Estate planning

Q&A: Bequests to household employees can trigger fights, taxes

August 18, 2025 By Liz Weston Leave a Comment

Dear Liz: Please consider mentioning employers who haven’t forgotten long-time employees in their estate planning. Caregivers and domestic workers may work for families, the elderly or seriously ill patients for decades. When there is a death, the estate or family members rarely remember these workers who feel their effort must have meant very little not to have been acknowledged in some small way. I did hear about an employer who put away $10,000 a year in a savings account for an hourly paid employee who retired after 30 years of service. By the way, the employee never asked for anything. She was just grateful to have been of service for so many years.

Answer: You’re right that a bequest could be a meaningful acknowledgment of a longtime domestic employee’s faithful service. Such bequests also can trigger huge family fights, accusations of undue influence and court challenges that drag on for years.

The size of the bequest, the size of the estate and the contentiousness of the family are all factors that need to be considered. Also keep in mind that while most bequests aren’t taxable, bequests from an employer often are since the IRS views such transfers as compensation. Anyone contemplating including an employee in their will would be wise to consult an estate planning attorney as well as a tax pro.

Q&A: Friends don’t ask friends for condos

August 11, 2025 By Liz Weston Leave a Comment

Dear Liz: I have a younger friend who has asked me to leave them a condo I own. I would prefer the condo remain in my daughter’s name, and designate that the income from the condo go to my friend after my death. Is there a way to do this?

Answer: Your friend just handed you a massive red flag. Please heed this warning that they may not be trustworthy.

Generally speaking, people shouldn’t be asking for bequests for themselves. That’s especially true when the request is unsolicited — in other words, if you didn’t open the door by requesting what they might want from your estate.

Someone who feels comfortable enough to ask for a handout after your death may have no compunction about helping themselves to your money while you’re still alive. Financial elder abuse is a huge problem, and the perpetrators are often people the victim knows such as friends, family and caregivers.

Please tell your daughter about this request, and consider going together to an estate planning attorney. The attorney can make sure your estate plan is in order and discuss ways you can protect yourself from schemers and fraudsters.

Q&A: “Simple” ways to avoid probate often create complications

August 5, 2025 By Liz Weston 1 Comment

Dear Liz: I was perplexed by your column in which you pooh-poohed pay-on-death and transfer-on-death accounts in favor of trusts. But you gave no specific explanation. Rather, you said trusts “generally allow a smoother, more organized settlement of the estate than other probate-avoidance options.” Would you please explain what is smoother and more organized than POD and TOD transfers? (Beneficiary deeds fall into the same category as POD and TOD, to my way of thinking.) These transfers simply involve a copy of the death certificate and some minimal paperwork. What could be simpler?

Answer: The fact that you asked this question suggests you may not be familiar with the many ways these transfers can cause unintended problems. An estate planning attorney could fill you in.

One issue covered previously in this column is the fact that the person settling the estate typically needs money to pay final bills. If all the funds in the estate have been transferred to beneficiaries, the executor would have to beg for money to be returned (with no guarantee beneficiaries will cooperate) or pay the expenses out of their own pocket.

Another obvious issue is unequal distribution if you have more than one heir. Account values can change over time, leading to sometimes dramatic differences in what the beneficiaries receive.

Speaking of change, it’s the one constant in life. A living trust allows you to easily update your estate plan in one centralized place as circumstances change. Altering beneficiary designations can take a lot more work, and it’s easy to miss an account if you have several.

Beneficiary designations offer limited contingency planning. If the beneficiaries die before you or otherwise can’t inherit, the account could come back into your estate and be subject to probate. Also, many people forget to update their beneficiaries after major life changes, which can mean the wrong people inherit. More than one ex-spouse has received retirement funds or life insurance proceeds because the beneficiary form wasn’t updated.

Another unfortunately common occurrence is an inheritance that disqualifies a disabled beneficiary from receiving government benefits. You also can’t control how money is spent with a beneficiary designation, which can be a problem if the beneficiary is a minor, an addict or a spendthrift.

Plus, people get sued. Beneficiary designations offer no protection against creditors, while a properly written trust can help protect your assets and your heirs’ inheritance.

