Wills and Trusts
Q: I’ve heard that a good estate plan can save your heirs taxes and other expenses. But what about the fees you pay an attorney or financial planner to set one up? Is there any way to economize on drafting an estate plan?
A: The fees you pay to set up a good estate plan usually save many times that amount when the estate is settled. A good plan is also helpful to executors and heirs because it provides detailed directions for distribution of the estate.
It is possible, however, to economize on the cost of setting up a plan. One way is to learn all you can about estate planning techniques, financial planning, tax laws and related issues. Even better, you can attend an estate planning class like the ones offered through Emeritus College. In these eight-week classes held each semester, a team of professionals gives you comprehensive instruction on various aspects of planning an estate. In the final weeks, students get the benefit of a private consultation with the planning professionals, so you can get help with your specific planning requirements.
Another way to economize is to gather and organize as much material as you can before you make an appointment with a planner. Detailed information on your assets, your heirs, family responsibilities, business information and your desires for your estate distribution will save the planner or attorney a lot of time.
Q. I’m a widow who remarried recently, and my husband just won’t talk about making a will. Without one, what will happen upon our death? Will my children and his children inherit equal portions of the combined estate?
A. This is a situation that can deplete the estate due to legal and probate costs alone. Not having a will or trust can be a particular nightmare when there are children from both marriages or when you have separate as well as community property.
Talk to an attorney and get information that explains why a will or trust is critical. Show it to your husband and ask him if he wants most of your estate to go to taxes and legal fees. If possible, get one or more of your children to talk to him as well.
Q. In your column you’ve mentioned the need to periodically revise your will. Is there a rule of thumb for when and how often to do so?
A. There is no hard and fast rule about when to review or change your Will or Trust. I advise people to make a periodic review every couple of years, just to make sure their wishes are still in the form they want them to be.
Beyond that, I think you should review those documents and all other aspects of your estate plan whenever there is any kind of significant change in your life - for example new children or grandchildren, death of a spouse, divorce, remarriage, or serious illness.
Q. I recently saw a computer program called “Living Will Maker.” It seems like I could save a lot of legal fees by doing my own will on the computer. What do you think?
A. No commercial computer program can fit the exact circumstances of each individual's life, property and plans. Without knowledge of the law, it is easy to make a mistake that may cost your heirs thousands of dollars in extra taxes or legal penalties. I would not recommend using such a program.
There is, however, a good book covering the basic issues of estate planning. The Complete Estate Planning Guide by Robert Brosterman and Kathleen Adams will give you a solid grounding in the process and make you more knowledgeable in discussing your needs and options with a qualified estate planner or an attorney.
Q. I’ve seen some friend’s families torn apart by disputes over what was left them in their parents’ will. I don't want that to happen to my children when I pass on. Are there guidelines to endure that it doesn't?
A. There is probably nothing that can guarantee that children and other heirs won't have disputes over inheritances. You can, however, take some steps to avoid the problem. First, be very specific when writing your will or drafting your trust. Spell out in detail what each heir is to receive. Second, if you feel there might be conflict, appoint an executor or successor trustee who is not a family member - perhaps an attorney, or a friend not included as a recipient. Third, you might want to let heirs choose personal property such as jewelry, artwork or furnishings while you are alive. Then, list the items and the recipients in your will or in a separate document. If there is property that you know will cause problems, either dispose of it before death, or discuss your planned distribution with all the heirs and family members in advance.
Q. I am a 76-year-old widow whose only income is from Social Security. What is the best way to leave my condominium to my sons without having to have a will or go through probate, since my sons don't have money to waste, either. Can I just add them to the deed?
A. Though it may seem like a waste of money, you should consult an attorney or estate planner before making any final decisions about your situation. Even spending $100 for an hour with an attorney could save you - and your sons - thousands of dollars down the road.
The simplest, cheapest solution would be to execute a joint tenancy deed with your sons (assuming you wish to leave them each and equal share of the condominium). As long as the value of the property does not exceed $600,000, you will not have to worry about gift taxes, and, when you die, the property will pass automatically to your sons without probate, Will or taxes.
But there are potential problems with this solution. First, after you execute joint tenancy with your sons, either or both could opt to sell his share without your permission. Second, your sons might also face stiff taxes if they attempt to sell the property. Under joint tenancy, the tax basis of the property is passed along to the new co-owners without reassessment. That means that when they sell the property they might face large capital gains taxes.
A more solid solution to passing the condo to your heirs might be to set up a living trust. The trust would avoid probate and automatically pass the property to your sons with a “stepped-up” (or market value) tax basis. If you had other assets, you could also put them in the trust, and you could retain control as long as you live.
