Living Trust, Will, POA, Executor Questions

[navy95]

What is the name of your state (only U.S. law)? CO

Hi, I'm wondering if anyone can help shed light on what I think is a fairly simple situation:
- Mother is 85 and I am way overdue on planning out her will/estate
- She has equity in a house (but the house is not in her name), has an IRA, and MM acct. Her assets are collectively worth around $300k
- Four children, all over 40, of which I am one
- Planning a fairly simple will with equal division of assets amongst the four children setting myself up as the executor (with unanimous agreement on the executor gig amongst mom/children).
- Planning on changing the MM/checking acct to POD with the four children as beneficiaries. The same goes (if possible) for the IRA account.
- Planning on getting a financial POA

Questions:
- Do I need to worry about a living trust? Considering that there is no house or car or other major possessions with titles/deeds, I'm not seeing the value.
- Regardless of whether I need one, what is the relationship between the trust, the POD accts, and the executor? Does that relationship exist by law, or does it have to be spelled out in the will? As I understand the POD forms, they rely on the executor to determine percentages for who gets what.

I will likely retain an estate lawyer to do all this, but would like to walk in armed with some knowledge. TIA.

 

[curb1]

1) You don't need a trust.

2) Can all of her assets be distributed with beneficiary/POD accounts?

3) The executor should have very little to do.

3) What about the house? Will you be trying to get back the equity in the house?

4) Any other assets not available for POD?

5) You might look into the IRA account. It could easily be more beneficial to open a "Survivors IRA" (called a variety of names).
When you inherit an IRA, you may also be inheriting a large tax liability. Taxation of inherited IRAs largely depends on your relationship to the original account owner. When you inherit an IRA, you must follow the IRS rules regarding distribution and taxation, or you may be assessed penalties on your inheritance in addition to any tax owed. There is considerable information about this on the internet. It is simple, but important. Should be custodian (of the IRA) to custodian (of the newly formed beneficiaries' IRA).

 

[LdiJ]

1) You don't need a trust.

2) Can all of her assets be distributed with beneficiary/POD accounts?

3) The executor should have very little to do.

3) What about the house? Will you be trying to get back the equity in the house?

4) Any other assets not available for POD?

5) You might look into the IRA account. It could easily be more beneficial to open a "Survivors IRA" (called a variety of names).
When you inherit an IRA, you may also be inheriting a large tax liability. Taxation of inherited IRAs largely depends on your relationship to the original account owner. When you inherit an IRA, you must follow the IRS rules regarding distribution and taxation, or you may be assessed penalties on your inheritance in addition to any tax owed. There is considerable information about this on the internet. It is simple, but important. Should be custodian (of the IRA) to custodian (of the newly formed beneficiaries' IRA).

The tax rules change a few years back regarded inherited IRA's. Her children can either opt to take a distribution of the IRA funds now, along with the tax bite, or they can opt to roll their share of an IRA into an IRA of their own. There are also no penalties associated with taking a distribution of an inherited IRA anymore.

 

[anteater]

... or they can opt to roll their share of an IRA into an IRA of their own.

I'm not positive what you mean by "an IRA of their own." But a non-spouse beneficiary cannot re-title the inherited IRA in the beneficiary's own name or combine an inherited IRA with their own IRA. The IRA should be re-titled so that it indicates the deceased name and the beneficiary's name. For example, "Father Anteater's IRA, for the benefit of Phineas J. Anteater." It does not have to be rolled; it can remain with the current custodian. But the beneficiary does have to begin to take required minimum distributions in the year following the IRA owner's death based upon the beneficiary's life expectancy.

- She has equity in a house (but the house is not in her name)

What does that mean?

- Regardless of whether I need one, what is the relationship between the trust, the POD accts, and the executor? Does that relationship exist by law, or does it have to be spelled out in the will? As I understand the POD forms, they rely on the executor to determine percentages for who gets what.

There is not necessarily any relationship between "... the trust, the POD accts, and the executor..." An executor is generally nominated in a will, appointed by the court when probate is opened, and administers the assets that are part of the probate estate. A trust contains assets titled in the name of the trust and is administered by a trustee named in the trust document. POD accounts are established with the financial institution holding the funds. The documents establishing the beneficiaries determines the distribution. Neither assets in a trust nor the POD accounts are probate assets. The executor of the probate estate has no authority over those assets.


Is your mother still legally competent? There seems to be a lot of "I will" in your post rather than a lot of "Mother will."

 

[LdiJ]

I'm not positive what you mean by "an IRA of their own." But a non-spouse beneficiary cannot re-title the inherited IRA in the beneficiary's own name or combine an inherited IRA with their own IRA. The IRA should be re-titled so that it indicates the deceased name and the beneficiary's name. For example, "Father Anteater's IRA, for the benefit of Phineas J. Anteater." It does not have to be rolled; it can remain with the current custodian. But the beneficiary does have to begin to take required minimum distributions in the year following the IRA owner's death based upon the beneficiary's life expectancy.

