Posts By: Gene Osofsky

Q. My father recently died, leaving his home in a Living Trust. He also left several bank and brokerage accounts. Our problem: these financial accounts were never formally transferred into his trust. Is there a way to deal with them now without going through a full probate?

A. Yes, there may very well be a way! And, by the way, your question suggests that you know that a probate is a court proceeding supervised by a judge. It usually requires the assistance of an attorney, involves lots of paper-work and compliance with procedural rules, and typically takes more than a year to complete even where everything proceeds smoothly. In our experience, most families prefer to avoid a probate proceeding whenever possible.

So, in your situation, there may be two options to settle your father’s estate as to the omitted assets without a full probate:

1) Petition Court to Transfer Assets To Trust: One approach would depend upon whether there is written proof that he intended to make these omitted assets part of his trust, but just never got around to doing it. Example:  he may have listed these accounts in his description of assets appended to his trust, but perhaps never formally re-titled them into the trust. Some judges may even deem it sufficient if his Last Will, which is usually prepared as a companion document to the “Living Trust”, directs the remaining “residue of his estate” to his Trust, as most such companion Wills actually do.

If so, then it might be possible to Petition the Superior Court for an order transferring them into his trust now, so that they can then be handled – like the home—as part of the administration of his trust and without need for a full probate. The judge hearing this petition would likely make a ruling in one short court hearing. This is sometimes called a “Heggstad” Petition, so named because of the leading court case approving this procedure.  However, even this Petition would involve a court proceeding, and require that you engage an attorney to prepare a written petition to the court.  So, at best it would involve what I call a “mini- probate”. On the good side, there is no “cap” on the value of assets that may be subject to this Heggstad Petition.

(2) Affidavit Procedure for Accounts Under $184,500: If your father had only omitted from his trust certain bank and brokerage accounts, and if you discover that their combined value does not exceed $184,500 (in year 2024), then you might proceed via the even simpler “Small Estate Affidavit” procedure.

This affidavit procedure, set out in California Probate Code § 13100, requires only the completion of an affidavit by the Successor(s)-In-Interest of your father, setting out the nature of the assets sought to be collected, the right of the Successor(s) to receive them, and certain other recitals. That affidavit would then be delivered to each bank and brokerage firm holding an account for your father, with the request that it comply with the law and turn over the account funds under each custodian’s control to the signer(s). Some banks even have forms for this purpose.

Here, the successor(s) would typically be the named beneficiaries in your father’s Last Will (if he had one), which could very well be the designated Successor Trustee of his Trust. Alternatively, –if there were no Will – then the successors would be his family members who would inherit his estate under the California law of Intestate Succession, i.e. the law which determines rights of inheritance where someone dies without a will. This law designates family members in a certain order of preference.

Of special note is that the values of certain kinds of assets are excluded from the valuation cap when determining whether this Small Estate Affidavit procedure may be used, sometimes making it easier to qualify to use this Affidavit procedure. Also, note that this value cap is adjusted every 3 years based upon inflation. The next adjustment is due in April, 2025.

So, there are, indeed, options for you to avoid a full probate, and you should discuss these with your attorney.

Posts By: Gene Osofsky

Q: My friends and I were recently discussing our estate plans, and the subject of Powers of Attorney came up. It seems that we have different understandings as to what they look like and how they can be used. Can you provide me with a short lesson which I can share with my friends?

A.  Sure. Powers of attorney are very important legal documents. In their basic structure you (the principal) delegate to someone whom you trust (your agent or “attorney-in-fact”) the power to engage in financial transactions in your name, using your assets and with the same legal effect as if you had signed the transaction documents yourself.  But all powers of attorney (“POA”) are not the same. Here is a short list of some variations:

Is It Durable?  Unless the document expressly so provides, a POA expires when the principal loses mental capacity.  However, this feature may be overcome if the document provides that it is “durable,” meaning that it survives the principal’s incapacity. In almost every case, you will want a power of attorney to recite that it is durable, as that is usually when it is needed most.

Is It a “Springing” Power?  A POA can either be immediately effective, or it can be effective only upon the occurrence of a future event, such as incapacity. If triggered by a future event, we refer to this as a “springing power,” because it does not spring into life until the occurrence of that future event.  Many POA’s are designed to only spring into life when a physician certifies that the principal has lost mental capacity.

