The Best Estate Plan is No Match for Unprepared Heirs

 

Over the course of my career, I have encountered many families who were unprepared for the inevitable aging and loss of parents. These families experienced unexpected rivalries that threatened to cripple or destroy the very family unity and wealth that the parents and their estate planning attorney hoped to protect.

Well-drafted estate plan documents are designed to reflect clients’ instructions for passing their legacies to the right beneficiaries and providing for care of clients and their families. However, the best estate plan is no substitute for preparing heirs to deal with: changing care needs of aging parents and other family members, the complexities of estate and trust administration, and how to avoid elder financial abuse and prevent or resolve conflict among siblings.

Rivalries and conflicts may arise out of innumerable scenarios. For example, consider what can happen when one sibling steps into a fiduciary role while the parents are living and no longer able to manage their affairs unassisted or when a parent passes on. The new fiduciary and other siblings have no idea what Mom or Dad promised to other siblings. Misunderstanding and conflict can arise when monthly cash “gifts” from Dad to one sibling are suddenly cut off without notice or discussion because the trustee had no idea Dad was making these gifts; or a daughter claims Mom had always promised her all of the family jewelry plus an equal share in the balance of the estate. Without a process for communication and resolution, the next step is too often costly litigation and permanent breakdown of family unity.

Conflict is Inevitable. Anticipate it.
Decide on a Process for Resolving it.

There will be disagreements among family members. Whether disagreements are over relatively small or very significant issues, they are inevitable. What is not inevitable is that the family will know how to deal with disagreements and manage conflict. It’s how families prepare for and manage conflict that makes the difference.

Few parents want to think about conflicts among their children, but successful families engage in foundational processes that prepare heirs for parents’ inevitable aging and loss. Working with a neutral mediator in a confidential setting, these families engage in education and planning, anticipate and discuss possible conflicts, and institutionalize conflict resolution. These processes help families and their estate planning attorneys avoid or at least significantly reduce family discord, which in turn helps protect and preserve family unity and wealth. Estate planners have a unique opportunity to integrate estate planning mediation into the estate planning process and educate clients and their families about its benefits.

Prepare Heirs Using Confidential
Estate Planning Mediation

Estate planning family mediation is an appropriate estate planning foundation. This involves bringing all family members together with a mediator in a confidential setting. Mediation conducted by a neutral mediator serves a different purpose than family meetings conducted by the estate planning attorney. At least in California, mediation confidentiality is provided by statute, and mediation with a neutral mediator allows for confidential open discussion. Family meetings with the estate planning attorney are focused on reporting and are limited to topics that avoid breach of the attorney-client privilege. In mediation, the mediator is not competing with the estate planning attorney, attorney-client privilege is not at risk, and the result is a memorandum of understanding for the family and the estate planning attorney.

In this confidential setting, family members hear each other’s concerns and ideas, learn and discuss, e.g., what is required of a family fiduciary who will administer the trust/estate both during the lifetimes and after the deaths of the parents; who wants the position and who might best serve as fiduciary; how to avoid elder abuse and elder financial abuse; express thoughts about inheritance; allow all family members to participate in brainstorming ideas to meet their family needs. The approach is meant to provide a safe setting for family members to express concerns and ideas and work out their own solutions in light of the parents’ wishes. Involved family members are less likely to dispute what they had a hand in creating. Of course, the parents are free to plan their estates as they desire with the advice of their own estate planning attorney.

A signed memorandum of understanding is produced, reflecting the ideas and issues discussed, solutions proposed, agreements reached, and a statement whether or not, and to whom, the memorandum may be released. Confidentiality of this memorandum may be waived to be shared with the parents’ estate planning attorney, investment advisor, and other appropriate advisors, as a roadmap for estate and financial planning.

Participants may return to mediation to resolve new conflicts or matters that have changed since the initial mediation. Should a family member later raise issues with the attorney about the parents’ estate plan, the attorney will be able to refer the family member back to the memorandum of understanding in which they participated.

Both estate planners and their clients benefit from estate planning family mediation. Prepared heirs are less likely to create or sustain conflict within a family or against the estate planning attorney. Estate planners who reinforce estate planning family mediation with their clients reduce the chances for unresolved misunderstandings and disputes, and increase opportunities to protect family unity and wealth.

