Estate Planning


Is Your Real Estate Really in Your Living Trust?


With the low interest rates that we have seen in the last several years, many of you have refinanced your home.  Typically your lender will require you to remove the home from your living trust in order to close escrow on the new financing.  This should have been disclosed to you and you would have had to execute a deed transferring title from your trust to you as individuals.


The amount of documentation to close a loan is mind-boggling and unfortunately many clients do not realize the ramifications of their removing the title to their home from their living trust.  Escrow agents are usually not good at advising clients that they need to take action on the real estate after the close of escrow, or if they do mention it to the clients, the clients do not really appreciate the gravity of what was mentioned to them.


If your home was not transferred back into your living trust and you pass away, then the home is subject to probate, which was what you were trying to avoid.  Are there things that can be done to correct this?….read more


There are really only a few options to avoid the probate.  If the value of the real estate and personal property is less than $150,000 then there is an abbreviated court process, which is quicker and less expensive.


Additionally, there is a court proceeding that we attorneys call a “Heggstad Petition” taken from a Court case by that name.  Here if the client has completed the Exhibit A to the living trust and there is a statement in the trust or other documentation indicating the intent to have the real estate held in trust, then the Court can order the property transferred to the trust.


Both of the above proceedings avoid a full probate but each will require a court petition and hearing.


Thus, it is always a good idea to check the title to your property to assure yourself that it is currently held in the living trust.


If you would like more information on this, please contact me.

Family Group Tax Planning…Benefiting the Whole Rather than the IRS


I have been seeing more and more clients with large IRAs.  Since the IRS requires a mandatory withdrawal each year after age 70½ (called “RMDs”) many clients are having to pay taxes on money that they will actually never need for their support.  So the knee-jerk reaction to this is to always take the minimum RMD to avoid paying taxes.  They are actually mad that they are forced to take withdrawals and pay taxes on those funds.


Interestingly in many cases it may be more beneficial for the parents to take MORE than the minimum RMD, paying additional tax on withdrawal, but ultimately creating more for themselves and/or the heirs….read more


Paying tax at a lower bracket vs kids bracket


Individuals contribute to IRAs when they are working and therefore are necessarily in a higher tax bracket then when they retire.  But the heirs are also in the same situation…they are in a higher bracket until THEY retire.  If the IRA pays out to the heirs while the heirs are still working, then the IRA money is taxed at the highest marginal rate (the heirs’ rate), which is clearly the worst result.


Instead, I typically have clients look at the family as a group for tax planning in these cases.  If more IRA funds are withdrawn during retirement of the parent, those funds can be taxed at the lower bracket of the parents, and thereafter, when those after-tax dollars are inherited by the heirs, it is income tax free to them.  How much to withdraw over the RMD is the subject of a financial analysis and you can contact me to run some calculations.


Increasing the inheritance with funds that the parents will never use


As you know, rates of returns on typical senior investments, such as annuities, certificates of deposit, savings accounts, and the like, are horrible.  Even many mutual funds are not offering great returns.  I also often find that many of my clients have more resources then they will ever consume, which will therefore be inherited by their heirs.  So why keep those assets in those accounts with little or no return since the parent is effectively investing for the heirs, not themselves.  Again, it is important to look at the family as a group.


In these scenarios, life insurance can be an excellent vehicle to compound the benefits to the kids for funds that, again, the parent will never use (life insurance proceeds are income tax free to the kids and offer an excellent rate of return on the principal invested [premiums] into the policy).  So this is a way to maximize their inheritance and your legacy.


Using IRA withdrawals to fund life insurance


Putting these two concepts together, my clients are now looking at using the periodic withdrawals from their IRA (whether at the RMD level or more) to fund a life insurance policy payable to the heirs. Automatic payment systems can be set up, and once established, the parent can forget about management of the IRA or the policy.  It is on auto-drive.  If additional funds are needed from the IRA for the parents, then those funds can be withdrawn for their use.  Yes, the parent will pay income tax on the withdrawals, but the tax is typically at a much lower tax bracket thereby preserving more value for the family unit, rather than the government benefiting from your hard earned estate.


Please contact me if you would like more information on this topic or to run a quick financial analysis to see if this may be beneficial for you.

Can You Keep Your Home With a Reverse Mortgage After a Spouse’s Death?


A federal court has ruled that banks can’t foreclose on surviving spouses of reverse mortgage holders when the spouses can’t pay off the mortgage.  The ruling should lead to regulatory changes that will help a surviving spouse stay in his/her home even if his/her name is not on the reverse mortgage.

