Estate Planning for My Sister

[las365]

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

My sister was recently diagnosed with metastatic breast cancer. Depending on the success of treatment, she may live for several months or several years. She is a single woman with no children. Her close relatives are our mother, three sisters and two nephews. She bought a house about five years ago and it is her main asset (encumbered by a lien) along with her personal property and some cash but not much (a few thousand dollars). She also purchased an automobile about a year ago. She has short- and long-term disablity insurance through her employmer and she is currently receiving short-term disability benefits. She has health insurance with, I believe, 80/20 coverage. Her 20% of the costs will be a substantial amount.

The family will be able to pitch in to help pay her mortgage if necessary while she is alive.

I am beginning research for her on the ways that she can best manage and try to protect her assets while she is alive and plan for their distribution in accordance with her wishes after her death.

Questions:
What are the advantages, if any, of creating a Trust? Is it mainly to be able to avoid having to go through probate?
Can one place encumbered real estate into a Trust?
If she does create a Trust, I assume that she can be the Trustee until she becomes incompetent (which is unfortunately likely at some point before she dies). Is that correct?
Would having her property in a trust create any asset protection during her lifetime?
Would it create any asset protection after her death?

One of the main questions is how to deal with the real estate upon her passing. She got a good deal on the house she bought and it is likely that one of us sisters will want to buy it from the Estate and live there after her death. Would that be easier if it was in a trust?

All of the siblings are in pretty equal financial status and we do not anticipate any fighting over her Estate, such as it is.

Any advice and suggestions are welcome. Thanks in advance.

 

[TrustUser]

Questions:
What are the advantages, if any, of creating a Trust? Is it mainly to be able to avoid having to go through probate?
yes, as well as having someone take care of her assets when she becomes incompetent, instead of the expensive court-appointed conservator

Can one place encumbered real estate into a Trust?
if you mean because it has a lien on it, then yes you can. the lien still stays as is.

If she does create a Trust, I assume that she can be the Trustee until she becomes incompetent (which is unfortunately likely at some point before she dies). Is that correct?
yes

Would having her property in a trust create any asset protection during her lifetime?
no

Would it create any asset protection after her death?
if it is left in the trust, yes. if it is distributed outright to the beneficiaries, then no.

One of the main questions is how to deal with the real estate upon her passing. She got a good deal on the house she bought and it is likely that one of us sisters will want to buy it from the Estate and live there after her death. Would that be easier if it was in a trust?
i dont know about easier, but i can see advantages, with no disadvantages.

 

[curb1]

No need for a trust, in my opinion. You would still need to have a will even with the trust. A will will do everything you need. The only advantage to the trust would be the immediate transfer of assets (if that is what everyone desires). But a will in her situation would be efficient and probate would not have a negative effect on what you want to do.

 

[TrustUser]

actually the reverse is true. there is no need for a will. place all the assets in trust, completely avoid probate, and distribute privately. wills are an antiquated idea. the only reason for pour-over wills is simply in case an asset was not placed in trust.

 

[anteater]

actually the reverse is true. there is no need for a will. place all the assets in trust, completely avoid probate, and distribute privately. wills are an antiquated idea. the only reason for pour-over wills is simply in case an asset was not placed in trust.

That is an awfully broad statement. Care to elaborate?

 

[TrustUser]

i thought i did elaborate, for the most part. trusts are much better for people than wills are, for distributing their property. there is no reason to pay to have the courts involved, when one can distribute one's property completely to one's beneficiaries, privately with no time delays.

if kids are involved, a separate guardian document should be prepared.

one should also have a health directive or living will, for their health care.

perhaps i can address your question more precisely if you specify a specific reason in which you find a will is helpful or necessary ?

most people do have pour-over wills prepared with their living trusts. but that is just in case they missed an asset. if done correctly, one wants all of one's assets in trust. sometimes one might keep a checking account out of trust, and simply place a pod on it, so it is not subject to probate.

in a sense, the pour-over will is like insurance - you hope you dont need it, but in case you forgot, it does specify to place the asset in the trust.