 

This article was originally published in estateplanning.com and can be seen here
http://www.estateplanning.com/How-to-Leave-Assets-to-Adult-Children/

 

 

Six Biggest IRA Beneficiary Form Mistakes

 

Americans hold nearly $15 Trillion in IRA’s and other qualified plans. If you have a retirement plan you have made a series of very wise deci­sions. Now you must take steps to protect and preserve what you have worked so hard for.

Do you want your heirs to have to chase after the IRA money? Better make sure you have an up to date beneficia­ry form. On January 26, 2009, the United States Supreme Court unanimously ruled in the case of Kennedy vs DuPont that the plan administrator was not required to honor the divorce decree. William and Liz Kennedy were married in 1971 while William was an employee of DuPont and a participant in its Savings and Investment Plan. William designated Liz as the sole beneficiary of his plan benefits. When William and Liz divorced in 1994, the divorce decree terminated any of her rights to William’s pension or retirement benefits. William never changed his beneficiary form. When William died in 2001, his estate demanded the plan funds based on the domestic relations order. The Du­Pont plan administrator refused and disbursed the funds to Liz, in reliance on William’s beneficiary designation form. The ex-wife, who was still listed on the beneficiary form, gets the money, even though the divorce court ordered her rights terminated and she signed a waiver.

It is important to understand that your will does not control who gets your IRA.

The Beneficiary Designation Form trumps your will. Filling out the Beneficiary designation form correctly is critical. In my practice I see clients who come in with sophisticated wills or trusts. When I ask about the IRA it is often the largest asset. When I ask what the Beneficiary Designation form says they look surprised. They have no idea what the form says. Many cannot even find the form or remember when they last reviewed it.

So what are the Biggest mistakes?

Mistake #1. You cannot find the form. The Supreme Court made it clear, the beneficiary form rules. Without the form you are stuck with the default provisions of the plan. You may not like the result. Frequently it goes to your es­tate. This is the last place you want it to go. Make sure you and your family can find the form. Do not assume that the plan administrator will be able to find it either. In this time of companies merging, going out of business, getting sold, or moving, files get lost or misplaced. Do you think that when all those files are getting moved that someone takes the time to say wait a minute these Beneficiary forms are very important! Not likely. Solution Get an acknowledged copy of your beneficiary form from the IRA administrator. Make sure that you keep the forms in a place that you and family can easily find. All of your planning goes out the window if the form cannot be found.

Mistake #2. The form is out of date. Have there been any changes in your life, such as marriage, birth of a child or grandchild, divorce, job change, retirement, a death? Remember that your will cannot change the beneficiary of your plan! It is imperative that you review the beneficiary form regularly. This is basic, but unfortunately many get it wrong. In 2001 The New York Post ran a headline declar­ing a “Pension Pickle!” after Anne Friedman’s $900,000 pension went not to her loving husband of nearly 20 years but to her sister, who refused to share her new found wealth. The beneficiary form Anne filled out in 1974 and never updated after she married was binding.

Another problem I have seen far too often is accidentally disinheriting a child’s family. You name your three chil­dren as beneficiaries, intending each child to receive 1/3rd. Your oldest child predeceases you. At the time of your death your two surviving children receive 50% each instead of the 1/3rd you intended. Your oldest child’s family gets nothing.

Solution. Review the form annually. Tax time is an ideal time since you are reviewing all of your financial records anyway.
Mistake #3. You have not named a backup benefi­ciary. If you do not name a backup beneficiary then who knows who gets the money. The Probate Court will most likely be in charge. Example: you name your spouse as the only beneficiary. If your spouse dies before you, there is no beneficiary so your IRA will be liquidated, taxed and what is left will be distributed to your estate. It is a good idea to name someone, say your children, as contingent beneficia­ries. If you name backup beneficiaries then the IRA has a chance of getting it where you want it to go.

A single person may name his parents first and then St Nor­bert College as the backup beneficiary. Naming a charity is a great planning idea but that is a topic for another day.

Mistake #4. Naming a minor as a beneficiary. A minor cannot control funds. Court appointed Guardians are in control. This will result in a trip to the Probate Court, and later, when the child turns 21 (18 in some states), to the Sports Car Dealership. The only question will be what color! Solution Set up a Trust so the funds are managed under your instructions, by people of your choice.

