Ask Liz Weston

Get smart with your money

Estate Planning

Q&A: How do I find an estate planning attorney I can afford?

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Dear Liz: The question from the couple who wanted to leave a home to their four children hit home with me. I’m in the same boat but with only two kids. How do I go about finding an estate planning attorney that I can trust and also afford?

Answer: Start by asking for recommendations from friends, family and any financial professionals you trust. If you already have a CPA, for example, chances are they can refer you to a good estate planning attorney in your area. Consider interviewing a few candidates to make sure they handle situations similar to yours.

If you’re trying to keep costs down, consider the attorney’s overhead. Fancy buildings in expensive areas may impress, but you can find competent attorneys in less ornate offices, perhaps in suburbs or smaller towns, who charge less.

Q&A: A sticky inheritance scenario

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Dear Liz: I have an adult daughter by a previous marriage who has no savings or retirement funds. I want to change my living trust to ensure that my daughter only receives a monthly amount similar to my required minimum distribution from my IRA, plus half of our paid-off house after my wife and I pass away. Do I need a trust attorney?

Answer: Restricting access to an inheritance might be necessary, but few adults would be happy about being put on an allowance. Unhappy heirs may be more likely to challenge an estate plan, so you should get expert advice if you want your wishes to prevail.

Even if your daughter is amenable, you still need an estate planning attorney’s help to craft the trust that doles out the money. Understand that inherited IRAs typically must be drained within 10 years. (The exceptions are for surviving spouses, minor children, the disabled or chronically ill or survivors who are not more than 10 years younger than the account owner.) If the beneficiary is a trust, the distributions don’t have to be paid out to your daughter, but any amount retained by the trust will typically be taxed at a higher rate. Plus, you’ll have to find someone to manage the trust, notes Burton Mitchell, a Los Angeles estate planning attorney. Who you select to be the trustee is critically important, as they will have to deal with your daughter for the rest of her life, Mitchell says.

Also, you may need to reconsider how you own your house if you want to ensure half goes to your daughter. Typically couples own property jointly, so that the survivor inherits automatically. If you want to bequeath your half of the property to someone other than your spouse, you may need to change the ownership structure to tenants in common. You’ll need to think this through carefully, since such a change would have legal, tax and practical implications that you’ll want an attorney to thoroughly explain. For example, if your spouse dies before you, she could leave her house to someone other than you, Mitchell notes. The house could be sold and you might need to find somewhere else to live. Conversely, if you die first, your wife could be forced to move if your daughter insisted on selling the house.

In other words, achieving what you want may be a lot more complicated and have more repercussions than you currently imagine. Talking with an experienced estate planning attorney can help you better understand your options.

Q&A: How to divide up the family home

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Dear Liz: My wife and I plan to leave our house to our four children. My concern is that one may want to sell and split the proceeds; another may want to keep the house, rent it and divide up the income; and of course there’s always the real possibility that one may want to move in and live in it (we live in a nice community in California). My goal is to prevent doing anything that drives a wedge between them. Any advice on how best to approach this issue short of requiring the house be sold?

Answer: You’ve identified some of the complicating factors of leaving property to multiple heirs. There are many others, including changing circumstances and inclinations. The one who now wants to move into the property may be nicely settled elsewhere when the time comes. Or the one who’s keen on creating a rental may decide that screening tenants, collecting rent and fielding 3 a.m. calls about plumbing problems is too much hassle. Some of the heirs may be in a better position than others to absorb the ongoing costs of maintaining the home, including taxes, insurance and repairs. Even if their financial circumstances are roughly equal, they may have trouble agreeing on the timing and cost of repairs or improvements. And that’s assuming there are no reversals of fortune. Someone who is adamant about keeping the home may find themselves in need of funds later. And so on.

Your life isn’t immune to change either, by the way. You, or your widow, may want to downsize someday or need to sell the house to fund long-term care needs.

An experienced estate planning attorney can help you sort through your options because this is a common scenario and one that can be approached in different ways, including requiring the house to be sold, creating a trust or forming a family partnership to manage the property.

The attorney also can help you frame the discussion you’ll want to have with the kids. Knowing their current preferences and circumstances may be helpful, but given your goal, it’s also a good opportunity to emphasize the importance of family unity. Let your kids know you expect them to put family first and that harmonious relationships are worth more than any piece of real estate could be.

Q&A: The ins and outs of what counts for probate

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Dear Liz: The value of our car, furniture and personal items is well below the $185,000 that currently triggers probate in California. We no longer own real estate. Am I correct that investment and bank accounts that have designated beneficiaries do not count toward the probate limit?

Answer: Yes. (Your car doesn’t count either, by the way.)

Most states have simplified procedures for smaller estates. California’s limit, which is raised with inflation every three years, was set at $184,500 on April 1, 2022. What’s counted for probate purposes depends on state law, and California excludes cars, boats and mobile homes, as well as bank accounts owned by multiple people, property that transfers directly to a spouse and real estate outside California.

Other property that avoids probate includes life insurance proceeds, death benefits and accounts that have named beneficiaries. Real estate can avoid probate if it’s held in joint tenancy or is transferred using a transfer-on-death deed. Property in a living trust also avoids probate.

Q&A: Are living trusts a DIY project?

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Dear Liz: I have a living trust. I’ve also got family who have become estranged and priorities that have changed in terms of charities I’d like to benefit. Is there any way to set up a trust that allows me to make these changes without having to pay an attorney?

Answer: There are certainly do-it-yourself options for estate planning. But if you can afford to pay for expert help, why wouldn’t you? Estate planning is complicated, and the cost of making a mistake can be significant. That’s especially true if there are disgruntled family members who could challenge your estate plan.

The good news is that updating a living trust typically costs a lot less than setting it up in the first place. As mentioned in previous columns, you should consider having an attorney review your trust about every five years, and after major life changes.

Q&A: Property transfers trigger tax problem

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Dear Liz: I’m considering giving property (a condo) to my child through a quitclaim deed while I am still living. If she continues to live in the condo for two years after gaining possession, doesn’t she get a $250,000 capital gains exemption when she sells the property?

Answer: Yes, if she owns and lives in the home for at least two of the previous five years, she can exclude up to $250,000 of home sale profits from her income. However, her taxable gain would be based on your tax basis in the property: basically what you paid for the home, plus any qualifying improvements. Only if she inherits the home would the tax basis be updated to reflect its fair market value on the date of your death. Although taxes should never be the sole consideration for property transfers, the favorable step-up in basis may be a powerful incentive to hold off. Consider discussing your options with a tax pro.