Dear Readers:

Election time is coming soon. Don’t forget to vote. When it’s time to vote, it’s also a good idea to review your estate plan.

Many of you already have revocable trusts that you made years ago, or maybe your parents have been kind enough to give you a copy of theirs. Many people are under the impression that since they have a trust, they don’t need to do anything else. That’s not true. The trust you created years ago may not be appropriate for you now. Don’t blame your lawyer. Things change. What was a good idea fifteen years ago may not be such a good idea today.

Start with the Table of Contents, if there is one. There should be a paragraph labeled something like, “Successor Trustees.” Turn to that page. Are the trustees you named still alive? Are they honest? Are they good with money? Do they get along with the rest of your family, or are they a source of conflict? If the eldest son you named as trustee thinks that since he’s trustee he can lord it over his brothers and sisters, then he’s not the right person for the job.

Next, find the paragraph that says something like “Disposition on Death” or “Disposition on Death of Surviving Spouse.” That’s the paragraph that says who gets what when you die. Read it. Does it still make sense? Have any of your children died? Are any of your children now disabled? Do you have a spendthrift child who can’t be trusted with money? Does your trust leave your son’s ex-wife an inheritance you don’t want her to get any longer? Does your grandson have a drug problem? Maybe you need to make some changes.

Now look at the last pages of your trust. There should be a Schedule of Trust Assets. Read it. Have you moved? If so, is your new home in the trust? Are your retirement accounts listed in your trust document (they shouldn’t be). Who are the beneficiaries of your retirement accounts and life insurance policies? Did you leave your IRA to the trust? (Don’t unless your lawyer says so.)

If you’re married, find the part of the trust that talks about what happens between the first death and the second. Do you have an A/B trust that divides everything between a “Survivor’s Trust” and a “Bypass Trust” or “Exemption Trust?” If so, then maybe you don’t need or want an A/B trust any longer. An A/B trust is a great way to avoid death tax, but it’s more expensive to administer after the death of the first spouse to die.

As of January 2018, up to $11,200,000 of your assets may pass free of Federal Estate Tax upon your death, and that amount goes up annually with inflation. This means that many of you with A/B trusts should update your trusts to the ordinary type of trust that leaves everything to the surviving spouse, who won’t be answerable to anyone.

Is either you or your spouse in a nursing home? Do you suffer from an ailment that will likely put you in a nursing home before you die? Are you already on Medi-Cal running up an estate claim that will be due and payable upon your death? If so, it’s not too late to protect your assets from the cost of your medical care.

If you are not completely comfortable with the answers to all of these questions, then you need to see a trusts and estates attorney to review and update your estate plan.

Len & Rosie

Dear Len & Rosie,

My father died and left some cash and the house to my mother. She is 82 years old. She has put the house in my name as well as hers. Her doctor has informed her she needs a pacemaker, and now she wants to put the house solely in my name.

I have several concerns. The first is tax purposes for me. How will this affect me and my husband’s taxes for the next year? I also have other sisters and a brother who will eventually inherit part of the home. Mom’s lawyer says that she is safe with just my name on the deed, but I am not sure.

Linda

Dear Linda,

We normally do not recommend to my clients that they add their children’s names to the title of their homes. One reason why is that if you get sued if you declare bankruptcy, your mother could lose her home. Also, she would not be able to sell her home without your permission. But you wrote to us, not her. You’re certainly better off with your name on the deed. Also, if the home is titled in Joint Tenancy between the two of you, then upon your mother’s death, all you’ll need is an Affidavit of Death to remove her name from the title to the home.

If she gives you all of the home, there won’t be any immediate tax consequences. Gifts are not subject to income tax. Your mother will have to file a gift tax return with the IRS, but she won’t have to send a check to the IRS unless she has given away more than $11,200,000 of gifts in excess of the annual gift tax exclusion (currently $15,000). You should be so lucky to have that as a problem.

The property tax of the home will remain the same. Thanks to Propositions 13 and 58 there will be no reassessment. You will lose the $7,000 Homeowner’s property tax exclusion unless you live in the home, but that will increase the property tax by less than $100. It’s no big deal.

The big deal comes in when you sell the home after your mother’s death. If she gives you the home today, it will not get a new cost basis when she dies. If you ever sell the home, you will have to pay capital gains tax on the increase in value since your father’s death, assuming your parents owned the home together. If, however, you inherit the home only upon your mother’s death, you could then sell it completely tax free.

You may also have tax problems even if you don’t sell the home. There is no property tax transfer exclusion for transfers among siblings. If you add your brother and sisters on title the way your mother wants you to the home could get reassessed and the property taxes will increase dramatically.

A better plan would be for you to return the home to your mother, and then your mother could transfer the home to a revocable trust for the benefit of all of her children. She should meet with an estate planning attorney and discuss her objectives so she can revise her estate plan for the benefit of all of her family.

Len & Rosie

Tillem McNichol & Brown