Q. A friend recently asked me to be the Executor of his estate at the time of his death. He said that it only involved signing a few papers and seeing that his heirs got his property. He is a good friend, but before I agree to his request I would like to be sure about what I'm getting into. Could you give me a more detailed idea of what is involved?
A. You are wise to seek out this information before you agree to serve as executor. There are some very specific tasks that you must perform in this position, and some of them may not be easy - depending on how large, how complex, and how financially structured the assets are.
You will need to gather all the assets of the deceased, protect them until creditors and taxes have been paid, and then transfer the remainder of the estate to heirs and/or charitable organizations named in the will. You can hire help, and you're entitled to reasonable compensation for your efforts.
Many states allow executors to handle the situation with little or no court involvement. However, California is not one of them. For estates over a fixed amount, you will be required to go through a formal probate process — this is the process by which the court validates the will and clears the way for distribution of the assets.
Q. I’m thinking about setting up a trust for my family members. How much is that likely to cost?
A. It is hard to answer that question because attorney’s fees vary widely. The complexity of the trust also plays a major role in determining costs. Generally, you should expect to pay $1,500 to $2,500 for a well-drawn, relatively simple trust. When you seek out legal services of this kind, keep in mind that it is perfectly proper, and advisable, to ask your attorney in advance for an estimate of costs.
Q: My second son just can't seem to handle money. When I pass on, I don't want to leave him less than my other two, but in my heart, leaving him a large sum feels like throwing it away. I don't want to put my other children in the awkward position of holding his assets — a situation that's sure to cause strife. Is there anything else I can do?
A: This is not an unusual problem, but it is one that needs to be handled carefully and sensitively. I would advise that you seek the help of an attorney who specializes in estate planning matters.
There are a number of ways to handle this issue, but probably the most common method is to use a series of trusts. First, you would set up a revocable family trust and place your assets into it. The trust would serve as an estate management tool during your lifetime. It would also contain provisions for establishing additional trusts at the time of your death. These additional trusts would provide for immediate distribution of assets to the child or children named in the trust. The third trust could provide for a phased distribution of assets, or some form of life-income arrangement for the child with money management issues.
In this way, the less-responsible child would not have unlimited access to his inheritance, and yet would still benefit from increased financial support. By establishing the formation of these trusts through your own trust, and also designating a third-party successor trustee (such as a bank or trust company), your other children are not put in the position of controlling their brother.
The scenario I have outlined is just one potential strategy for conserving/monitoring your son's inheritance. There are also other solutions to this type of problem, which is why I urge you to consult with an attorney.
Q. What is the difference between a revocable and non-revocable trust, and what are the circumstances that would make one choose one over the other?
A. The simple explanation is that a revocable trust can be changed after it has been established (e.g., a family trust or marital trust, a short-term financial trust, etc.), while a non-revocable trust cannot be changed.
You would probably want to use a revocable trust when the actions provided for in the trust are subject to changing conditions (births, deaths, major asset changes, changing interests of the persons setting up the trust, etc.), or where there may be future events that may impact the wishes of those establishing the trust.
You would be more likely to choose an irrevocable trust when the person(s) establishing the trust want to insure that a future action takes place regardless of future changes in conditions. Commonly, this form of trust is used for Charitable Remainder Trusts, Charitable Pooled Income Funds, and other forms of charitable giving, which usually involve some form of life income for the donors and substantial tax deductions. The IRS will only accept the tax deductions attached to these forms of gifts if the basic document (the trust) is irrevocable.
Q. My father passed away a year ago, and his will hasn't been revised in over a decade. I can't talk to my mother about getting the will updated without her feeling like I'm “just waiting for her to die.” Shouldn’t a child discuss this with a parent? What is the right thing to say?
A. If your mother and father had a joint will, she should definitely see about setting up a new, updated will of her own. But even if she has her own will, she should have it reviewed by an attorney to be sure it complies with current law, especially tax law, and that asset lists, distribution plans and other issues are the same as they were when the will was written. There have been a lot of changes in the tax laws in the past 10 years — especially gift and inheritance tax laws.
However, your question seems to concern emotional, as well as legal/financial matters. It might be more comfortable for the two of you to discuss the subject if your mother understood that the process of updating her will would allow her to ensure that her assets will be used to better benefit and that her wishes will be carried out after she passes on. You might tell your mother that a review would reveal some ways to save on the costs of administering her estate, allowing her to leave more for her heirs and for charity. She probably doesn't want you to face unnecessary tax and estate settlement problems, and she should also gain peace of mind from knowing that her affairs are in good order.
You might also suggest that she enroll in the Emeritus College course on Estate Planning and Financial Management. That way, she herself can become knowledgeable about the financial affairs that concern her, allowing her to make her own decisions about her will and other matters without feeling any pressure from her family. Hundreds of seniors have taken this course and reported that it was extremely helpful to them.