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Posted

Several people have asked about the things that need to be done when a loved one has passed. I'm posting this in General because what is done BEFORE is more important and what will make it easier after. And, I am a strong advocate that everyone should take care of these things below even if they are NED, cured, or don't have any disease at all. Don and I did these things long before he was diagnosed with cancer. I just wrote all of this below to one of our members in an email, so I thought it was a good idea to share it:

I cannot give legal advice. I am a paralegal and have done these things for others on my job, but have also done all these things first for my in-laws, then my parents, and of course Don. I have to be careful how I word things because my lawyer/boss/friend could get sued for malpractice if I give “legal advice”, and I could get sued for practicing law. He told me the way that I can help people without violating paralegal and lawyer ethics is to tell people what Don and I did in advance and what I did after.

The things we did applied only in Indiana. The procedures and laws are different in each state, but I have found they are almost always very similar.

Here are some things we did:

Before

Don and I had standard wills – everything went to each other first. If we died simultaneously, then everything went to our son. If our son was already deceased, then to our brothers and sisters share and share alike.

We had powers of attorney for each other (both durable and real estate).

We had blank HIPAA medical authorizations, signed but not dated, so we could get info on each other if it ever became necessary.

We had Living Wills and Appointment of Health Care Representative documents signed and dated.

We had everything jointly held so we did not have to probate in court in Indiana. It is called “Joint Tenants with Rights of Survivorship” – frequently abbreviated JTWRS. That’s how we had the deed to our home, our vehicles, our securities and our IRAs. What that means here is that we both owned 100% of everything, so if one died, the other owned 100%. So, at Don’s death, I owned everything 100% and Don’s estate was nearly zero. At the time of his death, our statute said we had to probate if the value of the estate is greater than $25,000. Since Don’s estate was nearly zero, I didn’t have to probate.

I did the same thing with my mom and dad. Then, when Mom died, Dad didn’t have to do anything in court. Also, when Mom died, Dad and I put everything he owned (trailer, lot, truck and checking account) in his and my name as JTWRS. When he died, I owned everything and not even a large credit card balance had to be paid because his estate was worth zero. Dad didn’t have much, but what was left I split equally with my brother and two sisters. That was what Dad wanted and we agreed to when we set up everything. He did have a little more than $25,000 net worth, which was mostly absorbed by paying for things we had to do to sell the trailer and pay some for his funeral bill because he didn’t have enough life insurance to cover it. If we had not put everything in JTWRS, I would have had to open an estate, and even though I work for an attorney, the costs of probating would have consumed every cent that was left after those things I just mentioned were paid.

Don and I also had credit cards in both our names. Guess what? I owned those 100%, too, so I still had to pay or make payments on those. :roll: I still have not removed his name from those credit cards and don’t have to. I guess if we had known in advance we probably could have closed those accounts and moved the debt to a new credit card just in his name only, but I think a bank would have seen right through that and my butt would have been called into court.

One other thing about the way Dad and I put his things in both names. There are some laws/rules in regard to doing things like that are done "in anticipation of death" – especially with Medicaid. I’m sure that Dad’s credit card company probably closely checked the date we put Dad's assets in both our names. It’s easy for them to do – all they have to do is check with the recorder’s office to get the date. Fortunately, Dad didn’t die for five years after Mom’s death. I’m not sure, but I think most places here have a 3-year “lookback” – especially Medicaid.

After (with JTWRS)

1. Life Insurance: I called the life insurance companies, got the necessary paperwork, followed their instructions and filed a claim. They all required an “original” certified death certificate. (I think I ordered 10 when I arranged the funeral). A couple of the ins. companies required an affidavit that I was the survivor identifying myself as the beneficiary.

2. License Plates: There was a form affidavit that I had to complete that I found online at our BMV that was needed to get the vehicles in my name. I completed that form and took that form and an original death certificate to the license branch. I also called the BMV ahead of time to be sure that I had everything I needed before I went and waited in the long lines. :shock:

3. Deed to the house: I haven’t done anything with this and don’t have to until the house is sold or I refinance. When that happens, all I will have to do is provide a copy of the death certificate and sign an affidavit that will usually be provided at closing.