Is It Limited Or General in Scope? A POA can either be limited in scope (e.g. authorizing an agent to sign a deed and other documents to close a specific sale escrow) or be limited in time with a fixed expiration date, or it can be very general and comprehensive in nature.

Does It Permit Modification of Trust? If you have complete confidence in your agent, you may wish to authorize your agent to create a “Living Trust” for you and/or to make future modifications to your existing “Living Trust” if you have one. Modifications may be necessary in order to address changes in family circumstances, changes in tax law and/or to engage in public benefits planning on your behalf should you later need long term care.  But in order for these powers to be effective, there must also be reciprocal provisions in your Trust, a legal requirement often overlooked. However, your agent may not make a Will for you.

Does it Permit Gifting and/or Long-Term Care Benefits Planning? By California law, an agent cannot use the principal’s assets to make gifts, unless that power is expressly granted in the POA.  Further, even if this power is expressly granted, the agent cannot make gifts to himself unless the right to “Self-Deal” is also expressly stated.  Sometimes the power to make gifts can be very important, such as for tax planning or planning for government benefits under the Medi-Cal or Veterans Pension programs in order to help with long term care expenses.  Example: sometimes a home transfer to another family member, or to a Living Trust, is necessary to protect the home from Medi-Cal estate recovery following your demise, if you have received Medi-Cal benefits during life.  Unfortunately, we find that very few POA’s contain these important powers or impose limits upon exercise which reduce the planning opportunities available to the agent.

In every case, the POA can only be created when the principal has mental capacity to understand what he or she is signing and all POA’s expire upon the death of the principal.  Lastly, a POA for financial matters cannot authorize health care decisions: for that another document is necessary,  which is usually called an Advance Healthcare Directive.

Posts By: Gene Osofsky

Q.  My husband has become frail, and his doctor says he may need to go into a nursing home. However, neither of us is happy with that plan. I want to keep him home. Is there a program that might help us?

A. Yes. The “Program for All Inclusive Care for the Elderly” (“PACE”) may be just the ticket. The PACE program has been designed to help frail elders live independently as long as possible in their own home, which is exactly what both of you desire. It is designed for those elders who would otherwise be at risk of nursing home placement.   Here’s how it works:  several times each week PACE would pick him up at home in a specially designed van and transport him to a local community health center where he would receive all medical care, rehabilitation therapy, social services, recreation, socialization and hot meals with other seniors. At the end of the day, he would be transported back home to be with you.  It would also provide some in home care services to assist him with his needs at home, and thus help relieve the burden upon you.

To be eligible for the program, one must be at least 55 years of age, have medical problems which require ongoing care, but yet be able to live at home safely (perhaps, with a spouse or other care person to assist), as determined by the evaluation team. The level of care is designed to be comparable to the care received in a nursing facility. The senior must also live in a service area covered by the PACE program and, fortunately, you probably do if you reside in the Bay Area.  Once your husband joins the PACE program, all medical care will be provided by the PACE program, which unfortunately means that he will have to give up his own physicians and, instead, begin seeing the physicians at the PACE facility. However, the good news is that the PACE program provides a team of doctors, nurses, social workers, personal care attendants and dietitians who would be responsible for all of his care, and all of that care would be centralized at the PACE Center and supplemented by in-home and referral services.  In the event your husband needed hospitalization, even expensive surgery, PACE would pay for that without additional cost.

PACE is primarily paid for by Medi-Cal and Medicare, and most participants are covered by one or both programs and have either a modest flat monthly co-pay, or none at all.  The PACE program would also work if one or both of you lived in an Assisted-Living Facility, although it would then only cover medical costs but not room and board.  Also, if one of you needed PACE services and the other did not, the good news is that the Medi-Cal law — which includes provisions designed to avoid Spousal Impoverishment — would help protect household income for the “well spouse”.  PACE enrollment can also work for a single senior, as the in-home services include personal care as well as some housekeeping, shopping, meals, and the like.

To learn more about PACE, contact the Center for Elder’s Independence at 844-319-1150 or visit on line www.cei.elders.org.  To learn more about protecting assets under the Medi-Cal Spousal Impoverishment Laws, contact our office.

 

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Posts By: Gene Osofsky

Q.  My wife and I had our Living Trust prepared back in the year 2001. I hear there have been changes in tax law since then which might affect us. Is it time to have our trust reviewed?

