Dear Len & Rosie,
My mother named my sister and me as successor co-trustees in her trust, and co-executors of her will. We are the only heirs and will split her property 50/50. My question is, upon my motherís passing, do we need to register with the probate court to be able to disburse her property? Her estate is less than $3 million (that includes her home owned free and clear) and thereís no dispute as to who inherits what. Weíd rather do this ourselves and not use an attorney.
When your mother passes away, you and your sister should see an attorney. While it is possible for you to do much of the work yourself, itís impossible for us to tell you precisely what you have to do in order to properly administer your motherís trust. Every case is different and depends not only on the exact terms of your motherís trust, but also on exactly how each of her assets are titled. You canít get to Point B (final distribution to you and your sister) without first identifying Point A (where everything is upon your motherís death).
In general, the first step is to get everything in your and your sisterís names as trustees. That usually requires affidavits of death to be prepared and recorded for your motherís home and any other land she owns. Complicating this is the property tax paperwork that you need to submit to the County Assessor to avoid losing your motherís Proposition 13 protected assessment. Donít try this unless you know what you are doing, because if you make a mistake your property taxes may skyrocket in comparison to what your mother pays today. Itís also important to note that depending on what your motherís assets are worth, her home may be able to fit into one daughterís share Ė maybe your sister will get the home and youíll get cash and stock of equal value. If itís done correctly.
Non-real property assets have to be transferred to you and your sister as trustees under a taxpayer identification number obtained from the Internal Revenue Service. Usually a summary of the trust document, called a Certification of Trust, is also required. Stocks and other securities also have special transfer documents to prepare. So do mobile homes.
Now would be a good time for you to examine all of your motherís assets and make sure they are held by her as the trustee of her trust. Otherwise there could be a probate upon her death. Your mother should also verify that she has named beneficiaries on all of her retirement accounts. Everything should be in the trust except for her vehicles (they donít trigger a probate), retirement accounts (she should name the two of you as beneficiaries) and her checking account (she should add you now to this account so you can sign checks immediately in an emergency).
Can you do this on your own? You could do it, but you would have to educate yourself first, and itís more complicated than you think. People who think, ďBut trusts are supposed to be easy!Ē ought to understand that while trusts are less expensive and time consuming to administer than an estate in probate, itís just as complicated.
Len & Rosie
Dear Len & Rosie,
My parents are in their 60s and are thinking about making a revocable trust. They want to leave their house to all three of the children, but they do not want us to sell the home after they both die. Is there a way they can make it so the house canít be sold after their deaths? My mother wants to be sure we always have a place to live if something should ever go wrong with our homes.
Len Tillem and Rosie McNichol are elder law attorneys. Contact them at 846 Broadway, Sonoma, CA 95476, by phone at (707) 996-4505, or on the Internet at www.lentillem.com. Len also answers legal questions each weekday, Noon-1 p.m. and Sundays, 4-7 p.m. on KGO Radio 810 AM.
Your parents can do this. They can create a revocable trust that would be able to maintain control of their home. Instead of simply distributing their home equally among their children with all of their other assets, your parentsí trust can continue on after their deaths. The trust can include almost any restrictions they want with respect to how their home will be maintained after their deaths.
Your parents can even tie up the property within a dynasty trust for a minimum of 90 years after their deaths. If done right, the property can be held for the children, grandchildren and great-grandchildren.
But if they do this, there will be complications. First, if their home is held in trust, that means the trust has to pay for the expenses and upkeep of the home. Unless the home is rented out, there will be no trust income available to pay these expenses. That means your parents will have to either leave sufficient assets in the trust to pay the continuing expenses of the home, or make their children pay these expenses.
A second complication is capital gains tax. When your parents pass away, the home will receive a stepped-up cost basis. This means that when the property is eventually sold, the amount of capital gains tax and California income tax due will be based on the increase in the value of the property since the surviving spouseís date of death. If the home is held in trust until all three children die, it will have undoubtedly increased in value and there will be a significant amount of tax due upon its sale.
Finally, your parents may want to use a little common sense. Sometimes the job of an estate planning attorney is to tell the client, ďThis is a bad idea.Ē If all three children are already buying homes, keeping their own home in trust as an emergency backup home is probably a bad idea. It may force the children to become landlords when they may not want to.
Even worse, if one of the children does wind up living in the home, the other two children may never benefit from a large portion of their inheritance. This can create resentment and could even result in your family breaking apart. Unless thereís some overriding reason why this is necessary, itís usually a better idea to distribute the home outright to the children and let them decide what to do with it.
Len & Rosie