I don’t think this is an accurate characterization of the siruation. The trust could absolutely choose to sell the house for the mother’s care. The key point is: they weren’t forced to sell the house, as they would have been without the trust.
I don’t know. I never thought about that option. I could check it out and ask if me and my sister could be added. But I actually think that could be much worse for taxes, because I think when someone dies, you inherit the basis at their death, right now maybe a million dollars. But if we were on the deed, she passed away and we sold, I think the basis would be the 15K that she paid for it (plus whatever expenses to fix it up, which would be really hard to figure out over 60+ years). Much higher than estate taxes, I think.
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As I said I don’t have all the details. But I was told the trust said the house could not be sold until the mother’s death. Maybe if the mother was still able to make her own decisions (she had Alzheimer’s for many years), she could have either changed the terms of the trust or just sold the house to pay for her own care. But my understanding was that the kids could not do this.
Gift tax is just a form to complete by the gifter. Any taxes would be due when the gifter passes and the gifts+remaining estate exceed the Gift Tax exclusion amount.
btw: my folks didnt have much, but they did put the house in a Trust so that if one had to go into a Nursing home, the other could remain in the home. And if the surviving spouse had to go into a nursing home, only their half coudl be used to pay for care, with the other half going to heirs.
fwiw: FIL has a tranche of $$ that he plans to distribute by the end of Dec-25. Worth considering for those parents who have estates exceeding the ~$5.6m+inflation.
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Usually I remind people that IF they create a trust, it is important to make sure to do Step 2 to associate the desired asset(s) with the trust… ie do the paperwork to put it on the deed, make beneficiary of accounts etc. But today I’ll add the reminder (probably already ensured by your lawyer) to undo these steps if you opt to no longer use the trust.
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Could you elaborate this? Why couldn’t they be forced use all to pay for the care? Was it in an irrevocable trust?
barely knowledge about this topic, but it was written as a (then) typical AB or Marital trust. As long as both spouses were alive, it was a revocable trust. Upon on the death of first spouse, his/her share becomes irrevocable (kinda), but the “income” can be used by surviving spouse.
It was not uncommon in CA back in the day. But perhaps it may have worked well here as CA was a community property state? (dunno)
A-B Trust: Definition, How It Works, Tax Benefits.
As Trustee, I had to go back and value the home and other assets as of the date when my first parent passed. (each parent had different heirs) PIA, but there are real estate valuation companies that do that sort of thing for tax purposes.
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IANAL but I believe this is incorrect. If everything has a POD/TOD designation there is no probatable estate, but the decedent still had an estate which must pay valid claims. Where the rubber hits the road is if the decedent has bills (medical, loans, credit card debt, final year taxes, etc). The beneficiaries need to agree how to pony up to pay the bills or (1) they can be sued by those owed the debts (2) creditors can initiate probate and the appointed executor will demand repayment from beneficiaries
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Without the details of what type of trust it was and the conditions specified in the trust its hard to say what happened. Perhaps this was a trust left to the mother by someone else (say her parents) so that the mother was not the trustee.
For a normal revocable trust of the type most people are discussing here the person that owns the house and places it into the trust is the initial trustee and the trust contains terms specifying when the successor trustee(s) take over. These typically include death or incapacity of the original trustee. Having large assets such as a house or brokerage account in the trust can simplify things if the original trustee is incapacitated with Alzheimer’s or something else.
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Pretty sure I’ve aged just reading all this.
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IANAL either but I am not sure that’s correct.
If everything is set up with beneficiaries, then upon death that ownership has transferred and I don’t believe it is subject to probate. If there are no assets left in the “estate” then why would anyone be able to collect? No will, just beneficiary driven distribution.
I believe in many cases those obligations die with the individual unless there is an “estate” to go after.
I don’t believe life insurance paid out to a beneficiary is part of an estate.
I don’t believe retirement accounts paid out to a beneficiary are subject to probate.
My bank accounts are set up with a beneficiary. I’m not sure if they are part of an estate.
Obviously a home with a mortgage or a car with a loan would need to be taken care of.
Credit card debt? No estate, no longer anyone’s problem?
Final year taxes? No assets, who’s responsible? Not the life insurance beneficiary.
IANAL but I think an attorney would be able to shed some light on this. It probably varies a bit by state too.
