Get smart with your money
By Liz Weston
Dear Liz: Concerning the missing trust document, they should also check with existing banks and brokerages that the trust has accounts with to see if they have a copy of the trust. Odds are very low, but it may be worth the effort.
Answer: Banks and brokerages aren’t required to keep such copies, but it doesn’t hurt to check — and it’s certainly cheaper than going to court.
By Liz Weston
Dear Liz: My parents created a living trust in 1999 and deeded their residence into the trust. Later, they sold that home, moved to another state and put their new residence into the same trust.
In 2014, my father was diagnosed with dementia. He died in 2020. During his illness, he destroyed most of the critical information related to the trust document, such as the attorney’s name and the trust document itself.
My mother relied on my father for all things financial. She is now 89 (bedridden but mentally sharp) and in need of funds to fix her house up for sale and to provide for her caregiving.
We went to the county recorder, but they could provide no advice and will not complete a property tax deferral without a copy of the trust document.
My credit union also will not fund a home equity line of credit without the trust document. Any recommendations in addition to seeking out an estate attorney?
Answer: Return to the county recorder’s office, retrieve the deed and check to see who requested the document be recorded, suggests Jennifer Sawday, an estate planning attorney in Long Beach.
Many attorneys put either their own name or the firm’s name in that field, she says. If you can identify the attorney and they’re still in business, you can contact them to see if they might have a copy of the trust.
Keep in mind that lawyers generally aren’t required to keep such copies. The attorney’s job is to properly prepare and deliver estate planning documents, Sawday says.
Once those originals are delivered, it’s the client’s responsibility to keep and safeguard them.
If a copy can’t be found, your mother’s legal options will be heavily dependent on the state law where she now lives, Sawday says. For example, in California, people can petition the court to establish the terms of a trust.
Attorneys sometimes use this process when a trust is discovered after someone has passed away, but the original document can’t be found, Sawday says.
An estate attorney can advise your mother about her options.
Estate planning should be an ongoing process. Any major life event, including a move to a new state or a diagnosis of dementia, should prompt a review of the documents.
Even without major changes, estate plans should be checked every three to five years and beneficiary designations reviewed annually. Many people resist paying for such reviews, but the cost of correcting a mistake can be considerably more.
By Liz Weston
Dear Liz: Is it possible to revoke an irrevocable trust?
Answer: Surprisingly, yes, in some cases it’s possible to revoke an irrevocable trust, depending on state law, the terms of the trust and the circumstances. For example, a trust could be dissolved or changed if all the beneficiaries agree and a court approves. In other cases, assets can be “decanted” from the old trust and put in a new, less restrictive trust. An experienced estate planning attorney can review the trust and offer advice.
By Liz Weston
Dear Liz: Since retiring, I’ve been converting a traditional pre-tax IRA to a Roth IRA. I’ve got another small pre-tax account that I could do the same with. My reason for converting is that my spouse has a very large pre-tax IRA that probably won’t be used up in our lifetimes, and I don’t want my adult children to face a large tax bomb when we both are gone.
Is there any downside to including our kids as beneficiaries for that account, say 10% each? That way, if he dies before I do, some of the pre-tax account will be delivered to the kids (starting the 10-year distribution clock), and then they’d have another 10 years to withdraw (and pay taxes on) whatever remains at my death. I could foresee adding grandkids as beneficiaries as they approach adulthood.
Is this a bad idea? Would it be better to continue whittling down the pre-tax accounts by converting them to Roth accounts?
Answer: Last week’s column covered some of the hazards of leaving retirement accounts to minor children. If the account was owned by anyone other than a parent, distributions would need to start immediately and likely would be subject to the parent’s tax rate. Plus, handing a big wad of cash to a teenager or young adult often isn’t advisable. You can control the distributions by creating a trust, but that has its own tax implications.
Including your adult children as beneficiaries isn’t as fraught with peril, but you do lose some flexibility. The surviving spouse is allowed to treat an inherited IRA as their own, which may allow them to delay distributions. Plus if the kids are in their peak earning years when they inherit, they could wind up paying taxes at high rates.
Continuing with the Roth conversions may be a better way to defuse the tax bomb, particularly if your tax rate is lower than theirs and you’re willing to foot the tax bill. You’re reducing the size of the taxable IRA while creating a tax-free pot of money for your heirs. Obviously you’ll want to discuss all this with your tax pro and your estate planning attorney before proceeding.
By Liz Weston
Dear Liz: Is there a specific website to research estate planning attorneys in Southern California? Our attorney has retired and I elected not to have my file transferred to her successor attorney. Our trust documents are only six years old and there have been no material changes to our financial situation or beneficiaries.
Answer: The internet is overloaded with lawyer directories of limited value. Either the sites themselves are questionable or they return so many options that choosing feels like an impossible task.
So the best way to find a good estate planning attorney is the old school way: word of mouth. If you have a CPA or other financial professional, ask who they recommend. Know any lawyers? Check with them. Friends, relatives and neighbors also may be able to offer referrals.
Once you have a few names, the internet becomes a bit more helpful. The state bar of California offers an attorney search function that allows you to confirm the attorney’s license status, education and any disciplinary history. The attorney’s website can also provide information about their background, experience and approach.
Since estate planning is a complex area, you’ll want an attorney who specializes rather than dabbles. Ideally, estate planning is their sole or primary focus, not an add-on to other areas of practice. For more complex needs, you can consider seeking out an attorney who is certified by the California State Bar as an estate planning, trust and probate law specialist. If you need help with issues around aging, such as Medicaid planning, long-term care or protection against exploitation, consider seeking the help of an elder law attorney. You can get referrals from the National Academy of Elder Law Attorneys at www.naela.org.
By Liz Weston
Dear Liz: I am in my late 70s. My husband is in his mid 80s and in poor health. Are there advantages to transferring the title to our house into my name alone so I can be the sole owner?
Answer: Owning the house solo could make it easier for you to sell or refinance without your husband’s involvement.
But you would miss out on a significant tax break. At least one half of the property — and both halves in community property states — get a new value for tax purposes when a spouse dies. This “step up” in tax basis can reduce or eliminate capital gains taxes when the house is sold.
There could be additional drawbacks, depending on where you live and your circumstances. A tax pro or an estate planning attorney can give you personalized advice.