Recently in Debt Category

April 21, 2011

Does a Living Trust protect against creditors?

safe.jpgDear Liza: My wife is in the middle of her medical residency.  With the risk of future lawsuits, do Living Trusts or other vehicles help protect family assets from Malpractice or other law suits? Nope. Sorry. A revocable living trust does not protect assets from creditors. A revocable trust's purpose is to provide tax planning at the death of the first spouse, and probate avoidance at the death of the second. Both are worthy goals and I do not in any way feel that I spend my working life selling snake oil. But during your lifetimes, those assets are fully reachable by creditors. Asset protection trusts are different beasts entirely. There's a large industry of lawyers out there, figuring out clever ways to protect doctors from law suits, but they are not estate planners, as a rule.
April 13, 2011

Your Husband's Debts--the Gift that Keeps on Giving

blankcheck.jpgDear Liza: My brother died recently. He owned community property with his Wife. Is she now responsible for his debts? Most likely, yes. In community property states, debts incurred during the marriage are the responsibility of the community. So, after the death of a spouse, the surviving spouse is liable for those debts. I can't tell from the question whether or not your brother lived in a community property state, or in a state with common law rules, and signed an agreement making their property community. If so, it depends on what that Agreement actually says--sometimes Agreements specifically keep debt separate.

The community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. (In Alaska, spouses can sign an agreement making their assets community property, but few people choose to do this.) The common law states are everywhere else. Nolo has a great article on this: "Debt and Marriage." Here's a helpful excerpt :

In states that follow "common law" property rules, debts incurred by one spouse are usually that spouse's debts alone, unless the debt was for a family necessity, such as food or shelter for the family or tuition for the kids. (These are general rules; some states have subtle variations in how they treat joint and separate debts.)

February 27, 2011

You Can't Give Away What You Don't Own

red car.jpgDear Liza: My husband and I lent my father our car after his was stolen. We continued to maintain the vehicle and it is still in my husband's name. My father made partial payments on it while he used it, but we'd paid for the first three years on the loan. Everybody in the family knew that if anything happened to my father, we were supposed to get the car back. My father recently died, and in his Will he left his property and his vehicle to my brother. Does my brother get our car?  You can't give away what you don't own. If the car is still registered to your husband, your father's Will certainly can't 'give' it to your brother. Your father's Will only applies to the property owned by your father at his death. This sort of situation is one of the many reasons that it's a terrific idea to write down interfamily loans and arrangements like this car loan--what 'everybody knows' sometimes changes after there's been a death in the family.
December 31, 2010

Adding Names to House Title

house.jpgDear Liza: I live in Illinois my mother owns a home worth about 250 to 300K. My mother seems to think there is some benefit to having my brother, sister and myself added to the title and having her removed.  I know the current lender will not approve of that unless we refi with our names.  If we were able to refi and remove my mother or if there was no mortgage balance is this a good idea?  All she is trying to do is ensure that we do in fact inherit this house when she does pass on.  Wouldn't naming us as equals in the will do the trick?  Will the house and any estate still go to probate even if there is a will and we are all alive and civil with one another?  If your Mom just wants all three of you to inherit the house, she should use a will, or a living trust, to make sure this gift is made upon her death, not put you on title now. Putting you on title now means that she's made a gift to each of you of 1/3 the value of the house, means that her house is subject to your creditors, and means that all three of you get the house at her original cost basis (what she paid for it). Inheriting the house upon her death means that she controls it during her lifetime, and that upon her death you three inherit it at the current market value (which probably means you'd pay less in capital gains taxes if the property is subsequently sold). If she makes the gift by will, you will be subject to probate, regardless of whether all three of you get along (which is, of course, great, but legally irrelevant). If she creates a living trust, the property can pass to you three free of probate. 
June 22, 2009

Fake Checks and Sucker Lists -- Scams

From the Wall Street Journal comes a tale of how an elderly, well-educated man fell victim to fraudsters who lured him into writing checks for a variety of scams. In less than one year, he'd sent out $23,000 worth of checks -- despite repeated efforts on the part of his family to get local law enforcement and others involved. Finally, the victim granted his son a power of attorney to manage his finances -- but even then, he kept writing checks for scams.

Scammers were extremely effective in gaining his trust, preying on his isolation to gain access to his confidential financial information. Worse, once he had gotten involved in a few of them, his name ended up on a "Sucker List" that was sold to other scammers, leading to an avalanche of other fraudulent offers.

One scam, in particular, has gained in popularity: a fake check, purporting to be an advance payment for winnings to come. The victim cashes the check, sends the cash to the scammer, and then is on the hook when the check bounces a few days later.

If your elderly relative is getting such calls and offers, here are some helpful tips from the article:

For more information on elder fraud and how to prevent it, see Long-Term Care, by Joseph Matthews (Nolo).

March 4, 2009

You CAN Take it With You! Debts and Death

As if things aren't hard enough right now, the New York Times reports this week that collection agencies are now working to collect debts owed by the dead. They're banking on the fact (no pun intended) that most people don't know that they AREN'T personally liable for these debts all. Jeez, how low can you get?

Specially trained agents are calling the heirs of the recently departed and politely asking them to pay up the outstanding balances on credit card debt, car loans, and the like. If an estate is filing an official probate proceeding, creditors have a process for filing claims against the decedent's property. But that's not who these collection agents are calling.

They're calling the relatives of people who have died who aren't in formal probate proceedings either because they had created living trusts during their lifetime or because the estate was too small for a probate proceeding.

Here's my advice: No matter how nice these people are (or well-trained), simply ask them why they think that you're legally responsible for the debt. In the vast majority of cases, you aren't obligated to pay them a nickel.  It's true that married people can be jointly liable for debts, and creditors can try and get repaid from the property you've inherited from the decedent depending on your state's laws -- but that's their problem, not yours.

In fact, most estate planning attorneys can successfully get credit card companies and the like to accept a fraction of the outstanding balance on those debts that the survivors are responsible for, because these companies know just how hard it really is to collect anything on the dead's debts.

For a comprehensive guide to the legal, personal and practical aspects of administering a living trust, see The Trustee's Legal Companion, by Liza Hanks and Carol Elias Zolla (Nolo).