If she inherited the property instead, the tax basis would be updated to the property’s value at the time of your friend’s death. No capital gains taxes would be owed on the appreciation that took place during his lifetime.

There’s something else to consider. If your friend doesn’t make much money, he may not have the savings or insurance he would need to pay for long-term care. The property could be something he could sell or mortgage to cover those costs.

If he gives the property away, he could create problems for himself if he has no other resources. Medicaid is a government program that typically pays such costs for the indigent, but there’s a “look back” period that could delay his eligibility for coverage. The look-back rules impose a penalty for gifts or asset transfers made in the previous five years. He should consult an elder-law attorney before making such a move.

Filed Under: Estate planning, Q&A, Taxes Tagged With: , , ,
October 16, 2017 By

Q&A: How to divvy up your wealth when you don’t agree with one offspring’s life choices

Dear Liz: I am reasonably well off thanks to hard work, some luck and a hard-earned (by my mother) inheritance. I don’t spend much because I prefer a simple life, so the money has piled up over the decades.

I have two children. One has a college degree, a decent job, and is saving for retirement. The other dropped out, became an actor and lives hand-to-mouth, getting very little paid-acting work. I want to help my kids while I’m alive, not wait to leave them money. I will help my worker bee to buy a home but I am at a loss how to help my actor. I hate to reward a lifestyle of “I can’t work a 9-to-5 job because I need to be free to audition.” On the other hand, don’t affluent parents help their artistic kids pursue their dreams?

What kind of financial advisor or family dynamics expert can I consult? Do you have any suggestions? I don’t need a money manager as the funds are handled well already. I need help to disburse funds in keeping with my values.

Answer: Talk to your estate planning attorney. If you don’t have one, get one. These professionals do more than draw up wills and trusts to distribute your assets after you’re gone. They also can help advise you about disbursements during your lifetime, including any gift tax implications. A fee-only financial planner who charges by the hour could be another good resource for you.

In answer to your question about affluent parents, some do help their children pursue dreams that aren’t wildly remunerative. The parents might supplement the income of an altruistic daughter who wants to teach in a low-income school or a talented son who needs time to build up a portfolio of artwork for a gallery show. It’s the parents’ choice, obviously, and there’s certainly no requirement they support career choices they think are questionable.

You have many options to be fair to your kids without enabling them. For example, you could put aside an amount equal to the down payment you’re giving your daughter and let your son know the money’s available when he’s “ready” to buy a home. That is so much nicer than saying, “When you snap out of your delusion that you’re going to make a living in a field where so few actually do.”

Filed Under: Estate planning, Q&A Tagged With: ,
June 23, 2017 By

Friday’s need-to-know money news

Today’s top story: 5 times your credit card issuer can raise your interest rates. Also in the news: 3 DIY options for making a will online, how to split insurance in a divorce, and how much you can make in the freelance economy.

5 Times Your Credit Card Issuer Can Raise Your Interest Rate
How to avoid the bump.

Making a Will Online: 3 DIY Options
Doing it yourself.

How to Split Insurance in a Divorce
Deciding who gets what.

How Much Money Can You Make in the Freelance Economy?
Setting your own schedule.

Filed Under: Liz's Blog Tagged With: , , , , , , ,
March 8, 2017 By

Wednesday’s need-to-know money news

Today’s top story: 12 tips to cut your tax bill. Also in the news: Why Millennials shouldn’t forget about estate planning, 7 amazing things to be after you die, and the U.S. cities with the highest credit scores.

12 Tips to Cut Your Tax Bill
Itemizing is key.

Millennials, Don’t Forget Estate Planning
Putting it off could be a huge mistake.

7 Amazing Things to Be After You Die
A firework!

The U.S. cities with the best credit scores
Is yours on the list?

Filed Under: Liz's Blog Tagged With: , , , , ,
February 27, 2017 By

Q&A: More solutions for avoiding probate

Dear Liz: I’m wondering why, in your answer about whether to use a will or a living trust, you didn’t mention that probate can be avoided by using beneficiaries for assets such as mutual funds and brokerage accounts and now, in many states, homes. This seems quite relevant to the question and the gist of your answer.

Answer: Space limitations, and reader attention spans, prohibit exhaustive answers to many personal finance questions. Nowhere is that more true than in estate planning, which can get complicated quickly.

It’s hard to avoid probate entirely without a living trust. So-called transfer on death designations can indeed work for small estates, providing that the rest of the estate — the “tangible personal property” such as furniture and jewelry — is small enough to qualify for simplified probate proceedings. (In California, that limit is $150,000.)

Even with small estates, though, transfer on death designations aren’t necessarily the right solution for everyone. Beneficiary designations are easy to forget, for one thing, which can mean accounts going to the wrong people after life changes. In other words, your ex-wife or your mother may wind up with an account that should have gone to your spouse. People who choose to use transfer on death designations instead of a living trust need to remain vigilant about keeping those designations up to date.

They also need to explore other potential ramifications, especially if they’re taking a do-it-yourself approach. For example, if a beneficiary dies first, or simultaneously, the asset may wind up having to go through probate.

Also, as this column discussed a few months ago, real estate transfers in certain circumstances can cause the property to be reassessed, leading to much higher tax bills for heirs. That’s something an attorney would be able to explain to a client while preparing a will or living trust, but it’s something a DIYer might miss.

Filed Under: Estate planning, Q&A Tagged With: , ,
February 27, 2017 By

Q&A: When a living trust can save money

Dear Liz: Here’s another advantage to a living trust. If the person owns real estate in more than one jurisdiction and just uses a will, there will be a probate in the resident jurisdiction and ancillary probates the other location or locations, with the attendant time, costs and delays — all of which could be avoided with a living trust. All properties would have to be transferred into the trust, of course, and it’s always wise to have a pour-over will to make sure that anything inadvertently left out of the trust is included and protected from probate.

Answer: Good points. Living trusts are more expensive to set up than wills but can save money in the long run in such situations.

Filed Under: Estate planning, Q&A Tagged With: , , ,
February 20, 2017 By

Q&A: Which is better: Will or living trust?

Dear Liz: I am 48 and my wife is 45. Should we set up a will or a living trust? Which is better?

Answer: One of the major differences between wills and living trusts is whether the estate has to go through probate, which is the court process that typically follows death. Living trusts avoid probate while wills do not.

Probate isn’t a big problem in many states, but in some — including California — it can be protracted, expensive and often worth avoiding. Another advantage of living trusts is privacy. While wills are entered into the public record, living trusts aren’t.

Living trusts can help you avoid another court-supervised process called conservancy. If you’re incapacitated, the person you’ve named as your “successor trustee” can take over management of your finances without going to court. To avoid the court process without a living trust, you’d need separate documents called powers of attorney. If you have minor children, your living trust trustee can manage their money for them. If you have a will, you would need to include language setting up a trust and naming a trustee.

One big disadvantage of living trusts is the cost. Although price tags vary, a lawyer typically charges a few hundred dollars for a will, while a living trust may cost a few thousand. Also, there’s some hassle involved, since property has to be transferred into the trust to avoid probate.

There are do-it-yourself options, including Nolo software and LegalZoom, that can save you money if your situation isn’t complicated and you’re willing to invest some time in learning about estate planning. If your situation is at all complicated, though — if you’re wealthy or have contentious relatives who are likely to challenge your documents — an experienced attorney’s help can be invaluable.

Whichever you decide, make sure that you have one or the other before too much longer. Otherwise, when you die, state law will determine who gets your stuff and who gets your kids.

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