A. Yes, Indeed!. When you created your own trust, the estate tax exemption was much smaller than it is today, and special tax planning was required to minimize estate taxes for a married couple. At that time, your attorney probably recommended a form of trust tailored to the much lower estate tax exemption, which was then $675K per person. He or she likely designed a Trust with a Bypass Sub-Trust built into it. This Bypass Sub-Trust was sometimes called a “B Trust,” an Exemption Trust, a Family Trust, or a Credit Shelter Trust.

This design was to preserve the first spouse’s estate tax exemption for later use at the survivor’s later death.  Under former law, without this design, if all trust assets transferred to the surviving spouse directly, the first spouse’s exemption would be unused and lost and all trust assets at the later survivor’s death could potentially be heavily taxed, as they would be then sheltered by only the survivor’s own $675K exemption.  The excess estate value (if any) was then exposed to an estate tax at a rate as high as 55%. Understandably, couples wished to avoid that tax.

However, by directing a portion of the first spouse’s share into a ByPass Sub-Trust, rather than to the Surviving Spouse directly, the couple could shield from estate tax $675K + $675K, or a total of $1,350,000, over the span of two lifetimes.

Now, the estate tax exemption has increased dramatically, making the former use of ByPass sub-trusts unnecessary for most couples.  By comparison, the former $675K estate tax exemption is now $13.61 Million per person per the Tax Cuts and Jobs Act (“TCJA”), effective for persons dying between 2018 and 2025.  Unless Congress votes to extend that TCJA, which is set to expire in 2026, the estate tax for persons dying in years 2026 and thereafter will likely return to the prior exemption, which was approximately $5,250,000 (plus increases for inflation) under the American Taxpayer Relief Act (“ATRA”) signed by former President Obama. But even if the current law expires in 2026 and the exemption drops back to what it was under the ATRA, even that lower exemption (plus adjustment for inflation) would still be more than sufficient for most couples’ estates, and would eliminate the need for the mandatory ByPass Sub-Trust funding on the first death.

Question: You might ask why couples might now prefer to forgo a ByPass Sub-Trust.  Answer: The typical Bypass Trust had some drawbacks: (1) the survivor typically lost the right to make any changes in the Bypass portion even if family circumstances had changed, (2) the survivor’s access to the assets in the Bypass portion was usually restricted, (3) the Bypass trust could interfere with applying for a Medi-Cal long-term care subsidy, (4) the assets in the Bypass portion usually did not qualify for a 2nd date-of-death “step-up” in tax basis upon the later death of the surviving spouse, with increased exposure to a later capital gains tax for appreciating assets when, and if, the ultimate recipients (usually the children) later opted to sell the appreciating asset(s), and (5) the Bypass Trust usually required separate accounting and annual income tax returns during the life time of the survivor.  Surviving spouses usually found these restrictions burdensome.

Further, under current tax law, the unused portion of the first spouse’s full exemption can now be preserved for use by the second spouse even without the use of the restrictive Bypass Trust. The survivor need only make a proper election to preserve it by filing a timely Estate Tax Return Form 706 after the death of the first spouse.

In view of these new developments, couples with Bypass Trusts created for estate tax purposes under old tax law should have their trusts reviewed and, where appropriate, consider eliminating the mandatory funding feature at the first spouse’s death. Instead, they might now consider plans which give the survivor the option of doing post mortem planning after the first death, e.g. by funding a portion of trust assets into an optional Disclaimer Trust. The Disclaimer Trust would then operate as a tax-saving Bypass Trust if that option then appeared appropriate, whether to ensure full use of the 1st spouse’s exemption (without the need to file a timely Form 706 to so elect) and/or for non-tax reasons (e.g. creditor protection, assuring bequests to the deceased spouse’s designated beneficiaries).

An exception to the above recommendation:  The use of the mandatory Bypass Trust can still be useful for non-tax purposes, e.g. in situations involving second marriages. Here, each spouse usually wishes to provide financial security for the survivor, but also wishes to preserve a portion of assets for his/her own children. Under these circumstances, a Bypass Trust can still help these couples achieve their estate planning goals.

 

Posts By: Gene Osofsky

Q. Our daughter is going through a divorce. She has a 24 year old son (our Grandson) who has a disability and gets both SSI and Medi-Cal. She plans to seek child support from the father. We worry that the child support will reduce our Grandson’s SSI and possibly eliminate his Medi-Cal. Is there a way around this?

