We continue the saga of Joe Smalley’s estate administration desires being ignored and circumvented.

Joe’s attorney had strongly suggested he create a trust, a health care directive, and a durable power of attorney in addition to a will. Joe thought with his simple estate of just a house and an IRA that all those documents were not needed. He did not follow his attorney’s very appropriate advice and only had a will prepared. Joe wanted his IRA split between his two sons, Eric and David, and his house to go to his daughter Jean.

On the surface, Joe’s estate did appear simple and straightforward. Joe had named his son Eric as the executor. However, Eric did not want the house to go to his sister. He was silently angry that she was getting it since it had higher value that half of the IRA account he was receiving. Eric convinced his Dad to put the house in joint tenancy with him so that the house would not go through probate. His Dad finally relented and signed the deed to place the home in joint tenancy with Eric during an intense period of chemotherapy. Eric promised he would sell the house later and give the net proceeds to his sister. Instead, after Joe’s death, Eric sold the home and kept all the funds for himself.


How could this mess have been avoided? A trust is the answer. Let’s explore how a trust would have solved a multitude of problems:

If Joe had a trust prepared and titled the house in the name of the trust, the house would not need to go through probate. Joe’s name would appear on the deed as the initial trustee on behalf of the trust, without Eric’s name appearing on the deed at all. If Eric were sued or had credit problems, the house could not be subjected to creditor liens, even if he became the successor trustee after Joe’s death. Clearly the home would be an asset of the trust, not Eric. Eric’s creditors would be out of luck.

Even though Eric may not have agreed with his Dad’s decision to give the house entirely to his sister Jean, the funds from the sale of the home would still be legally required to be given to her. If Eric decided not to follow the terms of the trust, Jean would have legal recourse through the court system to require Eric’s proper actions of following the trust terms as written. Eric would not have been able to keep the funds from the sale for himself without legal consequences. When the home was titled in joint tenancy with Eric and Joe, Jean had very limited options for legal remedies, all of which would have been very costly.

If Joe had become incapacitated either physically or mentally before his death, a deed titling change on the home from the trust to joint tenancy with Eric and Joe would have been subject to court scrutiny. Such a self-serving action by a successor trustee could be challenged by both Jean and David. Furthermore, they could ask the court to remove Eric as the trustee as well, preventing him from having access to any of the trust assets except that which he would have been entitled to via the IRA account.

Furthermore, having a trust could also solve another messy problem: final expenses. If the IRA beneficiary were the trust instead of individual beneficiaries, the successor trustee would have final bills of the estate to pay before making distributions to the heirs. Per the will that Joe had executed, his house proceeds would have gone to Jean and the IRA account was to be split between Eric and David. Unless Joe had a sizable bank account someplace, which would also be required to go through probate, where were the funds coming from to pay Joe’s final expenses? The IRA proceeds or the house proceeds? Another bone of contention between the siblings may have arisen. If Joe had a trust, with both the house and the IRA accounts titled in the name of the trust, the successor trustee would have written instructions within the document specifying how to allocate and charge final expenses among the three heir’s inheritances. Problem solved before the issue could cause a family argument.

One of the most important items to consider with a trust is the proper titling of the assets. Even if Joe had created a trust but did not title the assets in the name of the trust, his wishes could still potentially be circumvented. If the house was just in his single name, and the IRA beneficiary not in the name of the trust, it is possible that Jean would have been stuck paying all the final bills of the estate out of the proceeds of the house sale.

Next month we will explore the impacts of proper and improper titling of assets in more detail. Even with the best of intentions, if your assets are not titled as they were intended to be, problems and challenged will arise.

Mary Owens, Financial Advisor, RJFS, 426 Sutton Way, Suite 110, Grass Valley, 530-272-7500. Securities offered through Raymond James Financial Services, Inc., Member FINRA/SIPC. Owens Estate and Wealth Strategies Group is not a registered broker/dealer and is independent of Raymond James Financial Services. Investment advisory services offered through Raymond James Financial Services Advisors, Inc. Neither Raymond James Financial Services nor any Raymond James Financial Advisor renders advice on tax, legal or mortgage issues, these matters should be discussed with the appropriate professional.

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