How Does Home Ownership Transfer after a Parent Dies?

The first thing you’ll need to know about selling a home after the death of a parent, is how your parents held title, or owned, the home, begins the recent article “Home ownership after the death of a spouse” from nwi.com. In most cases, the home is owned by a couple as “joint tenants with rights of survivorship” or as “tenants by the entirety.” The latter is less common.

Tenancy by the entirety is a form of ownership available only to married people in a limited number of states and offers several advantages to the owners. It creates an ownership interest where the spouses own property jointly and not as individuals. It also creates the rights of survivorship, so that the surviving spouse owns the property by law when the first spouse dies.

Joint tenancy with rights of survivorship is similar to tenants by the entirety, in that they both convey rights of survivorship. However, joint tenancy does not treat the owners as a single unit. If you own entireties property with a spouse, you may not transfer your interest without your spouse’s permission because you own it as a unit.

In joint tenants, if one of the tenants want to transfer their interest in the property, he or she may do so at any time—and do not need the permission of the other tenant. This has led to some sticky situations, which is why tenants by the entirety is preferred in many situations.

If your parents own their home as tenants by the entireties or as joint tenants with rights of survivorship, the surviving spouse owns the home as a matter of law, and legally, ownership begins at the moment that first spouse dies.

Different states record this change of ownership differently, so you’ll need to speak with an estate planning attorney in your community (or the state where your parents lived, if it was different than where you live).

To notify the recorder’s office of the death, some state laws require the submission of a surviving spouse affidavit, which puts the recorder and the community on notice that one of the owners has died and the survivor now owns the home individually. Here again, an estate planning attorney will know the laws that apply in your situation.

There was a time when people recorded a death certificate, but this does not occur often. The affidavit makes a number of recitals that are important, and the recorded document proves the change of title.  In most cases, there is no need for a new deed, since the surviving spouse owns the property at the time of death, and the affidavit itself demonstrates proof of the transfer of title in lieu of a deed.

Reference: nwi.com (March 14, 2021) “Home ownership after the death of a spouse”

Suggested Key Terms: Home Ownership, Surviving Spouse, Affidavit, Title, Tenants by the Entirety, Rights of Survivorship, Joint Tenancy, Estate Planning Attorney, Transfer, Death Certificate, Deed,

Do We Need Estate Planning?

Estate planning is not just about making a will, nor is it just for people who live in mansions. Estate planning is best described in the title of this article “Estate planning is an important strategy for arranging financial affairs and protecting heirs—here are five reasons why everyone needs an estate plan” from Business Insider. Estate planning is a plan for the future, for you, your spouse and those you love.

There are a number of reasons for estate planning:

  • Avoiding paying more federal and state taxes than necessary
  • Ensuring that assets are distributed as you want
  • Naming the people you choose for your own care, if you become incapacitated; and/or
  • Naming the people you choose to care for your minor children, if you and your spouse left them orphaned.

If that sounds like a lot to accomplish, it is. However, with the help of a trusted estate planning attorney, an estate plan can provide you with the peace of mind that comes with having all of the above.

If those decisions and designations are not made by you while you are alive and legally competent, the state law and the courts will determine who will get your assets, raise your children and how much your estate will pay in death taxes to state and federal governments. You can avoid that with an estate plan.

Here are the five key things about estate planning:

It’s more than a will. The estate plan includes creating Durable Powers of Attorney to appoint individuals who will make medical and/or financial decisions, if you are not able to do so. The estate plan also contains Medical Directives to communicate your wishes about what kind of care you do or do not want, if you are so sick you cannot do so for yourself. The estate plan is where you can create Trusts to control how property passes from one person or one generation to the next.

Estate planning saves time, money, and angst. If you have a surviving spouse, they are usually the ones who serve as your executor. However, if you do not and if you do not have an estate plan, the court names a public administrator to distribute assets according to state law. While this is happening, no one can access your assets. There’s a lot of paperwork and a lot of legal fees. With a will, you name an executor who will take care of and gain access to most, if not all, of your assets and administer them according to your instructions.

Estate planning includes being sure that investment and retirement accounts with a beneficiary designation have been completed. If you don’t name a beneficiary, the asset goes through the probate court. If you fail to update your beneficiary designations, your ex or a person from your past may end up with your biggest assets.

Estate planning is also tax planning. While federal taxes only impact the very wealthy right now, that is likely to change in the future. States also have estate taxes and inheritance taxes of their own, at considerably lower exemption levels than federal taxes. If you wish your heirs to receive more of your money than the government, tax planning should be part of your estate plan.

