November 2010 Archives

November 30, 2010

Notarizing Those Wills, Part II

oops.jpgDear Liza: I am confused. You recently wrote a post that said NOT to notarize Wills. But, in my state we routinely have the witnesses to the Wills sign an affidavit in front of a notary public. The affidavit states that the document signed was a Will and that it was properly signed and witnessed. Our lawyer told us that by doing this, which is called making a Will "self-proving," it makes it easier to submit the Will to the probate court because it eliminates the need for the witnesses to appear after our death, unless the Will is challenged, which is rare. What's up?  Well, what's up is that I was WRONG. As one of my readers helpfully pointed out, virtually instantly, I blew it.  Here's a better answer. For a Will to be legally valid, it must be signed before two witnesses (three in Vermont). Signing a Will only in front of a notary isn't going to create a valid Will, which is what I was thinking when I wrote that earlier post. But,of course, law being the law, it gets a bit more complicated. After you create a valid Will, then, in most states (except Louisianna, which has it's own rules and also California, where I practice) you can have the witnesses sign a statement in front of a notary public that simplifies court procedures after you die.This is called a "self-proving" affidavit, and that, dear reader, is what your lawyer was talking about.


November 23, 2010

Appointing a Bank as Executor

  woman banker.jpgDear Liza: Is it possible to appoint a bank Executor of Estate ?  I am not comfortable appointing family members or friends for a number of reasons. You bet. Many banks have trust departments who can provide services to families, as executors or trustees. They, of course, charge for this service. So, if there is a bank or financial service firm that you already work with, ask them if they have a trust department. Ask them what their fees for this are -- many charge a percentage of the assets under management, which can range from .75% to 1.5%, depending on the size of the estate. Also ask them if they require special language to be in your Will or trust, some do, and some don't. If they do, get the language and ask your attorney to incorporate that into your documents, or, if you're doing them yourself, make sure you're doing what the bank requires. Two things to think about, though. The first is that the banking industry has been through some, ahem, turmoil, lately--so you need to consider how you'd feel if your friendly local bank gets sold to some megalopolis bank and some banker in a far away city takes over as your family's executor.  If that's not OK with you, you might want to name a second choice and say that if your local bank is sold, you don't want the bank's successor to be your executor, but want your second choice to serve instead. The second thing is, if there's a particular banker you really like, you can add language to your documents that says you want that banker to do the job, even if they move to another institution with trust powers.

November 19, 2010

When is a Will Valid?

Will being signed.jpgDear Liza:My wife misunderstood the three spaces at the bottom of each page of her will, and placed one of her initials in each space, then realized her mistake and scribbled them out. She then initialed the proper space, and the witnesses each initialed above the scribbled out initials. The will was otherwise properly signed and notarized. Would these scribbled out initials invalidate her will? The only part of your story that worries me is the 'notarized' part. While the validity of a Will is a question of state law (and so differs from state to state) as a general matter, Wills are signed before WITNESSES they are not notarized. Anyone should be able to make a Will, even those who don't have proper ID or can't afford to pay a notary. So, a notarized WIll is not valid, generally. But perhaps you just meant that the Will was signed in front of witnesses who were over eighteen and not people who would benefit in any way from that Will. If so, I think you are fine. Courts really want to be certain that a Will represents the intentions of the testator (that's lawyer talk for the person who made the Will). A scribbling error, crossed out by the testator, at the time the witnesses were there really ought to pass muster. I would certainly submit it to probate. Of course, if you're really worried, just do another one.
November 15, 2010

