Len and Rosie: Family's estate plan has holes
Len and Rosie

Len and Rosie: Family's estate plan has holes

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Tillem & McNichol

Len Tillem and Rosie McNichol

Dear Len and Rosie,

My husband and I have our house in Community Property with Right of Survivorship, and our 403b and IRA accounts have designated beneficiaries.

All our other accounts also have beneficiaries. We have only have handwritten wills as of now. From my research, none of the above would go through probate.

I know that is probably a naive plan, but we are with the dreaded majority that have yet to contact a lawyer to complete the process.

Am I at least correct on the probate part for those items listed?

Annie

Dear Annie,

You have made a good start, but you are really only halfway there. You will avoid probate when the first of you dies, but you won’t avoid probate on the second death.

The problem is your house. It will avoid probate on the first death, because it’s titled as community property with right of survivorship, and your retirement accounts and other investments will avoid probate if you have designated beneficiaries for each account.

When the surviving spouse dies, the home will be subject to probate in the courts if you don’t create a trust.

While you could add your children to the deed as joint tenants, that’s a very bad idea in practice. They could get sued and you’d could wind up with a judgment lien on your home.

Or a child could refuse to sign the deed or loan documents if you ever want to sell or borrow against the property.

Forget about putting your children on the deed to your home, ever, unless there’s no other alternative and you do so with the advice of an attorney.

Ideally, you and your husband should create a revocable trust.

If you don’t do this, the surviving spouse could create a trust after the first death. But it’s best to do it now, because avoiding probate isn’t all there is to estate planning.

You should have durable general powers of attorney and advance health care directives so you and your husband, or your children, can make important legal and financial decisions for one another if either of you become incapacitated.

You should also review the beneficiary designations of your retirement accounts. You said you have taken care of this already. But have you really?

Does each account name alternate beneficiaries? Do you have copies of signed beneficiary designation forms in case your IRA custodian or insurance company loses the paperwork? Be very careful with your retirement account beneficiary designations.

If you made a mistake, there won’t just be a probate, there will be a whole lot of income tax due on your retirement savings when you die. Your children could lose the ability to stretch out retirement account distributions (and the income tax liability) over their own lives.

So, you’ve made a good start. Sort of.

But you’re not there yet. In a pinch, your plan will work, assuming your wills are valid and actually do what you want them to do, but if you really want to be sure, you need to consult with an attorney and create a proper estate plan.

Len and Rosie

Len Tillem and Rosie McNichol are elder law attorneys. Contact them at 846 Broadway, Sonoma, CA 95476, by phone at 707-996-4505.

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