Family Security Law Group, APC

What Do We Do with Mom’s House, When She Dies?

“The executor is responsible for finding a buyer and doing all that is necessary to get the best price possible.”

It’s not uncommon for the surviving parent to leave the family home to her children. At the parent’s death, questions often arise concerning how long the children have before they must sell it or change the deed. What if one sibling wants to live in the home for a while, before it is sold?

nj.com’s article on this subject asks, “Mom died and left us her home. What do we have to do next?” According to the article, the executor is tasked with gathering the assets, paying the debts and taxes (if any) and then distributing the assets, in accordance with the parent’s will.

If the home was in the parent’s name alone, it makes the property a probate asset that’s passed according to the will. In addition, if the will provides that under the residuary clause everything that’s left is to be distributed equally among the children, it will give the executor discretion to liquidate and then make the distributions.

There also may be a specific provision in the will covering the home.

There’s no specific timeline as to when the property has to be transferred. However, the executor is required to act prudently and in a reasonably timely manner.

In this situation, the home will most likely be sold. It is also the executor’s responsibility to pay the bills associated with the home, until a buyer is found.

If one child wants to live there, and it’s agreeable to everyone, make sure that she doesn’t refuse to leave, when it comes time to sell.

Note that landlord-tenant laws protect a tenant and may create an issue. The executor may want to talk with an attorney to determine what steps are necessary to protect against the tenant refusing to leave.

Further, the executor may want to talk with an experienced estate attorney to learn the legal requirements in selling the home in order to comply with probate laws and real estate laws. The family home is generally a valuable asset which mandates exercising his/her fiduciary duties.

Reference: nj.com (April 1, 2019) “Mom died and left us her home. What do we have to do next?”

How Do I Do Estate Planning for My Coin Collection?

“People who bother about estate planning, often have a tendency to collect interesting and often valuable items, from art and antiques, watches to jewelry, to firearms and baseball cards to numismatic or bullion coins.”

Forbes’ recent article, “Astute Estate Planning For Art, Antiques And Valuable Collectibles,” says that personal property items, like a coin collection or artwork, can pose an added degree of estate planning complexity, for several reasons.

Tracking. Personal property items are easily “lost” or misplaced. Use inventory software or keep copious records. You should also retain receipts, appraisals and other imprimaturs and bona fides of provenance.

Assignment and Transfer. Since personal property can “walk off,” it’s smart to make certain that all applicable parties, such as heirs, are informed of inventory lists or other tracking methods, with clear instructions on who gets what. You can even add in your will an addendum “Exhibits A-Z,” to make sure that nothing gets lost. Photographs, serial numbers, and other identifying data can be added for more fungible items, like firearms.

Security and Insurance. Use precautions like safes, safety deposit boxes and alarm systems because transportable valuables present greater risks of theft and of fire/disaster. There can be different insurance rules based on the item. You may need separate deductibles, endorsements, riders and proofs of location and ownership to have proper insurance coverage.

Documentation. Particularly for art and important antiques, it is vital to have documentation that supports authenticity and records provenance. This can include certificates of authenticity, bills of sale, condition reports, artists’ notes and photographs, along with appraisals and insurance reports. A gap in documentation can result in challenges in establishing provenance and authenticity.

Valuation. Most personal property is in a very illiquid market, and the price is very much whatever the market will bear. Specialized knowledge may be needed to arrive at a fair price.

Estate Tax Issues. Retain accurate inventories to make certain that all value is properly accounted for, if an estate tax return is due. It’s not uncommon for these items to be “forgotten” at tax time since, unlike securities, bank accounts and real estate, the IRS can’t easily track estate ownership of the assets, whether or not they’re taken by members of the family.

Reference: Forbes (April 8, 2019) “Astute Estate Planning For Art, Antiques And Valuable Collectibles”

Do My Debts Die with Me?

“Credit cards, a car loan, a mortgage—whatever debt you’re carrying around, doesn’t just disappear when you die.”

When you die, your debts do not. Your executor will be required to pay them using your assets. That means that any unpaid debt can reduce the wealth you’ve left behind for your heirs. In some cases, your family members could even need to pay your debt.

