Mother-in-law terrified by estate-planning and inheritance issues

Factual Questions
1

This is really a GQ, MPSIMS, and Pit offering all at once. But it does contain some pleas for factual information, so I’ll try here first. I’ll do my best to present the situation clearly.

My mother in law (in her mid-60’s) is losing it. Having recently had hip surgery that had some complications, she’s become paranoid to the point of delusion about issues of estate planning. I’m not convinced that even the most comforting answers to her questions would do any good; she seems to be suffering some kind of acute anxiety that keeps her from hearing any rational arguments. But, that said, I did promise her I’d ask around about the things she’s worried about. There seem to be two issues:

  1. Having moved to the U.S. from England 30 years ago, and having no financial acumen or experience, she’s terrified that her husband will die with her having no idea how to handle the details of her estate (house, money and stuff). She’s utterly convinced that the government will immediately swoop in and take everything, and saddle her with tax-related debt that will eventually burden her children. When I mentioned the possibility of hiring a lawyer or estate planner to help, she became convinced that they’re too expensive, and that they would end up bankrupting her somehow. So, my actual question here would be: Is there value in hiring an estate planner/lawyer/expert, and how much would such a person cost?

  2. This is a stranger case. The MIL has been a compulsive stuff-buyer and antique maven her whole adult life, and her house has about 1000 boxes of stuff in it. She has a specific fear that when the gov’t comes to appraise the value of her estate, they’ll decide that value of the stuff in those boxes is so large, that they’ll end up inflating the value of everything such that she (or her kids) won’t be able to pay the taxes on it. She and her husband have long since forgotten what specifically is in those boxes, but my wife has been down there helping unpack them (a process that could take months or years), and reports it’s mostly personal effects, packed-up kid’s stuff, home-decorating things like table-runners, cloth napkins etc., and some sets of china. I’d be astounded if the total value of those boxes was more than a few thousand dollars, but even if it turns out there are hidden treasures in there worth 50k, what kinds of problems can that cause? And can she get in trouble with an estate appraiser if she just guesses, and then later someone discovers that’s she’s underestimated?

I don’t even know if this is a meaningful issue in matters of estate planning and inheritance, but the MIL is convinced that those boxes will somehow send her and her kids into bankruptcy, or cause them to be carted off to jail for tax fraud, or something.

  1. My wife’s parents had planned to make my wife the executor of their estate, but now my MIL is terrified that this will (pursuant to the issues above) cause my wife to inherit a huge pile of debt. Even assuming that there is debt, do kids/executors inherit parental debt? Is that how things work?

Sorry about the long-windedness. My worries are actually more for the mental health of my MIL (and by extension the mental well-being of my FIL and wife) than for any financial issues, but that’s a matter for a different post. In the meantime, any answers I can pass on to her might – might – help ease her fears.

Thanks,

-P

2

You can’t inherrit debt. Assuming there is debt, it is paid off by the stiff’s estate, and whatever is left over is distributed amongst the heirs. The worst that can happen is there will be nothing left over.

3

IIRC, Estate Tax doesn’t kick in unless you’re leaving more than $1.5 Million (in 2005 - it goes up every year). From what you’ve said, it doesn’t sound like she’s in that category.

4

Please don’t take this as professional advice. Since she’s concerned about it, it
probably would be worth it to her(and you) to spend a $100 for someone to say
I am about to.

The Inherience/gift tax exception is pretty high, like $1.5 million. Only after that does the federal tax kick in.

On the real estate, she could add co owners like you and your wife. See an attorney. Various bank accounts you could be added also. Usually, this means upon her death, nothing much additional must be done.

All that stuff she has is valuable to her. You already know the probably actual market value.:smiley:

Some other matters she may wish to discuss, such as the medical decisions thing in case she can’t make them. Social security or medicare will pay for nursing home if the patient’s assets get to a very low amount – they look back a few years – so assets transfered to a child prior to that period aren’t eaten up.

5

Actually, you’re better off inheriting the real estate rather than being added as co-owners now. When you inherit, you receive a stepped-up cost basis.

6

IAAL, not yours, not your wife’s, your MILs, FILs, barber’s, dentist’s, or, frankly, the attorney of anyone you know. What follows is not legal advice, but information and education about our legal system. Read on at your peril.

First, I assume from what you’ve said that both your FIL and MIL are still alive, and your MIL is concerned that her husband will pass before she does, leaving her having to manage the estate and fend off the government hounds. The specific tax concern she has seems to be related to the estate tax; that taxes large estates when they pass to new owners. There are exceptions, however, to what is taxed. First, there is a threshhold “exempt amount” that can be passed on death without any taxes being assessed. This year, that amount is $1.5 million. If, upon her husband’s death, his estate is worth more than $1.5 million, the amount over that $1.5m will be taxed.

