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Death & inheritance
Old 09-20-2013, 10:17 AM   #1
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Death & inheritance

Trying to work out a simple plan.
My gal and I are unmarried, that is, without paper though we've been together over 35 years. All our accounts and places are held JTWROS, so when either of us passes it will pretty much be a financial non-event for the other. Spent an hour with a high powered estate attorney and she felt our current state is good for our financial status. We earned our way here together and we wish to continue to care for each other - thing is, it would be good to leave a nice bit to some relatives. How to do that without causing a tax event, keeping control of funds till the last moment, not informing said relatives before the fact, etc.

A joint bank account requires the joint holder to have a signature card. Putting someone on a property is gifting them an amount, thus taxable and if given at death to get the awesome tax-free stepped up basis also gives the beneficiary a hassle in managing or selling that said relatives don't really have the stomach for. A will saying "Sister Lisa gets $250k"? That gets into the whole estate hassle and has the potential to really impact our surviving partner with a cash crunch problem at a mystery time. Is this a time when life insurance is called for and appropriate?

Other ideas?
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Old 09-20-2013, 10:52 AM   #2
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The usual solution is a marital trust, but something similar is likely available for non-spouses as well. With such an arrangement each of the couple have his/her own trust, and can name each other as income beneficiaries. Upon first to die, the trust can pay out to the survivor for the duration of his/her life, and upon second to die the trust document can direct the remainder (typically basis/principal) be paid to others, such as relatives.
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Old 09-20-2013, 11:26 AM   #3
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If all of your assets are JTWROS, there won't be any money in the estate of the first person to die for any bequests. If you pass away first, your partner gets everything. She is then free to spend it all on "Raul the poolboy" who comforts her so well after your death.

If your goal is to leave money to some of your relatives, you need separate assets or you can set up a trust now that would provide for the surviving partner until their death. Then, other bequests can be paid. There's no guarantee that the surviving partner won't outlive everyone else. Without a trust, you can not guarantee that your partner won't leave the money to someone/something else.

All of this is actually the same as leaving everything to your spouse but setting up a trust upon death. On the assumption you have shared goals for the money after both of you die, the trust is easily set up out of community or shared property. An agreeable spouse keeps any disputes from disrupting the system. Cohabitations would need to be done in advance.
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Old 09-20-2013, 11:27 AM   #4
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Easiest way to leave your sister 250k. If it's at a bank or brokerage, just create a new account titled in your name only w/POD or TOD to your sister. This will allow you control until the last moment and transfer of assets to someone requiring only a death certificate and ID of the beneficiary when the time comes. Somebody will need to notify this person since the bank/brokerage probably won't do it.
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Old 09-20-2013, 11:52 AM   #5
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DW and I are in the same situation, except that we are married. Everything we own is held JTWROS, no kids of our own, and I would like to leave some money to my niece. I think that using life insurance for this purpose sounds good on paper, but it might get very expensive as one gets older. Personally, I want my wife to get all of our money upon my death. I trust that, upon her own death, she will leave part of her residual estate to my niece as per my expressed wishes.
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Old 09-20-2013, 02:54 PM   #6
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Originally Posted by GrayHare View Post
The usual solution is a marital trust, but something similar is likely available for non-spouses as well. With such an arrangement each of the couple have his/her own trust, and can name each other as income beneficiaries. Upon first to die, the trust can pay out to the survivor for the duration of his/her life, and upon second to die the trust document can direct the remainder (typically basis/principal) be paid to others, such as relatives.
DW and I have these. I believe anyone can set them up -- not just married people. I think the term is revocable living trust. Upon my death, everything I own goes into a "My name family trust" that DW can tap for living expenses as needed at her discretion. When she dies it goes to the kids. If she is flush, she can give it to the kids earlier. Vice versa if she dies first. The idea is to limit assets in one pocket for tax purposes and to insure that our assets go to the kids regardless of future marriages, etc of the spouse. They are not foolproof in the later regard (e.g. the spouse/partner could be profligate in her spending) but should work fairly well for earmarking excess funds for a relative.
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Old 09-20-2013, 04:41 PM   #7
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Originally Posted by calmloki View Post
Spent an hour with a high powered estate attorney ...it would be good to leave a nice bit to some relative..How to do that without causing a tax event, keeping control of funds till the last moment, not informing said relatives ... ?
I hope you were with the HPEA at a social event. If you were paying her, shouldn't you have these answers?