Mistake #5. Missing out on the Stretch IRA Op­portunity. The Stretch IRA can turn a modest IRA into millions for your beneficiary. The Stretch IRA is not some­thing that you can buy. Rather it is how you set up your beneficiary designation. Stretching the IRA payments over the lifetime of the beneficiary allows the IRA to grow tax deferred. Let’s do some calculations. We have a $100,000 IRA go to a 30 year old child. If the funds earn an aver­age of 7% over the life of the child which according to IRS tables is 53 years, the value would be $1,026,533. A $100,000 IRA has become a very significant asset. Naming an even younger grandchild can supercharge the result to over $2,000,000.

This is great but will it really happen? Probably not! Why? IRS statistics show us that 90% of IRA’s are cashed out within 6 months of death. This is called the “Found Mon­ey” syndrome. This new wealth is unexpected gain to be spent.

Solution Something needs to be put in place to make sure that the funds will be used over a lifetime. This is a trust. It has lots of different names. IRA Stretch Trust, Retire­ment Benefits Trust, Stand Alone IRA Trust just to name a few. Regardless of the name the purpose is to preserve the Stretch Opportunity.

Mistake #6. Not providing Creditor Protection for the Beneficiary. Would you like to protect your child’s inheritance from divorce, lawsuits, creditors, business failure, even bankruptcy grabbing the IRA? Some children suffer from poor money management skills and others have special needs. The divorce rate in this country is quite high. If your IRA is left to your child who later gets di­vorced who will end up with the funds? Would you like to protect assets and keep them in the family? Are you aware that you can do this? Solution In my office we build Castle Trusts. Historically why were Castle’s built? Protec­tion. We like to make sure that your loved ones have the Castle Trust protection. These are trusts that have special asset protection features built in to them that help preserve your wealth and safeguard your assets.

The Bottom Line

The difference between effective planning and getting it wrong can cost your family millions of dollars. Done cor­rectly your retirement plan can preserve some significant funds for future generations to enjoy. Wouldn’t it be great if everything always worked out the way you planned? In a perfect world it does. But I am sure you are aware ours is a world full of surprises where Murphy’s Rule often jumps up to bite you. The rules surrounding retirement plans are complicated enough, don’t compound the difficulty by messing up the beneficiary forms. When a good portion of your assets consist of a retirement plan you need expert help.

Important: The information in this article is for general in­formation purposes only and is not, nor is it intended to be, legal advice, including legal advice for Internal Revenue Code purposes as described in IRS Circular 230. Tax law changes frequently, so please consult your financial advisor.

 

This article was orignally posted in estateplanning.com you can view it here

http://www.estateplanning.com/Six-Biggest-IRA-Beneficiary-Form-Mistakes/

How to Leave Assets to Adult Children

When considering how to leave assets to your adult children, first decide how much you want each one to receive. Most parents want to treat their children fairly, but this doesn’t necessarily mean they should receive equal shares of your estate. For example, you may want to give more to a child who is a teacher than to one who has a successful business. Or you may want to compensate a child who has taken care of you during an illness or your later years.

Some parents worry about leaving too much money to their children. They want their children to have enough to do whatever they wish, but not so much that they will be lazy and unproductive. Well, no one said you have to give everything to your children. You may prefer to leave more to your grandchildren and future generations through a trust, and/or make a generous charitable contribution.

Next, decide how you want your children to receive their inheritances. You have several options from which to choose.

Option 1: Give Some Now
If you can afford to give your children or grandchildren some of their inheritance now, you will experience the joy of seeing the results. You could help a child buy a house, start a business, be a stay-at-home parent to your grandchildren, or even see your grandchildren go to college—and know that it may not have happened without your help. This would also let you see how each child might handle a larger inheritance.

Option 2: Lump Sum
If your children are responsible adults, this may seem like a good choice—especially if they are older and you are concerned that they may not have many years left to enjoy the inheritance. However, once a beneficiary has possession of the assets, he or she could lose them to creditors, a lawsuit, or a divorce settlement. Even a current spouse can have access to assets that are placed in a joint account or if your child adds his/her spouse as a co-owner. If it bothers you that a son-or daughter-in law could end up with your assets, or that a creditor could seize them, or that a child might spend irresponsibly, a lump sum distribution may not be the right choice.

Option 3: Installments
Many parents like to give their children more than one opportunity to invest or use the inheritance wisely, which doesn’t always happen the first time around. Installments can be made at certain intervals (say, one-third upon your death, one-third five years later, and the final third five years after that) or at certain ages (say, age 25, age 30 and age 35). In either case, be sure to review your instructions from time to time and make changes as needed. For example, if you live a very long time, your children might not live long enough to receive the full inheritance—or, they may have passed the distribution ages and, by default, receive the entire inheritance in a lump sum.

