Once You Create a Living Trust, Don’t Forget to Fund It

If you do not stay on top of your trust, your heirs could have a hassle in probate court. Many people set up trusts, but forget that their accounts do not “magically flow” into their trust.

Below are a few steps you can take to ensure that your trust is or will be funded successfully. 

1. Check all the deeds on your real estate holdings. 

“If you have a primary residence, vacation home, timeshare and/or rental property, you’ll want to confirm that these assets are in the name of your trust.” 

2. Review your financial statements. 

“Gather any bank and investment/brokerage statements that are not part of an IRA or retirement plan and confirm that each of these accounts has your trust listed as the owner.”

3. Examine your annuity and life insurance policies. 

“Verify the parties to these contracts: the insured/annuitant, owner, and primary and contingent beneficiaries.”

4. Address IRAs and other retirement plans separately. 

“IRAs andretirement plans must be treated on a stand-alone basis when determining whether a trust should be listed as a primary or contingent beneficiary.” 

See Michael Clark, Once You Create a Living Trust, Don’t Forget to Fund It, Kiplinger, October 26, 2020. 

Legal Considerations of Living Together in a Multi-Generational Home

Due to COVID-19, many people have had to balance working remotely with caring for their children. That being said, many are using their homes as an office and a school, while also maintaining it as a home. 

The difficulty balancing, remote learning and homework, virtual meetings and work calls, and shopping, cooking and cleaning has created more housework. It is no surprise that wear and tear and stress levels have increased. 

Many are considering moving in with their parents or children are needing to consider the legal implications of doing so. When living with multiple generations, new considerations come into play. These considerations include,  “the burdens and the benefits of raising and teaching the children together, dividing the chores, maintaining the home, and pooling their finances together during this time of uncertainty.”

Below are a  few initial questions that you should discuss with your family when considering living in a multigenerational home: 

  • Who is contributing to the purchase price?
  • Is it a gift, advance on inheritance, loan, or will they hold an ownership interest equal to their capital contribution? 
  • How do you equalize your estate to the remainder of your family?
  • What happens if a couple gets divorced?
  • Who has the right to reside in the home and how will the ownership be divided?
  • What happens if a parent must later reside in a nursing home for care?
  • Do they have sufficient assets in their name to pay for nursing care or will Medicaid look to his or her ownership interest in the home for payment?
  • If one of the owners dies, who receives his or her interest in the home?

With all of the uncertainty surrounding us, these questions are very important, and the answers even moreso. 

See Rebecca MacGregor, Legal Considerations of Living Together in a Multi-Generational Home, Bowditch & Dewey, Estate, Financial & Tax Planning Group, October 13, 2020. 

12 Different Times When You Should Update Your Will

While some people know they need to update their will but never get around to updating their wills before they pass on, many others believe that their documents are all squared away and do not need to be altered or updated. The latter group’s families usually have to deal with the mess that is left behind due to omissions and other mistakes.

If you are in either one of these groups, here are a list of 12 different times when you should update your will:

  • You are having your first child
  • You are thinking about divorce
  • You have gotten divorced
  • Your child gets married
  • Your beneficiary develops creditor or substance abuse problems
  • Your named executors or beneficiaries die
  • Your young family member becomes a responsible adult 
  • New legislation is passed
  • You come into a windfall of money 
  • You can’t find your original will
  • You buy property in another country or move to another country
  • Your family and friends become enemies

If anything on this list applies to you, it is likely that your will ought to be looked at or changed. Failure to do so will likely leave behind a disaster for your loved ones to clean up after you pass on. 

See Daniel A. Timins, 12 Different Times When You Should Update Your Will, Timins Law (Kiplinger), May 26, 2020.

Should a Parent of Two Children Split Inheritance Equally?

Imagine an elderly parent who has a fair amount of only and two children. One is wealthy with luxury properties and married with no children. This child lives far away and only visits occasionally. The other child lives close to the parent, has a modest salary, has children as well as several grandchildren and regularly visits and helps the parent. The parent decides that it is fair to leave her children an equal share of the assets. Is this ethical?

In Aristotle’s Nicomachean ethics, he points out that when people who are equal are granted unequal shares – or people who are equal are granted unequal shares – quarrels and complaints arise. However, the challenge is deciding what makes two people equal. In this case, the children are unequal in two different ways: (1) the contribution they have made to their elderly parents and (2) in their financial situation. 

There is something unattractive about providing a financial benefit as a reward for a display of care. This type of benefit is risky because it can encourage ulterior motives for providing help for loved ones. However, this problem does not arise when more money is left to a child due to their financial situation. Other children may be disappointed, but there is less reason for complaint.

Many people move towards equal shares because it shows that a parent loves and cares for their children equally and this requires not comparative assessment. However, parenting often requires you to pay equal attention to your children, but the need to respond specifically to their tailored needs. “Equal love would be evidenced by giving our tennis-playing son a new racket and our golf-playing daughter a new golf club – not by giving them both a tennis racket.”

