Basic inheritance questions

[AAA]

All of my brokerage and bank accounts list my two adult kids as beneficiaries. I'm comfortable with this as the process went smoothly when a parent passed away. The remaining assets are our house and a couple of older cars. I'm mainly concerned about the house.

Can I simply add my kids to the deed of the house, doing this through my county"s real estate department? If so, I assume that would be considered a gifts so I would have to file the appropriate IRS form. I'm aware that no tax would be due as my "Gross Estate" is well below the amount for which estate tax would apply.

I know nothing about trusts but hear them mentioned a lot. I assume that they are a way to avoid probate. If that's right, the other option would be to set up a trust just for the house and cars, naming my kids as beneficiaries. I would of course use my lawyer for this purpose.

Can you comment on these two options? Are there any other ones?

Thanks.

[RetiredDTM]

Some states let you TOD a house deed and cars. My state allows cars, but not house. Best of luck.

[Jack FFR1846]

Adding your kids on the deed is a very "old country" solution to "get around the government". What it does is when you pass, say you paid $100k for the house originally and now it's worth $800k. There's $700k in gain and when your kids sell it, they get to pay capital gains tax on $700k. If instead, you leave it in your name and leave your kids in your will, they get a step up in basis and pay zero tax.

I don't see any benefit to adding your kids onto the deed.

[valleyrock]

We've had this stuff come up before. Trusts can help in some states, like CA, but not others.
The answer to your property question will depend on the state.
You will want to consult with an estate attorney for help with a will, POA, and healthcare directive. Make sure you are specific and that things read the way you wish and have instructed the attorney to put into the will. They do boiler plate often and may not catch nuances/specifics.
Don't guess and don't believe what anyone says or guesses.
Some things you might be able to look up at your county's estate office website. If it's in writing there, it's probably correct.

[cas]

The answer to your property question will depend on the state.

[. . .]
Some things you might be able to look up at your county's estate office website. If it's in writing there, it's probably correct.

Yes, this topic seems to be very state specific.

One thing you might want to narrow down is whether your state authorizes TOD deed, Lady Bird deed, or neither:

Lady Bird deeds are currently only authorized in Florida, Michigan, Texas, Vermont, and West Virginia.
Approximately half of the U.S. states have what is called a transfer on death (TOD) or beneficiary deed, which is similar to, and may be preferable to, a Lady Bird deed. TOD deeds designate a beneficiary upon the grantor's death, in the same way a bank account can have a designated beneficiary. [Source]

However, knowing which approach is authorized in your state is still a separate question from whether it is a good fit to your specific circumstances.

[Mullins]

So, say you pass away and there's personal income tax to pay you earned while alive in the year you perish, funeral and burial costs, final medical bills and other expenses you ran up before your death such as lawn care services, cable bills, property tax due, utilities... if everything's tendered over via TOD then where's the cash to pay for any of that? It's all with the beneficiaries who may not want to volunteer a portion of the money back in.

If you have the kids on the deed then they get your cost basis, instead of getting the cost basis stepped up, as someone else pointed out. But you also make your house subject to their creditors, divorces, judgments while you're alive.

So maybe a trust makes sense because there you can stipulate paying for your final expenses, etc. and bequeath who gets the property.

[valleyrock]

So, say you pass away and there's personal income tax to pay you earned while alive in the year you perish, funeral and burial costs, final medical bills and other expenses you ran up before your death such as lawn care services, cable bills, property tax due, utilities... if everything's tendered over via TOD then where's the cash to pay for any of that? It's all with the beneficiaries who may not want to volunteer a portion of the money back in.

If you have the kids on the deed then they get your cost basis, instead of getting the cost basis stepped up, as someone else pointed out. But you also make your house subject to their creditors, divorces, judgments while you're alive.

So maybe a trust makes sense because there you can stipulate paying for your final expenses, etc. and bequeath who gets the property.