Option 4: Keep Assets in a Trust
You can keep your assets in a trust and provide for your children, but not actually give the assets to them. Assets that remain in a trust are protected from a beneficiary’s creditors, lawsuits, irresponsible spending, and ex- and current spouses. If you have a special needs dependent, or if a child should become incapacitated, the trust can provide for this child without jeopardizing valuable government benefits. If you have a child who might need some incentive to earn a living, you can match the income he/she earns. (Be sure to allow for the possibility that this child might become unable to work or retires.) If you have a child who is financially secure, you can keep the assets in trust for your grandchildren and future generations, and still provide a safety net if this child’s situation changes and he/she needs financial help. This option gives you the most flexibility, control and protection over the assets you worked a lifetime to accumulate and build.

While there is no one right choice for how to leave assets to all adult children, given many individuals’ concerns over protecting inheritances from creditors (particularly ex son or daughters in law), many choose leaving their assets in trust for the benefit of their children and/or grandchildren. Regardless of your ultimate choice, this is an important decision that should be considered with input from your estate planning professional.

An Estate Plan For Cinderella's Parents

 

I saw Cinderella for the first time with my daughter recently, and though I (and likely you) were familiar with the outline of the story, we often forget the backstory. It starts with the disaster, specifically, an estate planning disaster in a world that does not need to worry about the estate tax or probate, or even lawyers.

You see, Cinderella’s mother died when she was a child. Her father decided to remarry a woman with two girls that are about the age of his own daughter. Cinderella’s father dies next, when she is still a child. He leaves the estate to his widow (the normal thing to do in the real world), who serves as Cinderella’s stepmother. This woman takes control of the estate for the benefit of herself and her own two daughters. Cinderella then, as presumably everybody who is reading this knows, is treated as a servant in her own home by the infamous wicked stepmother. Cinderella is now reduced to befriending rodents and birds with dressmaking skills.

What is interesting about the Cinderella backstory is how common it is. It is a theme that exists throughout all of human civilization and in stories from ancient times. Rhodopis is essentially the name of Cinderella in ancient Greece. There are many other versions of the story told throughout history around the globe. It is also well known that men are very likely to remarry when they become widowers, a social phenomenon that has been noted and studied for years.

The theme of subjugation of a child (in Cinderella’s case, being a presumably unpaid servant) using the orphan’s own assets is based on the inherent structural problems of asset succession, much of which cannot be addressed through legislation. The old manage the money of the young. This is often what leads to a version of the oppression experienced by fictional Cinderella. Of course, societies have attempted to remedy these concerns by regulating individuals and institutions known as “fiduciaries.” Minors are often represented in court by a “guardian ad litem.” Judges in probate court often presume to protect the interests of minors in what seems to many as a paternalistic system. Indeed, in some jurisdictions, probate court is known as “orphan’s court.”

The structural problems, however, can never really go away. For the most part, societies developed remedies that may be imposed when it is already too late. The presence of laws by itself will not completely stop men (or wicked stepmothers) from taking advantage of wealth when the opportunity presents itself.

Every year in virtually every jurisdiction in the United States with a sizable population there are cases involving breach of trust or similar claims relating to estates. The cost of such disputes could easily surpass the cost of probating a last will and testament or paying an estate tax to the federal government, if there was one.

The good news for people litigating with a competent attorney is that they actually have some sort of a claim that they can make to a court. Much of the time, affairs are structured so poorly that there is nothing anybody can do about the resulting injustice. It is common for spouses to own their property jointly, even widowers who remarry. Married couples like to name each other as beneficiaries in their retirement plans and life insurance, and they like to structure ownership of their homes in such a way that all of the property passes to the surviving spouse through the deed (joint tenancy with right of survivorship for example). They do the same with their financial accounts and everything else that they own. There is no probate, no trust administration, and no notice to anybody. The surviving spouse just gets everything. Often, even when there is a trust or a will, the spouse gets everything in a way that makes the Cinderella problem no less likely. Now in the era of portability and a high estate tax exemption where the vast majority of the U.S. population will never have to worry about the estate tax, this type of “estate planning” may threaten to become the norm.

