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Ask Hubby

This is the only Ask Hubby I could recover to date from Coupons, Deals and More. If I am able to gather more, I will post them. Otherwise, next week I will begin new Ask Hubby questions and answers!

Terri asks:

Dear Hubby,
I am updating my estate planning and am trying to be organized. Got the living trust done, have the titles and deeds in the name of the trust, etc. So when the beneficiaries receive this property, I’m presuming that if all this is done beforehand, they WON’T have to go thru probate? If my executor sells the real estate before distribution to the beneficiaries, who’s responsible for the taxes on any capital gains…the executor? the beneficiaries? Or would this fall under the gifting rule and be exempt from all tax liability as long as it doesn’t exceed $650K (I think that’s the new limit but I could be wrong)? How do you suggest handling this to minimize any financial impacts to the executor and beneficiaries?

Hubby’s response:

Hi Terri,

I love stuff like this. Unfortunately, I fear that not many people feel the way that I do.

In all seriousness, you’ve done great to have done as much estate planning as you have already. While I have a working knowledge of these things, I must strongly encourage you to speak to the lawyer that set up the trust regarding your questions. If you don’t have, or didn’t use, a lawyer with expertise in estate planning, you should get one. With that caveat, I will address your questions with what little knowledge I have on the subject.

If everything is set up correctly, there will be no need for probate. Note, however, that in addition to having a trust to which you have transferred all of your major assets, you need to have a pour-over will that says that any of your assets that were not put into the trust, get put into your trust at your death.

Regarding your second question, if the trustee (executor is a non sequitur in the context of trusts) sells an asset, it is the responsibility of the trust, as a distinct ownership entity (and to some degree, taxable entity) to pay any capital gain taxes. Upon the death of the settlor of the trust, there is a step up in basis to current market value, so there should be little or no gain to worry about.

Regarding gift taxes, I can’t really comment as that varies by state. Note that there are also estate taxes to worry about. As excerpted from Tax Consequences of an Inheritance from an Irrevocable Trust:

When contemplating the tax consequences of an inheritance from an irrevocable trust (A revocable trust becomes irrevocable at the settlor’s death), it is helpful to understand the difference between inheritance tax and estate tax. In some states, inheritance taxes are imposed on beneficiaries of an estate but are only assessed on the inherited portion. Estate tax is imposed on all residents and citizens of the U.S. by the federal government and is based on the entire estate’s fair market value. Estate tax is assessed prior to distribution of assets to the beneficiaries.

I do know there are ways to structure the trust to minimize estate taxes by splitting the trust up into two trusts to maximize the benefit of the spouse exemption for estate taxes. Hopefully that was already contemplated when the trust was first set up.

Kudos to you for focusing on getting your estate planning ducks in a row. With the help of a lawyer with the proper expertise, you can get this all done. Notwithstanding the constant changes in tax law, these issues are nothing new for estate planning professionals. Good luck, and thanks for writing to Ask Hubby.

Disclaimer: This information is not to be considered legal or financial advice. It is for discussion purposes only.

And there you have it folks, this week’s installment of Ask Hubby.

A few things:

1) The disclaimer. Gotta have it because he isn’t an attorney or your financial adviser and he isn’t dispensing legal or financial advice, just giving his opinion.
2) Hubby is willing to give his opinions and answers on a wide variety of subjects listed here. That post also explains his background.
3) If you would like to submit a question to Ask Hubby you can email here and make the subject title “Ask Hubby”, or use the contact page, same subject line.
4) You can use your name or be anonymous. Either works.

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  1. I am dealing with being an heir in a trust right now. My father died 16 months before my stepmother, who passed away this past Feb. Sadly for me, she amended the trust 2 months after he died, to give her kids a much larger portion. Anyway, the way I understand it, if the estate is worth more than 5.25 million, then the estate must pay 35% tax before distribution. My sister lives in Louisiana and will have to pay income tax on the portion she receives. I beleive there are 6 states total that collect this tax. The estate, as well as the other 5 heirs, all are in states that do not collect tax on this. Now their ira’s are different matter. Those are paid out to the named beneficiaries. That money is being paid out to us now, but the trust will likely not pay out for several due to having to sell assets.

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