4. Bank accounts: I haven’t done anything with these either to remove Don’s name. The banker told me I didn’t have to. When, or if, I remove his name from bank accounts, I’m sure all I will need is the death certificate and maybe an affidavit that I’m sure the bank will provide.

5. IRAs and 401K (I was the beneficiary): I simply called the institutions and they sent me instructions, papers to sign, and of course I again had to provide the death certificate and an affidavit.

After (without JTWRS)

Since our possessions were above the $25,000 level, if we had not had everything joint name or JTWRS, I would have been required by law to contact an attorney who would have opened an estate and probated Don’s will. If he had not had a will, the laws of intestate succession (instead of testate succession [with a will]), in Indiana, would have applied. I still would have had to do some of things listed above, but I also would have had attorney fees, filing fees, notices would have to have been published to creditors, and it would have taken many months to close the estate and make distribution.

If you are paying medical bills or debts, you might not have to do that, depending on the situation. I would suggest you contact an attorney that is experienced with probate and debtor/creditor laws about your requirements as far as paying those bills, especially if it is difficult for you to make those payments.

Hope that helps some of you.

Love,

Peggy

Posted

Thanks Peggy! I did most of these things...it really saved me a lot of money and a lot of time. Didn't think about changing the title on one of the vehicles. Still need to do that.

As far as the bank accounts go when you change those, make sure if you do online banking that you have all your information saved ahead of time if your spouse/partner was first on the account, i.e. their social security number was listed first. I am speaking from personal experience on this one! I lost all my payee names and addresses, scheduled monthly transactions, and other important information.

Posted
We had everything jointly held so we did not have to probate in court in Indiana. It is called “Joint Tenants with Rights of Survivorship” – frequently abbreviated JTWRS. That’s how we had the deed to our home, our vehicles, our securities and our IRAs. What that means here is that we both owned 100% of everything, so if one died, the other owned 100%. So, at Don’s death, I owned everything 100% and Don’s estate was nearly zero. At the time of his death, our statute said we had to probate if the value of the estate is greater than $25,000. Since Don’s estate was nearly zero, I didn’t have to probate.

Love,

Peggy

//////////////

Peggy :

The one big downside to joint tenancy of the house is the huge income tax bite once you become the sole survivor and sell. Other than selling a house AND rolling the proceeds over into another primary residence, I don't know of any way to escape this tax bite. And, if you are a sole survivor with a house in a hot real estate market like SO CA, with the mortgage paid off, the tax bite on the house sale is HUGE as the capital gains dwarfs the allowable tax free amount ! Any SIMPLE suggestions as to how to solve this problem other than buying more real estate ?

Thanks.

Bill

Posted
Peggy :

The one big downside to joint tenancy of the house is the huge income tax bite once you become the sole survivor and sell. Other than selling a house AND rolling the proceeds over into another primary residence, I don't know of any way to escape this tax bite. And, if you are a sole survivor with a house in a hot real estate market like SO CA, with the mortgage paid off, the tax bite on the house sale is HUGE as the capital gains dwarfs the allowable tax free amount ! Any SIMPLE suggestions as to how to solve this problem other than buying more real estate ?

Thanks.

Bill

Nope! I don't know how to solve that problem, but maybe somebody here that deals in taxes can answer. I do wonder if I sell it and don't buy more real estate, when I retire and my overall tax rate reduces, if the capital gains tax will also be reduced or if it's constant. Isn't there a "you-can-do-it-one-time clause without paying, or maybe it's up to a certain amount or something like that? It just seems I've heard some criteria on this issue somewhere.

Love,

Peggy

Posted

Excellent Post Peggy!!!! I found most of what your experience was to be similar to mine -- I had to deal with all of this on behalf of my mom with my dad's estate and now will be doing mom's (I am not in the legal profession, just a person doing this for my family/now me with the help of an attorney and accountant).

