The absence of an estate plan adds to a family’s trauma when they loose a loved one

Dear Len & Rosie,

Two very dear friends of ours have lived together, unmarried, for over twenty years. He owns the house. Both were married before and have grown children and grandchildren. Each of them are financially well-off, and they have bank accounts, investments and other assets.

When we mentioned that we had a trust, they said they did not have a trust, or even wills, and they want nothing to do with them. I would appreciate any information you could provide about community property and the possible consequences of their decision not to plan for the eventual disposition of their assets.

Alfred

Dear Alfred,

Your friends are being a bit shortsighted. They are setting up their children and grandchildren for the very unpleasant experience of hiring lawyers to fight one another or to simply sort out the mess. The absence of an estate plan adds to a family’s trauma when they loose a loved one. They are not saving money by leaving things to chance.

We assume that your friends want their property to wind up in the hands of their respective children after both of them pass away. Having no estate plan at all is not the best way to make that happen. When one of your friends dies, any assets they own together in joint tenancy will go to the surviving partner. When the surviving partner dies, those assets will to his or her children by intestate succession, leaving other family with nothing.

On the other hand, the surviving partner will have no rights to the assets of the deceased partner, other than those held in joint tenancy. There is no community property  between cohabitating couples, unless they are married or have registered as domestic partners with the California Secretary of State. Any assets owned by the deceased partner, titled solely in his or her own name, belong to the dead partner’s probate estate and will pass to the dead partner’s children. In your friends’ case, if he dies first, she will be left with no interest in their home and may very well be forced to move out. Where is she going to live?

Your friends can avoid these problems by creating wills or a trust that clearly spells out how they each want to dispose of their jointly acquired assets, as well as their separate assets. After one partner dies, a portion of the dead partner’s assets can be held in trust for the benefit of the survivor. For instance, he may want to preserve her right to live in her home of twenty years. He could do so simply by leaving her a life estate in the home in his will, or by creating a trust that holds the home for her benefit. When she dies, the home could then pass to his children, instead of going to her children.

Unless they truly do not care what happens to their property, each other, and their families, your friends really need to pull their heads out of the sand and create an estate plan to distribute their assets they way they want, instead of leaving it all to luck.

Len & Rosie

What you need to know about joint tenancy

Dear Len & Rosie,

My husband of 30 years recently passed away without a will. Our home is in joint tenancy, so I know that an affidavit of death of joint tenant should be recorded with the County Recorder. Our cars were titled both our names, and all our bank accounts were also joint tenancies. Other than a small IRA, of which I am listed as the beneficiary, everything was in both of our names. As I see it, all of our assets now will pass to me and there is simply no estate to probate. Or am I over-simplifying things?

Susan

Dear Susan,

Everything you wrote is pretty much correct, but you are only half way there. You should obtain date-of-death values for any non-IRA securities you own, and you may want to have your home’s value determined, to establish the new cost basis for your assets. But what’s going to happen when you die? If your husband died without a will, you probably don’t have an estate plan of your own. Get one.

If you die without a will, your children, if you have any, will inherit your estate in equal shares by intestate succession. But what if they die before you? Your estate could fall into the hands of minor or spendthrift grandchildren who may not be responsible enough to manage an inheritance. Even worse, if a disabled child or grandchild inherits from you, he or she may lose eligibility for Social Security and Medi-Cal benefits unless the inheritance is held within a Special Needs Trust.

At the very least you should have a will that spells out how your estate is to be divided, a durable general power of attorney for financial decisions, and an advance health care directive so the loved ones you pick can make important medical decisions on your behalf if you become incapacitated.

But what you really ought to do is to create a revocable trust to avoid probate. If your estate is worth, $600,000 upon your death, then a happy lawyer will earn $15,000 in statutory probate lawyer fees. If you are worth $1,000,000, an even happier lawyer will earn a base fee of $23,000, for exactly the same amount of work. Trusts are more expensive to create than wills, but much cheaper to administer.

Why not avoid probate by putting my home into joint tenancy with your children? Don’t do this. Your children may not give it back if you ask for it. A revocable trust will allow your assets to avoid probate on your death while keeping you in charge for as long as you want.

Finally, don’t forget your IRA. You should roll over your husband’s IRA to one of your own. Just don’t forget to name your children as your IRA beneficiaries. If you forget and your IRA pays into your estate when you pass, then the IRA must be cashed in within five years of your death and your children will lose the opportunity to stretch out IRA distributions over their own lifetimes.

Len & Rosie