Joel's Blog

Some people have owned a second home or condominium in the mountains for many years. When the kids were younger, they swam or skied or hiked or boated there. It was before the death of one of the parents.

The surviving parent was abit lost by the early death. And never got fully back on their feet. Mentally. The kids called just about daily. There was a date or two but never remarriage. 

Now, almost 90, the widow wants to get the property to one of several grown children. Two of the four children would like to continue to use the place, Less use than the one that is slated to receive it. But, the two have children of their own by now and would love the quiet the place affords its inhabitants.

What to do? What not to do?

SALE TO ONE OF FOUR CHILDREN. One child has made an offer to buy it. Seeing that any use of it would end for the two that still would love a week or two a year for say 4 years after sale, the new buyer says no. 

This is not a good estate planning approach. There is income tax due upon the sale. The property has been in the family for 50 years. While the death of one spouse 35 years ago increased the tax basis abit, the tax basis is still low.

GIFT TO ONE OF FOUR CHILDREN: This may make more sense tax wise. No capital gains tax.

ALLOW USE OF PROPERTY FOR 2 WEEKS A YEAR FOR 4 YEARS. Either sale or gift can include making the two who still would love some use fee much better about the whole thing.

DIE WITH THE PROPERTY: Given the age of the owner, dying with the property would allow it to get a new step up in income tax basis. So no income tax would be due until sold in the distant future,

Moral of the story: Estate planning really does affect the living. Poorly done, it can leave scars on family members. Think it through with all members of the family and a professional advisor who knows tax law. 

We Massachusetts residents face a MA estate tax. Our state is one of 15 that continues to have this type of taxation.

This tax is different and more complicated than the income tax. It is a tax on the value of property we own or control at death.

Federal estate tax has been in place since 1916. Before that, it came into use from time to time to raise funds for war.

The tax is calculated on the assets we control at death.

To illustrate: You're on your deathbed. You legally can direct where assets or accounts will go. It's deemed a pleasure. One worthy of taxation. Some people call it the 'death tax.'

Only some people pay this tax. Many die with assets below the MA exemption from this tax of $1 million. The Federal exemption is $11.58 million.

Important non-taxable distributions

Your estate does not pay estate tax on distributions that go to a spouse or charity.

What goes to your spouse will end up in their estate. Unless they spend it first. When added to your spouse's assets, the amount will face estate tax later.

This delay for a married person does not apply if you die married to a non-US citizen.​

Instead, you should put a special provision into your estate planning documents. To cut estate tax on your death. It's called a QDOT provision.
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Some people come to us with only one goal. 'To avoid probate."
But that should be only one goal.

​Almost a minor goal. There are many bigger ones. But first, about probate.

Will or no will can lead to probate court

You go to the probate court if you die with a will. Or without one.

In either case, if you don't own any assets in your sole name, then you don't need to go there. Because a major goal of probate is to allow your survivors to get their hands on them.

It goes like this. You identify which assets were in the sole name. Someone prepares several legal documents, then delivered to the probate court. The 'someone' is the person you've named in your will to handle that job.

After a process, the probate court appoints a MA personal representative (PR.

The PR then requests the court for a document. Called a 'letter of authority'. The PR gives a Letter of Authority to each bank or other financial house that hold assets.

The institution hands over the assets. The PR pays bills. What is not needed for debts or taxes you hand over to the persons the will names. Or your heirs at law if there is no will.

Only SOLE assets need probate

Remember: Only assets in your sole name need this process. 

Assets not in your sole name go others through non-probate ways. You likely signed a form for each non-probate asset. That form lists a person or two to get the asset. It sits in the file of the financial institution where the money is.

Such as an IRA or retirement account. Life insurance is similar. Differently, joint assets will belong to the surviving joint owner.
The wording on the account is important. Joint assets have words like ''with rights of survivorship.'

Another type of ownership is 'Tenants in Common'.

This is different from joint ownership with survivorship. Each tenant (each person) owns 1/2 of this asset type.

The interest of each tenant in common goes pursuant to your will. It does not pass automatically to the other tenant in common.
It will need to go through probate.
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