A. Yes, indeed! Very few attorneys or judges are familiar with the work-a-round for this concern, which involves the use of a Special Needs Trusts (“SNT”). As a result, the sad fact is that many children with a disability who receive SSI and Medi-Cal see their benefits reduced or eliminated when their parents divorce. A bit of background:

To qualify for Supplemental Security Income (“SSI”), your Grandson with a disability must meet two financial conditions:  He must (a) have less than $2,000 in non-exempt resources in his own name (e.g., savings), and (b) his monthly income must be less than the SSI benefit rate, currently $1,182.94 per month if living independently or $873.87 if living in his mother’s home (in 2024).  An award of SSI also entitles him to Medi-Cal without a co-pay (“share of cost”).

But it gets more complicated in the divorce process.

For an adult child, if he is “incapacitated from earning a living and without sufficient means”, then his parents’ duty to support him continues into adulthood under California law.  However, any court-ordered Child Support (“CS”) that he receives would—unless special arrangements are made as described below — be treated as “unearned income” to him and offset his SSI dollar-for-dollar, reducing or eliminating it entirely.

The question, then, is whether there is a way to preserve both his right to SSI and his right to Child Support.?

Answer:  YES!  Enter the Special Needs Trust (“SNT”).  With professional guidance, your daughter could create a SNT for her adult son and, through her attorney, ask the court to “irrevocably assign” the payment of CS to the SNT.  If structured properly, under SSI rules there would then be no offset to his SSI !  Your Grandson would then receive (1) Full Child Support,  (2) SSI without offset, and (3) Medi-Cal without a Share of Cost.  While this strategy has been available for some time, many judges and attorneys are unfamiliar with it and, until now, some judges are of the view that they cannot order Child Support payable to any kind of trust.

Good news! On June 26, 2024, Governor Newsom signed legislation clarifying the matter.  The new law (AB 2397), was introduced by Assembly Member Maienschein and amends Family Code § 3910.  In relevant part, it provides simply as follows:

“The court may order that a support payment be paid to a special needs trust”

The law becomes effective on January 1, 2025, and will give the courts explicit authority to assign child support for children with disabilities to a SNT so that they do not risk losing their SSI benefits.

The SNT would be managed by a Trustee, which could be your daughter, who would then handle the funds in a manner compliant with the SSI and Medi-Cal rules. This typically would mean that, as Trustee, she would not disburse funds directly to your Grandson, himself, but instead would use them to pay third party providers directly for goods and services provided to him, such as a tutor, computer, clothing, etc.

The use of an SNT may also be used to shelter support for a minor child who receives SSI (although the offset calculations are a bit different), as well as to shelter Spousal Support for a spouse going through divorce.

To make this option work, it is essential that your daughter engage an Elder Law or Special Needs attorney familiar with the use of the SNT in the divorce context. The SNT attorney would then work with her divorce attorney to create the proper SNT, and might even help educate the judge and opposing counsel to the benefits of this technique. In this regard, our firm has developed a special interest in these cases, and the results have been very rewarding and usually recognized as a “win-win” by all parties before the court.

Posts By: Gene Osofsky

Q.  My father recently died. His home, bank accounts and other assets were held in a Living Trust.  His financial advisor said we should now engage a lawyer to help with trust administration. What? I thought if you had a Living Trust that there was little or nothing to do following the death of the trust-maker? Is that not so?

A.  Your father’s financial advisor is correct. One of the most common misconceptions among those who have established a Living Trust is that there is little or nothing to do following the death of the trust-maker. In fact, depending upon the nature of the assets, there is often quite a bit to do.

Think of it this way: many people create Living Trusts in order to avoid a formal probate proceeding, which many people correctly understand to be a cumbersome, time-consuming process overseen by a judge in court. By comparison, administering a trust following death involves many of the same processes, except that it is controlled by a trustee in an out-of-court process called trust administration. Further, a probate is a public proceeding, while administering a trust is typically a private matter. Still, even with trust administration there are things to do and laws to follow.