Yes, the "IRA of your own" that you roll the inherited IRA money into must be an "inherited IRA" account. Whether you leave it at the original institution or move it to another, it is still a rollover...and it must be a trustee to trustee rollover, the money cannot pass through the beneficiaries hands. I also agree that RMD's must begin immediately.

 

[navy95]

curb1:
2) Can all of her assets be distributed with beneficiary/POD accounts? 2/3 can. The equity in the house is another matter. For those wondering, be prepared to pull your hair out: my brother folded my mother's money into his own for the down payment on the home he purchased (this was done on the fly, very quickly, before any of us had time to process the 'deal.') The rest of the family is operating under the assumption that he will be a stand-up guy and produce this money once we liquidate the house. Hopefully we are not deluding ourselves. Bottom line with that money--assuming we ever see it again, I'm not sure how that's going to play out and how it will be accounted for. It would likely have to be gifted from him to the rest of us once split up.
3) The executor should have very little to do. Good. But that still leaves the question of the POD and how/who determines percentages of the account to bequeath. The bank said it was the executor that accomplished this.
4) What about the house? Will you be trying to get back the equity in the house? See the messy tale above.
5) Any other assets not available for POD? Only minor possessions which I'm assuming we would donate, trash, or sell.
6) ... It could easily be more beneficial to open a "Survivors IRA" (called a variety of names).
When you inherit an IRA, you may also be inheriting a large tax liability. Taxation of inherited IRAs largely depends on your relationship to the original account owner. When you inherit an IRA, you must follow the IRS rules regarding distribution and taxation, or you may be assessed penalties on your inheritance in addition to any tax owed. There is considerable information about this on the internet. It is simple, but important. Should be custodian (of the IRA) to custodian (of the newly formed beneficiaries' IRA). I will have to research that. Thank you so much for the info--this helps a ton.

 

[navy95]

I'm not positive what you mean by "an IRA of their own." But a non-spouse beneficiary cannot re-title the inherited IRA in the beneficiary's own name or combine an inherited IRA with their own IRA. The IRA should be re-titled so that it indicates the deceased name and the beneficiary's name. For example, "Father Anteater's IRA, for the benefit of Phineas J. Anteater." It does not have to be rolled; it can remain with the current custodian. But the beneficiary does have to begin to take required minimum distributions in the year following the IRA owner's death based upon the beneficiary's life expectancy.

So... if I have this right, the IRA will get carved into four chunks and each will be re-named, and then each will continue to draw down with the annual distributions. Which does not seem to be what LdiJ is saying. I would much rather roll those funds into my IRA, but if I have to re-name and keep it separate, I can live with that. On the one hand, I don't want to make myself out (and the other three kids) as feeling entitled to any of this estate. On the other hand, I want to be prepared and explain to everyone the process. Man, I feel like a douche.

There is not necessarily any relationship between "... the trust, the POD accts, and the executor..." An executor is generally nominated in a will, appointed by the court when probate is opened, and administers the assets that are part of the probate estate. A trust contains assets titled in the name of the trust and is administered by a trustee named in the trust document. POD accounts are established with the financial institution holding the funds. The documents establishing the beneficiaries determines the distribution.

Ok, that clears it up. And on reviewing more carefully the POD doc from the Bank, it does indeed state equal and undivided shares of the assets.

Neither assets in a trust nor the POD accounts are probate assets. The executor of the probate estate has no authority over those assets.

Which goes along with what curb1 was saying--the executor would have little to do.

Is your mother still legally competent? There seems to be a lot of "I will" in your post rather than a lot of "Mother will."

Mother is usually competent. I have no idea where the line lies between full-blown senility and legally competent. I am open to advice on that front, as well. Who determines competency? In any event, she will be happy to go along with what the four of us advise. Since I'm running point on this, I'm using the "I will..." Of course, if she's no longer competent, this all may be for naught, and we may just have to slow roll through probate.

 

[anteater]

So... if I have this right, the IRA will get carved into four chunks and each will be re-named, and then each will continue to draw down with the annual distributions. Which does not seem to be what LdiJ is saying. I would much rather roll those funds into my IRA, but if I have to re-name and keep it separate, I can live with that. On the one hand, I don't want to make myself out (and the other three kids) as feeling entitled to any of this estate. On the other hand, I want to be prepared and explain to everyone the process. Man, I feel like a douche.

My only problem was that the way LdiJ stated it originally ("an IRA of their own") was open to misinterpretation. Possibly leading you to believe that you could do what you were thinking - "... roll those funds into my IRA."

Not sure why you are feeling that way. It's difficult dealing with these questions, but someone has to do it and understand what needs to be done when your mother passes away.