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If the estates are small or there are no assets, there is little chance of creditors opening a probate estate. They have to open a probate estate to establish the debt, and then sue to recover anything that an heir might have taken that could have been used to satisfy a debt of the estate (the heirs don’t owe anything directly to the creditor, so can’t be sued directly, only by the estate).
I think it is more likely that a different beneficiary would open an estate and have an executor appointed to go after Cousin Ben who took the diamond watch or some other valuable piece of personal property. AmEx wouldn’t even know about personal property, even cash in a safe deposit box.
The creditors can open an estate but they have to front the money for that and unless they have hope of recovering, it is unlikely. The creditors have to be damned sure they are going to recover a large amount before they are going to do that. A secured creditor will probably just repo the car or security and let any other debt go. They aren’t going to go against the heirs for personal property.
There may be no taxes to file. My parents weren’t working when they died and had no income, so nothing to file. My mother did include my father on her taxes for the year he died (married, filing jointly) but she didn’t have to. When she died, we didn’t file a return.
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Who covers the funeral expenses in the cases you are describing? Who applies for and pays for death certificates? How does someone die with no outstanding bills to pay?
My parents did not do any of these things. But they would not have been happy with their “spiritual legacy” if our attitude had been “let them sue us”. And to spend a lifetime being responsible and fulfilling their obligations…you’re going to stiff the funeral home?
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Whomever wants to pay to have the funeral, etc, pays the expenses. If no one steps up then no funeral.
There is no “stiffing” the funeral home. They want the money up front.
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No, everyone can respect the lookback period. Just know about it in decision making.
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Yes. Creditors can try to collect through the estate, but others, unless they are co-signers, aren’t liable to Visa, for student loans, payday loans, IOUs etc. A bank account is an asset of the estate, but if there is a POD, it is likely the bank is going to pay out those funds when a death certificate is presented, long before an estate is opened and then the executor would have to claw it back (which is difficult to do).
Secured creditors will repo the security. Personal property like furniture is likely exempt (and no one wants it anyway).
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‘Mistime this trick’ - it is no ‘trick’.
If there is/was a problem with Medicaid, obviously some things would need to be done to ‘spend down’ the assets correctly.
MIL worked hard all her life, and she and her many siblings did receive a tiny bit of inheritance from her parents (13 children); she wanted to make sure - in legal way - to pass on her house.
Just like following the rules with taxes after a spouse dies/selling the home within the period of time and the tax consequences as detailed on this thread.
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A bank account is an asset of the estate, but if there is a POD, it is likely the bank is going to pay out those funds when a death certificate is presented, long before an estate is opened and then the executor would have to claw it back (which is difficult to do).
Not sure about this. When my mother-in-law died the bank would not do anything about any of her accounts regardless of how they were titled without establishing a EIN for her estate.
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Thanks for clearing up who can sue.
I also found the snip below on the web regarding a TOD transfer of real estate
the creditors of the deceased transferor may themselves commence a probate in order to timely filing their own creditor claims within one year of the decedent’s death. The personal representative appointed by the court then has up to three years from the decedent’s date of death to demand restitution from any beneficiary of any TOD Deed executed by the decedent.
If deceased grantor has unpaid debts, the TOD Deed creates potential liability and risk for the surviving beneficiary if a probate is opened. Thus, the beneficiary not only inherits the real property but also inherits personal liability to pay the decedent’s debts, even unsecured debts, like credit cards, even though unrelated to the real property.
Beneficiary Liabilities and Transfer on Death Deeds
And Nolo Press says
You can’t shortchange creditors or your family with a POD account—avoiding probate doesn’t mean avoiding your legal obligations. So if you don’t leave enough other assets to pay your debts and taxes or to support your spouse and minor children temporarily, a POD bank account (or any other asset that passes outside probate) may be subject to the claims of creditors or your family.
What Is a Payable-on-Death (POD) Account? | Nolo
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It’s not about titling, it’s about a beneficiary.
Did her bank accounts have a PoD with a beneficiary?
Well, thia is in Maryland.
" A payable on death (POD) designation for your bank account a simple way to keep savings accounts and certificates of deposit (CDs), out of the probate process. By naming a beneficiary, that person will automatically inherit that account following the original owner’s death.
In Maryland, setting up a POD designation typically involves filling out a simple form provided by the bank, making it an easy and effective strategy for avoiding probate for bank accounts."
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