October 2010 Archives

October 27, 2010

What Happens if You Don't Want to Inherit Something?

  gift.jpgDear Liza: I wrote you earlier this week about my sister, who died without a will. What do I do if I don't want 1/2 of my sister's estate, but want it to go to her nephew? If your sister died without a will, and had no spouse, children, or living parents, her estate would be split between her surviving siblings, at least in my state (You have to check your state's rules on intestate succession to be sure). If you DON'T want her assets, you can disclaim them. This is a legal way of saying "no thank-you." If done in writing, no later than nine months after your sister's death, and if you have not used any of the property for your own benefit, and if you don't specificy where it is to go next, the property will pass as if you had died before your sister. If you have children, the property would go to them. If the nephew is not your child, you'd have to get your brother to disclaim the property because you are not allowed to specificy where the property goes next. Or, you could accept the property, then make a gift to the nephew. But this would be considered a gift from you to him, and because it is a gift of more than $13,000, you would need to file a gift tax return by April 15 of the following year. You won't owe any gift tax on this gift, but it does use up some of your lifetime credit against the gift tax. Each of us can give away up to $1 million during our lifetime without having to pay gift tax. Disclaiming would be better, if it fits what you are trying to do, because it's considered a direct inheritance from your sister to your nephew, and doesn't diminish your ability to transfer your own property during your life.
October 24, 2010

What Happens If You Don't Have a Will?

  siblings.jpgDear Liza: My sister recently died, and left no will behind. My brother and I survive her. She had no children. What happens now? Your sister died without a will, as many people do. This is called dying 'intestate'--fancy lawyer talk for dying without a will. Actually, some surveys show that a majority of people die without a will! What happens is that her estate goes to her immediate family, but state law determines who gets what. In California, where I live, if she had no spouse and no children, her estate would go first to her parents, if they survived her, and if not, to her brothers and sisters. But you need to check the rules in your state. You will also need to open a probate proceeding and petition to be named your sister's administrator or personal representative (the person with legal authority to settle the estate).

October 8, 2010

Is it possible to refinance a house in a trust?

mortgage rates.jpgDear Liza: Interest rates on a thirty-year mortgage are at all time lows. I just got a great offer in the mail from my bank. My house is in our living trust. Can I still refinance? Sure. Here's what you do: go ahead and let the bank know you'd like the new loan. They will do a title search on the house and they'll discover that it's legally owned by your trust. (If they DON'T figure this out, you probably don't want to do business with them anyway, right?) If they care, and some lenders don't, they'll tell you to take the house out of the trust to do the new loan. Ask them if they'll do that--most of the time they're happy to do this because it's a simple thing to record a deed transferring the house from the trust back to you and your wife as individuals, and they want to sell the new loan. If they won't do it, ask the person who put the house into the trust in the first place (probably a lawyer) to take it out for you. Then, after you get the new loan, make sure to put the house back into the trust. This is just like what you had to do to get the house out of the trust: this time you'll record a deed transferring the house from you as individuals to you as trustees of the trust. Again, the lender will usually do this for you at the end of the transaction, but make sure to check to make sure that they follow through.  Re-fi's are the number one reason that I find houses NOT in trusts when they should be. It's easy to fix if the trustees are both alive; harder if not.
October 6, 2010

What should I do to help my Dad now that he's getting older?

old dad.jpgDear Liza: My father is 80, and in failing health. I don't know what I should do to be able to take care of him if he gets sicker. You need to get your father to sign a Durable Power of Attorney for Property Management and an Advance Health Care Directive. Don't put this off. These documents make it possible for you to take care of your Dad if he can't take care of things himself. 
The Power of Attorney allows you to pay his bills, manage his accounts, and take care of his property (like paying his rent, hiring a gardener, or getting an apartment cleaned). The Advance Health Care Directive (in some states this is called a Durable Power of Attorney for Health Care) allows you to make medical decisions for him, like what kind of medical procedures, what hospital, or what end-of-life measures he does or doesn't want. If your Dad trusts you, it can be very helpful to have a joint checking account with him as well. A shared account makes it even easier to write checks for his benefit, but it's not always the best solution because it means you would have access to his money in that account. Don't wait until he's too sick to sign these documents or open this account because then you'll have to go to court and get an adult guardianship or conservator appointed--which is more expensive, more public, and more time-consuming. These documents are available online or at local senior centers and are drafted by estate planning attorneys as part of a comprehensive estate plan--which your Dad should also put in place, but let's get your immediate needs figured out first. For more information on powers of attorney and living wills, see Nolo's Estate Planning Center.

October 3, 2010

Should I put my daughter on my house's deed?

house.jpgDear Liza: My house is worth a lot more now than when I bought it in 1972. My daughter recently got divorced. I was thinking of putting her name on the property deed to help her rebuild her credit and get a new start. Is that a good idea? Generally, that's a bad idea, unless you really want to give her 1/2 the house. Because that's what you're doing, legally, when you put her name on the deed. You will need to file a gift tax return by April 15th of the next year for that gift. Because you have the ability to give up to $1 million dollars during life free of the gift tax, you probably won't owe any gift tax for the transfer, but you still have to report it. But that's not the only reason I wouldn't recommend it. Here are two more: First, your house would be subject to her creditors--if she gets in a car accident, or owes money, your house will be at risk; Second, since your house is worth a lot more now than it was when you bought it, your daughter would be better off inheriting it from you after your death--she'd get it at what's called a stepped-up basis, which means that your house would be transferred to her at the value it has when you die, not at the value that you purchased it at in 1972. And that value, called the tax-basis, is what is used to calculate capital gains taxes--the higher the basis, the lower the capital gains when the property is sold. If you give her half the house now, she'll get that 1/2 at the 1972 basis, which means that if she sells the property some day, she'll owe capital gains on that half for all of the appreciation since 1972. So, you are a nice parent, but there has to be some other way to help your daughter get back on her feet financially.