Dear Mr. Miller:
I know I need a Living Trust so that my $1.5 million house won’t go through Probate when I pass. I don’t want my two sons to have to pay those S.O.B. attorneys just to get my house. I’m going to put the oldest in charge. Although they don’t get along, the oldest will put his brother in his place if necessary and he should be able to sell the house to pay off the reverse mortgage against it–then just split the money.
I also have bank accounts worth about $500,000 more than the house. I want my daughter to get the money as she has been helping me get around since I had a stroke a few years ago. I’m going to put her on as a joint owner with me on the bank accounts so she can get it really easily.
Do you think I have this figured out right?
Living Trusts Have Fees: Well, being one of those SOB attorneys you may not like what I have to say. First, having a Living Trust for the house is not going to avoid all fees. Your sons are going to need an attorney to navigate through all of this. With the Living Trust it may be less expensive and the time to get all of the paperwork and details taken care of may be shorter, but it is not going to be free and it is not going to be instantaneous (see our Estate Planning FAQ #9 & 10, here).
Splitting the Cash from the Rest of the Estate: Frankly, if you follow the plan that you have outlined you have a great chance of screwing things up royally. One should never split the money from the real estate immediately after passing. Why not? Well, the reverse mortgage generally has to be paid off within 6 months of your passing. The funds for the pay off often come from the sale proceeds. But if the house has to be fixed up before sale to get top dollar rather than bargain basement prices where is the money coming from? Depending on the condition of the house it may take $50,000 or more to get it ready for sale. Do either of them have that kind of money available? Will they have to work together to raise those funds? And the fix up may take longer than 6 months. That can be handled by a refinance or even negotiation with the reverse mortgage company. But taxes and fire insurance still have to be paid; from where is that money coming? And then with the 6 month deadline looming, if they don’t get along but need to cooperate, what’s going to happen?
Maintaining Liquidity: So here’s a better idea. Have a Living Trust but not just for the house, for the money, too. Then the money can be used for taxes, insurance, fix up expenses and, yes, the attorney, also. The Trust can direct that your daughter gets $2 million, although she may have to wait for the house to be sold. The sons can get what is left. And name someone else to be in charge; that way, your sons won’t be at each other’s throats while all of this is taking place. I’d suggest a Trust Company. And yes, they are going to charge, too, but isn’t it better that your children pay the attorney and the trust company and get a sizable inheritance rather than not having money to pay either of those entities and lose the house?
Give us a call at 760-436-8832 so we can figure out of this out and get you a plan that will actually work.