by Stuart Simone Esq
We are often asked if there are cheaper alternatives to the Living Trust with Pour-Over Will package that we recommend. The answer is… yes. But we advise that Estate Planning is not an area to skimp on, and the following article will tell you some of the reasons why.
Many people believe that you can draft your own will, sign it in from to two disinterested witnesses, and all will be well when you pass. As we have mentioned elsewhere, having a valid will in California does not avoid probate. And you do not want your loved ones to end up in probate court. (Please refer to our previous blogs and website, which details the high legal costs and length of time that a Probate Court Case takes.)
Another common budget estate planning strategy is to maintain or create joint property ownership between a parent and their child/children. At first may seem like the easy, money-saving way to go: simply add your children to the deed of your home as “joint tenants” and then bypass the time and cost of estate planning and the probate process.
However, there are several major disadvantages to adding your children directly to your deed. One of these is that the property could be reassessed if an improperly-drafted deed is recorded, leading to much higher property tax bills for heirs.
Recently we have found that some California counties hungry for more income, such as Los Angeles County, are “accidentally” re-assessing properties to current market value when one of the Joint Tenants dies, and then demanding that the surviving joint tenants pay the much higher tax bill while they “process” the claim that you must file, a process that can take a year or more. In fact, this happened to me personally, and even as an attorney it took me two long years to get the city to admit that they improperly denied “the Prop 58 transfer exclusion” that I applied for. (By the way I got most of the county employees I talked to to admit that the county had made an obvious “error”, but there was nothing they could do to speed up the review process.) This exclusion states that real property will not be re-assessed if it is transferred from parent to child (and “child” includes spouse of the offspring.) In my case property was held in joint tenancy and the application for exclusion to re-assessment was a legal slam dunk because the mother of the other two owners passed away… yet it took 2 years and many dozens of phone calls to the County Assessor’s Office. In fact, although the County admitted that they were wrong, I still have not been paid. (They automatically raised my property taxes significantly, even though multiple staffers admitted it was “likely an error.”) Lesson learned: If the property had been held by a Trust, none of this would have happened, as there wouldn’t even be a transfer at all – the trust would own the property before and after the death, with only the beneficiaries within the trust changing. Trusts are a beautiful thing!
As if the increase in County taxes isn’t enough, add your children to title would be disastrous for federal capital gains taxes. For example, let’s say you purchased your home for $100,000, later added your child’s name to the deed, and then passed away when the property was worth $400,000. If that child later sells the house for $500,000, the child would be taxed for a capital gain of $400,000 instead of $100,000, a huge difference and a very costly mistake.
Some people set up joint accounts with their kids not just for property ownership for bank accounts. Again, this is faster and easier than setting up the proper estate planning documents, but again leads to a far inferior result.
For example, let’s say you add a son (or daughter) as a co-borrower on your checking account. Possible problems down the line include:
- Borrowing – If your son gets into a financial bind, it would be very tempting to “temporarily borrow” from your checking account… and later “forget” about paying it back.
- Sibling rivalry – If you have multiple children and you passed away, under the law your son gets to keep everything in the account. And so do each of the other children, as each joint tenant has full interest and full access. This can and likely will lead to a family court fight.
- Bankruptcy – If your son’s financial problems appeared hopeless, he might file for bankruptcy. Since his name is on your bank account, the bankruptcy can claim some or all of your assets to pay off his creditors.
- Divorce – If your son filed for divorce, his spouse could claim the joint assets as part of the marital estate. If you wanted to buy or sell something, your son’s soon-to-be-ex might well need to sign off on the sale or mortgage. Talk about awkward!
Another cheaper alternative to having a Living Trust drawn up – but not much cheaper – is a so-called transfer on death designation, including the revocable transfer on death deed. This strategy might work for small estates, where the ‘tangible personal property” such as furniture and jewelry is under $166,250 or less (as of 1/1/2020) in California, which allows for a simplified probate proceeding. But beneficiary designations are easy to forget, which can mean accounts going to the wrong people after changes occur during your life. For example, your ex-wife or your mother may wind up with an account that should have gone to your current spouse. Another problem can occur if a beneficiary dies before you, which means the asset may need to be probated after all.
Hopefully the examples above have alerted you to the perils of trying to cut corners with your estate planning. In other words, you don’t want to be penny-wise and pound-foolish. And there is no reason to, now that Simone Legal has addressed your concerns about the expense of complete and proper estate planning by offering a package deal to handle all the common scenarios while you’re alive as well as after you pass: A complete Living Trust Package that includes a Living Trust, Pour-Over Will, Durable Power of Attorney, HIPAA Waiver, Advanced Health Care Directive and more and totals some 130 pages in a tabbed binder with table of contents and summaries.
And since it is a “LIVING Trust,” this package offers you many benefits while you are still living. For example, let’s say you (and your spouse if you’re married) were in a serious car accident which left you (both) incapable of making medical decisions. Yet there were still life-and-death medical decision that had to be made. Without a Living Trust package, due to federal HIPAA laws minor children would not even be allowed to see you in the hospital and a dispute could erupt over who is allowed to make the necessary decisions. With our Living Trust Package, you will be able to name a pecking order of who makes these decisions and who is allowed to see you while you’re incapacitated.
And of course the package will handle the situation none of us can avoid… your passing. Our package even covers burial instructions, something you do not want your grieving heirs to suddenly have thrust upon them at the worst possible time. And if you’re fortunate enough to have valuable property and assets, the last thing you want is your family battling over who gets what. Sadly, many families have been permanently divided and lifelong feuds been created because there was no living trust and pour-over will. These are just some the reasons that Simone Legal offers this service and strongly recommends it: the benefits are truly priceless.