Married couples often plan for their own convenience. When people plan their estates, they often think about their own mortality but not the consequences of the mortality of others and the results that may come from other unfortunate occurrences. Most have little to do with the government.

In the non-Disney world, wicked stepmothers are everywhere. We call them bankruptcy trustees, judgment creditors and yes, actual wicked stepmothers. The stories of modern-day Cinderellas are remade and retold every day throughout the country. The wicked stepmothers are often real brothers and sisters, uncles and aunts, people will assume the title of “trustee” or simply hold assets that should belong to others but have been usurped.

The parents of modern-day Cinderellas were not bad people in life; they often failed to properly plan. They certainly did not wish ill for their children. Though ill they wrought by not planning for things common in the human experience. An attorney and client, often with other advisors, collaboratively develop solutions for issues such as creditor protection, remarriage protection, guardianship and special needs. This type of planning requires attorneys as counselors. State legislatures and the Federal Government cannot write laws to protect families they have never met.

Litigation attorneys in the trust and estates world are not Fairy Godmothers. They may be helpful in fighting injustice and helping resolve the agony that occurs when there is a cause of action, something a lawyer can file in court in the first place. Unlike fictional Fairy Godmothers, litigation attorneys are paid. Litigation itself is not only expensive, but burdensome and difficult in a myriad of other ways. There is no guarantee that good estate planning will eliminate the risk of litigation, though all good estate plans certainly plan for risks that are known. Some risks have been known for thousands of years.

Fairy tales may end well because of magical fairies and rodents, but like Cinderella, they start with avoidable tragedy common to the human experience in a world without talking mice. A good estate planning attorney will help families avoid what could be avoided.

This article was original posted in estateplannin.com and can be seen here http://www.estateplanning.com/An-Estate-Plan-for-Cinderellas-Parents/

How to Leave Assets to Minor Children

Every parent wants to make sure their children are provided for in the event something happens to them while the children are still minors. Grandparents, aunts, uncles and other relatives often want to leave some of their assets to young children, too. But good intentions and poor planning often have unintended results.

For example, many parents think if they name a guardian for their minor children in their wills and something happens to them, the named person will automatically be able to use the inheritance to take care of the children. But that’s not what happens. When the will is probated, the court will appoint a guardian to raise the child; usually this is the person named by the parents. But the court, not the guardian, will control the inheritance until the child reaches legal age (18 or 21). At that time, the child will receive the entire inheritance. Most parents would prefer that their children inherit at a later age, but with a simple will, you have no choice; once the child attains the age of majority the court must distribute the entire inheritance in one lump sum.

A court guardianship for a minor child is very similar to one for an incompetent adult. Things move slowly and can become very expensive. Every expense must be documented, audited and approved by the court, and an attorney will need to represent the child. All of these expenses are paid from the inheritance, and because the court must do its best to treat everyone equally under the law, it is difficult to make exceptions for each child’s unique needs.

Quite often children inherit money, real estate, stocks, CDs and other investments from grandparents and other relatives. If the child is still a minor when this person dies, the court will usually get involved, especially if the inheritance is significant. That’s because minor children can be on a title, but they cannot conduct business in their own names. So as soon as the owner’s signature is required to sell, refinance or transact other business, the court will have to get involved to protect the child’s interests.

Sometimes a custodial account is established for a minor child under the Uniform Transfer to Minors Act (UTMA) or Uniform Gifts to Minors Act (UGMA). These are usually established through a bank and a custodian is named to manage the funds. But if the amount is significant (say, $10,000 or more), court approval may be required. In any event, the child will still receive the full amount at legal age.

A better option is to set up a children’s trust in your will and name someone to manage the inheritance instead of the court. You can also decide when the children will inherit. But the trust cannot be funded until the will has been probated, and that can take precious time and could reduce the assets. If you become incapacitated, this trust does not go into effect…because a will cannot go into effect until after you die.

Another option is a revocable living trust, the preferred option for many parents and grandparents. The person(s) you select, not the court, will be able to manage the inheritance for your minor children or grandchildren until they reach the age(s) you want them to inherit—even if you become incapacitated. Each child’s needs and circumstances can be accommodated, just as you would do. And assets that remain in the trust are protected from the courts, irresponsible spending and creditors (even divorce proceedings).

Here is a great article from EstatePlanning.com

Letter to an Ex

By Martha J. Hartney, Esq.

