Ask Liz Weston

Get smart with your money

Estate planning

Q&A: Why your estate plan might need a do-over

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Dear Liz: We had a living trust done in 2006. The lawyer recently died and his office mailed us a packet with the trust document in it. We want to make a few changes. Every lawyer wants to do the whole thing over and have us sign papers giving them powers.

Answer: Your estate plan is probably ready for a do-over.

Previous columns have mentioned that estate planning laws have changed significantly since 2010. Any estate document created before that point needs to be reviewed and updated. Your previous attorney can’t do the updating, and another lawyer might be wary of being held responsible for a document they didn’t draft.

That said, it’s not clear what “powers” you’re being asked to give. What these attorneys may want to do is have you create powers of attorney that would allow a trusted person to make financial and healthcare decisions should you become incapacitated. These documents are essential and a good reason to schedule an appointment with the attorney of your choice today.

This advice is well worth repeating: Do-it-yourself estate planning can create a mess for your heirs that could incur far more in legal fees than you would have spent getting expert, personalized advice in the first place.

Q&A: DIY estate planning is unwise

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Dear Liz: Please tell us about some estate planning tools that many might be able to use for themselves without incurring attorney fees and probate costs, such as naming payment-on-death beneficiaries at financial institutions and using real estate deeds with transfer-on-death provisions.

Answer: There are a number of ways that people can avoid probate, which is the court-supervised process of settling someone’s estate. Bank, financial and retirement accounts can pass to named beneficiaries outside probate, as can life insurance. Property owned in joint tenancy also avoids probate. Some states have transfer-on-death options for real estate and for vehicles.

The fact that you can avoid probate with these methods, however, doesn’t necessarily mean that you should.

Do-it-yourself estate planning can create a mess for your heirs that could incur far more in legal fees than you would have spent getting expert, personalized advice in the first place. A good rule of thumb: If you can afford to hire an estate planning attorney, you probably should.

Also, you shouldn’t automatically assume that probate is worth avoiding.

Probate is often lengthy and expensive in California and Florida, but may be far less cumbersome elsewhere. In addition, small estates typically qualify for simplified probate that’s faster and cheaper.

Probate also has some advantages, including limiting the time creditors have to make claims against your estate. You also might prefer a court’s supervision if you have contentious heirs or you’re concerned that your executor might not carry out your wishes.

Q&A: Trusts and wills aren’t the same thing. Here’s how they work

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Dear Liz: I understand what happens with a living trust when both spouses die at once. But what happens when just one dies? Is the trust tossed out, since the surviving spouse is usually the trustee? What about the stuff that the deceased wanted to go to his or her kids? And what about the wills? When does that get disbursed? Please explain how trusts and wills work, especially for blended families. I’m sure I’m not the only one with questions.

Answer: A complete answer would take many, many more words than this column allows, which is why you should consult a knowledgeable estate planning attorney who can give you personalized advice.

But in a nutshell, wills and living trusts are both documents that allow people to name who they want to get their property. The main difference is that living trusts avoid probate, the court process that otherwise follows death.

Living trusts are considered revocable, which means the creators can make changes during their lifetimes. At some point, though, the trust usually becomes irrevocable, which means changes no longer can be made.

If a single person makes a living trust, then the trust would become irrevocable when that person dies. With a married couple, part of the trust often becomes irrevocable when the first spouse dies, with the rest becoming irrevocable at the second spouse’s death.

Such a setup allows you to bequeath money and property to your kids if you’re the first to die, rather than hoping your surviving spouse — and potentially your surviving spouse’s future spouse — will do so later.

Q&A: Adding sister to a house deed

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Dear Liz: A reader recently asked about giving a rental house to the sister that has been living in it for 10 years. You mentioned that the reader would have to file a gift tax return since there is a max of $15,000 for a gift exemption. Couldn’t the owner simply add the sister to the title so when they pass the sister becomes the sole owner of the house without having to deal with taxes, probate, etc? Similarly, if the sister dies first the current owner would retain ownership to give, sell, donate as they choose.

Answer: Adding the sister to the deed would be considered a gift, so the reader would still have to file a gift tax return.

Owning the home together would avoid probate and give the surviving sister a tax break, and that half of the house would get what’s known as a step-up in tax basis at the first sister’s death. Another option, if the reader wanted to retain ownership, would be a transfer-on-death deed, which is available in many states. The reader was clear that she wanted to give an outright gift, but she could consult a real estate or estate planning attorney about other options.

Q&A: Storing will and trust documents

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Dear Liz: You recently advised a person to leave their original will or trust with their attorney. As a practicing attorney, I cannot tell you how many times original wills and trusts have been lost as the attorney that prepared the documents retired or died before the client. There are requirements to inform clients of a retirement, but very few lawyers follow those rules, unfortunately. The best thing is to buy a home safe or put the documents in double zip-close freezer bags in your freezer (which should be fireproof and is a great preserver of the documents). Or, hire a younger lawyer who will still be around when you want to amend your will or trust or you pass away.

Answer: Thanks for sharing your perspective, but freezers are not fireproof. A fireproof home safe would be a better option for those who want to keep their wills at home.

There is, unfortunately, no one perfect option for storing wills. You’re quite right that people often don’t stay in touch with the attorneys who create their documents, even though estate plans should be reviewed and updated regularly. The risk of losing a will may not be as high if the attorney is part of a large firm, but even those can go out of business.

Some states allow you to file your will in advance with the probate court or a registrar of wills, so that’s another avenue to consider.

Q&A: What you need to know about power of attorney documents

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Dear Liz: My husband has Parkinson’s disease and is showing early signs of dementia. I’ve been advised to get a financial power of attorney. If all of our accounts are joint, is this necessary? What will that do for me?

Answer: A power of attorney gives you the authority to make decisions on your husband’s behalf. You wouldn’t need one to pay the bills from your joint accounts, but this document could be invaluable if you wanted to take action on jointly held property, such as selling a car or house or refinancing a mortgage. Otherwise, you might have to go to court to get a guardianship, which can be expensive.

Please don’t wait. For the document to be valid, your husband needs to be able to understand what a power of attorney is and what it does. You’ll also need a power of attorney for healthcare, which is sometimes called a healthcare proxy or advanced directive, to make decisions regarding his medical care.

There are do-it-yourself options, but given your husband’s condition you may want to hire an experienced estate planning attorney who can offer personal guidance and help make sure the documents won’t be challenged.