Individual state laws do come into play, as you mentioned. Even though my parents had JTWROS, the community property laws of our state still had something to say about that for estate tax purposes. Nothing really wrong with Tenants in Common accounts, just more paperwork involved to get assets to the spouse (and the need for court's letters testimentary to do it). What the will specifically said also mattered -- JTWROS made it easy to deal with the banks and such for easily changing over account titles (and yes, do be sure the right social security number is in place on those accounts for tax reporting!), but it didn't matter when it came to tax filing requirements -- was a real eye-opener (and very time consuming) to find out what the attorney believed should work, didn't work so easy when push came to shove out there in the world. Mom never owed any taxes like you said, but the "devil is in the details" here.

Even with all you mention, we still had to go through the court system. Fortunately, all those professional fees are deductible on estate tax returns and the expenses can be kept to a minimum by doing alot of the legwork yourself: much of the work in our circumstance is really secretarial in nature to me, like collecting date of death valuations from various places and such.

Wise comment on the Medicaid issue: they do have at least a two year "lookback" (could be 3) and will disallow Medicaid coverage for a period of time if they find assets being distributed in anticipation of Medicaid application.

Re: tax hit on selling a house (spouses), Bill -- out in my parts, as I understand it so far (not an accountant either), your home gets its value re-set at date of death. That new valuation becomes the new value "basis" to the surviving spouse so that when the property is sold, the spouse's taxable gain is selling price minus date of death basis, not the original purchase price of the property. We had to have a market analysis done to establish the value of our property when dad passed and I'm gonna' have to do it again now. The analysis was included as part of the estate tax return as well. That goes for stocks, CDs, and mutual funds holdings too. Banks and brokerage houses provide the official value of holdings at date of death during this process.....let's just see if it actually happens that way this go around and maybe it's a community property state thing too).

There is something to the notion of once in your life being able to buy a new property that is less expensive than the one just sold and not having the dreaded tax consequence. I'm not familiar with the details, but I know I ran across my parents records of every property they ever bought and sold in preparation for that (they never used it though). I'd consult an accountant.

I honestly don't know how I'd do it without the help of a good attorney and accountant. I've certainly learned a lot from them that I wouldn't have conceived of otherwise.

Linda

P.S. I'll try to remember to ask my accountant and/or attorney about the real estate thing -- gonna' be seeing these folks again real soon :cry: with my new situation here -- kinda' wonder whether property titling does muck up the waters like you guys were discussing.

Posted

Peggy >>> Nope! I don't know how to solve that problem,

////////

Peggy ( and Linda ) :

I vaguely recall that there is or was a one-time only $500K tax exempt option available on the sale of a primary residence ( must be age 55 or older I think ). Better outcome than the sole survivor tax dilemma. However, I don't know if it's available to sole survivors or couples only. Other than what's been discussed, the only other out that I can think of is to deplete the equity in the house down to ~ tax exempt level via a home loan or line of credit. I dislike having to resort to these options, esp. if the funds aren't needed and / or family members get involved. May end up with a big, regrettable mess.

Bill

Posted

Linda:

Even though my parents had JTWROS, the community property laws of our state still had something to say about that for estate tax purposes.

That could be very true in other states. I guess you are talking about what we call inheritance tax. I don't think I had to pay inheritance tax. I really don't remember, and I know I didn't have to pay any Indiana state taxes. I also didn't have to pay any federal estate taxes.

What the will specifically said also mattered --

In my case, the will did not matter because everything went to me first in the will, and since Don then, at date of death, didn't have any assets over $25,000, the will did not have to be probated at all.

JTWROS made it easy to deal with the banks and such for easily changing over account titles (and yes, do be sure the right social security number is in place on those accounts for tax reporting!), but it didn't matter when it came to tax filing requirements -

It didn't matter in my case on filing requirements either, but it did matter a lot on the bottom dollar of my returns. I didn't have to pay taxes on anything I basically inherited because it was all mine because of the way we had it set up - jointly held. The only thing I did have to pay income taxes on that about knocked my socks off was Don's company-paid life insurance. That was a big one. I didn't have to pay income taxes on the supplemental life insurance he had with his company, just the company paid portion. So, be prepared for that one. In other words, his company was furnishing and paying for life insurance and federal and state income taxes at my tax rate had to be paid. OUCH!

