Mom passed away Sat. now what to do with their finances?

[Audio Android]

Sorry to hear about that JL Sargent......Hope the financial problems work out smoothly for you.

[CECAA850]

I believe there's no gift tax on any ammount under $13,000.00/year.

[oscarsear]

? for Matthews. Can a POD/TOD work in conjunction with POA's or Guardianships? In the circumstance where a parent becomes medically incapacitated can a trustee, POA or guardian still proceed to manage the estate (according to terms) and then use the POD on the demise of the subject? Can accounts and real property titles be held as living trusts and as POD/TOD's?

[Jeff Matthews]

I believe there's no gift tax on any ammount under $13,000.00/year.

There's a bit more to this. The gift tax sprung up as a means to keep rich people from avoiding the estate tax (death tax) by gifting their property away before they died.

Basically, there is an annual exclusion amount, as generally referenced above, where no potential tax will be imposed. You can gift amounts up to the annual exclusion in any year with no potential effect on any estate tax. It's a pure "freebie."

However, you can gift vastly more than that and STILL pay no tax.

The idea behind the gift tax, again, was to limit depleting taxable estates through gifting. In essence, you get a Unified Estate Tax Credit upon death. This is a rather large amount. $5.12 million per person. There is no tax on the first $5.12 million in NET assets, plus excess gifts, upon death.

If you give a gift in excess of the annual exclusion, you must report it. For estate tax purposes, the value of your estate equals (a) your net assets upon death***, plus ( all excess gifts made during your lifetime. Upon death, these figures are added together, and then, your Unified Credit is substracted.

For example, let's say Don Donor gave Bobby Beneficiary a $500,000 gift in 2012 and Don Donor died in 2013, leaving an estate worth $3 million. Assume Don Donor never made any other gifts in excess of the annual exclusion. Don Donor must report the excess gift in his 2012 return. He will pay no tax. He merely reports it. Upon Don Donor's death, the taxable event kicks-in. The Unified Credit exceeds the value of the estate, plus all excess gifts. Therefore, no tax is due.

*** This is simplified for purposes of avoiding a treatise here. There are complex issues which crop-up regarding life insurance, trusts, etc., and generally, the key issues revolve around the grantor's/settlor's power of appointment over the property. The main idea of this post is to say that it is an extraordinary case where ANY person need concern himself with estate/gift taxes. Very few individuals have a net worth in excess of $5 million (double that for married couples). As recently as the early 1990's, the Unified Credit was as low as $600,000. Estate planning attorneys were in demand. Today, with a vastly higher Unified Credit, estate tax planning is hardly of concern for most everyone. Estate tax attorneys have probably moved on to ambulance-chasing and DWI's. Still, there are other reasons to plan estates, such as who gets what and when.

[Jeff Matthews]

? for Matthews. Can a POD/TOD work in conjunction with POA's or Guardianships? In the circumstance where a parent becomes medically incapacitated can a trustee, POA or guardian still proceed to manage the estate (according to terms) and then use the POD on the demise of the subject? Can accounts and real property titles be held as living trusts and as POD/TOD's?

I'll try to answer but am not sure I fully understand the scenario. The rule is this: Powers of Attorney and powers of guardians both terminate upon death of the grantor of the power (in case of POA) or ward (in case of guardianship). At the moment of death, a power of attorney or guardianship is worthless.

As regards trustees, there is not a cut and dry rule of law which answers the question. The terms of the trust will specify when the trust expires. It is anyone's guess without seeing the trust. The trust could expire (a) before the settlor's (grantor's) death, ( upon the settlor's death, or © after the settlor's death. Obviously, this covers the universe of time. You need to see the trust document. If the trust lasts beyond the settlor's death, the trustee remains in control of trust property. To put it more simply and accurately, the trustee remains in control of trust property for so long as (a) the trust remains in existence, ( he/she remains trustee under the terms of the trust and has not resigned or been removed, AND © the property remains part of the trust corpus.