With these considerations in mind, it appears that leaving more to one child with the greater need would be permissible. The main point being, if the estate is to be divided to favor one Chile over the other, the parent should make it clear why doing so was necessary and consistent with each having an equal claim to the parent’s love. 

See Kwame A. Appiah, Should a Parent of Two Children Split Inheritance Equally?, N.Y. Times, May 26, 2020. 

California’s Prop 19: Property Taxes

Property owners who want to transfer real property in California to their children may soon lose a valuable tax benefit under state law. California voters will decide on Nov. 3 whether to implement Proposition 19, the “Property Tax Transfers, Exemptions, and Revenue for Wildlife Agencies and Counties Amendment.” The ballot measure proposes amendments to the California Constitution regarding the state’s property tax law that would significantly narrow the parent-child property tax exclusion that allows transfers of real property between parents and children to avoid the property’s taxable value being reassessed to its current fair market value.

Under current California law, all real property has an established taxable value that may be increased by no more than 2% each year except when there is new construction or a change in ownership of the property. When a change in ownership occurs, unless an exemption applies, the transferred real property is reassessed to its current market value as of the date of transfer, which becomes the property’s new taxable value. This reassessment can often result in a dramatic increase in the property’s taxable value.  

However, under current law, the transfer of a principal residence between parent and child may be fully excluded from property tax reassessment, regardless of the market value of the property and regardless of whether the property is subsequently used as the child’s principal residence or for some other purpose, such as a vacation or rental property. The children get the benefit of the existing taxable value and can pass some or all of that benefit along to their own children. For any other property, including vacation, rental and business property, the first $1 million of the taxable value transferred between a parent and child (that is, the current assessed value, not fair market value) may also be excluded from reassessment. A similar exemption applies for transfers from grandparents to grandchildren if all the parents of those grandchildren are deceased.

The Prop. 19 ballot measure would eliminate the unlimited exemption for transfers of a principal residence unless the transferee continues to use the property as a principal residence. In addition, the transfer of a principal residence with a fair market value in excess of the residence’s current taxable value as of the date of transfer plus $1 million would also trigger a partial property tax reassessment, even if the property will continue to be used as a principal residence by the transferee. If approved by voters, Prop. 19 would go into effect Feb. 16, 2021. Starting Feb. 16, 2023, the $1 million threshold would be adjusted annually at a rate equal to the change in the California House Price Index.

Prop. 19 would also allow homeowners who are over age 55, have severe disabilities, or are victims of natural disasters or hazardous waste contamination to transfer their assessed value for property tax purposes to a different primary residence anywhere in the state—a change from existing law that generally requires the new property to be in the same county or in a county that has authorized intercounty transfers by ordinance. Under existing law, the taxable value of the old home may generally be transferred to the new home only if the fair market value of the new home is equal to or less than the fair market value of the old home. If the new home is of the same or lesser market value, the assessed taxable value of the new home remains the same as the old property. Under Prop. 19, the homeowner still gets the benefit of the lower assessed property tax value even if the new home has a greater market value than the old home, with an upward adjustment equal to the difference between the fair market value of the two homes. Homeowners who are over age 55 or who have severe disabilities may claim the tax assessment transfer benefit up to three times (an increase from the current single-time benefit), while disaster and contamination victims would continue to be allowed one transfer. 

What California Trust and Estate Litigation Will Arise from the Economic Downturn?

The COVID-19 pandemic has idled workers and the coming weeks will bring more news of business closures and bankruptcies.  After a decade of sustained growth, we are facing a recession of uncertain depth and duration.  The New York Times recently reported that some Americans are turning (or perhaps returning) to “financial therapy” for support.

In the trust and estate world, how dark are the approaching storm clouds?  More specifically, how might the economic downturn cause California trust and estate litigation?  From this blogger’s perspective, claims are likely to increase as a result of declining asset values, growing demands for trust distributions, and anxiety associated with economic insecurity.  As always, however, allegations are easier to make than to prove.

See Jeffrey S. Galvin, What California Trust and Estate Litigation Will Arise from the Economic Downturn?, LexBlog, June 1, 2020. 

Tactics for Stretching Retirement Assets under the SECURE Act

The Setting Every Community Up for Retirement Enhancement (SECURE) Act, signed into law by President Trump on December 20, 2019, as part of funding legislation for the federal government, has many provisions relating to financial planning, especially retirement planning with IRAs and employer-sponsored plans. Among the provisions attracting the most attention is the curtailing of “stretched” inherited retirement assets.

In a typical stretch arrangement, one spouse would retire with a retirement account, which would be tapped during their lifetime and the balance left to a surviving spouse. The surviving spouse would continue to draw down the account and eventually leave the remaining funds to their children (or other beneficiaries, such as grandchildren). These ultimate heirs might be able to spread required minimum distributions (RMD) over their life expectancies, possibly resulting in decades of untaxed compounding and substantial wealth accumulation.


Read More: Sidney Kess, JD, LLM, CPA and Julie Welch, CPA, PFS, CFP, Tactics for Stretching Retirement Assets under the SECURE Act, CPA Journal, April 2020