Here’s another exception: the marital deduction. Assets transferred between spouses are exempt. So if her husband has a $3 million estate, and he leaves it all to her, the estate owes no taxes. The government takes nothing.

Now, here is where estate planning can pay off. Assume her husband has an estate worth $2.5m. He wants to leave it all to her. That means, of course, that no taxes will be paid on it at his death. But at her death (assuming she has not gone through the $2.5m), the government will apply the $1.5m exemption, and allow that $1.5m to pass untaxed. But the remainder – $1m – will be taxed.

A competent estate planner can set up your FIL’s estate in a series of trusts: at your FIL’s death, he can put $1.5m (the exempt amount) in a trust for your mother, with the remainder to someone else. Because the amount didn’t pass to your mother (because it’s in trust), the estate must pay taxes on that amount. But that’s the exempt amount! So no taxes due. The remainder – the $1m – can just go to your MIL. On her death, her estate has only the $1m, which is below the exempt amount, so no taxes are due.

So for large estates, tax and estate planning makes sense. Take a look at this website, and the articles in the “Public Info Home” tab. A good tax/estate planner should run you about $1000, although YMMV depending on your location and jurisdiction.

I don’t know how estate appraising works, so hopefully someone with more knowldege will come by. But, again, remember the tax threshhold is currently above $1.5 million.

Nope. The estate is liable for any debt. If the estate is too small to pay the debt, then the creditors write it off.

Good luck. Talk to a professional yourself (post your jurisdiction and I can see if I can point you toward a good organization), because consultations are usually free, and find out how much that person charges to draft a will and trusts. Then you can present your MIL with that information (along with the comforting notion that the lawyer seemed really, really rich so if he’s wrong and your MIL’s worst nightmare comes true, at least he will have a lot of assets you can take in the ensuing litigation).

Good luck.

7

This stuff is probably pretty easy, and if not I’m sure that you could help her out if it’s just paying bills.

Please send this government down to take the 700 pounds of trash out of my mother’s house, no wait I did that yesterday. They will not come in right away, not even for months. Someone will though have to talk to the courts and take care of the paperwork. If there’s a will it’s easy, if there is no will it becomes a lot harder. I would say that just paying someone to talk to is not worth it, paying someone to write a will is. I know that when I’m done with my mother’s estate I’m having one written. The only way she could have tax debt is if they owed taxes, and even then they give you extra time to do the taxes.

As has been said there would have to be over 1.5 mil in everything from items, the house and the bank accounts for any taxes. The government does not come in and tell you what everything is worth, you have to either get someone to do it, or in the case of the house do it yourself. Right now I’m doing that at my mother’s house, boxing everything up, including the antiques sitting around.

Even if there is a ton of debt, but how much could there be except the house, no you will not be forced to pay for it. I’m sure the credit card companies would like that, but you don’t. And even with lots of debt, they are not the first to get paid. In my state, Maryland, the county gets their money first, then if someone paid for the furneral, then a big list of other people, then the creditors.

If you want some other advice, go through all of those boxes, pull out some of the stuff you may want, and get rid of the rest. Hire someone to auction it all off then keep the rest of the money. I’ve been going through my mother’s house for the last five days and still haven’t seen everything there is in the house. Out of 1400 square feet of living space, I’d say there was only 400 or so that was useable, the rest, including a one car garage, and 8x10 storage area, and a basement is just filled to the brim with crap. There’s no way I can get through everything in the next week before it’s all sold. You should do it now and then you will not have to worry about it later on. I’m going to wait a couple of weeks and make a big post about what I’ve had to do so far, complete with picutres and how much her stuff was worth when it’s all sold.

8

Thanks much to everyone in this thread. Your words have helped. :slight_smile:

Campion, you are correct: both MIL and FIL are alive, and MIL is worried that FIL will die first, leaving her with mountains of scary paperwork and estate issues. The in-laws are in Sterling, Virginia, in case you might know a good place for them to start.

When I told my wife that there’s no debt-inheritence, she skeptically asked: what, then, stops a person – particularly a person who’s not going to leave much behind to heirs, or who has no heirs – from running up huge amounts of credit card debt toward the end of their life?

As for the boxes and their contents: my FIL is going through them as fast as he can, and they’re donating/throwing out as much as possible, but it could take years yet to go through it all. (The FIL still holds a job, and now does all the housework, cooking etc. as well, so his time to box-comb is limited.)

I will suggest to the FIL that they should try to get free consultation from a professional, and think about hiring a professional estate planner to do actual leg- and paper-work to set things up properly. Does anyone know if estate planners get a flat fee (like real estate lawyers) or charge exorbitantly by the hour?