Reader’s Digest’s recent article, “This Is What Happens to Your Debt When You Die,” explains that not all debt is created equal. With secured debt, like a mortgage or car loans, your estate can either pay off your debts in full or continue making installment payments. Another option is to sell the property or turn it over to the lender to satisfy the debt.

However, any unsecured debt, such as credit cards, bills, or personal loans, is typically just paid from the estate. The estate is everything you own, such as assets, bank accounts, real estate and other property.

Note that student loans are the exception, but there are some caveats. Most federal student loans, along with private loans without a cosigner, are discharged with proof of death. Thus, your heirs won’t be responsible for those loans. However, if your private student loan was cosigned, that person will be required to pay it off. There are also some loans, like PLUS loans, that while technically forgiven, could leave the parent who took it out with higher taxes.

The way to protect both yourself and your family, is to speak with an experienced estate planning attorney to get your affairs in order.

Creating an action plan for your outstanding debt is a critical component of the estate planning process. You also need to ask about other end-of-life plans, like medical directives, wills and trusts to manage your assets, when you pass away.

You should also review your life insurance policy to make certain that it’s up-to-date, and don’t forget to review your named beneficiaries.

If your beneficiaries are assigned correctly, some of your assets may bypass probate and be protected from creditors. Therefore, anyone who’s listed on your policy won’t be forced to hand over their money to satisfy your debt.

Reference: Reader’s Digest “This Is What Happens to Your Debt When You Die”

How Do I Estate Plan for a Child with Special Needs?

“Estate planning for a child with special needs can be challenging.”

Estate planning is important for everyone, but it’s even more crucial for a family with a child who has special needs. It’s difficult to create an estate plan for children with special needs, because you don’t know what type of care he will need, or the type of government benefits for which she’ll be eligible, when she turns 18. People frequently become overwhelmed about special needs planning, because they don’t have a clear picture of what their children will need in the future.

A recent Forbes article, “Special Needs Kids Require Specialized Estate Planning,” says that if you have a child with special needs, it’s critical that you look at your planning options with your estate planning attorney and discuss your child’s health, capabilities and prognosis. You can then customize a plan that works for your child, with as much flexibility as possible.

Those with enough assets often would rather not to have their child get any government benefits and will set aside an amount to cover all the child’s living expenses in trust. Since the parents aren’t concerned with government benefits, the trust can be a discretionary trust that will distribute income and principal at the trustee’s discretion for the benefit of the child throughout the child’s life.

If there is a good chance the child will get government benefits, many parents create special needs trust to supplement (not replace) the government benefits that the child will receive. The trust must be drafted, so the child doesn’t become ineligible for the government benefits. These benefits provide for the child’s basic needs like a place to live, so the special needs trust will defray the cost of extras such as trips and entertainment.

If the parents can’t determine if their child will be eligible for government benefits, another option is for the parents to give their current trustees the authority to create a separate special needs trust at the time of the surviving parent’s death. Therefore, if the child is receiving benefits, the trustee can create the trust at that time, with the goal of preserving the child’s benefits.

All these trusts can be funded now. The parents can establish the trust and transfer cash or other assets to it, or the trust can be created now and left empty until a parent passes away. At that point, money can move into the trust from the parent’s estate, another trust or from a life insurance policy.

Some parents elect not to create a trust for their child and to disinherit him completely. The thinking is that the child can be supported solely by government benefits. Others go with a combination approach. They disinherit the special needs child and leave more assets to their other children, with the understanding that the other children will care for the special needs child. However, this isn’t a great idea. The siblings have no legal obligation to care for his or her sibling with special needs, just a moral one. If the child who inherited the bulk of the estate gets divorced, the assets are also susceptible to division upon divorce. Finally, the assets are liable to a creditor’s claim, if the child is sued.

Estate planning for a child with special needs can be hard, so get a flexible plan in place that will provide peace of mind.

Reference: Forbes (March 27, 2019) “Special Needs Kids Require Specialized Estate Planning”

What If I Divide My Wealth Unequally Among My Kids?

“Most of us would like to be remembered for who we were, not what we had. If you have any assets that you’ve accumulated during your lifetime that you plan to leave behind, it’s on you to figure out who gets what.”