The estate plan is also used to protect minor children. No one expects to die prematurely, and no one expects that two spouses with young children will die. However, it does happen, and if there is no will in place, then the court makes all the decisions: who will raise your children, and where, how their upbringing will be financed, or, if there are no available family members, if the children should become wards of the state and enter the foster care system. That’s probably not what you want.

The estate plan includes the identification of the person(s) you want to raise your children, and who will be in charge of the assets left in trust for the children, like proceeds from a life insurance policy. This can be the same person, but often the financial and child-rearing roles are divided between two trustworthy people. Naming an alternate for each position is also a good idea, just in case the primary people cannot serve.

Estate planning, finally, also takes care of you while you are living, with a power of attorney and healthcare proxy. That way someone you know, and trust can step in, if you are unable to take care of your legal and financial affairs.

Once your estate plan is in place, remember that it is like your home: it needs to be updated every three or four years, or when there are big changes to tax law or in your life. Contact an experienced estate planning attorney to assist you.

Reference: Business Insider (Jan. 14, 2021) “Estate planning is an important strategy for arranging financial affairs and protecting heirs—here are five reasons why everyone needs an estate plan”

 

Wealthy Women Face Challenges in Estate and Tax Planning

Election cycles often mean changes to estate and tax planning strategies around estate planning, charitable donations and capital gains, but that’s not the only challenges facing wealthy women now, says a recent article “For Wealthy Women, Tax and Estate Planning is Weak Link” from Think Advisor. Preparing for big changes, from presidential elections to death or divorce, is all too often a surprise, even for accomplished and financially successful women.

Statistically, women do outlive men so there needs to be a plan for the unexpected. As attitudes shift and more women build their own wealth, they are less likely to stay in unsatisfying marriages. Although the overall rate of divorce in America is declining, the number of “gray” divorces is increasing.

One essential step in planning for high net worth women is to consider what assets they will need to continue their current lifestyles and what assets would be at risk, in case of death or divorce.  Some assets are not available to singles, like the Spousal Lifetime Access Trust, an irrevocable trust available to couples but not to singles. For those considering divorce who have a SLAT agreement, speak with your estate planning attorney, as the SLAT may include a provision that terminates spousal trust rights upon divorce. Women should not assume that these or other assets will be available to them in case of a divorce.

There are also future costs associated with losing a spouse. If women do not have long-term care insurance, it should be purchased, if she still qualifies. These policies become more expensive as time goes by, so the 40s and 50s are the ideal time to invest in them. Timing and tax policy changes from a new administration make this a good time to begin planning for any changes that may come in the next year. Women with substantial net worth should be making plans for gifting and trusts now. The gift tax lifetime exemption remains at $11.7 million, but even if there is no legislative action, on January 1, 2026, this will return to $5 million.

Dramatic changes in asset valuation resulting from the pandemic may make this a good time to transfer shares to children and grandchildren, including real estate holdings and closely held family businesses.

The effects of COVID-19 have provided a global lesson in preparing for the unexpected. Among many other issues has been a huge backlog in most surrogate courts. Even families who had an estate plan in place, found their estate planning hampered by waiting for courts to appoint executors.

In many cases, surviving spouses (mostly women) found themselves unable to move an estate plan forward, gain access to assets, even to pay household bills. Families who have been lucky enough to escape the impact of COVID-19 so far, should take the opportunity to plan for the unexpected, including the creation of a revocable trust, so the trustee can swiftly access assets and start managing right away, rather than waiting for courts to clear.

Reference: Think Advisor (Jan. 6, 2021) “For Wealthy Women, Tax and Estate Planning is Weak Link”

 

How Can Blended Families Use Estate Planning to Protect All of the Siblings?

If two adult children in a blended family receive a lot more financial help from their parent and stepparents than other children, there may be expectations that the parent’s estate plan will be structured to address any unequal distributions. This unique circumstance requires a unique solution, as explained in the article “Estate Planning: A Trust Can Be Used to Protect Blended Families” from The Daily Sentinel. Blended families in which adult children and stepchildren have grandchildren also require unique estate planning.

Blended families face the question of what happens if one parent dies and the surviving step parent remarries. If the deceased spouse’s estate was given to the surviving step parent, will those assets be used to benefit the deceased spouse’s children, or will the new spouse and their children be the sole beneficiaries?

In a perfect world, all children would be treated equally, and assets would flow to the right heirs.  However, that does not always happen. There are many cases where the best of intentions is clear to all, but the death of the first spouse in a blended marriage change everything.  Other events occur that change how the deceased’s estate is distributed. If the surviving step-spouse suffers from Alzheimer’s or experiences another serious disease, their judgement may become impaired.