I just went through some of this. You don't necessarily need a trust to take care of these things. In the will, you specify an executor and they will pay estate taxes, etc. and distribute the assets. Cash assets/brokerage accounts, etc. should not have a named beneficiary. They go to the estate directly and then the executor can pay estate taxes, etc. using those funds, and distribute them later according to the will.

[volstagg]

Speaking as someone who went through this process a few years ago when Mom passed (Dad passed in the 20 years before, so that had long been dealt with), I'll share my perspective.

Mom had a traditional IRA, plus a full trust. Everything, except the IRA and a smallish checking account at her local B&M bank was owned by the trust (i.e. Brokerage Account, House, etc). She'd stopped driving a few years before and had sold her car. She added me as a joint owner on her checking account years before, which helped as there was enough there to pay funeral expenses, HOA expenses for a few months, etc, until things settled.

Her estate was below the IRS estate tax cap for a single person and I was both the successor trustee and estate executor.

There were 3 total beneficiaries to the estate and trust, myself plus 2 siblings, everything split 1/3.

The IRA (Merrill Lynch) was setup with a simple beneficiary split. It transferred to each of us within 2-3 days of presenting the Death Certificate. The trust however took 3-4 weeks because I had to apply to a TIN for the irrevocable trust, send all that over to Merrill Lynch, they had to setup a new trust account and then transfer everything over to it and then do the step-up in basis.

The house sold about 4-5 months after she passed, the following spring.

To this day, I am torn about if the trust and overhead associated was worth it. It certainly would of been easier if her Brokerage account had been not owned by the trust and she just had straight beneficiaries, it would of transferred in about the same amount of time as the IRA. But the house, if it had to go through the probate process would of taken longer to sell, which would of incurred additional HOA dues, insurance payments, etc.

I am only in my mid 50's, so things might change for me as I get older. But for my own estate, I've decided to just use beneficiaries for bank and brokerage accounts, the car(s) (if still driving when I pass) and house will just go through probate and my executor will just have to deal with it. The physical assets are less then 10% of my (current) net worth, so it's not going to hold things up very much for my heirs.

[Sandi_k]

There are significant tax implications if you simply add your kids to the house title. In CA or another HCOL area, it could mean additional taxes totaling tens of thousands of dollars. Don't do it.

Instead, find out if your state allows a Transfer on Death deed (TOD). If so, you can fill out a Quitclaim deed, from you (singular) to you plus the transfer on death title.

If your state does not have TOD titles for houses, you need a will.

[mptfan]

Adding your kids on the deed is a very "old country" solution to "get around the government". What it does is when you pass, say you paid $100k for the house originally and now it's worth $800k. There's $700k in gain and when your kids sell it, they get to pay capital gains tax on $700k. If instead, you leave it in your name and leave your kids in your will, they get a step up in basis and pay zero tax.

I don't see any benefit to adding your kids onto the deed.

That depends on how you "add your kids on the deed." If you add them as TOD beneficiaries then they do get a stepped up basis and pay zero tax just the same as if you left it to your kids in the will. Some states allow this, some do not.

[donall]

Speaking as someone who went through this process a few years ago when Mom passed (Dad passed in the 20 years before, so that had long been dealt with), I'll share my perspective.

Mom had a traditional IRA, plus a full trust. Everything, except the IRA and a smallish checking account at her local B&M bank was owned by the trust (i.e. Brokerage Account, House, etc). She'd stopped driving a few years before and had sold her car. She added me as a joint owner on her checking account years before, which helped as there was enough there to pay funeral expenses, HOA expenses for a few months, etc, until things settled.

Her estate was below the IRS estate tax cap for a single person and I was both the successor trustee and estate executor.

There were 3 total beneficiaries to the estate and trust, myself plus 2 siblings, everything split 1/3.

The IRA (Merrill Lynch) was setup with a simple beneficiary split. It transferred to each of us within 2-3 days of presenting the Death Certificate. The trust however took 3-4 weeks because I had to apply to a TIN for the irrevocable trust, send all that over to Merrill Lynch, they had to setup a new trust account and then transfer everything over to it and then do the step-up in basis.

