Wills and trusts continue to generate questions from readers. Here's a roundup of some of the most recent answers from estate planning attorney Tracy M. Potts, one of our "Ask the Experts" writers.
QUESTION: I've got a living trust but it has a number of accounts -- bank accounts, stocks, savings accounts, etc. -- that are not in the trust. Each account is co-owned with one of my children. If I die, will those accounts pass directly to each child without going through probate? I've heard conflicting stories.
ANSWER: If you have stocks or bank accounts set up as joint tenants with your children as a co-owner and beneficiary, then the account will go directly to them upon your death. It needs to state "Mary Jones" or "Scott Jones," meaning her son as the surviving owner would directly inherit the account without going through probate.
Stock accounts set up as joint tenancy with a child, however, may create some tax disadvantages. The federal tax code states that when a person dies, his property gets a new "stepped-up" tax basis to the current fair market value (this year it's limited to $1.3 million).
If a stock has appreciated, it will show a capital gain when it's sold. If you were sole owner of the stock, the beneficiaries would get a stepped-up basis that would eliminate the income tax upon your death.
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But if you own the account in joint tenancy, only half of the stock gets an adjustment in its tax basis, so there would be income tax consequences.
Q: When you're continually changing your investments, do you have to keep retitling everything in your trust? I'm thinking of my CDs and stocks, for instance. And as for my home, I've got a preliminary change of title form from the county. Do I just fill it out to get my house retitled into the trust?
A: Assuming your new investments are not retirement accounts, like 401(k)s or IRAs, each new account should be opened and titled in your name as trustee of your trust. Retirement accounts, which have named beneficiaries, do not need to be titled in the name of the trust.
To answer your second question: In order to transfer real estate into the name of your trust, you need a new property deed prepared and recorded in your county recorder's office. A "preliminary change of ownership" report is the form that accompanies the deed. It lets the county know whether the deed was exempt from property tax reassessment. The form does not transfer title to your property.
Q: I would like to change some charity beneficiaries in my living trust. Do I need the entire trust rewritten? How can I ensure that after my death the trust executor will follow my wishes and distribute money to the charities?
A: Making a few small changes to a trust usually requires only a written amendment. A "restatement" of the trust is when you replace the trust agreement in its entirety. That is done when the amendments are substantial and when it's easier to create a new document instead of changing many individual paragraphs. It's more expensive, but it may be necessary when you don't want the original beneficiaries to see the changes.
The charities named as beneficiaries in your trust have a right to enforce receipt of their gift. To ensure your trustee safeguards your funds, you can require that he/she post a bond, which is paid from your estate.
You also might notify the selected charities that you are providing a legacy gift so they are aware of your intentions.
