succession planning

A Child’s Husband or Wife if Often a Concern During Estate Planning

Let’s face it, not everyone is crazy about their in-laws.  Whether it is greed, money problems, maturity, substance abuse or a possible divorce; these things create concerns when deciding how to pass along an inheritance.

How is an Inheritance Treated During Divorce?  In Oklahoma.

Theoretically, things or money your kid inherits is their separate property.  However, this can change if assets are co-mingled.  One example is an inheritance deposited into a joint account.  Transmutation is the act of changing separate property into joint property by gift, use or titling.  In a divorce setting these assets should not be included in a property division.  In reality, the ownership often becomes blurred when the other spouse gains title, has access or helps maintain the property.

Manipulative, Demanding, or Stealing In-Laws

Sometime the worry is not divorce but a continued marriage with a spouse who’s need for resources never runs dry.  In these situations a Trustee can prevent wasting of an inheritance.

 Lifetime Trusts:

A Trust splits the legal and beneficial ownership from property.  The Trustee is the person or company that holds title.  However, the Trustee can only use the property for the beneficiary.

Example 1:  The Smith Trust purchases a home for the benefit of Sally.  Sally lives in the home but her name is not on the title to the property.  If Sally’s is legally unable to sell, mortgage or give it to anybody else because only the Trustee has this power.  Sally’s husband cannot force her to do anything with regard to that asset.  The Trustee can sell the property if Sally’s needs change.

Example 2:  The Smiths want leave money to their son.  His demanding wife had credit, gambling, and/or alcohol problems.  The funds a placed in Trust so that the Trustee can manage the money.  The Trustee has sole discretion on how and when money is released for son’s benefit.

In both examples the assets in the Trust are not available to the divorcing spouse.  This is because the assets are not “owned” but the child.

In Oklahoma a simple form called a Transfer on Death Deed allows the owner of property to pass it on to another person without a Will, Trust or probate court.  (I’ll occasionally use the abbreviation TODD in this post.)

The form is very simple to create.  You just need some basic information.  Click the Get Started Here image.

Here is how the Transfer on Death Deed works:

Step 1) After the deed is created, the owner or owners sign it before two disinterested witnesses and a Notary Public.

Step 2)  The deed is filed with the county clerk (recorder of deeds) in the county where the property is located.

Step 3) Within 9 months after you pass away, your beneficiary accepts the property by filing a form with the county clerk with a copy of your death certificate.

Step 4) Once the form accepting the property is filed, the property becomes your beneficiary’s property.

Facts About Transfer on Death Deeds:

 What does it cost to set up a Transfer on Death Deed?  Click Here for Pricing

Answer:  If you use the Transfer on Death Deed package from Winblad Law, you will receive:Here are questions commonly asked about Transfer on Death Deeds:

If there is a mortgage or lien on the property, will the person inheriting it become personally liable for the debt?

Answer:  No.  The person inheriting the property is not personally responsible to repay the debt.  The creditor may have the right to foreclose  against the property only.  If the value of the property is greater than the amount owed on it; the property could be sold and your beneficiary would be entitled to the difference between the amount owed and the purchase price.  Your beneficiary could also pay off the lien and own the property free and clear. They could also sell the property but the lien holder would be entitled to the outstanding balance.

What happens if the Transfer on Death Deed  beneficiary I name dies before me?

Answer:  If a beneficiary dies before you, his or her gift lapses (disappears).  His or her children, wife cannot accept the property.  If you name two beneficiaries and one dies, then the surviving beneficiary is able to claim the entire property.

What happens if the Transfer on Death Deed beneficiary does not claim the property by filing the paperwork within 9 months of my death?

Answer:  In that case the property becomes part of your estate for probate if title is in your name.

Can I change my mind about the Transfer on Death Deed ?  If so what do I do?

Answer:  Yes.  You can revoke the Transfer on Death Deed; create a different Transfer on Death Deed; or transfer the property by gift or sale.  You do not need permission or even notice to the beneficiary.  (Caution:  A Will does not override Transfer on Death Deed even if the Will was made after the TODD.)

