Ask Liz Weston

Get smart with your money

trustee

Q&A: What to do if you don’t trust your trustee?

By

Dear Liz: I own several properties. I have a living trust that names my two minor children as beneficiaries. I’ve told my attorney that I want to transfer the properties to my children using the county form. This will give my children who are under 10 years of age ownership as tenants in common with the right of survivorship. I believe this avoids any tax consequences. I will still keep my living trust and make some adjustments per this change. My attorney states I will lose the step-up in tax basis if I do this. As I see it, this may not be a concern as my primary goal is to give my children these properties in the event of my passing. I do not trust anyone whom I name as trustee to my living trust. I do not care about the step-in-basis as doing it this way avoids delays, assures ownership and avoids possible fraud. The trustee could sell the properties and spend the money. Keep in mind my children are minors as of this date. Sure, they could file a lawsuit, but you need money to file an action and once the money is long gone, good luck in getting it back. This way it gives immediate ownership to my children, and I avoid these problems that may occur.

Answer: If you really don’t know anyone you can trust to look after your children’s interests, then you’ve got quite a dilemma.

Your children are too young to legally own real estate in their own names, so some kind of guardian or trustee would need to be involved in managing the property, notes Jennifer Sawday, an estate planning attorney in Long Beach. Plus, you have no idea now whether your kids will be able to responsibly handle such an inheritance once they’re legally allowed to take over at 18 or 21 (depending on the age of majority in your state). Few people that age are ready for such a big responsibility. If a child develops an addiction or spendthrift tendencies, they could quickly waste their inheritance.

Plus, transferring property can have huge tax consequences, including the loss of step-up in tax basis that your attorney mentioned as well as property tax reassessments. (In California, such transfers avoid reassessment only when a primary residence is transferred and the child continues to live in the home. Commercial property, rental property and vacation homes get reassessed upon transfer.)

If you have no friends or relatives who are ethical, honest and trustworthy, then you’ll need to consider hiring a professional fiduciary or trustee. Your attorney can discuss your options.

Q&A: U.S. is best when picking a trustee

By

Dear Liz: My wife and I have a revocable living trust and we would like to change our primary successor trustee to someone who lives in the United Kingdom. The new trustee is not related to us nor is he a U.S. citizen. Can this be done and would our trust then become a foreign trust subject to a lot of U.S. taxes? How can we avoid this becoming a foreign trust?

Answer: Please rethink your plan, and not just for the reason you suggest.

Naming a foreign trustee very well may change the trust to a foreign trust for federal or state tax purposes when you die, said Jennifer Sawday, an estate planning attorney in Long Beach.

But settling an estate is difficult enough when the successor trustee lives nearby. Trying to manage the process from another country could qualify as cruel and unusual punishment.

If you really don’t have someone in the U.S. whom you trust, consider hiring a professional trustee. Some banks offer trust administration or settlement services as well as other fiduciary services, Sawday said. A licensed professional fiduciary could handle this role as well. Your estate planning attorney should be able to give you some referrals.

Hiring someone could cost more than naming a friend or family member, but often the money is well spent, Sawday said, because the professional is familiar with the work and is efficient compared to a layperson who may serve as a trustee once in a lifetime.