I normally write articles describing how to avoid problems. In this article, I will tell you how to create problems for yourself. Of course, my intent is not to invite you to make mistakes, but to warn you in advance about what can happen in a several different situations.
(1) What can happen if you don’t place your home in a Trust? It depends on your specific situation. But here are some possibilities. What if you leave a surviving spouse and your most recent deed lists you and your spouse as Joint Tenants? No problem. At your death, your spouse can record an Affidavit of Death to have your name removed from the property. Any other assets may be a problem, but the house was an easy transfer.
If the surviving spouse is not the parent of your children, then state law creates an unusual division of the assets between them. If your spouse is not listed as a joint tenant, then in some cases your children can force them to move out and sell the home, dividing the proceeds between them based on state law. If your spouse died before you, you have no joint tenants, and we are going to Probate court. This will always cost more and be more trouble than simply preparing a Trust.
If you thought to avoid probate by naming a child as a joint tenant, you may have created a much larger problem. If someone owns a share of your property prior to your death, they won’t get the benefit of waiving all capital gains taxes when the home is sold. If someone lives in a home for at least two years, they can sell it and get a discount on capital gains taxes of $250,000 for singles and $500,000 for couples. Most adult children have homes of their own and no plans to live in your home. If they sell a home when you named them as a joint tenant on prior to your death, they may owe tens of thousands in capital gains taxes. A Trust can easily avoid this problem.
If you know someone in this situation that says they didn’t have to pay these taxes, it’s very likely they haven’t been audited yet. The IRS normally only audits you for the past three years of taxes, but if they find any substantial errors, they may go back six years. That’s a long time to go without peace of mind for failing to pay taxes, all because the home wasn’t in a Trust!
(2) What if you choose not to sign a Power of Attorney? This document is needed to give your loved ones authority to manage your finances for you while you are still alive. Without a Power of Attorney, can your children manage your finances? As usual, it depends. If your only bills get paid by credit card or auto withdrawal from an account each month, it is likely your family members can go online and do it all for you and no one will be the wiser.
What if it becomes necessary to set up a new account, or collect funds from the bank, or deal with a business in person? In these cases, your family may be stopped by the company or government entity they want to do business with. In some cases, the only remaining option will be to go to court to get a conservatorship over you to manage your finances. This will normally require an attorney, which can be costly. And going to court means doing everything on the Judge’s schedule, which may take longer than planned.
(3) What if you chose not to sign a Health Care Directive? This is sometimes referred to as a health care power of attorney. Without it, your family will need to make decisions about your care without your written approval. Sometimes this isn’t a problem, and family members discuss the issues and tell the doctors what they have agreed to do. But what happens if your family members can’t agree on what to do?
Terri Schiavo made the news when she had a heart attack at age 26 and went into a vegetative state, sometimes referred to as being “brain dead.” After pursuing all reasonable medical options to bring her to a state of awareness, her husband asked the court for permission to have her feeding tube removed. Her husband believed she would not want to be kept alive in her condition. The court gave him permission.
Soon after, her parents, who did not want to lose contact with their daughter, sued to have the feeding tube reinserted. This began the ten year battle between Terri’s husband and her parents over Terri’s status. This battle led to the Florida Supreme Court, the Florida legislature and the governor intervening, then Federal Courts and appeals to the US Supreme Court, and then Congress and the Senate passing bills signed by the President.
In the end Terri’s husband won and her feeding tube was removed. All of this trouble would have been eliminated if Terri had signed a Health Care Directive naming her husband as the person with authority to make these decisions. I don’t know anyone that would prefer to be kept alive after they are brain dead, but Terri had never made her preferences known.
(4) What if you don’t sign a document that states your preferences for burial? A Distribution of Remains statement can avoid arguments and give a chosen person authority to carry out your wishes.
I once met with the children of a decedent that had told her children she wanted to be cremated. She never wrote her wishes down and signed them in front of a notary. The one child that wanted to support her wishes had no special authority to do so and was overruled by the other children and family that wanted a burial. If no one supports you in your wishes, it will be hard to be sure they happen. If you give just one person written authority, and they choose to support you, it will be hard to stop them.
Thirty minutes in a free consultation with an estate planning attorney can help you sort out what you want to do and help you to know your options. Give us a call today! 801-210-1058.
THIS ARTICLE DISCUSSED GENERAL PRINCIPLES OF LAW. PLEASE DO NOT TAKE ACTION BASED ON THIS ARTICLE ALONE. ONLY AN ATTORNEY CAN DISCUSS YOUR SPECIFIC SITUATION WITH YOU AND THEN HELP YOU DETERMINE YOUR BEST COURSE OF ACTION.