Accounts and real estate (really, any property) can be held in a living trust. A living trust is not "special" and does not need to be thought of as all that unique from any other trust. It just means that it is a trust that the settlor created and funded while he/she was alive. As opposed to a living trust, there are also testamentary trusts. Testamentary trusts are trusts which a person specifies in his/her will which are to spring into existence upon his/her death.

There are certain things which attorneys in fact (the person acting under a POA), trustees and guardians are not allowed to do. For example, generally, they are not allowed to change the wills of the persons upon whose behalf they are acting.

If you have a specific scenario in mind, post, and I will tell you what I know about it.

[Boxx]

Jeff,

My hat is off to you. What a great forum member you are to be this engaged in helping others.

Makes me proud... Boxx

[Jeff Matthews]

As to trusts in general, now that estate taxation is rarely of concern, I am surprised to see a lingering interest among people to continue to use trusts for ordinary purposes. Putting aside tax issues, the purpose of a trust, generally, is to divest the grantor of property, place the property in the hands of a trustee, and have the trustee hold the property for the benefit of someone else. For example, an elderly person might wish to make sure a disabled child is well taken care of by another of his/her children. So, he/she might set up a trust where John uses trust assets and income to take care of Sally.

The trust is, in essence, a misnomer. It's purpose is because there is not complete trust. You don't trust that your wishes will be honored by giving John the property and hoping he takes care of Sally. So, you create a trust. John is trustee. He has a legal (fiduciary) duty to use the trust property stricltly according to the trust terms, or he can be removed as trustee and sued.

There are many ways to skin a cat, and most are simpler than trusts. Trusts also involve special tax returns every year, whereas other methods do not.

For example, why would a person put real estate in trust for simple planning purposes? Though trusts avoid probate, so do deeds. And deeds do not involve any tax returns. They are simple. Elderly Emma can give a deed as follows: Convey the real estate to Sam Son and Donna Daughter and retain a life estate.

Similarly, bank accounts in trust don't seem to be necessary in many cases. Usually, parent picks one or more children to serve as trustee, andas trustees, they are given rights to manage the account. Instead of trusts, they can simply add the kids to the account as signatories. If there are concerns over integrity of a child, accounts can be set up where checks require multiple signatures.

[Jeff Matthews]

Jeff,

My hat is off to you. What a great forum member you are to be this engaged in helping others.

Makes me proud... Boxx

Thanks, Boxx.

[oscarsear]

Jeff..... We are discussing 2 situations. 1st is the demise of the subject and the transfer/inheritance of the estate sans penalties and taxes. 2nd is the incapacitating disability of the subject and the need of an underling to manage the estate. If a POD/TOD is placed - can a POA/etc..... still allow the underling to access and manage estate funds while the elder is ill? Can these instruments be put in place simultaneously and used according to any current medical needs of the subject and still serve the beneficiary should the subject expire? Could a family put all of these instruments in place at one time to cover all of the bases? Appreciate your response ................

[Jeff Matthews]

I want to add Richard (Coytee) to the compliments here. He is quite knowledgable in financial issues concerning asset management. I have learned some things from him. It was actually his response above which I found to be very perceptive. I would not have considered that issue on first blush. But he was right, and so I confirmed it since he disclaimed being an attorney.

The thing about this is even though people like Richard will disclaim being attorneys, they know a heck of a lot. It's part of their business, but yet, they obtained licenses for other purposes. However, their business overlaps with attorneys all the time.

We attorneys, likewise, disclaim being financial advisors, and we disclaim such expertise as well.

However, it all boils down to experience. I am sure Richard has encountered scenarios to make him aware of things I would not have considered, and vice versa. Richard might have seen someone get burned on a tax return as a result of a POD designation where the real intent was to leave property to all the children. I have never seen that, but I am quite confident this is a real trap (which has become less of a threat since the Unified Credit is now so high). There are traps everywhere. I have seen them. So has Richard.

People generally should not be afraid to consult attorneys and financial planners because of price. Do we have high hourly rates? Yes. But at $300/hour, look at the years of knowledge Richard and I can share in a matter of a few minutes, a half hour, or an hour. A few hundred bucks can save hoards of money and heart-ache, and for more common scenarios, can save $10,000, $50,000, $250,000. It's well worth it to consult and get specific advice tailored to specifc details.

