When good financial intentions lead to bad results – Press Telegram

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I have seen this happen several times. Parents believe their property is simple and their children are all on good terms. Therefore, parents avoid doing real estate planning and instead implement real estate planning that tries to treat their children equally, whether fair or not, by giving the property creative title.

In many cases, it is these actions of parents that cause dissonance in children.

No real estate plan

A common action to avoid a real estate plan is to own the property (usually a family home, but also a bank account) as a “roommate” with another party, with the first part about moving your assets un roommate on your death. It works in limited situations. Only one beneficiary is eligible and the life expectancy of the asset owner is short.

A parent who owns a child as a roommate with the intention that one child “share” with another is a disaster waiting to happen, no matter how well-meaning he is. There is no legal requirement to support Freddie sharing with his siblings after his parents die.

Freddie may find him “worthy” of money or other property and keep it to himself. This is often the case when the child named in the account or building is also the child who primarily cared for the parent before their death. The child’s resentment towards less involved siblings can overshadow their judgment of what moms and dads wanted. There is no legal way for other children.

Additionally, as long as both names are on the account, creditors of both parties may be able to enter the account. A creditor can acquire assets before his siblings if there is an IRS lien or another creditor, even if the favored Freddie intends to follow his mother’s wishes.

Even if the assets pass to creditors after their parents die and Freddie proceeds as mommy or daddy wants, Freddie must consider the tax implications of sibling reduction. All transfers from Freddie to his brother will be considered. A gift from Freddie.

If the annual donation tax exemption per donor is less than $ 15,000, donation tax will not affect you. If he exceeds that amount, Freddie will have to miss out on some of his own gift / estate tax exemptions. If Freddie becomes taxable property, it doesn’t make his own heirs happy. Income tax effects can also occur if Freddie has to liquidate his assets to pay for the shares of his siblings.

Pay with death account

At some point in the past few years, banks had to decide that it would be easier to process the “pay on death” designation than the actual customer wishes set out in the trust.

Too many clients have recently come across a bank employee who advised us to just fill up a bank account instead of opening an account in the name of a trust after carefully discussing and creating a real estate plan. .. “Payment on death” form.

This form is seldom sufficient to cover established plans. “If you are not that person, you are that person, but that person never is” is created in a trust and you cannot hold your assets in a trust. Of course, it doesn’t help if the client doesn’t have the ability.

In short, don’t get legal advice from bankers, no matter what their good intentions.

The trustee’s error

About the selection of the trustee

Even if a real estate plan that includes wills and trusts is adopted, good intentions can have bad consequences. Clients may find it difficult to choose a trustee. They don’t want to appear to be supporting someone more than anyone else, or they don’t want to weigh on their family. These are valid concerns.

The work of the trustee is serious work and requires time and attention. Some trust administrations last for up to a year after the trust company’s death, many continue for several years later, and some continue for generations.

Parents often tend to refer to the oldest child, all children, the child who lives closest, or the child who has the most time as a trustee. None of these reasons are good for choosing a trustee.

If you choose a child as your guardian, choose the one who has the best financial sense, the one who makes the best friends with other children, the smartest, the one with the best fairness, the most organized child. Please, or the nicer one (OK, just kidding on the last one).

1 trustee

Note that we say “one”.

A trustee, who makes the decisions, implements the terms of the trust and is the primary point of contact for beneficiaries, accountants and lawyers, is usually the best approach. If you only have two children, be sure to name both. If they don’t agree, they just hurt each other.

But what if one of them is really unreasonable? Does your spouse affect them more than you want? Can a person travel a lot and use it to share their work?

In these and similar situations, name only the other children. Appointing three or four co-trustees is tricky at best. Trustees can sign many documents and forms, but not all electronically. Many require notarization. Moreover, if the votes are tied, nothing is done. It’s expensive, plus lawyers and accountants have to talk to multiple trustees.

Real estate planning is one of the areas where your good intentions of keeping things simple and cheap can have lasting and terrible consequences. As Thomas Edison once said, “good faith with the wrong approach often leads to bad results.” Having a carefully thought out real estate plan is a gift for your family and other beneficiaries. This is your last gift. It pays to make informed decisions.

Teresa J. Rhyne is a lawyer practicing property planning and trust management in Riverside, California and Paso Robles. She is also the New York Times bestselling author of “The Dog Lived (and So Will I)” and “Poppy in The Wild”. You can reach her at [email protected]

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