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Strategize inheritance for son to avoid probate

DEAR BENNY: My wife and I are rather perplexed with the legal advice we have received with respect to our estate planning.

We own a house (fully paid for) as “tenants by the entirety.” All personal effects and household goods are owned in common. We have joint ownership of bank accounts, savings, etc. My wife has life insurance (I’m the first beneficiary and our son is the secondary beneficiary). And we own one automobile, which is paid in full.

The total value of everything we own is well below the current exemption threshold set by federal laws.

Based on the above, my wife and I have come to the conclusion that separately executed wills would help ensure that our son will get everything outside of probate.

We also believe that creating a trust would only frustrate this goal and is unnecessary given our particular circumstances. — G.M.

DEAR G.M.: Owning and titling all of your assets jointly with your wife should avoid probate after the first of you dies, but probate would be required when the survivor dies.

The survivor could put all of the assets into joint ownership with your son, but I generally do not believe this is a good solution. While you trust your son now, should he get married one never knows what his wife will want and she could frustrate your objectives. Also, a judgment entered by a judge against your son by a creditor could result in a lien against the property.

You could also put different properties into different trusts, with your son named as beneficiary of both trusts. This should avoid probate so long as absolutely every asset is, in fact, listed on the trust documents.

I would recommend that each of you have a separate last will and testament while you are both alive and mentally competent. This will be helpful should the survivor’s assets have to be probated.

There are no tax advantages when one creates a living trust. However, there are other benefits, such as privacy and allowing a successor trustee to step in upon disability, and, perhaps more important if you have property in different states, it will avoid having to arrange for separate probates in each state (called “foreign” or “ancillary” probate.)

Talk with your estate attorney. In many states, the probate process is no longer as time-consuming or expensive as it used to be. Many states have adopted the Uniform Probate Code (or variations of that law), which greatly simplifies the process.

DEAR BENNY: I was out of work for one year. Now I have found a good job 60 miles away and will move to be closer to my job.

I purchased my home two years ago for $301,000, plus cabinet upgrades and other improvements of $4,000. If I sell it for maybe $305,000 and pay the real estate commission of 5.5 percent, I will have a loss of more than $16,000.

What if any tax break will I receive? — F.Y.

DEAR F.Y.: Unfortunately, you cannot take a tax loss on the sale of your principal residence. Such losses are available only if your property is investment in nature — i.e., you rent it out.

If you can sell your house now in today’s uncertain market, I would take the money and run. Perhaps you can convince your real estate agent to take a lower percentage commission instead of the 5.5 percent.

You can, of course, rent out the house for a year and file the appropriate tax returns to prove that the house is now a rental. However, you will have to consult with your own tax adviser on the pros and cons of going this route. And you will be a landlord, with all its associated problems and laws.

Benny Kass is a practicing attorney in Washington, D.C., and Maryland. No legal relationship is created by this column. Questions for this column can be submitted to benny@inman.com.

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