While everyone’s situation is different, here is a partial list of things that should to be done during a typical trust administration:

Prepare formal, written Notice to Trust beneficiaries and heirs in legal format;
Identify and protect decedent’s assets;
Lodge decedent’s Will with the Court;
Give formal notice to agencies: Medi-Cal, FTB, IRS, Social Security; VA
Prepare a trust accounting, if required by the terms of the trust;
Obtain appraisals for tax purposes and for distribution purposes;
Ascertain and pay creditors;
Advise Beneficiaries about any “Disclaimer” option;
Resolve disputes among beneficiaries;
Take title to real property in the trustee’s name;
Sell real property where appropriate & distribute the proceeds;
Handle sub-trust funding if required by the trust;
File fiduciary income tax returns, if required;
File estate tax returns for larger estates or to elect / preserve tax portability
Arrange care for pets

Sometimes there are problems with a trust which  need to be corrected by seeking an appropriate court order. One example would be a trust prepared years ago, when tax laws were different, which should now be revised to comport with new tax law.  Another example: where a trust leaves assets to a beneficiary who is now disabled and receives public benefits (such as SSI and/or Medi-Cal), and whose bequest should, instead,  now go into a Special Needs Trust for his benefit so as not to disturb the continuation of those benefits. Where these issues appear, the trustee must also consider whether to seek a post-mortem trust modification via a Court Proceeding, or via the newer out-of-court Decanting Process.

While the rules regarding trust administration are generally more relaxed than those governing a probate proceeding, nevertheless it is wise for the successor trustee to consult with an attorney knowledgeable in these matters, so that he or she can be properly advised and avoid tripping over legal requirements. Remember: the successor trustee typically has a fiduciary duty to honor the terms of the trust, comply with relevant law, and deal fairly with the designated beneficiaries.

We recommend that all successor trustees seek appropriate legal guidance so that they discharge their duties lawfully, minimize family disputes and avoid creating liability for themselves.

Posts By: Gene Osofsky

Q. My wife and I have an adult son with a disability.  He receives SSI and lives in our home and pays us a modest rent from his SSI benefit.  We also help him with groceries. We report this to SSI.  To date, our “assistance” to him has been deemed a subsidy by SSI, and has reduced his monthly SSI benefit amount. However, I hear that there may be some favorable changes coming soon in how SSI treats this financial “assistance”. Can you tell us more?

A. Sure.  The Social Security Administration (“SSA”) recently announced some changes in the way it will calculate a reduction for the value of financial assistance for food and housing received by the recipient of Supplemental Security Income (“SSI”).

Background: SSI has been designed by Congress to provide a qualifying individual with money for food and housing. To qualify, an individual must be over age 65, blind or have a qualifying disability, AND have income less than the SSI benefit amount, and have less than $2,000 in countable resources (such as savings). To the extent the SSI beneficiary receives some income in any given month from other sources (so long as less than the SSI benefit), his SSI benefit will be reduced, but not eliminated.

In terms of income, there are three (3) types that SSI counts: (1) earned income, (2) Unearned income (such as pension income), and (3) In-Kind Income.  The treatment of In-Kind income is what will change.

In Kind Income results where a third party, such as parents or other family members, purchase some of the beneficiary’s food for him, or subsidize his housing expense. The treatment of this third kind of income is what the new rules will address when they fully go into effect on September 30, 2024.  This In-Kind income is frequently referred to as In-Kind-Support & Maintenance, or “ISM” for short.

Under current rules, the value of that ISM is deducted from his SSI benefit, but only up to a certain cap. That cap is called the Presumed Maximum Value (“PMV”), and this number increases each year with inflation. In 2024, that PMV amount is $334.34. In addition, there is also a $20 ‘unearned income exclusion ‘, so that the net PMV reduction from an individual’s SSI is capped at $314.34 ($334.34 – $20) in any given month. The benefit reduction for food and/or housing is always the lesser of the actual value thereof or that year’s net PMV amount.

Example: Let’s assume you purchased for him $100 in groceries this month. Let’s also assume that you charge him $400 for rent where, if you had rented his room out to a stranger on the open market, the Current Market Rental Value (“CMRV”) would be, say, $750/month. Your combined financial assistance to him would then be calculated as follows:  $100 + $350 rent subsidy ($750–$400) = $450 in total ISM.  Since the current net PMV for any given month is only $314.34, his SSI benefit reduction would be capped at only $314.34 for that month, which is much less than the full financial benefit he actually received from you. Here are the calculations:

$1,182.94 Gross SSI Benefit (with the California State Supplement)

<   314.34 ISM (Capped at the net PMV Amount)

