You’ve heard the well-worn phrase, “Nothing is certain except death and taxes.” Well, this column is about trying to minimize taxes upon your death, so your money and property end up where you want them to go rather than in Uncle Sam’s pocket. If you own a home, you should have a will. It’s as simple as that.
A will is a document that determines who receives your property upon your death and it appoints a legal representative, called an administrator, to carry out your wishes. This is different from a trust, which can be used to distribute property whenever you want–before death, at death, or afterwards.
A will only goes into effect after you die, but a trust goes into effect as soon as it’s created. You can put your assets, including your home, into a trust and then you, as the trustee determine how those assets are managed. Trusts have two types of beneficiaries: one set that receives income from the trust during their lives (you and your spouse, for example) and another set that receives whatever is left over after the first set of beneficiaries dies.
Probate is the court procedure that verifies the validity of your will (if you have one) and changes the legal ownership of your property to your heirs after your death.
If you don’t have a will, the state will divvy up your possessions upon your demise according to the “laws of intestate succession.” When a person dies without a will, it is referred to as dying “intestate,” and it can cause a lot of hard feelings. The state doesn’t know you promised your baseball signed by Willie Mays to your daughter and your comic book collection to your son. It doesn’t know your best friend should get your golf clubs and your spouse should get everything else.
If you are married with kids, the state will see to it that your spouse inherits all of your community property and one third of your separate property. Your children will divide the remaining two-thirds of your separate property. (Visit www.nolo.com/legal-encyclopedia/intestate-succession-california.html to see who gets what in other situations.) If you purchased your home before you got married to your current spouse, and the deed for your home is only in your name, your kids could, theoretically, sell the house out from under their step-parent.
If you own a business, it’s best to be clear about how the assets and the management of the business should proceed after your death. Do you have a partner who will keep things running? Do you have long-term employees who deserve a piece of the pie if the business is to be sold? It’s best to plan these things ahead of time because the heirs are sometimes too greedy or too ignorant to do the right thing.
Probably the most important reason to create a trust is to avoid the estate taxes that can come with a death. Without a trust, the state could liquidate your retirement account and the income taxes that should have been paid as the funds were distributed over 10 years become due instantly at a high tax rate. Then they also get taxed at the 50 percent estate rate. Ouch! If instead, you’d like some of your retirement to go to a charity, you can bypass the tax altogether and benefit a good cause in the process.
To learn more about estate planning, talk to your lawyer and your accountant. Then, talk to your beneficiaries about what you are planning. Your heirs and beneficiaries will thank you.
If you have questions about real estate or property management, please contact me at firstname.lastname@example.org or call (707) 462-4000. If you have an idea for a future column, share it with me and if I use it, I’ll send you a $25 gift certificate to Schat’s Bakery. Dick Selzer is a real estate broker who has been in the business for more than 40 years.