The equity in the house is another matter. For those wondering, be prepared to pull your hair out: my brother folded my mother's money into his own for the down payment on the home he purchased (this was done on the fly, very quickly, before any of us had time to process the 'deal.') The rest of the family is operating under the assumption that he will be a stand-up guy and produce this money once we liquidate the house. Hopefully we are not deluding ourselves. Bottom line with that money--assuming we ever see it again, I'm not sure how that's going to play out and how it will be accounted for. It would likely have to be gifted from him to the rest of us once split up.

Oh my! Yes, I hope that your brother is a stand-up guy about it. Technically, you mother does not have any equity in that property. And, as it stands, with nothing in writing, it is going to look like it was a simple gift.

Mother is usually competent. I have no idea where the line lies between full-blown senility and legally competent. I am open to advice on that front, as well. Who determines competency? In any event, she will be happy to go along with what the four of us advise. Since I'm running point on this, I'm using the "I will..." Of course, if she's no longer competent, this all may be for naught, and we may just have to slow roll through probate.

Short of a guardianship/conservatorship proceeding, competence is pretty much in the eye of the beholder - the person or institution that is being asked to accept transactions. My only concern is that you were thinking of using a POA to accomplish much of what you are talking about. I don't know where Colorado law stands on this, but an agent under a POA making testamentary changes is skating on thin ice.

 

[curb1]

What does brother say about the house? Communication is so important. It is amazing how some people turn into the devil after someone dies. You should make every effort to get this straightened out before mother passes. It might take changing the percentages on the beneficiary list for the POD accounts. If this is not adjusted now it could create serious family problems later. Don't count on brother to be a "stand-up guy". He might be economically forced to NOT be that guy. Get this cleared up immediately.

The way it sounds now is that the house will be his when mother passes (it is his now).

 

[navy95]

My only concern is that you were thinking of using a POA to accomplish much of what you are talking about. I don't know where Colorado law stands on this, but an agent under a POA making testamentary changes is skating on thin ice.

You were correct--we were considering the POA as a vehicle to do much of this. Not that we want to railroad my mother, but that it's easier. But we don't want to skate on any thin ice. I'm fine with having my mother go through the paperwork drill. Can you explain what a 'testamentary change' is?

 

[navy95]

What does brother say about the house? Communication is so important. It is amazing how some people turn into the devil after someone dies. You should make every effort to get this straightened out before mother passes. It might take changing the percentages on the beneficiary list for the POD accounts. If this is not adjusted now it could create serious family problems later. Don't count on brother to be a "stand-up guy". He might be economically forced to NOT be that guy. Get this cleared up immediately.

The way it sounds now is that the house will be his when mother passes (it is his now).

It has been discussed only in generalities. And I've heard stories about how bad things can go, and I'd like to say that we're not like that, but I'm guessing plenty of backstabbing happens by people that said the same thing. In any case, brother understands (at this point in time, anyway) that the money is not 'his.' And you're right---I should draft the POD paperwork to factor out as much of mom's equity as possible--he will likely be more amenable to this now than later. This whole thing will require much discussion, and one of those discussions will no doubt be the uncomfortable sit-down with him to talk about exactly how to account for that money. Good times.

 

[curb1]

1) Do you have an accurate number for "Mom's equity"? It is important to reconstruct the deal very accurately (no guessing allowed).

2) Who is living in the house at this time?

3) Does Mom and brother consider this a loan? Or, was this considered a gift by Mom? Right now it is a gift to brother.

 

[navy95]

- The house equity is $100k. Money was gifted to brother, who I doubt paid any taxes on it.
- House at this time is vacant--Mom recently moved into a full-time care facility.
- I don't think the money was ever considered a loan. Both Brother and Mom lived in the house full-time for years. Then brother met someone, got married, and only spent time in the house sporadically, while Mom remained in the house until recently.

 

[LdiJ]

- The house equity is $100k. Money was gifted to brother, who I doubt paid any taxes on it.
- House at this time is vacant--Mom recently moved into a full-time care facility.
- I don't think the money was ever considered a loan. Both Brother and Mom lived in the house full-time for years. Then brother met someone, got married, and only spent time in the house sporadically, while Mom remained in the house until recently.

Then maybe now is the time to convince your brother that the house should be sold and mom's equity pulled out.

 

[anteater]

Can you explain what a 'testamentary change' is?

Generally, any type of change that has to do with how the principal's estate will be administered and/or distributed when the principal passes away.

In your case, I intended to refer specifically to the beneficiary designations for the IRA and bank accounts.

First, there is too high a potential for a brouhaha down the road among the beneficiaries and heirs when an agent under a POA uses his/her authority to make changes. Second, you might find that the IRA custodian and the financial institutions are reluctant to accept such changes for fear that they will later be sucked into a family feud. (Heck, they are often reluctant to accept an agent's authority at all.)

You said that you will be retaining an estate planning attorney and, I assume, that means for creation and execution of the POA document. Be certain that you discuss this aspect with that attorney so that the POA document contains language giving you the authority to make these kinds of changes.