$    868.60 Reduced SSI Benefit for that month

Not a bad deal, even under the current rules. But, with the implementation of the new rules on September 30, 2024, the good news will soon be even better. Here is why:

Food: When the new rules take effect, there will no longer by ANY reduction for food that you (or any other family member) purchase and give to your son, or even the value of a meal you purchase for him at a restaurant;

Rental Subsidy: So long as the rent you charge him is at least equal to the then existing PMV Amount ($334.33 for year 2024), it will generally be treated as if it were equivalent to the Current Market Rental Value (“CMRV”), and there should then be no reduction in his SSI by reason of your rental subsidy. Note: there may be some variation in application of this rule for different individuals, depending upon the number of persons in the household and other factors. But the basic thrust of the new rule is to benefit SSI recipients and eliminate the current reduction for the rent subsidy.

Caution: As before, if you give your son money directly, for whatever purpose, then there will continue to be a dollar-for-dollar reduction in his SSI. Thus, the way to maximize the benefit to him for, say, groceries is for you is to purchase them from the grocery store and then gift the groceries to him. Admittedly this two-step gifting process can be a bit cumbersome, but that is the best way to continue your assistance to him and avoid a reduction in his SSI Benefit.

This should come as welcome news to SSI beneficiaries and their loved ones.

Posts By: Gene Osofsky

Q. My brother-in-law just died, and I expected the entire family to be invited to a formal reading of his will. So far, nothing has been set up. Does that sound right?

A.  Actually, yes it does. You have probably seen a number of old movies where, after a person’s death, his next of kin gather in the attorney’s office for a formal ‘reading of the will’. In the movies, the attorney somberly reads the will aloud while the family listens with anticipation to learn how the decedent provided for them. Typically, the camera captures audience reaction as the decedent’s wishes are finally made known.  In reality, however, that scenario rarely occurs in today’s world..

Instead, within 30 days of death, the original of the decedent’s Last Will must be lodged with the Superior Court clerk in the county of the decedent’s residence and then becomes a semi-public record. If there is to be a probate of the will, the decedent’s probate attorney will send formal notice to the decedent’s heirs and beneficiaries advising of the date, time and place of the initial court hearing to determine the validity of the will and commence a probate proceeding. Often, a copy of the will is attached to this formal notification and, if not, the will is available for viewing and copying at the courthouse by persons receiving notice.  However, even if there is no probate (for example, if the decedent held all assets in a trust),  the will is still kept in a secure file by the court clerk and becomes a semi-public record, available for viewing or copying at a nominal fee upon showing the clerk the decedent’s death certificate or by obtaining a court order.

Essentially, each interested person receives, or can secure, a copy of the will to read for himself. That is typically how the ‘reading of the will’ actually occurs.

Some have suggested that the formal ceremony of reading the will has its roots in earlier times when literacy was not as common as it is today, and that the ceremonial reading aloud was therefore necessary to inform beneficiaries of the will’s contents. However, it is my guess that a more accurate explanation may have more to do with technology, i.e. the advent of copy machines.  Certainly, in the days of Abraham Lincoln and even into the last century, copying a legal document for review by others would have been a labor-intensive process, usually performed by hand and therefore prone to error.  In that context, reliance upon a single original made sense.  By contrast, today we can quickly and accurately reproduce the decedent’s Last Will and easily distribute a true copy to as many persons who have a legitimate interest.

Hence, in today’s world there is no need for a solemn gathering to hear the reading aloud of the original Last Will, and the law does not require that an attorney do so. In fact, in all my years of practice, I have only been asked on one single occasion to read a will aloud to assembled family members, a request that I obliged out of respect for the family.

Posts By: Gene Osofsky

Q. My primary asset is my home, which I purchased about 35 years ago and now own free and clear. I would like to leave it to my son, but in a way that avoids the fuss of a probate or trust administration when I die. Is there some way to do this?

A. Yes, indeed. You might consider leaving it to your son via a Life Estate Deed. A Life Estate Deed (“LED”) is a special kind of deed which you would sign and record now, but which would transfer your home to your children down the road, upon your death, while reserving to you the exclusive right to live in your home during your lifetime. Upon your death, your child’s interest would mature into a full ownership interest

One of the nice features of this LED, is that the clearing of title upon your demise is very simple.  At that time, your son need only file with the county recorder an affidavit reciting the fact of your death, along with a certified copy of your Death Certificate and other routine transfer documents.  There would be no probate and no trust administration to deal with.