I'd simply make sure I had sufficient assets in my own name to handle the desired bequests and clearly state my intentions in my will.
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Old 09-20-2013, 04:55 PM   #8
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Easiest way to leave your sister 250k. If it's at a bank or brokerage, just create a new account titled in your name only w/POD or TOD to your sister. This will allow you control until the last moment and transfer of assets to someone requiring only a death certificate and ID of the beneficiary when the time comes. Somebody will need to notify this person since the bank/brokerage probably won't do it.
This resonates. Gal and I both have siblings who could use the funds for their retirements - the sibs aren't really as secure as we are. To that end, I, we, are interested in a sum being transferred to our respective sibs at the time of our deaths for their immediate use. Working off of your idea, perhaps we could each individually fund a Total Stock Market account with a set amount. That way the funds are making money (supposedly) and are available for our use if we both live long long long lives. OTOH, should one of us kick off early our siblings get some cash - do I recall that POD or TOD accounts are transferred tax free?

Years after my gal's Mom passed the revocable living trust she and her husband had continues not to be settled - would prefer to have things very simple and resistant to legal challenges.
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Old 09-20-2013, 05:55 PM   #9
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do I recall that POD or TOD accounts are transferred tax free?
As long as you don't trigger federal and/or state estate taxes, it would be a tax free transfer.

Other alternatives would be to do the annual 14k tax free gifting per person or to pay someone elses bills unlimited (medical, dental, tuition) directly or fund a 529 for someone while you're still alive.
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Old 09-23-2013, 11:21 AM   #10
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Do you not have a will? What if one of you is killed by an act of gross negligence and some one needs to be sued. Would you not want your SO to be the person to pursue this?
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Old 09-23-2013, 11:44 AM   #11
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Do you not have a will? What if one of you is killed by an act of gross negligence and some one needs to be sued. Would you not want your SO to be the person to pursue this?

No. Well, maybe we have older wills somewhere, but they only would cover personal possessions. Who gets my hand tools/firearms/old slippers? Everything else is covered by the JTWROS ownership.

Regarding ability of a survivor to sue someone for negligence in a death, no, that is not an activity I'd want to connect with either of our deaths. Not our style.
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Old 09-23-2013, 01:15 PM   #12
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All ours is JTWROS, the accounts are set up as TOD. Since we won't know our account values till were dead, we just use simple %'s. My understanding at least in this state that the assets below the Federal limit will be transferred upon receipt of Death Certificates. We did this with an attorney's aid, so we feel comfortable.

BTW- Are you set with POA, living will....?

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Old 09-23-2013, 02:11 PM   #13
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All ours is JTWROS, the accounts are set up as TOD. My understanding at least in this state that the assets below the Federal limit will be transferred upon receipt of Death Certificates.
MRG
The FDIC limit doesn't have anything to do with the transfer of assets upon death. You could have money in your account over the FDIC and it will still transfer. This is just insurance up to a specified amount for your account in the event something happened to your account or financial institution.
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Old 09-23-2013, 02:26 PM   #14
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The FDIC limit doesn't have anything to do with the transfer of assets upon death. You could have money in your account over the FDIC and it will still transfer. This is just insurance up to a specified amount for your account in the event something happened to your account or financial institution.
Sorry for not being more clear. I meant nothing about FDIC. I believe there is a Federal estate tax for assets over some limit like 5MM.