All of these are risks that can be avoided, if proper estate planning is done by both parents while they are still well and living. Chief among these is a trust,  a simple will does not provide the level of control of assets needed in this situation. Don’t leave this to chance—there’s no way to know how things will work out. Contact an experienced estate planning attorney to assist you.

A trust can be created, so the spouse will have access to assets while they are living. When they pass, the remainder of the trust can be distributed to the children.

If a family that has helped out two children more than others, as mentioned above, the relationships between the siblings that took time to establish need to be addressed, while the parents are still living. This can be done with a gifting strategy, where children who felt their needs were being overlooked may receive gifts of any size that might be appropriate, to stem any feelings of resentment.

That is not to say that parents need to use their estate to satisfy their children’s expectations. However, in the case of the family above, it is a reasonable solution for that particular family and their dynamics.

A good estate plan addresses the parent’s needs and takes the children’s needs into consideration. Every parent needs to address their children’s unique needs and be able to distinguish their needs from wants. A gifting strategy, trusts and other estate planning tools can be explored in a consultation with an experienced estate planning attorney, who creates estate plans specific to the unique needs of each family.

Reference: The Daily Sentinel (Dec. 16, 2020) “Estate Planning: A Trust Can Be Used to Protect Blended Families”

 

Is Probate Required If There Is a Surviving Spouse?

Probate also called “estate administration,” is the management and final settlement of a deceased person’s estate. It is conducted by an executor, also known as a personal representative, who is nominated in the will and approved by the court. Estate administration needs to be done when there are assets subject to probate, regardless of whether there is a will, says the article “Probating your spouse’s will” from The Huntsville Item.

Probate is the formal process of administering a person’s estate. In the absence of a will, probate also establishes heirs. In some regions, this is a quick and easy process while in others it is a lengthy, complex and expensive process. The complexity depends upon the size and value of the estate, whether a proper estate plan was prepared by an estate planning attorney for the decedent prior to death and if there are family members or others who might contest the will.  Family dynamics can cause a tremendous amount of complications and delays, especially if the family has blended children from prior marriages or if a child has predeceased their parents.

There are some exceptions, when the estate is extremely small and when probate is not required. However, in most cases, it is required.

A recent District Court case ruled that a will not admitted to probate is not effective for proving title and thereby ownership, to real estate. A title company was sued for defamation after the title company issued a title report that included the statement that the decedent had died intestate, that is, without a will.

The decedent’s son, who was her executor, sued the title company because his mother did indeed have a will and the title report was defamatory. The court rejected this theory, and the case was brought to the Appellate Court to seek relief for the family. The Appellate Court ruled that until a will has been admitted to probate, it is not effective for the purpose of proving title to real property.

If a person owns real estate, they must have an estate plan to ensure that their property can be successfully transferred to heirs. When there is no estate plan, heirs find out how big a problem this can be when someone decides they want to sell the property or divide it up among family members.

Problems also arise when the family finds that they must pay taxes on the property or that there are expenses that must be paid to maintain the property. Without a will, the disposition of the property is determined by the state’s estate law. Things can become complicated quickly, when there is no will.

If the deceased spouse has children from outside the most recent marriage, those children may have rights to the property and end up owning a portion of the property along with the surviving spouse. However, neither the children nor the surviving spouse can sell the property without each other’s approval. This is a common occurrence.  There are also limitations as to how probate can be used to distribute and manage an estate. In some states, the time limit is four years from the date of death.

An estate planning attorney can help the family move through the probate process more efficiently when there is no will. A better situation would be for the family to speak with their parents about having a will and estate plan created before it’s too late.

Reference: The Huntsville Item (Nov. 22, 2020) “Probating your spouse’s will”

 

Should a Husband and Wife have Separate Trusts?

The decision about separate or joint trusts is not as straightforward as you might think. Sometimes, there is an obvious need to keep things separate, according to the recent article “Joint Trusts or Separate Trusts: Advice for Married Couples” from Kiplinger. However, it is not always the case.

A revocable living trust is a popular way to pass assets to heirs. Assets titled in a revocable living trust don’t go through probate and information about the trust remains private. It is also a good way to plan for incapacity, avoid or reduce the likelihood of a death tax and make sure the right people inherit the trust.

There are advantages to Separate Trusts:

They offer better protection from creditors. When the first spouse dies, the deceased spouse’s trust becomes irrevocable, which makes it far more difficult for creditors to access, while the surviving spouse can still access funds.

