Ask Liz Weston

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Estate Planning

Q&A: Beware of transferring a home’s title before death

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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.

Q&A: Who is responsible for the costs of settling an estate?

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Dear Liz: Our dad is 93 and has a reverse mortgage on his house, where he lived until recently with my brother and my brother’s friend. In August, we had to move Dad into assisted living. Shortly after that, the “friend” locked my brother out of the house and has been a squatter ever since.

We hired an attorney, and the case was reviewed by judges near the end of last year, but we still don’t know the outcome. Hopefully, we will get him out, but the house has so many costly repairs required, even before the squatter, that we don’t think we would clear enough from selling it to pay what is owed to the bank. Probably the most that we could get for the contents is $5,000 to $10,000.

The question is: once the house is gone, are there many fees we will need to pay to settle our dad’s estate? He has named my brother and me as co-executors. Since we both still work full-time, is there a way to avoid being the executor? What happens if there is no executor named?

Answer: What a nightmare. If it helps, take comfort in knowing that you won’t be on the hook if the house doesn’t sell for enough to pay off the loan. That’s part of the deal with a reverse mortgage. If there’s equity left over, the borrower (or their heirs) can keep it. But if the debt exceeds the sale proceeds, that’s the lender’s problem.

In fact, you may not have to deal with a sale at all. Once you get rid of the squatter, your dad can sign over the deed to the lender (a recourse known as “deed in lieu of foreclosure”) rather than go through the hassle of selling the property. Discuss the situation with your attorney — who should be keeping you updated about the status of the eviction, by the way — and contact the lender to find out its process for this option. The lender needs to be informed anyway since reverse mortgages come due when the borrower dies, sells or permanently moves out.

You also won’t be on the hook for settling the estate once your dad dies. That can be costly, but the expenses come out of the estate itself, not the heirs’ or executors’ pockets. If there isn’t enough left over to pay all the bills, there’s a legal process for prioritizing what gets paid and how much.

As mentioned in previous columns, no one can be forced to be an executor. The probate court can appoint someone to settle the estate if necessary. Serving this function, though, can be a way to honor our loved ones.

Q&A: Should I name a representative payee in advance?

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Dear Liz: My question has to do with a bulletin put out by the Social Security Administration last year requiring people with Social Security income to submit the name of a person to be their advanced designation representative. It also said that you need to submit a name for your ADR annually. Many people probably don’t know about this. But can you clarify? Is it just a preliminary or mandatory requirement? If mandatory then what are the consequences if you don’t designate someone?

Answer: When someone is a minor, incapacitated or otherwise unable to manage their own Social Security benefits, the Social Security Administration names a representative payee to handle the funds.

The voluntary Advanced Designation of Representative Payee program allows you to nominate people you trust to perform this role should you become incapacitated. You can choose up to three people as possible representative payees. You can change your nominations at any time and Social Security will ask you to review your choices annually to make sure you’re still comfortable with them (because, as we know, situations and people’s capacities can change over time).

If you do opt into the advanced designation program, your nominees won’t be a shoo-in. Social Security will prioritize your choices, but will still conduct a full evaluation to ensure they can handle the job.

Q&A: Is free advanced directive site really free?

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Dear Liz: Your recent column about advanced directives said that people could get a free version at PrepareForYourCare.org. I found there is a charge. Is this for all online directives?

Answer: Prepare is a free site supported by donations, grants and licensing agreements. If you were asked to pay, you either clicked the donate button or weren’t on the correct site.

Q&A: Do I need a will if I don’t have much money?

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Dear Liz: I have less than $5,000 in my savings account, a 12-year-old car and a mortgage with a $200,000 balance. I am 67 and can’t decide whether to make a will. I live alone and have no children. I have three siblings, but am only close to one. I hate to spend money on an attorney when I can use that money to cover funeral expenses. I’m leery of using an online will service. Can you recommend an inexpensive way to get my affairs in order?

Answer: Anyone who can afford to pay for estate planning help probably should. This is a complicated area, and it’s easy to make mistakes that can make settling your estate unnecessarily costly or difficult.

If you can’t afford to pay for help, though, there are low-cost and free options you can explore.

Start by creating an advanced directive, which details what kind of care you want should you become incapacitated and can’t speak for yourself. You can create one for free at PrepareForYourCare.org. Every adult should have an advance directive, also known as a health care power of attorney.

Another document every adult should have is a financial power of attorney, which allows another person to manage your finances if you’re incapacitated. You can create one at FreeWill.com, a site supported by nonprofit organizations. The site will also help you create a simple will for free.

LegalZoom, Rocket Lawyer and Quicken Willmaker are other options that can help you create estate documents, typically for less than $100.

Q&A: How can a family break a dynasty trust?

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Dear Liz: My mother recently died at the age of 93. My sisters and I are her beneficiaries, and all of us are in our 60s. Unbeknownst to us, one of her assets is a “dynasty trust,” established in 1964, that can only be used for “care” and “education.” The lawyer never told us this and we could have used the trust to pay for her assisted-living care, all of our college education costs, and the college education costs of our children.

According to the trust, the restrictions don’t end until 21 years after our deaths. Two of us have two children each, and one sister has no children. None of the grandchildren plan to have children of their own. With these terms, and assuming we live into our early 90s, the grandkids will be in their late 70s before they can access these funds. Is it possible to “break” this trust so that we can make use of these funds while we are all alive and able to use the funds effectively?

Answer: Dynasty trusts are designed to pass wealth down through multiple generations. They’re irrevocable, which means the person who created the trust gives up control of the assets.

That doesn’t mean the trust can’t be changed, says Los Angeles estate planning attorney Burton Mitchell. He recommends getting a complete copy of the trust and asking an experienced trust and estate attorney to read it. The trust may include language allowing an early termination. If this is truly a dynasty trust, “back doors” to allow changes are usually built in, Mitchell says.

If not, there may be a way to terminate or modify the trust by agreement of the beneficiaries.

If all else fails, you may be able to go to court to modify the trust provisions based on changed circumstances, provided all beneficiaries agree, Mitchell says.