 

[anteater]

i thought i did elaborate, for the most part. trusts are much better for people than wills are, for distributing their property. there is no reason to pay to have the courts involved, when one can distribute one's property completely to one's beneficiaries, privately with no time delays......

No, you made an assertion. And, if I parse your post here, you mention 3 items:

1) "Pay to have the courts involved..."
2) No time delays.
3) Privately.

Of those, only #3 is an unequivocal advantage. Unless, of course, someone challenges the trust in which case, things end up public anyway.

What you do not address are:

1) Cost of preparation of a trust versus a will. And the time spent re-titling assets.

2) Differences in the cost and complexity of probate in various states. The court fees involved in probate are generally modest. And most states offer simplified probate procedures. Not every state is California or Florida.

3) "..with no time delays.." A trust needs to be administered. Tax returns need to filed. Creditors need to be paid. Assets need to be re-titled and distributed. Those take time, whether it is a trust or a probate adminisration.

Those are some of the reasons that your statement that "[W]ills are an antiquated idea" is overly broad and misleading.

 

[TrustUser]

i dont know how you figure that 1 and 2 arent unequivocal advantages ? not paying for probate and timeliness would be considered huge advantages.

as far as contested trusts, would you care to elaborate on the percentage of contested trusts versus the percentage of wills that are contested ? and the percentage of contested trusts that are actually successful ?

as far as costs, it depends on what one is doing. if one does not have a trust, then usually the will is much more complex, and therefore more costly.

you are correct though, that not all states are as bad as california, which is my state.

the time required to administer a trust is minimal compared to probate.

however, i think it is best if assets are left in trust, so that they can be somewhat permanently protected from the reach of most creditors. but that is an entirely different discussion.

 

[TrustUser]

as the baby boomers are reaching the stage where their parents are dying, trusts are starting to become much more common. a generation from now, there wont be much re-titling done, as assets will be initially placed in trust, in the first place.

but real estate is the only nuisance, now. bank stuff, stock market stuff - you just basically sit there while the agent or broker fills out a bunch of stuff and asks you questions, while forms are filled in.

with property, one does have to record a deed, granting from individual to trust, so that is a bit of a pain. but it is also a very expensive item - one where probate can eat up a huge amount of dollars. a little pain now, or a big ouch later.

 

[Farfalla]

I wonder if your sister can still get an insurance that will pay off the mortgage when she dies?

 

[anteater]

i dont know how you figure that 1 and 2 arent unequivocal advantages ? not paying for probate and timeliness would be considered huge advantages.

Reading over my response, I admit that it was poorly phrased. If 1) and 2) (cost of probate and timeliness) were verifiably true, then they would be advantages. However, those are merely assertions.

as far as contested trusts, would you care to elaborate on the percentage of contested trusts versus the percentage of wills that are contested ? and the percentage of contested trusts that are actually successful ?

I simply do not know. Since the grounds for a contest are the same, the numbers are probably roughly equal. I would guess that successful trust challenges are a lower percentage. But that is all speculation and I did say that privacy is a definite advantage of a trust.

as far as costs, it depends on what one is doing. if one does not have a trust, then usually the will is much more complex, and therefore more costly.

Well, the first sentence is true as a generality. I fail to see any logic in the second sentence.

you are correct though, that not all states are as bad as california, which is my state.

If you had confined your original statement to speaking about California, and hedged a bit about the size and complexity of the potential estate, I would not have questioned your statement. (And, las365 is in Texas.)

 

[las365]

I wonder if your sister can still get an insurance that will pay off the mortgage when she dies?