The house sold about 4-5 months after she passed, the following spring.

To this day, I am torn about if the trust and overhead associated was worth it. It certainly would of been easier if her Brokerage account had been not owned by the trust and she just had straight beneficiaries, it would of transferred in about the same amount of time as the IRA. But the house, if it had to go through the probate process would of taken longer to sell, which would of incurred additional HOA dues, insurance payments, etc.

I am only in my mid 50's, so things might change for me as I get older. But for my own estate, I've decided to just use beneficiaries for bank and brokerage accounts, the car(s) (if still driving when I pass) and house will just go through probate and my executor will just have to deal with it. The physical assets are less then 10% of my (current) net worth, so it's not going to hold things up very much for my heirs.

I had a very similar situation, and because of my experience as a trustee we setup two revocable trusts for ourselves. Informational points:
- obtaining a TIN was immediate if done online
- selling a house as a trustee is much more streamlined than having to go through probate
- small estate affidavit or pour-over will can be used for items not included in trust (up to a certain amount, state specific)
- a joint account makes paying funeral and day to day bills easy

[bsteiner]

All of my brokerage and bank accounts list my two adult kids as beneficiaries. I'm comfortable with this as the process went smoothly when a parent passed away. The remaining assets are our house and a couple of older cars. I'm mainly concerned about the house.

Can I simply add my kids to the deed of the house, doing this through my county"s real estate department? If so, I assume that would be considered a gifts so I would have to file the appropriate IRS form. I'm aware that no tax would be due as my "Gross Estate" is well below the amount for which estate tax would apply.

I know nothing about trusts but hear them mentioned a lot. My assume that they are a way to avoid probate. If that's right, the other option would be to set up a trust just for the house and cars, naming my kids as beneficiaries. I would of course use my lawyer for this purpose.

Can you comment on these two options? Are there any other ones:

You could give them interests in the house now, though it would probably not be a good idea for many reasons.

You could create a trust for your own benefit. That makes sense in some cases and in some states but not in most cases in most states. In what state is the property?

[Parkinglotracer]

Clueless older parent transferred a house and farm to two older kids with rights of survivorship. One kid passed away before parent did. Then parent did. So one kid at age 65 owned entire house / farm. It cut 1/2 of older parents two heirs families out of inheritance. Surviving older kid said I took care of older parent so house and farm is mine. It was a clown act. Find a good lawyer for estate planning.

[Admiral]

There are virtually zero good reasons to add your kids to the deed to your home. Hire an estate attorney, set up a trust to handle your assets after you die, and go from there. The house, like anything else, becomes part of your estate. Your kids will either sell it, or one of them will buy out the other(s) and keep it.

[Katietsu]

It is rarely a good idea to make your child a joint owner of your home. If you ask a lawyer to do this, they should stop and ask you a lot of questions before proceeding. Unfortunately, not all do so.

[AAA]

Thanks for all the input. I didn't think of the cost basis impact of adding the kids to the deed.

To answer the question of which state, it's Pennsylvania.

[munemaker]

TOD deed if your state permits. Otherwise, put it in the will with your kids as beneficiaries- "PER STIRPES" No need to do anything fancy or expensive.

MUN

[AAA]

Cash assets/brokerage accounts, etc. should not have a named beneficiary. They go to the estate directly and then the executor can pay estate taxes, etc. using those funds, and distribute them later according to the will.

My experience with named beneficiaries in brokerage/bank accounts was that it was trouble-free and the funds were distributed in a timely manner to the beneficiaries' accounts as appropriate based on the type of account (individual or IRA) after the death certificate was presented. Isn't that easier than the alternative you describe?

[Sandi_k]

Cash assets/brokerage accounts, etc. should not have a named beneficiary. They go to the estate directly and then the executor can pay estate taxes, etc. using those funds, and distribute them later according to the will.

