Ask Liz Weston

Get smart with your money

Inheritance

Q&A: A sudden death brings a financial quandary

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Dear Liz: My son suddenly passed away and his $1-million life insurance policy was awarded to me, his mother. I want the money to be divided equally between his two children for future use. They are 18 and 15 now. What financial vehicle should I use? The funds are in my money market account just waiting to be placed into something.

Answer: Please use some of the money to pay for individualized counsel from advisors who are fiduciaries. Fiduciary means the advisor is required to put your best interests first. Most advisors are not fiduciaries but you can find financial planners who are through the National Assn. of Personal Financial Advisors, the XY Planning Network, the Garrett Planning Network and the Alliance of Comprehensive Planners.

The vehicle or vehicles you use for the money will depend on your goals and how you want to distribute the funds over time. You’ll need good advice about how to invest, minimize taxes and incorporate the money into your own estate plan. Distributing money to your grandchildren can trigger the need to file gift tax returns, although you wouldn’t actually owe gift taxes until you’d given away millions of dollars.

Your son may have chosen you as his beneficiary because he trusted you to do right by his children. Or he may not have updated his beneficiaries since applying for the policy. (More than a few ex-spouses have wound up with life insurance proceeds because the policy owner didn’t update the beneficiaries after the divorce.) It’s a good idea to check the beneficiaries on any life insurance once a year or after any major life change to make sure the money is still going where you want.

Q&A: Tax consequences of giving versus bequeathing

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Dear Liz: Someone who expects to be an executor recently wrote to you about a plan to distribute individual pieces of art to family members. Your response addressed the executor’s responsibility to determine the art’s worth before doing so. You also suggested having the parent designate what was to go to whom. What would the consequences be of the parent giving the pieces of art to the intended recipient prior to death? My mother did both; i.e., gave some to me and some to my sister prior to her death, and designated others to be distributed following her death. She had personal rather than financial reasons for doing it this way.

Answer: Let’s say your mom bought a painting from a struggling artist for $500. Later, the artist became famous and the painting’s value rose to $500,000. If she gave you the painting and you sold it, you would have to use the amount she paid — her basis — to determine the taxable profit ($499,500).

If she bequeathed the painting to you instead, the artwork would get a new tax basis which is usually its value on the day she died. You could sell the painting for $500,000 and not owe a dime in taxes.

Few people have artworks that experience that kind of appreciation — or any appreciation, for that matter. The issue of basis most often comes up when people are transferring real estate, stocks or other assets in transactions that are reported to the IRS. If your mom did have valuable works, though, transferring them through bequests could be advisable.

Q&A: Unloading collections while you’re still alive

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Dear Liz: You recently advised someone who didn’t know whom to select to administer a living trust because the person has no spouse, children or other living relatives. This person mentioned they had collectibles. An additional thing they should consider doing is donating the collection while alive to an archive, museum or other appropriate organization that would be interested in receiving it or in selling the items to support their mission. That way they won’t end up in the trash but will be handled appropriately. There also might be a tax advantage to this donation.

Answer: That’s an excellent suggestion. Here’s another good one:

Dear Liz: Selling off collectibles is a long, time-consuming undertaking. My husband was a huge collector and we did not want to leave that burden to our son. So when he retired, he started selling things on EBay. It was a lot of work and took him years. (We checked with our son to make sure he didn’t want the things he sold.)

Answer: What an excellent retirement project as well as a huge gift to your son. The first step is being willing to part with a collection while alive. Those who are ready to do so may be in a better position to find eager buyers than anyone who inherits the collection.

Collectors who don’t have the time or energy for this process can consider hiring someone to do it. Other alternatives include selling to a dealer, either outright or through consignment, or hiring an auction house, if the collection is valuable enough to attract bidders’ interest.

Thursday’s need-to-know money news

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Today’s top story: What to do with your ‘treasures’ your kids don’t want. Also in the news: How ‘shadow lenders’ can leave college students in the dark, why it’s harder than ever to find a balance transfer offer right now, and 5 destinations from Netflix hits to inspire your future travels.

What to Do With Your ‘Treasures’ the Kids Don’t Want
Don’t take it personally.

‘Shadow’ Lenders Can Leave College Students in the Dark
Know exactly what you’re borrowing.

Why It’s Harder Than Ever to Find a Balance Transfer Offer Right Now
The coronavirus strikes again.

5 Destinations From Netflix Hits to Inspire Your Future Travels
You’ll travel again someday.

What to do with your stuff the kids don’t want

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Parents who are downsizing or simply decluttering may have to get creative at finding homes for all their unwanted possessions – particularly these days.

The generations that came after the baby boom are famously less interested than their predecessors in the trappings of domestic life, says Elizabeth Stewart, author of “No Thanks Mom: The Top Ten Objects Your Kids Do NOT Want (and What To Do With Them).”

Gen Xers and millennials often don’t want to polish silver or hand wash china, Stewart says. They’re also typically not interested in dark, heavy furniture, books, photo albums, vintage linens or someone else’s collections.

In my latest for the Associated Press, how to figure out what to do with it all.

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

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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.