What and how you leave your wealth can be a hard decision, if you have more than one child. This is particularly true, if your kids’ circumstances are dramatically different or you’re much closer to one than another. The easiest solution might be to split whatever you have equally among them. However, is equal the same thing as fair?

Ladders.com’s recent article, “More parents are leaving unequal inheritances to their adult kids” says that a growing number of parents say that answer is a resounding “no.”

According to a new study from Merrill Lynch Bank of America/Age Wave, responding parents with more than one child who are planning to leave an inheritance, are okay leaving different sums to each child, based on the situation. In fact, the research showed that 67% of Americans think that under certain circumstances, an uneven split is just fine.

Other studies have showed the same trend. A 2015 study by IZA Institute for Labor Economics, based on data from a large government study, found that among Americans at least 50 years old who had a will, the percentage who left unequal inheritances to their children had more than doubled from 16% in 1995 to 35% in 2010. However, an unequal division can generate ugly sibling fights, jealousy and meltdowns.

An Ameriprise survey found that among siblings who fought about money as adults, 70% of the fights involved issues with parents, like how the inheritance gets divided. If you go with unequal inheritances, you need to manage expectations, so you don’t have one sibling blaming another or you.

There are many reasons why parents consider another option. In the Merrill Lynch Bank of America/Age Wave study, nearly one in four of respondents said a child who has children of her own, deserves more money than a child who doesn’t have kids. About 66% said that a child who steps in as primary caregiver for an aging parent, deserves to inherit more than other siblings. A total of 40% of participants with blended families, say they should treat stepchildren the same as biological or adopted children.

Because of the potential different circumstances of each child, you may want to give one child the money outright, and with the other, you may want to put it in a trust. The reason for doing this is to protect the child, not to punish them. If a child struggles with addiction or overspending, a trust makes certain that she has access to the money, but the trustee has control over its disbursement. In some cases, parents may also be concerned that a child’s marriage may be in trouble or feel uneasy about their son- or daughter-in-law.

Regardless of how you decide to distribute your assets, if you feel you have a sound rationale for not dividing it equally, tell the children what you’re doing and why. Explaining this is very important to help avoid misunderstandings and misperceptions.

Likewise, if you think a trust is best for one child, you may use a trust for all of them to avoid hurt feelings and anger among the siblings, after you’re gone.

Reference: Ladders.com (March 25, 2019) “More parents are leaving unequal inheritances to their adult kids”

How Can I Freeze My Child’s Credit?

“A new law requiring credit bureaus to offer you free freezes applies to children, too. It’s easier than you’d expect, but you may still have questions. Here are some answers.”

You can now freeze your child’s credit files for free, and it isn’t that hard to do, says The New York Times’s article, “You Should Freeze Your Child’s Credit. It’s Not Hard. Here’s How.”

Because of a new federal law, free credit freezes are available to everyone. When you have a credit freeze with the major bureaus—Equifax, Experian and TransUnion—most companies can’t access your credit record, unless they’re already conducting business with you.

As a result, a criminal can’t get a credit card in your name because the card company won’t open the account, unless it can review your credit first.

Thieves can find a way to use your kids’ credit files for their own illegal purposes, and because most people don’t watch their children’s credit, thieves have more time to do their work. In addition, children usually don’t have black marks in their credit files yet—an attractive feature for the bad guys.

Many grown-ups aren’t keen about the hassle of having to temporarily thaw their credit files whenever they want to buy a car or take advantage of a sign-up bonus for a new card, however, this isn’t a problem for children. Therefore, their freezes are less problematic.

Look at each credit bureaus’ instructions on its website. The law typically requires companies to collect proof that you are who you say you are and that your child is really your child. This usually entails mailing them copies of some combination of your child’s birth certificate and Social Security card, and your driver’s license and Social Security card.

In a few weeks, you’ll get a letter confirming that the companies have frozen the files. There isn’t an electronic upload available for your documents, but you can fax them in.

Equifax and TransUnion request that you use an address on the envelope that includes the word “freeze” in it: “Equifax Security Freeze” and “TransUnion Protected Consumer Freeze.” However, they’ll still process your request, if you leave “freeze” out of the address.