Below is a fictional letter I drafted to a former partner because I know only too well what can happen when estate planning is not done properly—after divorce. I hope you enjoy this outreach to an ex-spouse or partner and consider taking steps to do everything this letter suggests for you. You can even send the link to your ex!


Dear Ex,

Though we’re not married (cohabitating, procreating) anymore, there are a few things I’d like to say about how you set up your affairs for our kids. You’re about to go on vacation, and I know you worry about being away from them and having an emergency or tragedy happen. I know I don’t have ANY say in how you set up your estate plan, but there are things that I’d like you to consider about the well-being and care of our beautiful children.

So please:

• Make sure your life insurance is up-to-date and your beneficiaries are listed properly. Don’t name our kids as direct beneficiaries! That will put them straight into a conservatorship where a judge will supervise their financial lives until 18, then they’ll get the assets outright in one fell swoop.
• Instead, leave your assets to them in trust, which will sidestep probate, keep the management of your assets private and in your control, and prevent the loss of those assets to our kids’ future creditors and predators and reduce the estate taxes that can take valuable resources away from our kids.
• Name a trustee that I can work with—someone you trust with your life—because your trustee will have to deal with me. If I were the only parent left, I would be legally responsible for ensuring the assets left to our children are properly managed. I would be looking at the annual accountings. I would be the one asking for court intervention if they are mismanaged or embezzled.
• Don’t leave your assets to our kids outright and don’t leave too much. There is nothing more damaging to a kid’s life purpose than having too much money at their fingertips. There’s a saying, “Leave them with enough to do something, but not enough to do nothing.” If you have a lot of assets, consider giving some to your favorite charity instead of the kids.
• Don’t cheap out on an estate plan. Whitney Houston did that. She bought a schlocky will that didn’t protect her assets from her daughter’s creditors, estate taxes, and probate. Please spend the money to get it done right. It’s really not that much in the scheme of things.
• Plan for a very long life. I know you want to leave our kids your accumulated wealth, but think of yourself first. We’re all living longer lives and, even though we’re not “in love” anymore, I do care about you and your welfare. Create a wealth plan that will give you a lifelong, passive income.
• Make sure you have disability insurance. Your ability to earn is your greatest asset. Nothing will diminish your wealth and put you in poverty quicker than not being able to earn money anymore. Even if you don’t need care, if you couldn’t work, you would run through savings quickly and may have to cheap out on things like your lifestyle, vacations, and even necessities like good, wholesome food or the roof over your head. Please don’t let that happen to our kids or to you.
• Get long-term care insurance. The person who is going to live to 150 is believed to have already been born! People will routinely live to be over 100, and that could be you. Long-term care is EXPENSIVE and it’s only going to get more so. Since you’re over 50 and in good health, consider buying a LTC policy on you or a rider on your life insurance policy.
• Name a guardian for our kids and ask me who I named. We might be able to agree still on that. Of course, I’ve taken care of my guardianship nomination, but if I didn’t, our kids would be subject to a guardianship proceeding and you and I both know that would be bad because our families would duke it out. You can even do that for FREE online at www.kidsprotectionplan.com. With that resource, there’s really no reason not to do that at the very least.
• When you decide to remarry, get guidance from an attorney in advance because remarriage can cause complications to your planning. I’m sure you’ve heard of assets going to a spouse instead of to kids, and while you may eventually want that, don’t let that happen by accident or oversight.
• Make sure you have your own healthcare documents in place, naming your agent for medical decision-making. Don’t name the kids as your agents until they are legally capable, over 18, and emotionally able to handle the job.
• Check with your attorney and your retirement account custodian to see if I need to sign any waiver to your retirement accounts. In some cases, if you haven’t remarried, as your previous spouse, I may retain some rights in a 401(k) or similar account that you may have had when we were married. I know that’s not what you want and that’s okay.
• Most importantly, shoot a video of yourself telling the kids your life story. Tell them about how we met and what you liked about me. Tell them that it’s not their fault that we didn’t work out, but that we did have some awesome times together. Tell them about your biggest life lessons, your values, your setbacks, and your victories. Tell them what a terrific businessperson you are and how you learned to be that. Tell them about your favorite hobbies and what you’re good at. Tell them what you love about them and how blessed you are that we brought them into the world.

So, dear Ex, I do want the best for our kids and I hope you consider my wishes so that if something did happen to you, they’d be okay. I promise that if something did, I would do everything in my power to make sure they’re able to heal, to thrive, and to honor you every day of their lives.