[Jeff Matthews]

Jeff..... We are discussing 2 situations. 1st is the demise of the subject and the transfer/inheritance of the estate sans penalties and taxes. 2nd is the incapacitating disability of the subject and the need of an underling to manage the estate. If a POD/TOD is placed - can a POA/etc..... still allow the underling to access and manage estate funds while the elder is ill? Can these instruments be put in place simultaneously and used according to any current medical needs of the subject and still serve the beneficiary should the subject expire? Could a family put all of these instruments in place at one time to cover all of the bases? Appreciate your response ................

Yes, they can be mixed.

Give a specific scenario and goal. It helps.

If your question is: "Can a person acting as attorney in fact under a power of attorney change the POD designation of the parent's accounts?" The answer, I believe, is "no." I would have to research and verify. Somebody else might chime in if they know the quick answer. Bear in mind, this is not a question involving federal law. State laws can vary.

[Jeff Matthews]

Jeff..... We are discussing 2 situations. 1st is the demise of the subject and the transfer/inheritance of the estate sans penalties and taxes. 2nd is the incapacitating disability of the subject and the need of an underling to manage the estate. If a POD/TOD is placed - can a POA/etc..... still allow the underling to access and manage estate funds while the elder is ill? Can these instruments be put in place simultaneously and used according to any current medical needs of the subject and still serve the beneficiary should the subject expire? Could a family put all of these instruments in place at one time to cover all of the bases? Appreciate your response ................

Yes, they can be mixed.

Give a specific scenario and goal. It helps.

If your question is: "Can a person acting as attorney in fact under a power of attorney change the POD designation of the parent's accounts?" The answer, I believe, is "no." I would have to research and verify. Somebody else might chime in if they know the quick answer. Bear in mind, this is not a question involving federal law. State laws can vary.

A POA is for the purpose of delegating authority to manage property as you describe. Bear in mind, I am referring to a financial power of attorney - not a health cae power of attorney. The POD designation is nothing more than that. It is not supposed to be a guarantee that the account will even exist at the time of death. If the attorney in fact, in carrying out his duties to take care of the elder, uses ALL of the elder's estate in caring for the elder while the elder is alive.... too bad for the heirs. There's no money left.

So, yes, you can see that these tools exist simultaneously and serve different purposes which, from the eyes of some of the players involved, might seem to be in conflict.

[Jeff Matthews]

Something (in my opinion) that you do NOT want to do is put your name on your fathers accounts as joint owner. I'll tell you why. Let's presume you DO make the account joint. There are reasons why that's nice to do and many people do it. Let's then fast forward 2 years and you are in an accident and run a child over. The parents are likely to sue you and anything you own. If you have your name on your fathers $20,000 checking account then half of it is yours. It would be at risk of being clawed at. They might win some of it, they might not.

What if however, you instead left the account in your fathers name ONLY and did two things. First is have him grant you powers of attorney. Now, you can deal with the account as though it WAS your account and still have that wall of protection for him since it's not legally your account. If that accident now happened, his account could not be clawed at because your name is not on it.

I did not see this post yesterday. Another astute observation. Absolutely correct. Not only for protection against car accidents and torts, but same applies if something happens and you get sued on a debt - such a unpaid credit cards, mortgage or a breach of contract where your customer sues you for a bad home repair you did for him. Or what about if YOUR SPOUSE has a little too much to drink and has a wreck on the way home from the Super Bowl party? There are too many possibilities where DAD's money is exposed by holding the account jointly.

I definitely agree with this advice, and I see no reason not to do this. It is as cheap as dirt to do. An alternative to POA is to have Dad add you as signatory on the account, but not add you on the name of the account as an account holder - just like Exxon gives employees check-writing authority without the employees owning the account.

[Jeff Matthews]

The guy had various assets but what struck me was he had several annuities (which typically have a beneficiary designation). He thought he was doing the right thing making "ESTATE" his beneficiary and his will dictated the estate get split 3 ways among his daughers.