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Old 09-23-2013, 02:34 PM   #15
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All ours is JTWROS, the accounts are set up as TOD. Since we won't know our account values till were dead, we just use simple %'s. My understanding at least in this state that the assets below the Federal limit will be transferred upon receipt of Death Certificates. We did this with an attorney's aid, so we feel comfortable.

BTW- Are you set with POA, living will....?

MRG
We have been set up with medical POAs as well as other POAs worded as strongly as possible for some years. Remarkable how difficult making those POAs work can be, but they do work.
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Old 09-23-2013, 04:34 PM   #16
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Having just recently visited our attorney to update our wills, I want to pass along a proviso that may impact your POD/TOD provisions. Our attorney told us that at least in Wash (and claims other states as well), any provisions for gifts in a will, over-ride the TOD/POD provisions on the account as of date of the will. He also stated that if you subsequently go back and reestablish the POD/TOD provisos then they do supersede the will.
Having a will over-ride a POD/TOD was a big surprise to me but he had the legislative code to prove.
Be sure you check if this situation exists in your state.
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Old 09-23-2013, 06:34 PM   #17
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Having just recently visited our attorney to update our wills, I want to pass along a proviso that may impact your POD/TOD provisions. Our attorney told us that at least in Wash (and claims other states as well), any provisions for gifts in a will, over-ride the TOD/POD provisions on the account as of date of the will. He also stated that if you subsequently go back and reestablish the POD/TOD provisos then they do supersede the will.
Having a will over-ride a POD/TOD was a big surprise to me but he had the legislative code to prove.
Be sure you check if this situation exists in your state.
Nwsteve
This sounds pretty crazy. If you're in one of these states, as the POD/TOD beneficiary, I'd get the assets out ASAP. For a will to override the POD/TOD, you need to file in court and get a judge to agreed to freeze the assets. The POD/TOD person has a huge time advantage to withdraw the funds and spend it. Then the court would need to declare the funds are to be repaid to the estate. The POD/TOD person can drag the process on for a long time and still not pay it back. If the person is experienced at dodging legal collections, the estate may never get any money back.
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Old 09-23-2013, 06:47 PM   #18
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Sorry for not being more clear. I meant nothing about FDIC. I believe there is a Federal estate tax for assets over some limit like 5MM.

MRG
The Federal estate tax kicks in at 5.25 million. Going over this amount won't stop any of your assets from transferring over at death, but it will trigger estate taxes at tax return time. You stated you're using JTWROS, if you're near the estate limit, by not having a trust (I'm assuming you're married), you'll be missing out on the 5.25 million tax free transfer.
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Old 09-23-2013, 07:18 PM   #19
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The Federal estate tax kicks in at 5.25 million. Going over this amount won't stop any of your assets from transferring over at death, but it will trigger estate taxes at tax return time. You stated you're using JTWROS, if you're near the estate limit, by not having a trust (I'm assuming you're married), you'll be missing out on the 5.25 million tax free transfer.
Agree 100%.

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Old 09-23-2013, 07:36 PM   #20
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This sounds pretty crazy. If you're in one of these states, as the POD/TOD beneficiary, I'd get the assets out ASAP. For a will to override the POD/TOD, you need to file in court and get a judge to agreed to freeze the assets. The POD/TOD person has a huge time advantage to withdraw the funds and spend it. Then the court would need to declare the funds are to be repaid to the estate. The POD/TOD person can drag the process on for a long time and still not pay it back. If the person is experienced at dodging legal collections, the estate may never get any money back.
I could not agree more--when he first told me about it, I made him repeat it to be sure I understood it. Apparently the date of the POD/TOD was established versus the will signature date determines which provision is controlling. Whatever is most recent, controls. So, you can reestablish the POD/TOD after a will is signed then they again controlled disbursement.
Having gone through disbursements of my mother's accounts which were TOD with Vanguard, I can only imagine the confusion of what was controlling. Vanguard had it pretty messed up as it was.
I would be interested in some of the ER Board attorneys weighing in on this.
Nwsteve
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