5 Key Estate Planning Questions

By Kilner & Kirk with Cory Larkin

No one ever looks forward to dealing with their estate or the estate of a loved one. For the unprepared, the emotion and stress surrounding end-of-life issues is no walk in the park. Navigating the legal waters in this area can push us to our limit.

Cory Larkin is a trusts and estates attorney dedicated to helping people develop thoughtful and effective estate plans. His work involves creating wills, powers of attorney, advance directives, limited liability companies, tax-exempt organizations, and various tax planning vehicles. Cory also resolves disputes arising out of these instruments and the decedent’s estates and assists executors and trustees in managing their duties to the decedent’s estate and its beneficiaries while complying with the numerous obligations imposed upon each fiduciary by local and federal authorities and regulations.

Our team worked with Cory to dig into the five most critical questions our estate clients wrestle with.
 

Question #1:
What happens to THIS property when I die?

Too many people “sign and dine,” celebrating prematurely once their will or trust is signed, only for their loved ones to be shocked and dismayed when they find out that the will or trust didn’t govern their property at all! For example, if you executed a trust as your wealth transfer vehicle, but never transferred your property into the trust, your property would pass automatically according to state law provisions outside of your trust. Similarly, deed titling can be particularly complex, with surprising results. Ownership by joint tenancy often means that the surviving joint owner inherits full ownership of the deceased’s interest at death, but depending on the state and precise wording of the deed, the joint tenant will not inherit the deceased’s interest. This is true even for married persons! So, when you execute your estate planning documents, be sure to check the title of your deed (along with the title and beneficiary designation of each other asset) and update them as necessary to coordinate seamlessly with your estate plan.

Question #2:
What happens if I become incapacitated (with dementia or otherwise) and my family needs to sell or tap into the equity of my home?

Without proper planning, your family would need to petition the local judge to appoint a legal guardian to take those and/ or other appropriate actions. Unfortunately, this process is often laborious and costly, may be delayed due to the court’s schedule, and can create strife among family members when there is disagreement over who should serve as guardian. At the same time, you can eliminate this risk by executing a financial “power of attorney” now while you have capacity, which – when properly drafted – gives an “agent” authority to convey real estate, execute or modify certain contracts, and take other actions on your behalf to the extent you cannot act on your own.

Question #3:
Do I want my property to pass through probate?

Probate refers to the state-supervised administration of a decedent’s estate that typically runs 9-12 months after a decedent’s date of death and is accompanied by certain fees, requirements, and financial reporting to verify the executor’s faithful management of the estate. Probate may be avoided through the use of “will substitutes,” the most common of which is a revocable trust, which acts just like a will, carries no special tax benefits or burdens (unlike an “irrevocable” trust that is often used for tax planning), and bypasses the need for probate to the extent assets are included in the revocable trust, or payable to it, at death. This is particularly relevant for individuals owning real estate in multiple states, as a probate administration is typically required in each state in the absence of the use of will substitutes. In that case and others, transferring your interest in real estate to your revocable trust during your lifetime can eliminate the need for the probate of those interests by your loved ones after your death.

Question #4:
What if someone is injured on my property, or sues me for any reason arising from my ownership of the property?

If you lease property to tenants, or have frequent visitors of a business nature, you should plan for the possibility that someone may sue you for damages arising under your contract or from a personal injury on your property. The key risk here is that a plaintiff could reach your personal assets if there is no legal shield between your property and the rest of your wealth. By placing your property in a limited liability company (LLC), you can limit the recovery of any would-be plaintiff to the value of the property held in the LLC, and nothing more.
 

Question #5:
What are the income tax benefits of holding my property until my death?

They might be enormous, and thus worth factoring into your estate planning decisions. When you sell your home, you will owe capital gains tax on the difference between the sales price and your basis in the property, which consists of the price you paid for your property, with some adjustments. So, if you buy a home for $1,000,000 and sell it for $2,000,000 you could owe capital gains tax of $150,000 or $200,000 (depending on your income tax bracket) on the difference. At the same time, the Internal Revenue Code grants beneficiaries a stepped-up basis in inherited property generally equal to the fair market value of the property as of the decedent’s death. So, in the above example, if you hold your home until your death and your beneficiaries sell it shortly after for $2,000,000 then their basis ($2 million) would be equal to the sales price and the capital gains tax would therefore be eliminated completely.

You can reach Cory at 202.240.2362 or cl@larkinlaw.com, and can find out more about his work at www.larkinlaw.com. Cory is licensed to practice law in Maryland, Virginia, the District of Columbia, New Jersey, and New York. Nothing in this article should be construed as legal advice for your specific situation.