If assets are going to non-spouse heirs, separate is better. If one spouse has children from a previous marriage and wants to provide for their spouse and their children, a qualified terminable interest property trust allows assets to be left for the surviving spouse, while the balance of funds are held in trust until the surviving spouse’s death. Then the funds are paid to the children from the previous marriage.

Reducing or eliminating the death tax with separate trusts. Unless the couple has an estate valued at more than $23.16 million in 2020 (or $23.4 million in 2021), they won’t have to worry about federal estate taxes. However, there are still a dozen states, plus the District of Columbia, with state estate taxes and half-dozen states with inheritance taxes. These estate tax exemptions are considerably lower than the federal exemption and heirs could get stuck with the bill. Separate trusts as part of a credit shelter trust would let the couple double their estate tax exemption.

When is a Joint Trust Better?

If there are no creditor issues, both spouses want all assets to go to the surviving spouse and state estate tax and/or inheritance taxes aren’t an issue, then a joint trust could work better because:  Joint trusts are easier to fund and maintain. There is no worrying about having to equalize the trusts, or consider which one should be funded first, etc.

There is less work at tax time. The joint trust doesn’t become irrevocable, until both spouses have passed. Therefore, there is no need to file an extra trust tax return. With separate trusts, when the first spouse dies, their trust becomes irrevocable and a separate tax return must be filed every year.

Joint trusts are not subject to higher trust tax brackets, because they do not become irrevocable until the first spouse dies. However, any investment or interest income generated in an account titled in a deceased spouse’s trust, now irrevocable, will be subject to trust tax brackets. This will trigger higher taxes for the surviving spouse, if the income is not withdrawn by December 31 of each year.

In a joint trust, after the death of the first spouse, the surviving spouse has complete control of the assets. When separate trusts are used, the deceased spouses’ trust becomes irrevocable and the surviving spouse has limited control over assets.

Your estate planning attorney will be able to help you determine which is best for your situation. This is a complex topic, and this is just a brief introduction.

Reference: Kiplinger (Nov. 20, 2020) “Joint Trusts or Separate Trusts: Advice for Married Couples”

 

Despite Pandemic, Many Still Don’t Have an Estate Plan

It’s true—many people still believe that they don’t have enough assets so they don’t need a will, or that their money will automatically go to a next of kin. Both of these beliefs are wrong. While the title of this CNBC article is “More people are creating wills amid the pandemic,” the story’s focus is on the fact that most Americans don’t have a will. If you belong to this group, here’s what happens when you die.

The state you live in has laws about who will receive your assets if you die without a will, known as intestacy. Let’s say you live in New York. Your surviving spouse and children will receive your assets. However, in Texas, your assets will be entered into the state’s intestacy probate process, and your relatives will divide up your assets. Want to be in charge of who inherits your property? Have a will created with an experienced estate attorney.

Young adults think they don’t need a will, but Covid-19 has taken the lives of many healthy, young people. Every adult over age 18 needs a will. If you don’t have one, your loved ones—even if it’s your parents—will inherit a legal mess that will take time and money to fix.

If you have children and no will, there’s no way to be sure who will raise your children. The court will decide. Choose your guardians, name them in your will and be sure to name additional choices just in case the first guardian can’t or won’t serve. You should also appoint someone to be in charge of your children’s money.

What if you had a will created 10 or twenty years ago? That’s another big mistake. Your life changes, the law changes, and so do relationships. Life insurance policies, retirement plans, and transfer-on-death instruments are all legally binding contracts. The last will you made will be used, and if you haven’t updated your will or other documents, then the old decisions will stand. Remember that contracts supersede wills, so no matter how much you don’t want your ex to receive your life insurance proceeds, failing to change that designation won’t help your second spouse. You should review and update all documents.

Doing it yourself is risky. You won’t know if your will is valid and enforceable, if you do it from an online template. Your heirs will have to fix things, which can be expensive. The cost of an estate plan depends on the complexity of your situation. You may only need a will, power of attorney and advance directive. You may also need trusts to pass property along with minimal taxes. An estate planning attorney will be able to give you an idea of how much your estate plan will cost.

Talking about death and planning for it is a difficult topic for everyone, but a well-planned estate plan is one of the most thoughtful gifts you can give to your loved ones.

Reference: CNBC (Oct. 5, 2020) “More people are creating wills amid the pandemic”

 

Estate Planning for a Second Marriage and Blended Family

It takes a certain kind of courage to embark on second, third or even fourth marriages, even when there are no children from prior marriages. Regardless of how many times you walk down the aisle, the recent article “Establishing assets, goals when planning for a second marriage” from the Times Herald-Record advises couples to take care of the business side of their lives before saying “I do” again.

