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Elderlaw Advocates

Elderlaw Advocates
Len Tillem & Rosie McNichol

Dear Len & Rosie,

My husband of 27 years and I created a trust and conveyed our home to the trust. He recently passed away. I want to sell our house. How do I get it out of the trust? Can I do a quit claim deed? If I do now sell the house, do I still have to get clear title? Can I just wait until I find a buyer?

Eileen Dear Eileen,

When married couples create revocable trusts, they almost always name themselves as the initial trustees. After all, why put someone else in control of your assets when you don’t have to? So, in your case, the deed to your home should show that title is held in both of your names as trustees. If you were to try to sell the home today, there would be a small problem getting through escrow because your husband’s name is still on the deed.

Fortunately, this is easy to clear up. What you need to do is record an affidavit of death of trustee, with your husband’s death certificate attached, to notify everyone that you’re now the sole trustee of the trust as a result of your husband’s death.

You also need to submit a preliminary change of ownership report to the county assessor to show that the property isn’t subject to a Proposition 13 reassessment because of your husband’s death. Property transfers between spouses never trigger a property tax increase.

You don’t have to do this right now, but it’s best that you take care of business sooner rather than later. You should sit down with your attorney to review your trust and all of the assets you and your husband owned upon his death. At the very least, your home and investments ought to be appraised to determine the date-of-death values for tax purposes. If your husband’s assets were worth more than $5,000,000, then an estate tax return must be filed within nine months of his death, whether or not any tax is due.

Also, his separate property and community property assets received a new cost basis as a result of his death. That’s why it’s important to obtain date-of-death values of all of your assets, not just your home.

Another reason to review the trust now is so that you know how far you can go if you want to amend the trust. Your trust may be an A/B trust, which requires your husband’s half of the trust assets to be transferred into an irrevocable bypass trust. Or maybe the trust allows you to do whatever you want. It’s important to know.

You should also update your durable power of attorney and advance health care directive, because you surely named your husband as primary agent on both of them.

Our point is that the legal work isn’t over and done with after a trust is signed. When an owner of a trust dies, the survivors should always review the trust with an attorney to make sure everything is on the right track.

Len & Rosie Dear Rosie & David,

My sister recently passed away. She did not leave a will, but she did have a pension of about $250,000, of which her sons are the beneficiaries. Her $200,000 insurance policy was left to me to pay off her son’s student loans, and the rest was to be distributed to myself and her grandchildren, nieces, and nephews. She also left a credit card debt of $25,000. Does her pension or insurance qualify for probate? Are we responsible for paying off this debt? What options are available to us? Morally we feel responsible to pay the debt; is there a legal responsibility?

Patricia Dear Patricia,

If your sister owned a home or other assets in her own name or within a revocable trust, then these assets are fully subject to the claims of her creditors, and her credit card debt would need to be paid off.

Retirement accounts and life insurance policies are not subject to probate as long as there are designated pay-on-death beneficiaries. This means these assets do not have to be spent paying off your sister’s debts. Her IRA and life insurance policy are also safe because your sister named beneficiaries on these assets.

If you spend the life insurance money paying off your sister’s credit card debt, you are throwing money away. We’re sure that this money would be better used to support your sister’s children and grandchildren. Paying off your nephew’s student loans is, however, a very good idea, because student loan debt never goes away and, in most cases, cannot be discharged in bankruptcy. Honor your sister’s wishes, and divide up what’s left the way she wanted.

Make sure your nephews also understand that they shouldn’t use their mother’s retirement account to pay off her debts either. They will each have ten years to cash in their shares of the IRA, and they can spread out payments over this time as they wish. They also need to know that they’ll have to pay income tax on the proceeds from the IRA as they cash it in.

Rosie & David

Rosie McNichol and David Brown are trusts and estates attorneys. Contact them at Tillem McNichol & Brown, 846 Broadway, Sonoma, CA 95476, by phone at (707) 996-4505, or at www.lentillem.com.

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