Recently I had the pleasure of participating in a panel discussion on the subject of Social Security and retirement. Joining me in this discussion were a local estate planning attorney, Heather Robertson, and a senior care benefits expert, Rosanne Angel.
As a financial planner, I thought I knew almost everything one in my profession needs to know about trusts. But I learned something new, that I want to share. Something very important.
When planning for what happens to assets after one’s death, most people think they are clear of the estate tax, because the threshold before taxes apply is so high. But many people don’t think of the probate fee charged under state law by probate attorneys, or the fees for executors. And even if people know about attorney probate fees, which can amount to tens of thousands of dollars even for a modest estate, they may not realize that the probate fee applies to the full value of the homes they own. Not just to the equity portion.
In other words, probate fees will also apply to the debt still owed on the house, not just the part you own.
The only workaround on this is to place the house along with other assets in a trust, your trust, so that upon your death the house avoids probate proceedings. And all the costs associated with this.
Heather was kind enough to also talk to other key points of trusts. Parents of minor children of course will want to name guardians for their children, so that a court is not left to decide who gets the children should the parents die in a traffic accident. Or suffer another form of untimely death.
Parents of disabled children will probably need a trust to protect assets for the adult child, under Social Security rules. When protecting people who lack mental capacity, it is important to choose a reliable licensed fiduciary. These are people licensed in the state of California or other jurisdictions who are professionals in managing assets and tax filings for the benefit of someone else.
Unmarried couples may wish a trust to provide for a division of assets upon death without entering into a marital contract. Trusts can serve in this role to fulfill promises made by the partners to each other. For instance, unmarried couples may wish to gift equity in a house or reimburse debts related to health care or other needs, by providing for this in their bequests made in the trust. Where trusts fall short when compared to marriage is in providing tax and Social Security advantages permitted under federal tax code and under the rules of the Social Security Administration.
Finally, should one of you in a marriage not have long term health insurance or other savings to cover health events, a trust can serve to reimburse the spouse or partner who may have to pay for the care of the other. This type of assurance is even more important for marriages later in life, should both parties have adult children who hope to inherit.
None of us like to contemplate death. But having a trust can help others manage their grief. Heather said the last thing families want to do after losing a love one is to petition the court for a distribution of assets. The trust can help avoid the necessity of court approvals.
This said, give an original copy of the trust to your successor trustee to execute the estate. Make sure your executor and survivors know where it is. If you are creating a will, still subject to probate, your executor will absolutely need an original of the will, not just a copy. Also, create a HIPAA document and possibly a durable power of attorney which can be activated when appropriate, should you take ill and need to rely on others for decisions.
This blog is educational in purpose only. Check with an attorney when establishing a will or trust for yourself or your family.
*Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.