Full disclosure of each other’s assets, overall estate planning goals and plans for protecting assets from the cost of long-term care should happen before getting married. The discussion may not be easy, but it’s necessary: are they leaving assets to each other, or to children from a prior marriage? What if one wants to leave a substantial portion of their wealth to a charitable organization?

The first step recommended with remarriage is a prenuptial or prenup, a contract that the couple signs before getting married, to clarify what happens if they should divorce and what happens on death. The prenup typically lists all of each spouses’ assets and often a “Waiver of the Right of Election,” meaning they willingly give up any inheritance rights.

If the couple does not wish to have a prenup, they can use a Postnuptial Agreement (postnup). This document has the same intent and provisions as a prenup but is signed after they are legally wed. Over time, spouses may decide to leave assets to each other through trusts, owning assets together or naming each other as beneficiaries on various assets including life insurance or investment accounts.  Without a pre-or postnup, assets will go to the surviving spouse upon death, with little or possibly nothing going to the children.

The couple should also talk about long-term care costs which can decimate a family’s finances. Plan A is to have long-term care insurance. If either of the spouses has not secured this insurance and cannot get a policy an alternate is to have their estate planning attorney create a Medicaid Asset Protection Trust (MAPT). Once assets have been inside the trust for five years for nursing home costs and two-and-a-half years for home care paid by Medicaid, they are protected from long-term care costs.  When applying for Medicaid, the assets of both spouses are at risk regardless of pre- or postnup documents.

Discuss the use of trusts with your estate planning attorney. A will conveys property but assets must go through probate, which can be costly, time-consuming and leave your assets open to court battles between heirs. Trusts avoid probate, maintain privacy and deflect family squabbles.

Creating a trust and placing the joint home and any assets including cash and investments inside the trust is a common estate planning strategy. When the first spouse dies, a co-trustee who serves with the surviving spouse can prevent the surviving spouse from changing the trust and by doing so, protect the children’s inheritance. Let’s say one of the couple suffers from dementia, remarries or is influenced by others—a new will could leave the children of the deceased spouse with nothing.

Many things can very easily go wrong in second marriages. Prior planning with an experienced estate planning attorney can protect the couple and their children and provide peace of mind for all concerned.

Reference: Times Herald-Record (Sep. 21, 2020) “Establishing assets, goals when planning for a second marriage”

 

That Last Step: Trust Funding

Neglecting to fund trusts is a surprisingly common mistake and one that can undo the best estate and tax plans. Many people put it on the back burner, then forget about it, says the article “Don’t Overlook Your Trust Funding” from Forbes.

Done properly, trust funding helps avoid probate, provides for you and your family in the event of incapacity and helps save on estate taxes.

Creating a revocable trust gives you control. With a revocable trust, you can make changes to the trust while you are living including funding. Think of a trust like an empty box—you can put assets in it now, or after you pass. If you transfer assets to the trust now, however, your executor won’t have to do it when you die.

Note that if you don’t put assets in the trust while you are living, those assets will go through the probate process. While the executor will have the authority to transfer assets, they’ll have to get court approval. That takes time and costs money. It is best to do it while you are living.

A trust helps if you become incapacitated. You may be managing the trust while you are living, but what happens if you die or become too sick to manage your own affairs? If the trust is funded and a successor trustee has been named, the successor trustee will be able to manage your assets and take care of you and your family. If the successor trustee has control of an empty, unfunded trust, a conservatorship may need to be appointed by the court to oversee assets.

There’s a tax benefit to trusts. For married people, trusts are often created that contain provisions for estate tax savings that defer estate taxes until the death of the second spouse. Income is provided to the surviving spouse and access to the principal during their lifetime. The children are usually the ultimate beneficiaries. However, the trust won’t work if it’s empty.

Depending on where you live, a trust may benefit you with regard to state estate taxes. Putting money in the trust takes it out of your taxable estate. You’ll need to work with an experienced estate planning attorney to ensure that the assets are properly structured. For instance, if your assets are owned jointly with your spouse, they will not pass into a trust at your death and won’t be outside of your taxable estate.

Move the right assets to the right trust. It’s very important that any assets you transfer to the trust are aligned with your estate plan. Taxable brokerage accounts, bank accounts and real estate are usually transferred into a trust. Some tangible assets may be transferred into the trust, as well as any stocks from a family business or interests in a limited liability company. Your estate planning attorney, financial advisor and insurance broker should be consulted to avoid making expensive mistakes.

You’ve worked hard to accumulate assets and protecting them with a trust is a good idea. Just don’t forget the final step of funding the trust.

Reference: Forbes (July 13, 2020) “Don’t Overlook Your Trust Funding”