Yeah, I know insurance benefits are tax free, which is very fortunate for those who have policies. We did not have to probate my dad’s estate, as everything had my mom as a beneficiary, and she was a joint owner of the house. We did have to open up an estate account (hard to find a bank who would do that), in order to cash checks made out to him.
It will be a different deal with my mother. Though me and my sister are listed as beneficiaries on everything, we’ll have to go through probate for the house unless we can convince her to make a will. She doesn’t like to think about dying. And Washington state estate taxes kick in at a relatively low level, so I’m sure we’ll have to deal with that, listed beneficiaries or not.
Even if her house is in her will…it will need to go through probate.
We recently did our whole estate planning (again) and the only thing our kids will have to deal with in terms of probate…is our house…unless we sell it first. In our will it states that the house and contents will be divided equally amongst our kids.
For folks considering a trust simply to avoid probate, please consult with your estate lawyer. Ours and our CFP both told us not to put our house in a trust. Both have extensive experience with estate planning…and trusts…and houses.
And no, we are not paupers. As suggested upstream.
ETA…I dealt with probate when my mom died. I’m in CT. Really, it wasn’t a horrible process, and I had some accounts that were OOS that needed to be closed.
I also had no trouble at all setting up an estate account…as the executor of the estate.
I didn’t say anyone was a pauper. I said most with significant assets have a trust. It’s no different than the extremely wealthy invest in municipal bonds whereas the general public doesn’t. It’s just the trends - not necessarily everyone.
As someone mentioned upthread, it might be more in California where people have trusts.
From what I understand, probate can take months. A trust is instantaneous.
All that said I’ll be seeking estate attorney recommendations here in the next year to get a check up.
You list a lot of reasons that your sister and you need to get your mom’s affairs in order with her cooperation. How to do this? You know your mom. Maybe figure out what the estate taxes and costs for probate will be and say the best gift she can give to your sister and you is to be able to pass on full value of the things your dad and she have worked hard for all of their lives.
We used to have a trust, but when we redid our wills last year, the estates and trust attorney talked us out of a trust. Said it wasn’t necessary where we live. And she wrote some language into the will that handles the inheritance tax exemption issue after one of us dies ( I think. This is all above my pay grade). And while I am not comfortable sharing personal financial info, and not sure of others’ definition of “wealthy”, I strongly suspect we fall into it.
That would sound good, but the reality is, it doesn’t matter. Probate in WA only costs about 3K, and her house will have to go through probate regardless, apparently. There’s nothing she can write in her will to escape WA state estate taxes, that’s just what it is. And honestly, I guess I don’t really feel comfortable talking her into doing something that she doesn’t want to deal with, and if we are fortunate enough to get an inheritance large enough to share with the state, I’m good with that. Even thinking about this makes me feel uncomfortable, it’s her money, not mine.
This is from the Moneywatch articles the appear about once a week. I think it is Big Brother watching our threads again:
Five items to leave out of a revocable living trust
Even as his granddaughters begged Pete to keep his collection of Beanie Babies out of the living trust and just hand ’em over (such sweet kids), he turned his attention to other things and came up with this list of five priority items to leave out.
Vehicles. Whether it’s a ’63 Corvette, Harley chopper or prop plane, all that’s required to pass it on is a simple written instruction to transfer the title to a beneficiary. In a trust, you’re exposed to lawsuits over accidents that involved the vehicle.
Annuities and retirement accounts. A trust can turn non-taxed accounts into taxable ones. But you can make the trust itself the beneficiary so that these accounts pass directly to your trustees without some IRS agent crashing the wake.
Life insurance. Simply name your beneficiaries within the policy. Or, create an irrevocable life insurance trust (ILIT) to avoid estate taxes.
Assets held in other countries. This gets complicated as you may not be able to do it in the first place — and if you can, you’ll need to consult an estate attorney licensed in the country where your international assets are located.
Checking and savings accounts. If you use these to pay monthly bills, you may run into financial complications unless you’re the trustee and granted full control of trust assets. There’s a much easier route to take: Keep these accounts out of the trust.
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I don’t know why anyone would put these into a trust, but I guess it is a reminder to make sure these accounts have a good beneficiary listed and not ‘estate.’
Another reason to have a trust is to ensure part at least of the estate ends up with the offspring rather than a future spouse and family. It can be set up so that on the death of the first spouse, the trust assets are split - the decedent’s part becomes an irrevocable trust and is administered by trustees (kids probably) for the benefit of the surviving spouse. The surviving spouse’s part remains in a revocable trust and can be disposed of however they want. Upon the death of the second spouse the trust is dissolved and assets from the irrevocable trust go to the beneficiaries.
My friend had a situation in NY where her mother set up a trust for her house. Not sure of the details, but it meant that when she got Alzheimer’s and needed care, the house could not be sold to pay for that. It was a bit of a catch-22, she had assets (the house), but could not use them for her own care. Again, don’t know all the details and terms of the trust. Just putting out there, that when your house is your biggest asset, you may down the road need to sell it and use those assets to pay for your own care (and when that runs out turn to Medicaid). Yes, nobody wants that situation, but many end up needing it.
In my experiences, if a person is in a facility (skilled care) that starts out having assets to pay, and the facility does keep residents transitioning to Medicaid, they receive the same kind of care. This was with in-laws in WI and facility that I worked in AL (skilled care and rehab facility). MIL wanted to make sure her house would pass to her sons; they deeded the house to the sons years before and kept paying the taxes while living there. Medicaid does a ‘look back’ I believe it may be 5 years regarding assets.
My father did this. He was already broke at that point (spent all his money while at an assisted living facility). The place took him and he paid for a few months and then switched to Medicaid paying the bill.
Surely you aren’t suggesting that Medicaid abandon its “lookback” policy so that folks with assets can pass them to their heirs while the tax payers cover their living expenses?
Reading more carefully now. My father kept the house in his name, sold it when he went to an AL, spent all the value of the house first, and then switched to Medicaid.
Yes, Medicaid does a look back and good for them for doing this.
If you deed the house to your heirs before you die to protect your inheritance, they legally need to pay gift tax on this. And if you mistime this trick, you could end up being denied Medicaid.
I worked with a client whose husband was in an AL facility. He had a degenerative disease but was in otherwise good health. He did all of their retirement planning and he and he alone was the beneficiary of a family trust. His wife was in a terrible situation as she did not have enough cash flow to cover his expenses without depleting their joint accounts, leaving her with essentially nothing for her future care if she needed it. She also had a disabled son living with her and was concerned that if she predeceased her husband, their house would be taken to satisfy any medical liens, leaving her son homeless.
Yes, good attorneys are expensive. But this is a situation where good estate planning and advice would have made a world of difference. In no way am I condoning cheating taxpayers but there has to be a better way to handle these types of situations.