Reference: The New York Times (December 28, 2018) “You Should Freeze Your Child’s Credit. It’s Not Hard. Here’s How”

Your Will Isn’t the End of Your Estate Planning

“Your estate plan isn't finished just because your attorney has drawn up a will. Proper asset titling is the next step.”

Even if your financial life is pretty simple, you should have a will. However, there’s more work to be done. Assets must be properly titled, so that assets are distributed as intended upon death.

Forbes’ recent article, “For Estate Plan To Work As Intended, Assets Must Be Properly Titled” notes that with the exception of the choice of potential guardians for children, the most important function of a will is to make certain that the transfer of assets to beneficiaries is the way you intended.

However, not all assets are disposed of by a will—they pass to beneficiaries regardless of the intentions stated in the will. Your will only controls the disposition of assets that fall within your probated estate.

An example of when a designated beneficiary controls the disposition of a financial asset is life insurance. Other examples are retirement accounts, such as a 401(k) or an IRA. When there’s a named beneficiary, assets will be distributed accordingly, which may be different than the intentions stated in a will.

The title of real estate controls its disposition. When property is jointly owned, how it is titled determines if the decedent’s interest in the property passes to the surviving partner, becomes part of the decedent’s estate, or passes to a third party. Titling of jointly owned property can be complicated in community property states.

In the same light, a revocable trust is an inter vivos or living trust that’s created during the grantor’s life, as part of an estate plan.

Such a trust can be used to ensure privacy, avoid the expenses and delays in the probate process and provide for continuity of asset management. A critical part of the planning is that the grantor must transfer (or retitle) assets to the trust.

Wills are very important in estate planning. To ensure that your estate plan fulfills your intentions, talk to one of our Thousand Oaks estate planning attorneys at Family Security Law Group, APC about the proper titling of your assets. Schedule your complimentary consultation here.

Reference: Forbes (May 20, 2019) “For Estate Plan To Work As Intended, Assets Must Be Properly Titled”

Must I File Taxes When My Dad Dies?

“Do I file 2018 tax returns for my father? He passed away in October 2018.”

Generally, when someone passes away, the final individual federal and state tax return must be prepared and filed in the same way as when they were alive, says nj.com, in the recent article, “What tax returns need to be filed after someone dies?”

All of the income starting at the beginning of the year up to the individual’s date of death, must be reported on the tax return. All of the tax deductions and tax credits that the person was entitled to may be claimed. This final return is typically filed by the surviving spouse or by the executor of the individual’s estate.

The final return can be either electronically filed or filed on paper. The tax preparer should also be sure to write “deceased” after the taxpayer’s name and include the date of death, so that the IRS knows that this will be the last individual return filed.

However, at the death of a taxpayer, a new taxpaying entity—the taxpayer’s estate—is automatically created to make certain that no taxable income escapes review by the IRS. Income that’s earned during the tax year, up to the date of the person’s death, is reported on the final individual tax return, and any earnings after that date are taxable to the decedent’s estate. Earned income of the estate is any income for which the decedent was entitled to during the year that occurred after the date of death. This could include any dividends or interest from stock or bond investments held in the decedent’s name that was collected between the date of death and the end of the calendar year.

In addition, beneficiaries of assets paid directly to them outside of probate, like IRAs already in distribution mode or life insurance policies, may be subject to what is called “income in respect of a decedent,” or IRD. Two things must apply for this to occur: (i) the asset earns interest before the balance is transferred or paid to the beneficiaries; and (ii) the interest isn’t reported on the deceased taxpayer’s final tax return. If both of these occur, then beneficiaries are responsible for reporting IRD on their own tax returns.

The deceased father’s estate may then also need to file returns, so talk to an estate planning attorney to be certain that everything is correct.

Reference: nj.com (March 21, 2018) “What tax returns need to be filed after someone dies?”

How Do I Get My Mom’s Affairs in Order?

“A few simple steps now, will greatly ease many of the transitions you are likely to face in the coming years.”

What can you do to make sure your mother’s financial affairs are in proper order?