With love,
Your Ex

Picking the Best Way to Hold Title to Your Home

 

 

 

One of the last things most home buyers think about is how to take title to their new house.

It's best to consult an estate attorney before deciding but, unfortunately, most homeowners don't do that.

To help with the decision, here are the pros and cons of the five most common ways to hold title to your home:

1. Sole ownership
If you are single, one way to hold title to your home is in your name alone. This method is also called ownership in severalty.

When a married person takes title to real property in his or her name alone in sole ownership, the spouse is usually asked to sign a quitclaim deed giving up any ownership interest in the property.

This might be done, for example, when a husband invests in properties but his wife is not involved with the realty investments.

There are no special tax or other advantages of holding title in sole ownership. When the sole owner dies, any property held this way is subject to probate court costs and delays.

2. Tenants in common
When two or more co-owners take title to real estate, especially if they are not married to each other, they often become tenants in common. For example, two realty investors might select this method.

Each tenant in common owns a specified interest in the property. It need not be equal. For example, one owner might own a 50% interest, another could own a 10% interest and a third tenant in common could own a 40% share. The percentage ownership is specified on the deed.

A major advantage is that each tenant in common can sell or pass his interest by his will to whomever he or she wishes.

For this reason, tenancy in common is especially popular in second marriages, so each spouse can will his or her share to the children from a first marriage. Tenancy in common property is subject to probate court costs and delays.

A disadvantage is that the remaining tenant in common could wind up co-owning property with a stranger.

Another disadvantage (also true for joint tenancy) is that a tenant in common can bring a partition lawsuit to force a property sale if the other co-owners are unwilling to sell. The court can then order the property sold, with the proceeds split among the co-owners according to their ownership shares.

3. Joint tenancy with right of survivorship
When title is held in joint tenancy with right of survivorship, all co-owners must take title at the same time; they own equal shares and the surviving co-owner winds up owning the entire property. In some states, when husband and wife use this method, it is called tenancy by the entireties.

After a joint tenant dies, the surviving joint tenant(s) receives the deceased's share. The deceased's will has no effect on joint tenancy property.

A major advantage is that probate costs and delays are avoided when a joint tenant dies. The surviving joint tenant(s) usually needs only record an affidavit of survivorship and a certified copy of the death certificate to clear the title.

However, except for tenancy by the entireties, a major disadvantage is that a joint tenant can sell or give his property interest to a new owner without permission of the other joint tenant(s).

If there are only two joint tenants, the joint tenancy is ended by such a conveyance, creating a tenancy in common.

4. Community property
Husbands and wives who acquire realty in the community property states of California, Nevada, Louisiana, Wisconsin, Texas, Arizona, Washington, Idaho and New Mexico can take title as community property. Each spouse then owns half the property, which can be passed by the spouse's will either to the surviving spouse or someone else.

A special advantage is that community property assets willed to a surviving spouse receive a new stepped-up basis at market value on the date of death. In 1987, the IRS extended this community property stepped-up basis advantage to husbands and wives holding joint tenancy titles in community property states.

To qualify, IRS Revenue Ruling 87-98 requires spouses to acknowledge in writing to each other that their joint tenancy property is also community property.

5. Living trust
Probably the best way to hold title to homes and other real property is in a revocable living trust. There are many advantages, such as avoidance of probate costs and delays.

Other than the modest cost of creating a living trust (usually less than $1,000) and deeding real property into the living trust, there are no disadvantages.

Until the death or disability of the trust creator, the home and other real estate in the living trust are treated normally.

Stocks, bonds, bank accounts, automobiles and other major assets can also be held in a living trust. Since the living trust is revocable, these assets can be bought, sold and financed normally.

If the trustor becomes incompetent, the named alternate trustor (such as a spouse or adult child) takes over management of the trust assets. When the trustor dies, the assets are distributed according to the trust's terms.

Privacy is a major advantage. Unlike a will, which becomes part of the public probate file, the living trust terms remain private. For example, late Bing Crosby held virtually all his assets in a living trust and its terms never became public.

Still another advantage is that court challenges of living trusts are virtually impossible, whereas will challenges by disappointed relatives occur frequently.

Summary
The five most popular methods of holding residence titles all have their pros and cons. Overall, the best method for most homeowners is the living trust, because of all its advantages.

 

 

This article was written by Robert J. Bruss and published in the LA Times on 1/9/2013