Well, she has terminal cancer; it is really just a matter of how long it will take to kill her, a short time or a longer time. I don't think there is an insurance company in the world that would give her any kind of life insurance. For all I know, she may have such a policy- we haven't fully delved into the details of what she has. She and I were semi-estranged for several years, ironically because when she bought the house, she got mad at me for suggesting that she shop around to make sure she was getting the best deal possible on her mortgage. She thought I was interfering. All of that is different now, but I am still treading carefully.

The primary reason that the attorney (a friend, not a probate atty) suggested putting the house in a trust was to avoid probate. I don't have any real knowledge or understanding of this area of the law, so I posted to get general info and opinions. The discussion so far has been helpful, thank you.

Our first focus is getting her financially set for living while she's unable to work due to her illness. The rest will follow.

 

[TrustUser]

here is a post from a texas site

Do I need to “avoid probate?” Revocable living trusts are marketed in many states as a great way to avoid probate—especially in states with complicated administration procedures. In many states, estates are put through court-supervised administrations where the executor must have the court’s approval to do most anything. Over time this can be very expensive. However, in Texas, most well-drafted wills provided for independent administration, which allows an executor to handle estate business without on-going court supervision and approval. Therefore, in Texas, delays or prohibitive costs of probate are not as much of a concern as they are in many states.

so, texas does seem to be much more probate-friendly. but it does not tell me what the costs are. in california, the cost is a percentage of the property value, not the equity.

i am not gonna look up every state, but i highly suspect that in almost all cases, having a trust is more economical and better for the individual. and the only question would be how much more ? from what i have researched now, it is not as important in texas as it would be in california. but that may be very well like saying "i got bitten by a hyena, instead of torn apart by a lion". better to have encountered a lamb.

in most cases, the successor trustee is the beneficiary. while he may need to hire some help, he can do a lot of it himself.

when you add the extra complexity of courts, you will delay the time factor by quite a bit.

the second sentence was basically saying that if you use only a will instead of a trust, then the cost of that will, will start to be fairly close to the cost of a trust - so i dont think that the cost to draw up the documents has much to do with the choice of whether to have a will or trust. that was the logic i intended.

the contesting of the two are different. very hard to contest a trust on the grounds that the trustor did not know what he was signing, etc., because it has been a legal entity that has been in existence. this is how wills are often contested. all sorts of previous research i had done on it told me that contesting of wills is common, and success is common - trusts very rare.

just about any trust i have ever seen is good enough if all one wants to do is put some property in it, and distribute it upon death. when a trust needs all the bells and whistles, is when it is gonna be a living entity owning property after the trustor dies. now we are talking about perhaps 100 years. and there are some states with no perpetuity laws, so the trust could last as long as the beneficiaries desire it to last. i was very dissatisfied with computer program trusts, because none of them had any bells and whistles. but i think they would be good enough to get done what las365 needs.

my advice to las365 is place that house in a trust. all las has to do is call a probate attorney, and ask him how much the total charge is to probate a house worth so much. i betcha dollars to donuts going the trust route is way cheaper and faster, as well. in fact, call at least 2, so you can help insure you arent getting quoted something less than the actual cost.

i have talked to several people here in california who took over as successor trustee. matters were handled fairly quickly, even in california. DO NOT INVOLVE PROBATE if you have a choice.

 

[Farfalla]

Well, she has terminal cancer; it is really just a matter of how long it will take to kill her, a short time or a longer time. I don't think there is an insurance company in the world that would give her any kind of life insurance. **************.

When I got mine... they did not check into my health. That's why I was wondering.

 

[Texas Pooh]

Probate, in Texas, is very quick and not very expensive (unless you are Anna Nicole Smith and decide to take it to the Supreme Court )

Because OP's sister is undoubtedly her homestead, the executor may even be able to do a small estate proceeding, which is even easier and quicker.

However, if there is a concern that OP's sister may have a prolonged period of incompetency, there are some advantages to a trust for ease of administration during that period.

A consultation with an estate planning lawyer would be a good idea for advise on pros/cons.