Ask Liz Weston

Get smart with your money

Estate planning

Q&A: Finding someone to sell your stuff after you’re gone

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Dear Liz: I have a question on how to have my affairs managed after I die. I am single, with no children or living relatives, so finding someone to handle my estate is a challenge. Do you have a recommendation for where I can find a person or business, such as a bank’s trust department? I have a living trust but need to have someone sell all my assets (many are collectible and worth the extra effort in their sale). Do I need to go through probate just to ensure none of my assets are “lost” by the executor? Should I make a list of valuable items that would easily be omitted from the sale and distribution? To ensure all items are accounted for, to whom would I now provide the list?

Answer: Your living trust should name a successor trustee who can take over managing your affairs if you should become incapacitated or die. The successor trustee will be the one who will pay your final bills and sell or distribute your stuff after you’re gone. A list of your valuable items, along with the names of experts who can help with their sale, could help with that process. You can store that information with your living trust.

The person you choose doesn’t need to be a collectibles expert or even particularly financially savvy as long as they’ve got common sense and integrity. Successor trustees can hire any help that they need.

But this should be a person you trust completely because you’re putting a lot of power and discretion in their hands. If you’re worried this person will “lose” or mishandle your estate, you probably should choose someone else or reconsider having a living trust. Allowing your estate to go through probate instead would provide at least some court supervision of an estate’s distribution.

You may be able to hire a successor trustee. Bank trust departments can serve as successor trustees, but they tend to charge significant fees and are unlikely to want the job if your estate isn’t substantial. Another option might be a private trust services company or a professional fiduciary. Neither are exactly cheap, but they’re likely to be less expensive than a bank. Any of these options require making arrangements in advance — you can’t just name a company or fiduciary and expect them to take on the work.

Q&A: Death, taxes and home sales: How to handle the mixture

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Dear Liz: My wife and I bought our house 61 years ago in Southern California. The wife passed away seven years ago, and I became the sole owner. If I should die owning the house, I know my daughter will inherit and her tax basis will be the value of the house on that date. But if I sell the house, I’m not sure what my basis will be. Do I pick up the 50% of what the house was worth on the day my wife died and add to that the 50% of the original purchase price that would be mine? Or is my basis the original price of the house?

Answer: In most states, only your wife’s half of the home would get a new value for tax purposes at her death. In community property states such as California, though, both her half and yours get this step up in tax basis.

Tax basis determines how much taxable profit there might be when property and other assets are sold. For those who aren’t sure how tax basis works, a simplified example might help.

Let’s say Raul and Ramona bought their home for $40,000 in 1959. In 2013, when Ramona died, the home was worth $800,000. Today, it’s worth $1 million.

At her death, Ramona’s half of the home got a new tax basis. Instead of $20,000 (half of the purchase price), her half of the home now has a tax basis of $400,000 (half of its $800,000 value at the time).

In most states, Raul would keep the $20,000 tax basis on his half, so his combined basis in the home would be $420,000. If he should sell the home for $1 million, the profit for tax purposes would be $580,000.

In California and other community property states, the entire house gets a step up in basis to $800,000 when Ramona dies. If Raul sells the house for $1 million, the profit (or capital gain, in tax parlance) would be $200,000.

Of course, there would be no tax owed on this home sale, since Raul can exempt up to $250,000 of home sale profits. Raul could use Ramona’s home sale exclusion, and avoid tax on up to $500,000 of home sale profit, if he sells the home within two years of her death.

If Raul keeps the home until his death, on the other hand, it will get a further step up in tax basis equal to whatever the home’s fair market value is at the time (let’s say $1.2 million). If the daughter sells it for that amount, no capital gain tax would be owed.

Q&A: Arizona mom doesn’t want a trust

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Dear Liz: My mom is 93 and lives in Arizona. I’m in California. She refuses to complete a revocable living trust, and after several years, I have given up with the request. She states she has added my name to the deed to the house and her bank account. She believes she has done enough. She states she completed a will that she got at Office Max. What would be my first steps if she precedes me in death?

Answer: She may be stubborn, but she’s making mistakes that could impair her quality of life and saddle you with a big, unnecessary tax bill. Consider trying to persuade her to fix these errors before it’s too late.

Not having a living trust isn’t necessarily a crisis. Yes, a living trust would allow your mother’s estate to avoid probate, the court process that typically follows death. But probate in Arizona typically isn’t as long or expensive as it is in California.