Gifts to Grandkids

grandkids.jpgDear Liza: I read in your blog about the annual $13K gifting free from reporting and not being included as part of the lifetime million dollar gift credit.  For my grandchildren, can I 'gift' that annual $13K to a revocable trust for their education? Yes, sort of. This is a slightly long answer because 2010 is an odd year. But stick with me. Gifts to your grandchildren are what's considered a generation-skipping transfer. That means they go from you directly to your grandkids, skipping the parent generation in between. When you skip a generation, the IRS levies a new tax, called the "generation-skipping transfer tax (GSTT)" which is equal to the highest level of estate tax (scheduled to be 55% in 2011). Why? Well, the IRS figures that if you'd given the money to your children (their parents) first, they would have been able to tax that money when it went from parent to child when the parent dies. So, rather than lose their bite of the apple, they subject GST gifts to an extra, heavy, tax. But wait, it's going to be OK. Except for 2010, which has it's own weird rules (the GST tax is repealed, but just for this year, unless Congress acts to change that before Dec. 31. Sigh.), there's an annual exclusion from the GST tax also that's equal to the annual gift tax exclusion. So, usually you can make $13K annual gifts to your grandkids without having to pay extra GST tax. But not a gift to revocable trust. It has to be an outright gift, or one to a trust that you have no control over (an irrevocable trust). A gift to the grand kids in a custodial account or a gift to a 529 College Savings Plan account for your grandkids would work.

Usually a gift to a trust that's irrevocable (most education trusts are) would work, except not this year. Since the GSTT is scheduled to come back in 2011, gifts made in 2010 may not be exempt for that tax for money paid out of trusts in future years, so, for this year, I wouldn't make a gift in a trust--since it may be subject to tax when the money is paid out to the kids in some future year, we just don't know yet. You can also make DIRECT payments of tuition for your grandkids, and these are also excluded from the GST and gift tax. Here's a heplful article that summarizes your options--scroll down past the first entry to get to a helpful gifting summary.

November 10, 2010

Ripeness is all--take your time with trust administration

clockface.jpgDear Liza: My dear friend recently died. He left his house to his mother, who lives far away. How soon can I transfer the house to her? I am eager to get this done as soon as possible because until then the trust has to pay the mortgage.  So, you have to wait until the survivorship period is over before you can distribute any property to anyone. This will be in the trust--it is usually thirty (30) days, but can be longer. A person has to survive at least that long after there's been a death to inherit anything. This is to prevent property going to someone, and then having them die and leave the property to someone else entirely. You can transfer the house the day after that period ends. But settling an estate takes time. Please don't distribute anything until you're sure you know what the bills and debts there are to pay off and whether there will be income taxes due for the last year of your friend's life. Beneficiaries are often in a big hurry to inherit, but prudent trustees take their time and let beneficiaries know that debts and bills come first.
November 7, 2010

Are Living Trusts Filed Anywhere?

safe.jpgDear Liza: My husband and I just finished creating a living trust. Do we file it anywhere, like with our county? Weirdly, no. But people ask me this all of the time. It seems that something so important should be filed somewhere. But during your lifetime your trust just lives in a fireproof safe, or a safe deposit box, or somewhere safe where people will be able to find it, if they need to. After one, or both of you, die, then a copy of the trust will get sent to the county so that names can be changed on your house's title, and sometimes financial institutions and banks will also want to see it--just to make sure that 1) it exists and 2) the successor trustee is clearly identified in the document. So, keep it safe and let your family and successor trustees know how to find it. Some words of advice: DON'T leave your trust in an unmarked binder on your bookshelf (like I did for years) and DON'T swing by Target on your way to a little league game to buy a fireproof safe when you finally feel sufficiently guilty to do the right thing--safes are heavy, I had to get a Target-guy to wrestle it into the car and then get my neighbor-the-cop to wrestle it into our house. Also, maybe don't put the safe in the room in the house with the Wii--or your nine year old may raid the safe to get the batteries out for the Wii remote.
November 2, 2010

That Pesky Gift Tax--Hard to Avoid on Actual Gifts

gift package.jpgDear Liza, My mother is going to get a reverse mortgage and give the money to me to pay off my house. How do we handle this to avoid any gift tax? I am sorry to tell you that what your Mom is proposing IS a taxable gift from her, to you, provided that it is over the annual exclusion amount of $13,000. She is planning on giving you money. That's the very definition of a "gift." If she goes ahead and does this, she will have to file a gift-tax return by April 15th of the following year. She won't, most likely, owe any actual money to the IRS, since she, like everyone else, has a lifetime credit on the gift tax equal to the transfer of $1 million dollars during her lifetime. Her gift tax return will let the government know that she is using up a portion of this lifetime credit, but she won't owe any tax. If your mother lends you the money, instead of gives you the money, and charges you an interest rate that's at least what's called the applicable federal rate (this is in a table published monthly by the IRS), then it's NOT a gift. Of course, then you have to pay her back.