Spouse passed before Estate Planning was put into place. Now what?

Dear Len & Rosie,

Friends recommended an attorney to us for the revocable trust we wanted, but my husband passed away before our scheduled appointment with the attorney. If our home, vehicles and bank accounts were in both our names, do I need to see an attorney? If I was his designated beneficiary on his IRA and bond funds, do I need to see an attorney for any reason?

Betty

Dear Betty,

Ownership of assets titled in joint tenancy or as community property with right of survivorship passed to you automatically as a result of your husband’s death, as did any assets for which he named you as a pay-on-death beneficiary, such as Individual Retirement Accounts, other retirement accounts, and life insurance policies. For any accounts you and your husband own together or for which you are named as a beneficiary, all you need to do is to provide each financial institution a certified original death certificate and fill out a few forms. Make sure that you roll over your husband’s IRA into your own IRA instead of just cashing it in.

To remove your husband’s name from the deed to your home, you need to sign an affidavit of death of joint tenant, assuming the home is in joint tenancy, and record it with your husband’s death certificate. There is also property tax paperwork to be submitted to the County Assessor to ensure your home is not reassessed under Proposition 13. We recommend that you do not do this yourself, unless you are already experienced in preparing and recording deeds. Deed work should be done by attorneys and title insurance companies.

But that’s not all. It is also important to obtain date-of-death appraisals of your home and any other assets you own with a cost basis, such as securities. You need to do this to establish evidence of the new cost basis of each such asset resulting from the step-up in basis that happened when your husband died.

If there are any assets titled solely in your husband’s name, or any real property held in tenancy in common, see an attorney. You’ll either have to probate your husband’s estate, or file a spousal property petition with the court to get these assets into your name.

After that’s all said and done, you need to look to your own estate plan. You need to create a trust so that your estate will avoid probate upon your death. Sure, you could put everything in joint tenancy with your children, but that’s an awfully bad idea for many reasons, not the least of which is that your children will own part of your home, and you won’t be in complete control of your life any longer.

Len & Rosie

If you have a disabled family member, you should consider creating a special needs trust for his or her benefit

Dear Len & Rosie,

I am the Social Security Representative Payee for a neighbor. He is disabled and receives Social Security and Supplemental Security Income Benefits plus Medicare. Recently his father died and he is a beneficiary to the will. I have no idea how much money will be received but this man seems to think it will be a considerable sum.

Recently I heard that my friend could have a “d4A” trust prepared in order to protect his inheritance and still receive Social Security benefits. Who do I speak to to create such a trust? At this point in time, neither he nor I have money to hire a lawyer so is it possible for me to do this on my own?

Sharon

Dear Sharon,

Your friend is on SSI (Supplemental Security Income), which means he can own only $2,000 in “countable” assets. A special needs trust would shelter his inheritance from causing him to lose his SSI.

His father should have created a special needs trust as part of his estate plan, but he did not. It is still possible to create a special needs trust, but you’ll have to jump through a few hoops. A “d4A” special needs trust is shorthand for a trust created under 42 U.S.C. section 1396p(d)(4)(A) - the specific code section in federal law that authorizes the creation of these kind of trusts. The good news about d4A trusts is that if your friend gets one, his inheritance will not cause him to lose eligibility for SSI, Medi-Cal, and other needs-based public benefits.

The bad news about d4A trusts is that they must include a provision requiring the trustee to pay off Medi-Cal after your friend’s death before distributing what’s left to the beneficiaries named in the trust. Also, these trusts must be created by a living parent or grandparent, or by an order of the court. Your friend must also be under sixty-five years of age.

It’s not surprising that your friend doesn’t have the money to pay a lawyer to petition the court to create his special needs trust. His income from SSI is hardly enough to pay for his basic needs. But the lawyer fees can be paid from your friend’s inheritance after the trust is created. The procedure to go about creating the trust is a bit complicated, and we doubt that you’re going to find out how to do it in any self-help book. See a trusts and estates attorney.

But before you and your friend do this, he should think about whether or not he needs a special needs trust. If his inheritance is large enough, and he also has Medicare benefits, he may wish to accept his inheritance outright, drop his SSI benefits, and live off of his inheritance without the restrictions of a special needs trust.

And for the rest of our readers out there, take this as a lesson. If you have a disabled family member, you should consider creating a special needs trust for his or her benefit as part of your own estate plan.

Len & Rosie