I also rolled over Don's 401K with his employer to an IRA and didn't have to pay taxes on that either.

Posted

Nope, I wasn't talking about inheritance tax on the JTWROS issue -- I was talking about how the world views ownership of assets in a community property state: No matter how they had things titled, half is estate (his) and half is hers of everything they accumulated during their marriage. Mom, of course, had immediate access to anything JTWROS; things as tenants in common or in dad's name only "locked" upon his passing and had to go through estate executor to get to mom (still was hers, just a paperwork issue). Incidentally, anything in mom's name only was half dad's (and his estate) too.

Mom still did not have to pay any inheritance tax in the end, it's the reporting on the estate tax return that was critical.

The will left everything to my mom as well. However, the will required me to set up certain trusts, one of which will help me now as I face the inheritance tax consequences -- federal law (I think) permits a person to set aside up to a certain dollar amount of their estate that passes to heirs beyond the spouse tax-free (when the spouse passes) -- we're in to gifting laws now. That must be established as part of the estate business at the time the person passes -- too late to use this tax benefit when you just let everything go to the spouse and then other family heirs later without stipulating this (as I understand it).

Big yep on mom having to pay income taxes on life insurance stuff as the beneficiary too. IRA rollover was a nice surprise as well -- she was just required to keep up the required minimum distribution on it and pay taxes on those as funds as they were distributed. We'll see what happens with me now as beneficiary of that IRA -- I think all I'll have to do is keep up RMDs as well, but not sure yet.

Linda

Posted

This is some good information. I chose to use a trust fund for my assets now, except my house. That I have JTWRS with my sister. My sister will also be the executor and has HIPPA, medical decisions, Power of attorney, etc.

By the way, you can sell a home and deduct tax free $250,000 for single or $500,000 for married. No stipulation on age, but you must live in the home either 2 or 3 of the last 5 years.

Mary

Posted

In the end, I would highly advise folks to consult, at minimum, a reputable estate attorney in their area on these issues -- rates for developing these things can be negotiated as flat fee, no matter what "they say" (that's what my parents did out here about 6 years ago when they needed to update all this stuff) -- if I remember right, it cost them around $800-$900 to do it (all the paperwork discussed here) -- pricey enough to say the least, but well worth it (and that's year 2000 rates for them.....I just did my paperwork [in draft right now] on this for $850, but I don't have the HIPPA stuff discussed here yet for my POA....gonna' add that thanks to this thread, especially since my POA is not family as I don't have any of that left anymore!).

There are other property trust things that can be done in estate planning.....called QTIP or QSEP (??????). I ran across papers showing that my parents were planning to do this in years past, but they never completed it.....I really don't understand it or its benefits either.

Linda

Posted

Peggy,

What a good idea for a post! This is something everyone should be thinking about so that complications are minimized (and costs).

Cindy

Posted

Linda >>> Re: tax hit on selling a house (spouses), Bill -- out in my parts, as I understand it so far (not an accountant either), your home gets its value re-set at date of death. That new valuation becomes the new value "basis" to the surviving spouse so that when the property is sold, the spouse's taxable gain is selling price minus date of death basis, not the original purchase price of the property.

Linda :

I spoke with both an estate atty and a tax planner. I think that I have cleared up the confusion re: this matter. For this stepped up valuation based on DOD to be recognized as the new cost basis the property must have been owned in a community property state. In these states, for tax and real property purposes, joint tenancy is basically " understood " to be considered the same as community property. And, the $250K tax exemption applies towards gains realized above this stepped up valuation. But, this issue still falls in a grey area of real estate law as it pertains to documentation and is, therefore, subject to interpretation(s) that may differ from yours with hefty tax and penalty consequences if it goes against you. So, make sure that you are on solid footing when dealing with this issue.

Bill

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