The Monterey Herald’s recent article, “Financial planning: Making sure Mom is taken care of,” says to first make sure that she has her basic estate planning documents in place. She should have a will and an Advance Health Care Directive. Talk to an experienced estate planning attorney to make sure these documents fully reflect your mother’s desires. An Advance Health Care Directive lets her name a person to make health care decisions on her behalf, if she becomes incapacitated. This decision-making authority is called a Power of Attorney for Health Care, and the person receiving the authority is known as the agent.

Based on the way in which the form is written, the agent can have broad authority, including the ability to consent to or refuse medical treatment, surgical procedures and artificial nutrition or hydration. The form also allows a person to leave instructions for health care, such as whether or not to be resuscitated, have life prolonged artificially, or to receive treatment to alleviate pain, even if it hastens death. To limit these instructions in any specific way, talk to an attorney.

Another option is to create a living trust, if the value of her estate is significant. In some states, estates worth more than a certain amount are subject to probate—a costly, lengthy and public process. Smaller value estates usually can avoid probate. When calculating the value of an estate, you can exclude several types of assets, including joint tenancy property, property that passes outright to a surviving spouse, assets that pass outside of probate to named beneficiaries (such as pensions, IRAs, and life insurance), multiple party accounts or pay on death (POD) accounts and assets owned in trust, including a revocable trust.  You should also conduct a full inventory of your parent’s accounts, including where they’re held and how they’re titled. Update the named beneficiaries on IRAs, retirement plans and life insurance policies.

Some adult children will have their parent name them as a joint owner on their checking account. This allows you greater flexibility to settle outstanding obligations, when she passes away. Remember that a financial power of attorney won’t work here, because it will lapse upon your mother’s death. However, note that any asset held by joint owners are subject to the creditors of each joint owner. Do not add your daughter as a joint owner, if she has marital, financial, or legal problems!

You also shouldn’t put your name as a joint owner of a brokerage account—especially one with low-cost basis investments. One of the benefits of transferring wealth, is the step-up in cost basis assets receive at time of death. Being named as the joint owner of an account will give you control over the assets in the account—but you won’t get the step up in basis, when your mother passes.

Reference: Monterey Herald (March 20, 2019) “Financial planning: Making sure Mom is taken care of”

What Are the Biggest Threats to Estate Planning?

“For the second consecutive year, family conflict was identified as the leading threat to estate planning.”

A recent survey conducted by TD Wealth at the 53rd Annual Heckerling Institute on Estate Planning found that nearly half (46%) of respondents said that family conflict was the biggest threat to estate planning in 2019, followed by market volatility (24%) and tax reform (14%).

Insurance News Net’s recent article, “Family Conflict Reigns As Greatest Threat To Estate Planning, Survey Finds,” reported that the survey also looked at the various causes of family conflict, when engaging in estate planning. They said that the designation of beneficiaries (30%) was the most common cause of conflict. Other leading factors included not communicating the plan with family members (25%) and working with blended families (21%).

Family dynamics have always played a crucial part in estate planning. With an increase in blended families, many experts think that these conversations will become even more frequent and challenging. Estate planning comes with the responsibility of motivating families to communicate through difficult times. This requires regular conversations and total transparency. To minimize risk, families should include everyone at the table to participate in an open and honest conversation about their shared goals and objectives.

Market volatility was also a big concern of the respondents for 2019. Almost 25% said that identifying volatile markets was the biggest threat to estate planning this year, up from 12% in 2018.

Market fluctuations are worth watching and can cause worry for potential gift givers. It’s best to maintain a long-term view when investing, and know that short-term market movements are no match for a robust estate plan and a well-balanced portfolio.

The Tax Cuts and Jobs Act continues to have a large-scale effect on estate planning. After the increase in the federal gift and estate tax exemption, there are some new strategies to allow people to take advantage of the exemption. About one third of respondents (31%) propose that their clients consider creating trusts to protect assets. About 26% say their clients plan to minimize future capital gains tax consequences and 21% agree to gift now, while the exemption is high.

Experts are stressing the importance of creating trusts for the benefit of family, so assets can be protected from future claims.

A total of 40% of estate planners think their clients will continue to give the same amount to charities as they did in 2018, with 21% expecting them to donate more.

Reference: Insurance News Net (March 13, 2019) “Family Conflict Reigns As Greatest Threat To Estate Planning, Survey Finds”