Does the beneficiary I name have an ownership interest?  If he has tax, judgment, divorce or credit problems am I affected?

Answer:  No, the beneficiary has absolutely not ownership interest until you die and they file the paperwork.  Therefore, none of their financial problems will affect your property while you are alive.

I own the property with somebody else; can I still use the Transfer on Death Deed?

Answer:   Yes.  1) Both can sign the same TODD.  2) If only one signs and the property is owned as “Joint Tenants” with right of survivorship (usually held by a husband and wife) and you die first; then the rights of the beneficiary lapse.  If you die last, your beneficiary can claim the property. 3)  If you own the property as “tenants in common” (often this is property that two or more children have inherited), then your beneficiary can accept the property and will have your share.  This is a little complicated and a short visit with an attorney is a good idea.

Can I use the Transfer on Death Deed as a prenuptial tool?

Answer:  Yes, sort of.  If a Transfer on Death Deed is signed and filed before you get married and you die, your new spouse cannot demand the property be part of his or her “forced share”.  This means that your spouse cannot become the owner of that property.  However, if the property is where you live (homestead) it is unclear whether the widow might be able claim a spousal homestead that allows him or her to continue to reside there.  The TODD is not useful for planning for a potential divorce.

Do I need to change my Last Will if I create a Transfer on Death Deed?

Answer:  No, but you might want to.  If your Will gives the property to one person but the Transfer on Death Deed gives it to another, only the person named in the Deed can claim it.  If the person named in the Transfer on Death Deed fails to claim it within 9 months, the property is administered according to your Will.

How is a Transfer on Death Deed different from a Trust?

Answer:  Although it avoids probate a TODD  does not have the same advantages as a Trust.  Most Trusts will have contingencies built in.  For example, if a beneficiary dies before you, the Trust can provide that his or her children are to receive the inheritance.  Currently, Oklahoma’s the TODD does not provide for such contingencies.  If a beneficiary does not accept the property within 9 months the gift lapses, however a Trust does not have beneficiary to act.  A Trust can provide asset protection for a beneficiary. Therefore, a Trust can provide many more safeguards than a TODD.

Will the gift be subject to taxes?

Answer:  There is no gift tax because the transfer does not complete when the TODD is signed.  Oklahoma has no Estate Tax or Inheritance Tax.  As of 2017 estates under $5.49 million ($5,490,000) are not subject to Federal Estate Tax.  If your estate is over $5.49 million, then the gift would be include-able in your estate tax.  An inheritance is not income for state or federal income tax purposes.

If there is a mortgage or lien on the property, will the person inheriting it become personally liable for the debt?

Answer:  No.  The person inheriting the property is not personally responsible to repay the debt.  The creditor may have the right to foreclose the lien against the property only.  If the value of the property is greater than the amount owed on it; the property could be sold and your beneficiary would be entitled to the difference between the amount owed and the purchase price.  Your beneficiary could also pay off the lien and own the property free and clear.

How do I set up a Transfer on Death Deed?

Answer:  You just need to know who you want to receive the property, have the forms completed and filed. Packages available, Click Here

What are the disadvantages of using a Transfer on Death Deed?

Answer:  There are several reasons a person may want to use a Trust instead of a TODD, Uncertainty, the TODD plan fails if:

The Beneficiary:

1. dies first and you would have wanted his or her children to inherit; or

2. does not or is physically or mentally unable to accept the property; or

3. is on a needs based program such as SSI disability, Medicaid or Food Stamps receipt of the property could affect eligibility to these programs; or

4. has financial issues such as bankruptcy, credit issues, a divorcing spouse, tax or judgment liens, receiving the property may subject it to liens or liquidation.

Contingencies, a Trust provides the probate avoidance but can also provide more comprehensive planning.

 

How is a Transfer on Death Deed different from a joint tenancy?