My experience with named beneficiaries in brokerage/bank accounts was that it was trouble-free and the funds were distributed in a timely manner to the beneficiaries' accounts as appropriate based on the type of account (individual or IRA) after the death certificate was presented. Isn't that easier than the alternative you describe?

It may be easier, but it may not be better.

Assume you pass and own a house. Insurance and taxes still need to be paid; maybe you need to do some painting before putting it on the market.

What if there are hospital bills outstanding from a final illness? What if you need to pay for cremation and a service?

How will you pay for any of that if all of the decedent's accounts have already been split up and sent to heirs? Do you really want to be begging siblings or other relatives to ante up for these bills? I sure don't!

As my mom's POA, we have one brokerage account that is TOD. We have her IRA that has beneficiaries listed.

She also has an annuity account with a wealth management firm, with beneficiaries. And finally, she has a bank account on which I am co-owner.

That bank account will be for bills such as those noted above. Mom's house will need to have the carpet ripped out and the whole place painted, as she and her DH smoked in the house since it was built in 1988. So I need to have a way of paying for that, or it would otherwise come out of my pocket.

[delamer]

You referenced “my” bank and brokerage accounts, but then “our” house.

If you have a spouse, you want to make sure the spouse gets what you intend upon your death. If your kids are listed as the primary beneficiaries, your spouse won’t get the funds in the account. If you want your spouse to inherit, you can make your spouse the primary beneficiary and the kids’ contingent beneficiaries.

[bsteiner]

Thanks for all the input. I didn't think of the cost basis impact of adding the kids to the deed.

To answer the question of which state, it's Pennsylvania.

Probating a Will in Pennsylvania is not difficult. Why are you concerned about it?

[AAA]

My experience with named beneficiaries in brokerage/bank accounts was that it was trouble-free and the funds were distributed in a timely manner to the beneficiaries' accounts as appropriate based on the type of account (individual or IRA) after the death certificate was presented. Isn't that easier than the alternative you describe?

It may be easier, but it may not be better.

Assume you pass and own a house. Insurance and taxes still need to be paid; maybe you need to do some painting before putting it on the market.

What if there are hospital bills outstanding from a final illness? What if you need to pay for cremation and a service?

How will you pay for any of that if all of the decedent's accounts have already been split up and sent to heirs? Do you really want to be begging siblings or other relatives to ante up for these bills? I sure don't!

From a purely mathematical point of view, what difference is there between keeping money in the decedent's estate to pay for these things, and thereby less going to the beneficiaries, or having the beneficiaries get it all and then paying for these things out of the inherited funds? Of course this assumes they would be cooperative.

[Kruser64]

So, say you pass away and there's personal income tax to pay you earned while alive in the year you perish, funeral and burial costs, final medical bills and other expenses you ran up before your death such as lawn care services, cable bills, property tax due, utilities... if everything's tendered over via TOD then where's the cash to pay for any of that? It's all with the beneficiaries who may not want to volunteer a portion of the money back in.

If you have the kids on the deed then they get your cost basis, instead of getting the cost basis stepped up, as someone else pointed out. But you also make your house subject to their creditors, divorces, judgments while you're alive.

So maybe a trust makes sense because there you can stipulate paying for your final expenses, etc. and bequeath who gets the property.

At least in my case, my sole beneficiary has more than enough to cover these incidental expenses while everything gets worked out.

[valleyrock]

Cash assets/brokerage accounts, etc. should not have a named beneficiary. They go to the estate directly and then the executor can pay estate taxes, etc. using those funds, and distribute them later according to the will.

My experience with named beneficiaries in brokerage/bank accounts was that it was trouble-free and the funds were distributed in a timely manner to the beneficiaries' accounts as appropriate based on the type of account (individual or IRA) after the death certificate was presented. Isn't that easier than the alternative you describe?

My estate attorney explained this to me recently. Estates have expenses. One example is my state's inheritance tax, and this taxis lower if paid within a certain time. There are also income taxes, other bills to pay. It's best if the executor has access to a good chunk of change to use to pay these bills. What's not used is then distributed according to the will. If there's no beneficiary designated, then brokerage and bank accounts would go into the estate account for the executor to use and then distribute.

