avoiding probate

General Real Estate Investing
1

Hello,

Both of my parents own there own homes and have had health issues over the past few years. As much as I hate talking about this with tem I want to make sure that we are protected and do the right thing financially.

My questions is how do you stucture the ownership of both homes in order to avoid probate or estate taxes in the event that something was to happen to them. Should the home have my name on it as well or if it is stated in a will is that sufficient? If it’s in a will and something happened does ownership transfer to me without having to sell the home or pay taxes?

Any help on this matter would be greatly appreciated?

Thanks

2

Hinestro,

I am not a lawyer, but I will give you an idea of how to procede. If the property is put into a non revocable living trust (at least I think that is the correct terminology), then your parents would have control of the property as long as they were alive, but it would pass to your control upon their deaths. This is a technique that the wealthy use to prevent their heirs from having to pay taxes on the estate when they die. You will need to talk to an estate lawyer to find out more. Look in the yellow pages under wills.

Wilson

3

Hinestro,

What do you mean by “protected and do the right thing financially?”

You make reference to two homes owned by your parents. If your only concerns are estate taxes and probate, then the total value of your parent’s estate will determine whether federal estate taxes are even due upon death. Currently, the federal estate tax unified credit is $1.5MM. Unless your parents have an estate greater than $1.5MM, there would be no federal estate taxes due. Sometimes, doing nothing is an option with no adverse consequences.

A revocable trust does help bypass probate, but not federal estate taxes. If your parents are of an age and in such state of health that long term care in a nursing home is likely, then you may want to consider Irrevocable Trusts to shield assets from Medicaid scrutiny.

You need to discuss this question, and your parents’ options with an elder care attorney.

Wilson,

A living trust will bypass probate, but the value of the revocable trust is still included in the deceased grantor’s estate for federal estate tax purposes.

4

DaveT,

Thanks for the info. As I have said, I am not a lawyer and have no personal experience with trusts, but had merely learned a little from some estate planning seminars that I had attended. Maybe I did not quite get all that I needed :smiley:

Wilson

5

Hi,

Thanks for all the info. So let me see if I understand, if the combined value of there homes is 1.5mm + then you have to pay federal taxes no matter what. But if you have a revocable trust and the value is under 1.5mm then you do not have to pay probate or federal tax?

But if there is only a will does this suffice? Will ownership transfer to me w/out having to pay taxes? Or does it still have to go through probate?

Thanks

6

No, you don’t quite have it. Probate and federal estate taxes are separate issues.

Probate is governed by state law and is usually required for estates greater than some $ amount ($10K in my state) and for estates where there is no will. For estates where there is a will and all the heirs are known, there may be an administrative probate to “ratify” the will.

The deceased’s estate will pay probate court costs and attorney fees. In my state, the probate court cost can not exceed $3K, so avoiding probate is not such a hot issue as it might be where the cost of the probate is based upon a percentage of the estate.

One way to avoid probate is to have property titled in joint name with right of survivorship. When one person dies, his/her interest automatically passes to the surviving owner with no intervention required by the probate court.

For assets that are separately owned, probate can be bypassed if those assets are held in a trust. The language of the trust dictates how the assets are to be distributed when the grantor dies. A trust might also have a finite life that outlives the grantor. Provisions of the trust might grant a life estate with a remainder interest distributed to beneficiaries when the life estate is terminated.

A taxable estate (with regard to federal estate taxes) includes everything one owns, to include assets held in a revocable trust. Remember that a revocable trust can be revoked at any time by the grantor, while the grantor is still alive. So, since the grantor has control of the assets held in trust, those assets are included in the grantor’s estate for federal estate tax purposes.

The grantor’s estate will be assessed a federal estate tax on any amount that exceeds the federal unified credit. This year the unified credit is $1.5 million. A married couple is granted a marital credit to pass an estate to the surviving spouse tax free, regardless of the size of the estate.

If you inherit, there is no inheritance tax, nor do you have to pay probate costs. The cost of probate, if needed, is usually paid by the deceased individual’s estate. Federal estate taxes, as well, are paid by the estate before assets are distributed to beneficiaries.