Answer:  A joint tenancy avoids probate.  Unlike a TODD, there is no time limit for the survivor to claim total ownership of the property.  However, adding others to your property with a joint tenancy gives them an immediate ownership interest that can be subject to bankruptcy, creditor, tax and divorcing spouse claims.  If you want to sell, mortgage or gift the property, the other joint tenants must agree and sign the paperwork.

What does it cost to set up a Transfer on Death Deed?

 

Three comprehensive “Beneficiary Ready” packages are available.  Click Here

 

 

See Nontestamentary Transfer of Property Act

 

 

Joint Tenancy is one of many ways two or more people can hold title to property. Most married couples hold title to their homes as Joint Tenants. It is one of the simplest ways to hold property. Here is how it works most of the time:

John and Mary are a married couple and purchase a home together. The deed says that they are “Joint Tenants.” John dies. Mary files an “Affidavit of Surviving Joint Tenant.” She is now the sole owner of the home. The property is not subject to probate or claims of John’s estate. When Mary dies, the property is part of her estate.

Common Mistake: Mary thought that it worked pretty well when her husband died and thinks that this would be a great way to pass on property to her children. However, there are dangers in doing so.

Ownership: Each person who owns an interest is a “Joint Tenant. Each “Joint Tenant” has the right to occupy the whole of the property but not to the exclusion of the other Joint Tenant. In other words, every “Joint Tenant” can use the entire property but cannot excluded the other Joint Tenants from the property.

Some people attempt to use Joint Tenancy as an estate planning tool to pass property to their children. This can have disastrous consequences because the deed will give children an immediate property interest and rights. There are several issue that can arise when dealing with property held in Joint Tenancy. Common issues include:

  • Tax liens of co-tenants;
  • Bankruptcies of co-tenants;
  • Divorce actions of co-tenants;
  • Judgment liens of co-tenants;
  • Partition action by greedy co-tenants; and
  • Occupancy rights of co-tenants.

 

Examples:  Mary owns property and wants her children Doug and Sue to inherit it. She also wants to avoid the expense of probate. She deeds the property to herself and her children as Joint Tenants expecting them to “inherit” the property when she dies. Then one of the following occur:

  • Sue dies before Mary. Mary would have wanted the property to pass to Sue’s children. This will not occur unless Doug executes a deed with Mary adding Sue’s children as Joint Tenants. Doug is reluctant to execute the deed because in the event that he dies next Mary and Sue’s children would have to execute a new deed which add Doug’s children as Joint Tenants.
  • Doug is sued (car accident, debts etc.), filed bankruptcy or gets divorced. If the property is Mary’s home, it will be protected as a homestead that will prevent execution. If the property is not homestead, the creditors or bankrupt trustee will likely seek to attach the property. In any event, there will title problems that may prevent the property from being sold or mortgaged. Doug will not inherit the property an intended.
  • Sue becomes estranged from the family. She could bring a partition action to have the property sold and proceeds divided. She could also sell the property to a third-party who can take the same action.

Joint Tenancy is usually the worst choice for an estate plan.

Better Solutions:

Trusts: A better way is to hold the property in a revocable trust. The trust can provide for the intended distribution if a child dies before you. A trust can protect an inheritance from almost all creditors. The trust can be amended as circumstances change. In short, it provides the owner with control and prevents unintended outcomes described above.

Wills:  While Wills do not avoid probate they can provide for contingent beneficiaries or for heirs those who predecease you.  They are changeable and do not give those named therein a current ownership interest in the property.

Trusts are relatively inexpensive to establish and are a bargain when compared to the expense, time and frustration of dealing with probate court. Trusts require no reports or tax returns during its creator’s lifetime.

Transfer on Death Deeds: Oklahoma adopted a Transfer on Death Deed statute.  There are pros and cons to this approach.  For example the beneficiary is required to file an “acceptance” within 9 months.  Read more.

Rick Winblad,

102 E. Thatcher St. Edmond, Oklahoma 73034
405-340-6554

 

 

wp_footer()
show
%d bloggers like this: