Ask Liz Weston

Get smart with your money

estate

Q&A: How the COVID-19 pandemic is delaying inheritances

By

Dear Liz: My mother passed away in March due to old age. She lived in California. I live out of state and couldn’t travel because of the pandemic. My siblings took care of her burial. Her will named me executor. I’d like to know how long I have to settle her estate and whether I will need an attorney. Her house was her major asset and was assessed at $400,000. There’s no mortgage. The house goes to an older brother and me, and two grandsons each get $10,000. I want to make sure the grandsons get their inheritances as soon as possible.

Answer: Your grandsons will have to wait awhile. California probate is slow at the best of times, with a typical case taking eight to 12 months or more. Pandemic-related court closures are adding many months to the process. Courts are slowly reopening but dealing with a significant backlog of filings.

Your mother’s will should be filed with the appropriate county within 30 days of her death and the county tax assessor should be notified within 150 days because she was a property owner, said Jennifer Sawday, an estate planning attorney in Long Beach. Though most counties allow electronic filing for probate matters, it’s typically not the most user-friendly process and you may want to consult a probate attorney. The initial consultation is usually free. Hiring an attorney to handle the whole process probably won’t be cheap: By law, probate attorneys can charge 4% of the first $100,000 of the estate, 3% of the next $100,000, 2% of the next $800,000, 1% of the next $9 million, and 0.5% of the next $15 million.

Your mom could have avoided probate entirely if she’d created a revocable living trust, or if she had taken other probate-avoidance measures. In California and many other states, real estate can be passed on with a “transfer on death” deed that avoids probate. She also could have set up bank accounts and designated your grandsons as beneficiaries to avoid probate.

It’s too late now, obviously. But whatever you do, don’t jump the gun by making distributions, Sawday warned.

“If there is a will, under no circumstances should he make the cash gifts to the grandsons until the court admits the will, appoints him as executor and probate actually commences,” Sawday said.

Thursday’s need-to-know money news

By

Today’s top story: Your kids don’t want your stuff. Also in the news: Don’t become a victim of Coronavirus shopping frenzy, what to do if the Coronavirus is affecting your finances, and why you shouldn’t get too excited about cheap gas.

Your Kids Don’t Want Your Stuff
But don’t take it personally.

Don’t Become a Victim of Coronavirus Shopping Frenzy
Beware of price gouging.

What to Do if the Coronavirus Outbreak Is Affecting Your Finances
What companies are doing to help.

Don’t Get Too Excited About Cheap Gas
It’s only temporary.

Q&A: Your debt lives even after you die

By

Dear Liz: I live in a senior building and we had a discussion about our debt after we pass away. I said, “If we have any money in our estate, that will pay it off.” One woman who lives here claims that all you have to do is send in a copy of a death certificate and that will get rid of any debt. Hope you can settle this for us.

Answer: Debt doesn’t just disappear when someone dies. Whether and what creditors get paid, though, depends on a lot of factors.

After someone dies, the executor of the estate (or the personal representative, if the deceased had a living trust) is supposed to notify creditors of the death. The first bills to be paid usually are the costs of administering the estate, followed by secured debt such as mortgages, liens and so on, then the funeral and burial expenses, says Los Angeles estate planning attorney Andrew Steenbock. Next in line typically are medical bills from the final illness and the dead person’s last tax bill. Then other creditors are paid from what’s left, if anything. Only after creditors are paid can any remaining assets be distributed according to the will, trust or state law if there are no estate planning documents. If the estate is insolvent — with more debt than assets to pay those debts — then heirs typically get nothing and the creditors are paid a portionate amount of whatever assets are available.

Things can get more complicated if there is a surviving spouse or co-signer, since debt that’s jointly owed would become the survivor’s problem.

Ignoring these rules can have serious repercussions for the executor, who can become personally liable for mistakes made in settling an estate. If your neighbor’s executor ignores state law and distributes assets to heirs before paying off creditors, for example, the creditors could sue the executor. That’s a pretty powerful incentive for learning and obeying those rules.

Monday’s need-to-know money news

By

smartphones_financeToday’s top story: How to get the best deal on a new cellphone. Also in the news: What happens to your debts after you die, when a loan beats a credit card, and how to decide if you need life insurance.

Buying a cellphone? Here’s how to get the best deal.
Read the fine print.

This Is What Happens to Your Debts After You Die
What debts will your estate be responsible for?

5 Times a Loan Beats a Credit Card
Credit cards may be easier, but they’re not always smarter.

Do You Need Life Insurance? How Much Is Enough?
Important calculations.

Q&A: Money owed on a lease after death

By

Dear Liz: I read your answer to the person who returned a car and wanted to be free of that debt. Our situation is somewhat different. My son’s father had a massive stroke and died two weeks after signing a lease for a Camry on which he made a $2,000 down payment. My grown son, who is left to deal with everything, took the car back to the dealership, and they assured him nothing further would be needed. The dealership then sold the car for $18,000 at an auction and said $8,000 is still owed on this car since my son’s father signed a legal contract.

Answer: The money is still owed. Whether the dealership will ever collect is another matter.

This debt is now part of the dead man’s estate, along with any other loans or credit accounts he owed at the time of his death. If the estate has sufficient available assets, the executor is required to pay those bills. If there aren’t sufficient assets, creditors may have to accept less than they’re owed or nothing at all.

If your son is the executor, he should hire an attorney experienced in settling estates to help him deal with these details. Nolo’s book “The Executor’s Guide” also will help him understand his duties and obligations.

What you need to know about estate planning

By

Last will and testamentExclusive to Ask Liz Weston, this post comes courtesy of Ally Bank.

Whether you’ve worked for years or you’re just starting out, it makes sense to create a plan for distributing your assets after you’re gone. That’s where estate planning comes in. Estate planning may involve everything from creating a will to establishing trusts to designating guardians for dependents.

Below are a few common questions about estate planning addressed by several experts in the field.

What is estate planning?

Estate planning is the process of arranging for the disposal of your estate—your assets—during your life. In an interview with Ally Bank, Erin Baehr, president of Baehr Financial in Stroudsburg, Pennsylvania, stated, “all it really means is to organize the distribution of the things you own and the legacy you want to leave, large or small.”

Most estate plans are set up with the help of an attorney with experience in estate law. The core document in estate planning is the will, which describes which assets go to whom. Other aspects of an estate plan may include naming an executor of the estate, setting up durable power of attorney, and designating guardians for dependents. An estate plan usually will involve a trust.

In a recent interview with Ally Bank, Bruce D. Steiner, an attorney at the New York City firm Kleinberg, Kaplan, Wolf & Cohen and editorial advisory board member at Trusts & Estates, explained, “For most people, the focus is on what their will says. And in their will, if they’re sufficiently wealthy, and they give things away during their lifetimes, they almost always do it in some sort of a trust.”

Why establish a trust?

You want to ensure your beneficiaries receive what you intend to give with as few legal hurdles and unnecessary taxes as possible. A trust is a legal document that protects and controls your assets. Diane Morais, Ally Bank Deposits and Line of Business Integration Executive, explains, “As the economy stabilizes and Americans aim to grow their personal investments, Ally Bank suggests that savers protect the assets they have worked so hard to attain. Trusts can protect their legacies.”

Morais also noted in a recent article in The Huffington Post that many people are looking for bank products that work well with trusts: “With many Americans now able to save for the first time in years, many are evaluating bank accounts that are ideally suited for trusts . . . to firm up their own savings while simultaneously easing the burden on their beneficiaries.” Many banks, including Ally Bank, have deposit products ideally suited for trusts.

Who is estate planning for?

Anyone can benefit from planning for the future. Steiner explains that estate planning is for “Anybody who has assets and would like them to go in a way that might be different than the way they would go by default. That’s really most people.” And according to Baer, “Everyone should have an estate plan, if for no other reason than to make things easier on the people left behind.”

When should you start thinking about estate planning?

The answer is unique to you and your situation. As you age and accumulate assets, you may be more inclined to start thinking about how to protect what you’ve worked for.  Steiner suggested that a person’s family situation usually plays into his or her decision to get started with an estate plan. He notes, “It might be when [you] have a spouse, but for most people, I think it’s certainly when they have a child, since you have to decide, if you’re not around, who’s going to take care of that child? And if you leave money to a child, and the child can’t manage money, you have to decide who’s going to be the trustee for the child’s money.”

How should you prepare to meet with an estate planner?

As part of the estate-plan process, you will want to draw up a list of your assets, making it as complete as possible. You should include life insurance policies and retirement benefits. You also want to think about your wishes regarding family members, dependents, executors, trustees, guardians, and beneficiaries.

What are recent changes in estate planning law?

The American Taxpayer Relief Act of 2012 was approved earlier this year. Explains Steiner, “It permanently fixed the federal estate tax exempt amount at $5.25 million, as indexed for inflation. It made portability permanent, which means if I have a spouse and I don’t use my entire exempt amount, my spouse can inherit my unused exempt amount.”

Want to learn more about estate planning? Check out these posts:

Who owes taxes after death?

Missed deadline could limit inherited IRA benefits

Tax bills for inherited IRAs

Inherited IRA may have more options than you’re told

Elderly mom isn’t the only one overdue for estate planning