What’s more important is having documents in place that allow you (or someone else) to handle her finances and make healthcare decisions should she become incapacitated. Without that, you might have to go to court, which could be a long and expensive process (especially now, with the backlog created by COVID-19-related shutdowns).

A living trust also would make it relatively easy for a trusted person to step in and handle her affairs if necessary. In the absence of a living trust, you should insist she fill out an advanced care directive that would allow a trusted person to make healthcare decisions for her. There are free versions for each state at PrepareForYourCare.org, along with instructions about how to make it valid. If she doesn’t have a computer, you can print out Arizona’s version and send it to her.

She also needs to create a power of attorney for finances. Offer to hire an estate planning attorney to do this, since it’s a relatively simple form and not likely to be expensive. There are online forms and software that can do this if she absolutely refuses to consult an attorney.

An estate planning attorney might also be able to help you get off the deed. When she added you to the deed, your mom signed you up to pay capital gains taxes you wouldn’t owe otherwise. All the appreciation in the home that happened during her lifetime would be taxable, when it doesn’t need to be.

Let’s say she bought the home for $25,000 and it was worth $250,000 when she died. If you inherited the home and sold it for $250,000, you would owe no capital gains taxes.

If she gives you the home before her death — which she essentially did by adding you to the deed — you don’t get the valuable step-up in tax basis that keeps you from having to pay capital gains taxes on the appreciation that happened during her lifetime. Instead, you would owe capital gains taxes on the $225,000 appreciation. (This is a simplified example meant to help you and her understand the magnitude of the blunder.)

Arizona is one of the many states that has “transfer on death” deeds for real estate. These deeds would allow the house to avoid probate and come directly to you. That’s almost certainly a better solution than the one she chose.

Q&A: Picking your estate’s executor

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Dear Liz: One issue in a recent column was about a sibling who did not follow the will. As executor, the sibling took two thirds of the estate instead of the will’s specification of half.

This is why, when my wife and I had our estate plan created, we told the attorney that none of the beneficiaries should be the executor of our wills and none should be a trustee of our trusts. Indeed, our trusts — which own almost our entire estate — cannot have the spouse, child, parent or in-law of a beneficiary as a trustee.

Answer: Yours is certainly one solution, if you can find the appropriate people to serve. But naming an heir as executor or trustee doesn’t have to be a disaster, as long as you name the right person — someone who is honest, dependable and able to serve with integrity.

Q&A: Pitfalls of unequal will distributions

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Dear Liz: You’ve written that when writing their wills, parents should be careful about leaving unequal distributions to their children. What wasn’t mentioned was that a person could have a “good” child and a “bad” one. The “bad one” has never done a thing for the parent, such as inviting her to the child’s home at Thanksgiving or Christmas, and only visits the parent in the summer when the parent just happens to live at the beach. The “good” one is very attentive and visits the parent even in winter, and so on. What is your thinking in inheritance in this case?

Answer: It’s your money, and there’s no one right way to divide an estate. However, it’s disturbing that your assessment of your children seems to be based solely on how much attention you get.

It’s possible one child acts more selfishly or thoughtlessly than the other. It’s also possible that you are difficult to please, and one child understandably limits the time she spends trying to do so.

Q&A: Getting sister’s house without a will

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Dear Liz: When I retired in 2018, I rolled over my 403(b) teachers retirement account into a traditional IRA and made my sister sole beneficiary. I sent her a copy of that beneficiary statement showing her name, her percentage (100%), and my account number. My sister later told me in a phone call that she wished to bequeath me her house should she predecease me. She explained she didn’t have a will but she made her feelings known to our older brother. Even if I were on speaking terms with our older brother, I would find this arrangement naive. Knowing my sister, she actually believes this method is the right way to proceed with her wishes. I’m asking you to be Dear Abby, perhaps, but what do I do?

Answer: You can explain to her that if she doesn’t have a will, the laws of her state will determine who gets her house regardless of what she intended. If your sister does not have a spouse or children, and your parents are dead, you and your brother would probably inherit the home as well as the rest of her estate. You would have to negotiate what to do with the house, which could be difficult if you two still aren’t speaking.

If you can’t get her to write a will, there may be another option. Many states allow “transfer on death” deeds, which are forms that allow people to name a beneficiary for their home. This would ensure that the house is left to you and that it avoids probate, the court process that otherwise follows death.