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Q&A: Estate settlement is tougher without ready cash

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Dear Liz: My friend died unexpectedly. I am helping her stepson, who is the successor trustee for her living trust, to get the estate settled. Her estranged son was a beneficiary on her main checking account and took the money as soon as she died, which was his right. However, it has taken three months for the stepson to gain access to her other funds in several brokerage accounts. In the meantime, it’s been a challenge for him to pay the lawyer and burial expenses and keep the lights on in her house while he gets it ready for sale.

I don’t want my trustee to have that same problem. Is it better to put my checking account into the name of the trust, or is it better to name the trust as the beneficiary of the account? What’s the best way to ensure my trustee has quick access to the short-term funds they will need?

Answer: Titling your checking account in the name of your living trust is generally a good idea, and should make it easier for your successor trustee to obtain control over the funds, says Jennifer Sawday, an estate planning attorney in Long Beach, Calif. After your death, the trust would still own the account; the original trustee — you — would simply be replaced by the successor trustee.

That said, some big national banks are notorious for dragging their heels on releasing funds when customers die, regardless of how the account is titled. If your bank makes it tough for you to retitle the account, that may be a sign that you need to search for a more customer-friendly institution. You may want to have a chat with your estate planning attorney, who can tell you which banks are problematic and which offer better customer service.

Sawday suggests her clients maintain at least two checking accounts, including one with a trust-friendly bank or credit union plus another at their brokerage, in addition to any accounts they have at a big national bank. That way, the trustee will have multiple options for accessing funds should any of the institutions prove problematic.

Q&A: Yes, you can donate IRA money with a check–but should you?

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Dear Liz: Please have another go with respect to answering a recent question about making qualified charitable distributions from an IRA using a debit card, which is something we have also wondered about. Several of the large mutual fund companies tell their customers that checks from their IRA account going to qualifying charities will qualify as QCDs, whether the checks are written by the company to the charity or by the individual to the charity. Hence, it would seem to be functionally equivalent whether one writes a check or uses a debit card. But your answer to the reader’s question seems to suggest something else.

Answer: You’re right that my answer fell short in explaining the problem.

The original letter writer wanted to be able to use a debit card to make qualified charitable distributions from her IRA to small art organizations that accept online donations, but apparently not paper checks. Qualified charitable distributions allow people to donate money from their IRAs to charity without the money being taxed.

Since IRA custodians typically don’t issue debit cards, the letter writer would have to first have the donation amount sent to her bank account or another account that offers such a card. But this transfer would make the distribution taxable, since qualified charitable distributions must be made directly to the charity without the money passing through the IRA account holder’s hands.

Checks drawn from an IRA account and made out to the charity, either by the account holder or the IRA custodian, are considered qualified charitable distributions as long as other rules are met. For example, the donation must be from a traditional IRA, the account holder must be at least 70-½ and the annual donation limit is $108,000 in 2025.

That said, sending checks through the mail is a risky way to transfer funds. Mail theft and related check fraud are soaring. Electronic payments are a far more secure way to send money, whether you’re paying bills or charities.

If you must send checks, use gel-based pens since their ink is harder to alter and go to your local post office, rather than leaving checks in an unsecured mailbox. Monitor every check you send and report any missing checks promptly to your bank or IRA custodian so they can stop payment.

Q&A: Should I borrow against my life insurance to travel?

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Dear Liz: My wife and I live on her pension, my Social Security, and enough dividends from our blue-chip stocks to cover our daily living expenses. But at our age (80), we would like to spend a little more in order to travel. We will have to borrow the money for that. I see that I can take a loan against our life insurance, at a very low rate of around 2%. The alternative is to take a margin loan, which currently costs 8.75%. It appears to me I should be borrowing against life insurance (we’re thinking of a loan of $10,000, against the life insurance face value of $900,000), where repayment would be assured from proceeds at the time of death (if not sooner, depending on our regular cash flow). Are there pitfalls to using life insurance loans?

Answer: There are pitfalls to any kind of loan, so you’re smart to want to educate yourself before you borrow.

Life insurance loans allow you to borrow against the cash value that’s accumulated in a permanent life insurance policy, such as a whole or universal life policy. The cash value is the savings component of your policy that’s typically built up over time. It’s not the same as the face value, which is how much the beneficiary is supposed to be paid when you die.

You typically have a lot of flexibility over how you pay the money back. If the policy allows, you can even opt to make no payments and have the loan plus interest deducted from the death benefit.

The big risk, besides leaving a beneficiary short of funds, is that the debt could grow to the point where it exceeds the policy’s cash value. At that point, the policy can lapse and potentially trigger taxes on the borrowed money.

You may have other options to fund your travel, such as selling some stocks, borrowing against your home equity or even taking out a reverse mortgage. Each option has advantages and pitfalls, so you’d be wise to discuss your situation with a fee-only financial planner for personalized advice.

Q&A: How to track down lost savings bonds

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Dear Liz: My mother passed away two years ago. She left a small mountain of paperwork which my brother, sister and I have finally started to sort through. Among the surprises that we have found is a receipt from a bank for the purchase of $4,500 of U.S. government savings bonds. The date of purchase is one month after the birth of her grandson in March 1992. We suspect that the bond was intended as a gift for the grandson. Is there a way to track down these bonds? Would a receipt from a bank be sufficient to satisfy the Treasury that the bond purchases were valid?

Answer: Savings bonds purchased in 1992 would have already matured and are no longer paying interest. If your mom didn’t cash in these bonds, you may be able to find them through the U.S. Treasury Department’s Treasury Hunt tool. You can find it at https://www.treasurydirect.gov/savings-bonds/treasury-hunt/.

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

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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.