Ask Liz Weston

Get smart with your money

Estate planning

Q&A: Do I need a will if I don’t have much money?

By Leave a Comment

Dear Liz: I have less than $5,000 in my savings account, a 12-year-old car and a mortgage with a $200,000 balance. I am 67 and can’t decide whether to make a will. I live alone and have no children. I have three siblings, but am only close to one. I hate to spend money on an attorney when I can use that money to cover funeral expenses. I’m leery of using an online will service. Can you recommend an inexpensive way to get my affairs in order?

Answer: Anyone who can afford to pay for estate planning help probably should. This is a complicated area, and it’s easy to make mistakes that can make settling your estate unnecessarily costly or difficult.

If you can’t afford to pay for help, though, there are low-cost and free options you can explore.

Start by creating an advanced directive, which details what kind of care you want should you become incapacitated and can’t speak for yourself. You can create one for free at PrepareForYourCare.org. Every adult should have an advance directive, also known as a health care power of attorney.

Another document every adult should have is a financial power of attorney, which allows another person to manage your finances if you’re incapacitated. You can create one at FreeWill.com, a site supported by nonprofit organizations. The site will also help you create a simple will for free.

LegalZoom, Rocket Lawyer and Quicken Willmaker are other options that can help you create estate documents, typically for less than $100.

Q&A: How can a family break a dynasty trust?

By 2 Comments

Dear Liz: My mother recently died at the age of 93. My sisters and I are her beneficiaries, and all of us are in our 60s. Unbeknownst to us, one of her assets is a “dynasty trust,” established in 1964, that can only be used for “care” and “education.” The lawyer never told us this and we could have used the trust to pay for her assisted-living care, all of our college education costs, and the college education costs of our children.

According to the trust, the restrictions don’t end until 21 years after our deaths. Two of us have two children each, and one sister has no children. None of the grandchildren plan to have children of their own. With these terms, and assuming we live into our early 90s, the grandkids will be in their late 70s before they can access these funds. Is it possible to “break” this trust so that we can make use of these funds while we are all alive and able to use the funds effectively?

Answer: Dynasty trusts are designed to pass wealth down through multiple generations. They’re irrevocable, which means the person who created the trust gives up control of the assets.

That doesn’t mean the trust can’t be changed, says Los Angeles estate planning attorney Burton Mitchell. He recommends getting a complete copy of the trust and asking an experienced trust and estate attorney to read it. The trust may include language allowing an early termination. If this is truly a dynasty trust, “back doors” to allow changes are usually built in, Mitchell says.

If not, there may be a way to terminate or modify the trust by agreement of the beneficiaries.

If all else fails, you may be able to go to court to modify the trust provisions based on changed circumstances, provided all beneficiaries agree, Mitchell says.

Q&A: What does a successor trustee do?

By Leave a Comment

Dear Liz: My older brother and his wife recently told me they made me the executor of their living trust. I have no experience with this. They live in Maryland and I’m in California. Can you please let me know what I can do now to make the process simpler when the time comes?

Answer: Your brother and his wife should have asked you if you would be willing to take this role, which is called “successor trustee” rather than executor when a living trust is involved. Just because they put your name in their document doesn’t mean you are required to serve. Their trust should name other people who can serve. If not, the court can step in to name someone.

Being either a successor trustee or an executor is often a big commitment that may last for years. You’ll be required to manage the trust assets, pay final bills and creditors and communicate with beneficiaries. Successor trustees may have added responsibilities, since they typically have to step in if the trust creators become incapacitated.

If you’re willing, though, agreeing to this role can be a way to honor the people you love by making sure their wishes are followed. Being asked to be a successor trustee or executor is an honor, since the trust creators believe you are honest, trustworthy and diligent enough to handle this enormous responsibility.

You’re allowed to, and probably should, hire legal and tax help using estate funds. The estate should also pay for your travel to fulfill your duties.

You can do some research before deciding. Ask for a copy of the trust so you can start to familiarize yourself with the trust assets and what will be involved in settling the estate.

Q&A: How do you force heirs to pay?

By

Dear Liz: My husband and his six siblings inherited a large family farm. No one lives there; it is used recreationally. Our limited liability corporation is set up so that only blood relatives can inherit. If they don’t want it, they can sell their share (only to family) for 40% of the value. The seven current owners all pay equally for the upkeep.

Our question is what to do with the next generation if some don’t want to pay their share of the upkeep, and also don’t want to sell. This is a very likely scenario. How to “force” them to pay? About half of the grandchildren (13 of them) will be all in, the other half probably won’t care to pay. My husband and I are the youngest of the owners, and we most likely will need to deal with this someday. If you don’t have a solution, what type of lawyer would be best to consult with?

Answer: It’s impressive and perhaps even astonishing that seven people have been able to successfully share ownership of this property so far. Expecting the next generation to do the same, with nearly twice as many people involved, is almost certainly asking too much.

An experienced estate planning attorney can offer suggestions on how to manage this property and address options if heirs don’t pay their share, either due to unwillingness or inability. (Keep in mind that heirs who are ready to pay their fair share now may not always be able to do so if their economic fortunes change.) Most likely, forcing payment would require the cousins to resort to the courts, so the current owners need to think deeply about what’s most important: keeping this property in the family or preserving family harmony.

Q&A: What if my heirs don’t want my timeshare?

By

Dear Liz: You recently answered a question about the consequences of giving up a timeshare. What are the possible consequences if a timeshare is held until the owner’s death? What is the effect if it is included in a will or trust? If none of the potential heirs want it, what is the effect of not mentioning it in the will or trust? Can the company sue the prospective inheritors even if it were to go into default? What I’m struggling to get at is what are the best options for handling it, depending on the desire of the prospective inheritors?

Answer: Timeshares typically have “in perpetuity” clauses that require owners to pay maintenance fees for life, and the requirement passes to anyone who inherits the timeshare.

Fortunately, no one is forced to accept such an inheritance. Potential heirs can “disclaim” or refuse to accept the timeshare after your death.

How your heirs go about this depends on the type of timeshare. If the timeshare includes a real estate deed, or if it’s specifically mentioned in your will or trust, then your heirs may need to file a written disclaimer with the probate court. If the timeshare was sold as a “right to use” contract, which is more common these days, the heirs can have the executor contact the resort to tell them the owner has died, so the resort can start the process of taking the timeshare back.

This all assumes that you haven’t already added the heirs’ names to the timeshare deed, if one exists. Sometimes, timeshare salespeople promote this option as a “convenience,” which it is — to the timeshare company, because it can hold the heirs responsible for the fees, whether they want the timeshare or not. To fix this, you can ask the resort developer to remove the additional names from the deed. If the developer balks, consider contacting an attorney.

Q&A: Only married couples in community property states get this tax benefit

By

Dear Liz: I own a house with my longtime boyfriend. If one of us dies, how does the capital gains step-up affect the other?

Answer: The deceased partner’s share of the home will get a new basis for tax purposes. The survivor’s share will not.

Tax basis helps determine how much of a capital gains tax bill you might face when you sell a home or any other asset that gained value over time. Your basis is generally what you paid for the home, plus qualifying improvements.

Inherited assets typically get a step-up in tax basis to their current market value, which means that no one has to pay taxes on the appreciation that occurred during the original owner’s lifetime.

If you were married and living in a community property state such as California, then the entire house could get stepped up to the current market value when the first spouse dies. This is known as the double step up. But this applies only to married couples in community property states. Unmarried couples in community property states and couples in other states don’t get this benefit.