Find & dandy... what he evidently didn't know or nobody cared enough to tell him was the other side of the coin. Because a million dollars was going into his estate it was going to go through probate. When the daughter called me she informed me that the attorney was charging her 2% of the estate value to settle it.

Think this through... there is a milliion dollars heading into the estate. 2% is $20,000 for these contracts. Had her father taken his 29 cent BIC pen and filled a new beneficiary form out naming the three daughters as beneficiary, he would have then allowed the million dollars to bypass probate, saved the daughters $20,000.

Granted in the scheme of inheriting $333K, losing a third of $20K isn't "a big deal". Then again, for the stroke of a pen, why piss it away?

That one really killed me.

This was another good point made by Richard. Very true. The daughters would have even been better off paying Richard or me $10k to tell them how to use their BIC pens! []

[Jeff Matthews]

On a final estate planning note.....

Most people have no clue about the rule pertaining to lapsed bequests. Even a lot of lawyers don't know.

For example, let's say Dad wants to divvy up property in his will equally upon death to 2 children. He has a Morgan Stanley account worth $100k and a rent house worth $100k, and he decides that he prefers Sam Son not to have to co-own the rent house with Donna Daughter, or vice versa - each child should get his/her own. So, his will says, "I leave my Morgan Stanley account to Donna Daughter and my rent house to Sam Son." There is, of course, the usual catch-all clause which states, "Any property of which I am possessed of upon death and which has not been disposed according to the provisions above shall go in equal shares to my heirs at law."

Now, suppose later, he sells the rent house and puts the money in Chase Bank. Then, he dies.

The gift of the rent house has lapsed. In Texas, and I would bet in most if not all states, Dad's intent was frustrated. Donna Daughter gets the Morgan Stanley account and 1/2 of the Chase account. Sam Son gets 1/2 of the Chase account. Net effect: Donna gets $150k; Sam gets $50k. Hopefully, Sam and Donna get along really, really well.

I had a case where this happened. It involved step-mom vs. Dad's kids. Dad naturally left a big chunk to wife, and wife agreed in her will to leave what remained to kids when she died. Kids didn't like it. They wanted theirs now. They alleged dad lacked testamentary capacity. House was sold while dad was alive, and they moved to Texas. Dad died. Suit filed. I told kids' attorney about the effect of the lapse as to the house and lapse in general as to the rest of the estate which wife held, with remainder to kids on death of wife. "Once we kick your butt at trial (because there was testamentary capacity), we are going to hold the lapse in your face, and you'll get squat! Wife is going to have a great time traveling the world and giving gifts to her own kids. It's going to be a grand time! There isn't going to be a remainder!" Case settled on nice terms (as it should have).

[oscarsear]

Jeff...... Hard to be very detailed on such venues as these. I believe I understand your reply. I am asking about a situation where the POA and the POD would be the same person in an uncontested estate (sole heir). As I understand POD's they do not provide for any health crisis management. So the person in this instance could use the specific POA(s) to manage the care and the estate finances of the subject if they fall ill and then use the POD/TOD to easily access any remaining assets in the event of the subjects death. That's the idea anyway. It sounds as though this combination of instruments might be preferable to the living trust arrangements. Izzat right?

[Jeff Matthews]

Yes. POD gives no authority to anyone to do anything during the life of the elder. POA does. POD is only for benefit of heirs. It is a way to accomplish distribution to heirs faster, without going through probate.

Given you say there is a sole heir. I see no reason to use a trust, which would cost more and be more hassle. (This assumes elder wants sole heir to get 100% of everything).

[JL Sargent]

Really interesting stuff. By specifically naming beneficiaries for a Savings Account for example you are in fact making a "will" of sorts for that account?

[Jeff Matthews]

Yes.

[JL Sargent]

OK, to take it a step further. Let's say your a single parent and are a careful planner and you have beneficiaries stated on all financial accounts. You've already deeded any real estate property to your kids. You've sold your vehicles away. I'm thinking at this point there is nothing to probate. Is that correct?