A Story About Your Home, Your Heirs And Probate
PART 2: PLANNING THE ESTATE
In Part 1 of this story we talked about Betty who came to me to discuss her end of life planning and post death or testamentary planning. She has one adult child and one adult grandchild as well as some typical assets such as a home, savings, a car, and her personal belongings.
During the initial meeting with a client we take a lot of time to discuss family and friends including the dynamics of the relationships and we also talk about assets and debts and about intangible desires of the client. In the case of Betty we needed to discuss her bank account, her house, her car, and her final wishes in particular.
First we tackled the bank account, which had about $47,000 on deposit. Betty wanted to add Jen to it as a co-owner (joint account) to make it easier on Jen when Betty was ill or when she passed. I took the time to educate Betty on why adding others to your bank account as a joint owner is not a good idea. Several of the reasons are: gift taxes, liability, and direct access without any legal constraints. In Betty’s situation if she added Jen to the account that would amount to a “gift” from mother to daughter in excess of the annual tax-free gift allowance and a federal tax burden would have been activated. After discussing this at length Betty decided to use a pay on death (POD) or transfer on death (TOD) designation on all the bank accounts and to use a power of attorney (POA) document. This strategy prevented Betty from activating that tax burden and still allowed her the full peace of mind knowing the assets would transfer to her daughter directly upon Betty’s death without delay and that Jen would be able to use the POA to assist with banking tasks if she, Betty, were incapacitated.
Next we talked about the car. The value of the car was determined to be about $9,000 using several online resources. With the value being under the federal gift tax threshold the option to gift the car was a good possibility. Having another person drive your car, with permission or without (especially family) is problematic as it creates liability for the owner of the car – in this case, Betty. Accidents happen and Betty’s savings could be on the hook for an accident caused by another driver of her car. There is a complicated explanation about liability in such situations but let’s just say for Betty she did not want any liability. She decided to gift the car to her grandson and we arranged to make that transfer, to cancel the insurance, and ensure all the documents were properly registered with the authorities.
So now we have Betty’s house. As common practice I discuss the options most appropriate for the client’s situation. In this case we talked about a trust to hold the house and about the process of probate. There are pros and cons to both situations including costs, maintenance, effect of potential medicare claims, transfer of ownership upon death, and others. Ultimately Betty did not want to create a trust for her home which was her primary residence (a homestead) due to two reasons: 1) the cost would be about $1,500 to create the trust, and 2) she did not want the responsibility of keeping up the trust. I explained that the cost of the trust was minimal in comparison to the cost for probate (attorney fees in formal probate are directed and restricted by statute in Florida). I further discussed the ease of transfer of the property deed from a revocable trust into her daughter’s name. And I mentioned that while many people believe a trust prevents creditors from accessing the trust assets that is actually untrue – in Florida a trust can be accessed to pay creditor claims against the estate. (Call for a full explanation of homestead property, trusts, and creditor or medicare claims against assets.)
There were definitely pros and cons to a trust for Betty but I recommended for her a trust as the best choice. As happens often Betty did not want to create a trust and after much counseling we determined the following documents would be created for her: Last Will and Testament, the three most important health care documents, and a Durable Power of Attorney.
Within 2 weeks Betty’s documents were complete and she visited my office again to execute or sign all the documents with two witnesses present in the room with her and all in front of a notary. Of course I was there the entire time to assist Betty with her signing. After we were finished and she had all the copies for her family members, doctors, and others she left and I had no further contact with Betty.
Read more about what happened when the plans we put into place were activated in Part 3: The Execution of the Plan.