If only one spouse’s name is on a reverse mortgage and that spouse dies, the surviving spouse has been required to either pay for the house outright or move out. This might happen if one spouse is under age 62 and ineligible to sign the mortgage, and some lenders have actually encouraged couples to put only the older spouse on the mortgage because the couple could borrow more money that way.

However, because of the housing downturn, many homes are worth less than the balance due on the reverse mortgage, meaning that the non-signing spouse cannot repay the loan and faces eviction.

AARP sued the Department of Housing and Urban Development (HUD) on behalf of three surviving spouses who faced imminent foreclosure and eviction from their homes. The case involved the spouses of individuals who took out a reverse mortgage administered by HUD.  AARP charged that, in not protecting spouses from foreclosure, HUD was violating federal law.

In a decision issued September 30, 2013, the U.S. District Court for the District of Columbia agreed with AARP and told HUD to find a way to shield surviving spouses from foreclosure and eviction.

It’s not clear yet how HUD will correct the problem.  One possibility is that the agency may take over affected loans from the banks that hold them. But experts stress that the ruling does not mean that couples can safely take out a reverse mortgage and leave one spouse off the loan.

End of Life Dilemmas – Are They Avoidable?

Many Americans have already taken care of making sure that their health care wishes and decisions are made clear well in advance of their final years.  Most have done this through a health care advance directive or health care power of attorney.  Many, if not all of these same well-prepared people do not know that this is probably not enough.  How can you be sure that your health care decisions will be carried out?

A well-prepared health care directive may seem to be clear and easy to follow for the person that you appoint.  This may not always be the case.  Many of our clients decide to appoint one or more of their children or close family members (or friends) to act as agents to carry out their health care wishes.  It is important to take into account the fact that these appointed persons may not interpret your wishes in the same way that you do, and you can never truly lay out plans for every health situation that might arise.  Sibling relationships can be strained when a tough decision is at hand, and it is quite likely that not everyone will agree on how to handle things in a health crisis.  This can be catastrophic for the family, especially when the decision at hand may be whether or not to discontinue life support for a terminal family member.

On paper (and legally), the person who is appointed to serve as a health care decision has a fiduciary responsibility to the person who appointed them.  This means that they are bound to follow the directions set forth in health care directives and other documents, setting aside their own philosophies about end of life treatments, and act as a surrogate for the person who is receiving care, carrying out their wishes.  Unfortunately, many agents (including children) often become desperate to follow their own interpretation of the legal directives, and circumvent the language in these documents by calling 911, or having the ill person admitted to the hospital during a health scare, even when it may not be necessary or in agreement with the health care directive.  Doctors will usually try to limit their liability by keeping a person alive despite what is contained in the directive.

Don’t let yourself be put in this position, and don’t let your family be faced with these tough decisions during a health crisis.  Make sure that the person who you appoint as health care agent is in agreement with your own philosophy about your eventual care needs.  Talk about this with your family now, because the paperwork is never enough to explain how you want to handle your end of life health care.  The last thing that any family wants to have is a battle over care choices when faced with a family member’s last days.

Successor Trustee with Creditor Problems May Cause Serious Problems for the Trust.

Sometimes the legal reasoning does not fit with the practicalities of a transaction and one must just take action that makes no sense to close a deal.  Such is the case recently when a client passed away and the successor trustee had an IRS lien.  The living trust had a properly funded residence and in escrow the title company required that the IRS lien against the trustee, individually, be satisfied from the proceeds of the sale of trust property.

A trustee acts in a fiduciary capacity on behalf of the beneficiaries of the trust.  When wearing the hat of trustee, he or she does NOT own the asset individually.  The beneficiaries own the beneficial rights to the asset.  So it makes no logical sense for the title company to require the lien on the trustee to be satisfied before they would insure the title from the living trust to a third party buyer.  Wow!

What was the title company’s reasoning?  Here is where it gets interesting. The title representative told me that in the past, creditors of the trustee, individually, approached the third party buyer of the residence owned by the parent’s living trust claiming that the transaction was invalid and that they would pursue the interest owned in the property by the third party buyer…again Wow!  The buyer contacted the title insurance company having put a claim against the policy.  Notwithstanding the result of the creditor claim, the title company had to defend their policy which cost the company money.  To avoid this they simply require that the trustee not have any creditor claims.

This makes no legal sense but it is what it is.  So what is the successor trustee to do?  After the death of the parent, if there is real property that will be sold or refinanced, prior to any successor trustee taking over as trustee, there may need to be a lien search done on the proposed trustee.  If something shows up, the next trustee may need to accept the position as trustee.  This should not work this way, but in order to close the real estate escrow, there may be no choice.

For more information, please contact me.