If the executor does not have sufficient estate funds to administer the estate, then think of the bother trying to wrest moneys from beneficiaries...

[Mullins]

So, say you pass away and there's personal income tax to pay you earned while alive in the year you perish, funeral and burial costs, final medical bills and other expenses you ran up before your death such as lawn care services, cable bills, property tax due, utilities... if everything's tendered over via TOD then where's the cash to pay for any of that? It's all with the beneficiaries who may not want to volunteer a portion of the money back in.

If you have the kids on the deed then they get your cost basis, instead of getting the cost basis stepped up, as someone else pointed out. But you also make your house subject to their creditors, divorces, judgments while you're alive.

So maybe a trust makes sense because there you can stipulate paying for your final expenses, etc. and bequeath who gets the property.

I just went through some of this. You don't necessarily need a trust to take care of these things. In the will, you specify an executor and they will pay estate taxes, etc. and distribute the assets. Cash assets/brokerage accounts, etc. should not have a named beneficiary. They go to the estate directly and then the executor can pay estate taxes, etc. using those funds, and distribute them later according to the will.

True, but, the OP sounded as if he was looking to avoid probate.

[Mullins]

So, say you pass away and there's personal income tax to pay you earned while alive in the year you perish, funeral and burial costs, final medical bills and other expenses you ran up before your death such as lawn care services, cable bills, property tax due, utilities... if everything's tendered over via TOD then where's the cash to pay for any of that? It's all with the beneficiaries who may not want to volunteer a portion of the money back in.

If you have the kids on the deed then they get your cost basis, instead of getting the cost basis stepped up, as someone else pointed out. But you also make your house subject to their creditors, divorces, judgments while you're alive.

So maybe a trust makes sense because there you can stipulate paying for your final expenses, etc. and bequeath who gets the property.

At least in my case, my sole beneficiary has more than enough to cover these incidental expenses while everything gets worked out.

Yes, but, there are at times beneficiaries who do not volunteer to give back any part of their TOD inheritances to cover the deceased's final expenses. And, we won't know who they are until it happens.

[Mullins]

Thanks for all the input. I didn't think of the cost basis impact of adding the kids to the deed.

Again, it's not just about the cost basis. It's also about opening yourself up to losing your home while you're still living in it. It makes the property subject to any liabilities of any of the owners named on the deed. So, for example, your child gets divorced, or found liable in an accident, etc., property in their name can be used to satisfy claims against them.

[pantomime]

Thanks for all the input. I didn't think of the cost basis impact of adding the kids to the deed.

Again, it's not just about the cost basis. It's also about opening yourself up to losing your home while you're still living in it. It makes the property subject to any liabilities of any of the owners named on the deed. So, for example, your child gets divorced, or found liable in an accident, etc., property in their name can be used to satisfy claims against them.

I recently read "Beyond the Grave" by Gerald and Jeffrey Condon, that if I remember correctly, is a father-son estate planning law firm warning about estate planning risks such as this. Thought it was an informative read, and it certainly gave me second thoughts about doing this. I think there's an updated version from about 2014 as well.

[AAA]

Thanks for all the input. I didn't think of the cost basis impact of adding the kids to the deed.

To answer the question of which state, it's Pennsylvania.

Probating a Will in Pennsylvania is not difficult. Why are you concerned about it?

I'm concerned because of what we're going through right now, almost two years after the person in question passed away, although not a PA resident.

[valleyrock]

Probating a Will in Pennsylvania is not difficult. Why are you concerned about it?

I'm concerned because of what we're going through right now, almost two years after the person in question passed away, although not a PA resident.

I think a lot of us are back to the idea of state-specific expertise.
i.e. an experienced estate attorney in your state.
Please consult with one and report back.

[HueyLD]

Some states let you TOD a house deed and cars. My state allows cars, but not house. Best of luck.

PA does not allow a POD deed on real estate.