Thursday, December 26, 2013

How Do I give my house to my children without tax consequences?

Lynn A. Dean
Let’s say you own your home and the current value is $375,000.00.   If you set up a living trust, the house will pass to your children without the cost of a probate. If the house were your only asset, the attorney's fees for a probate would be $10,500.00!  There will be no estate taxes on your home, unless you have other assets that would cause your estate to be larger than $5 million. In certain cases, the children may be able to keep the property taxes at the same amount that you are currently paying. There is an exemption from increase in property taxes for property passing from a parent to a child. It would be wise to consult an attorney. It will save your children and grandchildren quite a bit of money.  I provide further information about probate on my website, including an easy to understand probate fee schedule.

Thursday, December 19, 2013

Leaving inheritances to children can be a touchy topic in blended families.

Estate Planning can be tricky especially when step children and half siblings are involved.  There is an inherent tension between wanting to keep your new spouse happy and wanting to take care of your own children. This following scenario is not an uncommon situation I hear often in my practice and in this instance, the spouse won.

SCENARIO: My father died 10 years ago, leaving a trust worth more than $1 million. He acquired his assets before marrying his 2nd wife.  When creating the trust, he put his property in joint ownership and after he died, his wife removed us from the trust. When she died a few years later, she left everything to the son they had together and her daughter (my dad's stepdaughter). The stepdaughter and my dad hated each other and I don't believe those were his wishes.

I had to petition her for a copy of the trust and it was a year before I saw it. I have no way of verifying all the amendments made to the trust, including a letter stating that my father and his wife intentionally left me and my brothers out of the will. The letter was never signed. My father said he'd leave us something, yet the stepdaughter received 60 percent of the estate. My brothers and I received absolutely nothing. Aren't we entitled to receive something from our father's estate?

It is unclear whether dad set up his own trust, or a joint trust with stepmother. If it was a joint trust, the stepmother may have had the legal ability to change the trust after your father passed away.  And though it is common for parents to tell their children they have left them something, it's the documents that control what happens to our estate when we die.

If dad had been advised differently, he could have set up a separate trust for his children. It would become irrevocable upon his death and would have protected any gift he wanted to make to them. The children are entitled to see copies of their father's trust and his will. The will should be lodged with the Superior Court in the county where he resided at time of death. If you have not seen these documents, request copies from the trust's heirs. 

Thursday, December 12, 2013

How can siblings be sure they will inherit from mother?

Lynn A. Dean
With estate planning, I am often asked this question and each person’s situation is unique.  For example, mom has three daughters. According to her daughter, the trust leaves everything to them in equal shares. She asks, “If one of them were to die, who inherits their share? Does it go directly to her children or to the husband and, after his death, to his kids?”

The answer always depends on the trust's language. For instance, it might state: "I leave everything to my three children in equal shares. If one of my children does not survive me, the share shall be distributed to her children in equal shares, at age 25. The mom would be the one to designate whether she wanted everything to go to her daughter's spouse, her children or both.

In my practice, the most common decision is to leave the inheritance to the children rather than the spouse. The reason: Most people assume that a surviving spouse will remarry, and they prefer to see their inheritance stay within the family.

If the children are still young, the trust typically states that the money stays in the trust until they reach a specified age. With inheritances for minor children, the trust also should name who will be their trustee. It could be the children's aunts or uncles (the deceased parent's siblings) or it could be the child's living parent.

The bottom line is that an inheritance can be left to anyone we desire. You will need to read your mother's trust to see what she designated. 

Thursday, December 5, 2013

As Successor Trustee of my Parent's Estate, am I allowed to pay myself?

As an executor of your parents’ trust you are allowed  "reasonable compensation for services.” 

In order to determine what “reasonable compensation" is, I look at two sources:  

1) California Probate Code Section 10800
The first is the California Probate Code Section 10800, which sets fees for what an executor or attorney can charge. These fees are based on a sliding scale, starting at 4 percent of the first $100,000, 2 percent of the next $100,000, etc. For example, the executor’s fees on a $300,000 estate would be $8,000.  

2)  Other Fee Standards
The other source I look at is, “What would a bank or financial institution charge?” The banks publish a fee schedule, and you can contact a bank directly for their fees.  Typically, a bank will charge 1-1/2% to 2% per year, for their fees.  Each institution has the right to set fees.