However, as with many legal matters, there are “Pros” and “Cons” to using this special deed. Here are some of them:

Advantages:

1) Upon your demise, clearing title and confirming ownership in your children is a simple procedure, handled without probate or trust administration.

2) The home would receive the same favorable tax treatment accorded a transfer, upon death, via a Living Trust or Will: Your children would receive the home with a tax basis equal to its increased value at your death, thus minimizing any capital gain tax if they later sell the home.

3) Should you ever apply for a Medi-Cal Long Term Care subsidy to help with nursing home expense, the home would be protected from a post-mortem recovery claim for reimbursement.

4) In terms of title insurance, this LED is better than the new Transfer on Death (TOD) Deed, as many title companies are unwilling to insure the transfer of title where the newer, TOD Deed has been used.

Disadvantages:

1) Once the deed is signed and conveyed, you cannot change your mind by revoking the conveyance, or at least not without your son’s agreement.

2) Once the deed is executed, you would not be able to obtain a conventional or reverse mortgage secured by the home. This could impact your financial needs in the future, including funds for long term care.

3) Once done, you could not sell the home without agreement of your son, and if sold, the proceeds must be “split” between you according to the value of your respective interests.  This restriction could impair your ability to sell the home to help fund your own retirement or long term care expenses.

4) Disputes may arise regarding responsibility for repairs or improvements.

5) If your son were to predecease you, his interest would go as he directs in his own trust or will or, if none, to his heirs-at-law. Thus, you would no longer control the ultimate disposition of your interest.

While many of these disadvantages can be eliminated by creating a formal “Living Trust”, the trade-off is the greater expense of creating a trust, and the time and expense of a formal, post-mortem trust administration upon your demise. Another alternative is a Transfer on Death Deed (“TOD” Deed), but there are downsides to that option as well. See this link to an article on the TOD Deed.

Before making the decision to use a LED — rather than a “Living Trust” or Will–  it would be wise to seek professional advice from a knowledgeable attorney to make sure that this special deed is right for you.

 

Posts By: Gene Osofsky

Q: My husband just passed away. He did not have a Will or Trust, and our home was his separate property from his prior marriage. His son is now anxious to sell the home in order to receive his inheritance share, but that would force me out of the home with nowhere to go. Do I have any rights?

A.  Yes, you do! There are two important rights of which you should be aware: the Probate Homestead and the Probate Family Allowance. These key provisions of probate are designed to safeguard the interests of surviving family members, and together they play an important role in providing financial protection and stability to them during this time of transition.

Probate Homestead

The probate homestead provides a valuable shield for you and any minor children by allowing you to claim your husband’s home as your “homestead”, with the right to continue to reside in the home. This right is liberally construed and favored by the law. In ruling on the request for a Probate Homestead, the court has discretion to determine the proper conditions and appropriate duration of this homestead. Such conditions can include the assignment of other property owned by your husband to his son or other heirs or devisees, i.e. as a kind of “ trade – off” so, as here, the son might receive other items of value from his father’s estate while you continue to reside in the home. The court will also set the duration of the Probate Homestead in its order, and this can be as long as your own lifetime if the court determines that your financial and shelter needs so require. However, if you later remarry, it is likely that the homestead would then dissolve.

Probate Family Allowance

Another feature of the probate process is your right to request a probate family allowance, a feature designed to provide immediate financial assistance to you and surviving family members during the administration of your husband’s estates. This provision can ensure that you, as the surviving spouse, will have access to a reasonable allowance from your husband’s estate to support yourself during administration. This allowance can help cover essential expenses such as expenses related to the home, utilities, food, and other necessities during the probate process.

If your husband’s estate is solvent, the court has wide discretion in determining the duration of a family allowance, but it must terminate no later than the entry of the final order for distribution of his estate, which could very well be a year or more from the beginning of the probate process.

Some local court rules, however, require that it be of limited duration, and require additional petitions in order to extend the duration of this allowance. These are all matters that you should discuss with your attorney.

In conclusion, the Probate Homestead and the Probate Family Allowance serve as essential safeguards for surviving spouses and minor children, providing a place for them to continue to live, and for immediate financial assistance in their time of need. These provisions can play an important role in ensuring your own well-being during and even beyond the probate process. Be sure to discuss these matters with your attorney as soon as possible.