This is by no means an exhaustive list of the potential issues with beneficiary designations. They can be a solution for people with limited funds who can’t afford to pay an estate planning attorney, or when they’re part of a coordinated estate plan. Many people set up a trust for real estate and financial accounts, for example, and use beneficiaries for retirement accounts, notes Jennifer Sawday, an estate planning attorney in Long Beach.

The more money you have and the more complex your situation, the more you — and your heirs — would benefit from expert, individualized advice.

Q&A: Revocable vs. irrevocable trusts

July 22, 2025 By Liz Weston

Dear Liz: What is the difference between a revocable trust and an irrevocable trust? Which one is better? I am a widow with two sons who will inherit my estate. My net worth is $1.4 million, including a mortgage-free house.

Answer: The two types of trusts serve different functions, so neither is inherently better than the other.

Revocable trusts can be changed as long as the trust creator — that would be you — is still alive. You retain control over the assets in the trust and can sell or dispose of them as you wish. The most common revocable trust is a living trust, which allows estates to avoid the court process known as probate.

Irrevocable trusts typically can’t be changed. They are often used to protect assets or reduce an estate for tax purposes. The trust creator generally loses control over what happens to the assets in the trust. Irrevocable trusts are typically more complicated to set up and to administer, and may require a separate tax return.

An estate planning attorney can review your situation and advise which kind of trust, if any, might be best for your situation.

Q&A: What to do if you don’t trust your trustee?

July 15, 2025 By Liz Weston

Dear Liz: I own several properties. I have a living trust that names my two minor children as beneficiaries. I’ve told my attorney that I want to transfer the properties to my children using the county form. This will give my children who are under 10 years of age ownership as tenants in common with the right of survivorship. I believe this avoids any tax consequences. I will still keep my living trust and make some adjustments per this change. My attorney states I will lose the step-up in tax basis if I do this. As I see it, this may not be a concern as my primary goal is to give my children these properties in the event of my passing. I do not trust anyone whom I name as trustee to my living trust. I do not care about the step-in-basis as doing it this way avoids delays, assures ownership and avoids possible fraud. The trustee could sell the properties and spend the money. Keep in mind my children are minors as of this date. Sure, they could file a lawsuit, but you need money to file an action and once the money is long gone, good luck in getting it back. This way it gives immediate ownership to my children, and I avoid these problems that may occur.

Answer: If you really don’t know anyone you can trust to look after your children’s interests, then you’ve got quite a dilemma.

Your children are too young to legally own real estate in their own names, so some kind of guardian or trustee would need to be involved in managing the property, notes Jennifer Sawday, an estate planning attorney in Long Beach. Plus, you have no idea now whether your kids will be able to responsibly handle such an inheritance once they’re legally allowed to take over at 18 or 21 (depending on the age of majority in your state). Few people that age are ready for such a big responsibility. If a child develops an addiction or spendthrift tendencies, they could quickly waste their inheritance.

Plus, transferring property can have huge tax consequences, including the loss of step-up in tax basis that your attorney mentioned as well as property tax reassessments. (In California, such transfers avoid reassessment only when a primary residence is transferred and the child continues to live in the home. Commercial property, rental property and vacation homes get reassessed upon transfer.)

If you have no friends or relatives who are ethical, honest and trustworthy, then you’ll need to consider hiring a professional fiduciary or trustee. Your attorney can discuss your options.

Q&A: Why living trusts are a good option, most of the time

July 7, 2025 By Liz Weston

Dear Liz: My goal is to avoid probate and allow simplified access for my heir, who is also my executor. I have no family. I have chosen payable-on-death and transfer-on-death accounts instead of putting all financial assets in my trust, against the wishes of the attorney who drew up the trust for my condo. I am 79, with about a million in financial assets, with no debt or mortgage, and I am self-insured for long-term healthcare. Is the decision to use these accounts appropriate for me?

Answer: Please take the advice you paid for. The trust you have is probably a living trust, a flexible estate-planning device that avoids probate. Living trusts generally allow a smoother, more organized settlement of the estate than other probate-avoidance options.

The person who settles your estate is called your successor trustee and will perform much the same duties as an executor. But typically your successor trustee also can handle financial and other matters should you become incapacitated.

As covered in previous columns, payable-on-death and transfer-on-death accounts can be appropriate solutions for people with few assets who can’t afford to pay for a living trust. For more complex estates like yours, however, a living trust is the more appropriate option.