Dear Mr. Miller:
Introduction: My Dad recently died and I’m in charge of tying up the loose ends. My CPA told me that all I need to do is record a document with the county recorder to change title to myself and my brother and all is well. He said that since the death tax exemption is now over $5 million and my Dad had a Living Trust I don’t really need to do much more. Certainly, he said, I don’t need an attorney.
What are your thoughts?
Want to Do Right Daughter
Dear Want to Do:
This type of advice has been going on since I started out as an attorney in the mid-70’s. But I have noticed it more in the last year or so.
Basic Rule: My basic rule is that you don’t get your medical advice from the notary public, you don’t get your tax advice from the mortgage broker, and you certainly don’t get your legal advice from the janitor (or the CPA or financial advisor for that matter).
In other words, you obtain your advice from the proper expert. The problem is that the consumer often does not know who the proper expert is and too many professionals, probably just trying to be helpful, don’t appreciate the limits of their own expertise.
My Daughter’s Conundrum: A number of years ago my daughter was about to purchase a house. She is a very bright and industrious young lady. She had a real estate tax question. It was something to which I knew the answer (yes, much tax information is within the expertise of estate planning and elder law attorneys). When I gave her the answer she objected saying that her mortgage broker had told her differently. I asked her where one should obtain tax advice. We went round and round about that for a few minutes until she realized that should be an attorney active in the field of the tax question or a tax accountant (i.e. CPA or EA). A lesson learned!
Why Legal Advice Is Necessary: I have had clients tell me the same thing that your CPA told you. And, of course, because no one wants to spend money if it is not necessary, these clients, many of them also bright and intelligent people, want to believe what they have been told. But when we sit down and analyze the case, it becomes obvious that legal advice is necessary.
For example, in your case, are you or your brother going to want to end up with 100% of the house? If so, with what will the other sibling walk away. Let’s assume that the house is worth $500,000 and there is $250,000 in the bank and that is it; $750,000 total so you each should get $375,000 (750,000/2). If you take the house then you are getting $125,000 too much (500,000-375,000) and he is being shorted $125,000.
County Property Tax: Presumably the one who retains the house will wish to retain the low county property tax that your Dad enjoyed. If he purchased the house in the 1980’s for maybe $150,000 and the annual property tax is 1% then he was paying $1500 (we are going to ignore the annual property tax inflation adjustment for this example). If the house is now worth $500,000 the property tax will be $5000 per year. That’s a $3500 difference every year you keep the house. Ten years; that’s $35,000: a bunch of money. There are ways to keep that low property tax but believing your CPA and failing to retain an attorney is not going to get that job done.
Liability: And were you aware that as the person in charge (i.e. successor trustee), you have responsibility to your brother, the IRS, the State income tax people, the county property tax, and creditors. (By the way, everyone has creditors whether it only be AT&T or SDG&E. And that is true even if all bills are current, i.e. the person still owes the current bill.) Another word for responsibility is liability. One would think that you would desire that that liability be brought to a close. There are legal processes and procedures to accomplish this task, but ignoring the attorney is not going to get that done, either.
Conclusion: There could be a myriad of other issues that require an attorney. After all, someone’s death is a cataclysmic event, not only emotionally, but from a legal perspective, from a tax perspective, from a title perspective, and from a financial perspective. All of these loose ends need to be tied up. And you won’t know what all those loose ends may be until and unless you sit down with an attorney qualified in this field. Maybe you’ll find out that the CPA was right, there is very little to do; but maybe you’ll find out that there are tons of things that need to be addressed. Bottom line: don’t get your legal advice from the CPA.