Thanks again,

-P

9

Nothing, they could very well do that, I’m sure some do. The credit card companies have insurance for such things.

Give me a couple of weeks, as it goes to aucton next weekend, and I’ll let you know how much it all cost me, but you might be better off hiring someone to do it, they will bring it all out to aucton for you and everything. I know they get a flat rate of around $10 per hour per person. The other rates I don’t remember off the top of my head, but when I get it all done I’ll let you know. This is in Maryland so we’re close to each other as well.

10

:timidly:
It’s been a while since I played in this court, but I want to say that when Bush took his whack at estate taxes he also nuked Step-Up Basis. Chat with an estate attorney once you get a few questions out of us. Even if it costs you $400 for a few hours of planning you may find that money well-spent.

11

Even if they charge by the hour, the peace of mind for your MIL might well be worth it.

Many trusts and estates attorneys will have at least an initial consultation for free, though.

12

We recently had my mother’s will redone because of special, long involved circumstances which I won’t go into here. She got a referal to a specialist from her financial planner. He had a form which covered all the basics, including the estimated value of the real estate, names and ages of children and their spouses, etc. The one thing he didn’t have was anything for any issues, so I summarized that on a separate word document. He was able to answer all of our questions on the spot, and then drafted a will afterwards. All pretty painless.

13

I am blissfully ignorant of the geography of your neck of the woods. Put another way, I am unconstrained in recommending options to you.

Start with this law firm that offers $30 seminars on estate planning. Go to a cheap seminar, and see if you like what they’re selling. They’ll likely, at a minimum, give you some cheap tips on what to look for in an attorney. (Note that they are flat fee attorneys, something that may be important to you.)

Here is a list of the Virginia Bar Association’s Section Council on Wills, Estates and Trusts. There are some interesting names on that list that you could consider contacting. These guys, for example. Also, talk to your in-laws’ neighbors – do they have a local attorney they like? Their doctor also may know someone.

Just remember to interview the attorney before you hire. You’d interview a contractor before hiring him to revamp your house; an attorney expects the same, given what’s at stake. If you get to that stage, post a GQ: “What questions should I ask an estate lawyer before I hire him/her?”

Nothing. Welcome to America, land of opportunity. I can’t make you responsible for my debts unless you agree (“co-sign”), even if we share DNA.

Like everything else in life, it’s negotiable. When my parents wanted to re-do their will (twenty years and one additional child later), I found them a lawyer who worked flat-fee. So ask around until you find someone you like.

One last thing: suggest to your FIL that he create a “control journal,” if he hasn’t done so already. (Yes, the name comes from FlyLady.) In it, he should create a manual that would permit a stranger to run his household. Include the names, policy numbers, phone numbers, dates of payments, etc. for everything: insurance, mortgage, taxes, and on. Also, what needs to be done to the house throughout the year (i.e., each April and October, clean out the gutters; every March and September, service the a/c; every Thursday, gardner comes). It will take him some time to compile this, but it should give your MIL (and by extension you) some comfort. Note that your MIL should do the same, as I expect that if she passes first, your FIL would be just as lost. Where do we take the dry-cleaning, for example, or what’s the name of the guy that cleans the chimney?

14

Well, the credit card companies themselves, right? First of all, a person will only have so much credit extended to them at a certain time. The CC companies extended that credit to that person with the belief that the person would be able to pay it off (otherwise why take the risk?). So in theory that person should have sufficient cashflow to pay some of the bills, and if they max it out and don’t pay it back, I’m sure the CC companies, who aren’t insured against it per se, have managed that risk by limiting the amount of credit offered.

Next, if someone starts spending recklessly, I’m sure credit card companies will step in and notify the person that they are spending differently than their previous history would suggest.

And if that person wants to apply for more and more credit, those companies would see the requests for additional credit (which lower your score) and stop issuing credit at some point.

So I would say that the credit business itself is designed to ward against such exploits.

15

When my Dad died I learned a lot about retroactive estate planning. My Mom had died first, Dad remarried and didn’t update the will yet. Luck that my stepmom was cool and we all worked it out among ourselves with one lawyer for the paperwork.

What I learned (in NY state);

-Safe deposit boxes are to be sealed by the bank at the death of the owner. If you happen to need anything out of that box, like a car title you are screwed until you get a letter from the court. Had I known that I would have would have went to the back ASAP.

-The house could have been full of gold, paintings, antiques, and piles of cash. When we tallied up the value of the estate we listed all the stuff that had paperwork attached like the house, cars, stocks, bonds and the like. When asked about other assets we said normal household stuff. Nobody comes to your house and paws through everything with a clipboard and a calculator. I can see this getting complicated if there is a fight among heirs wanting to get their ‘fair’ share.

-All the outstanding debt (including credit cards) gets paid by the assets of the deceased.

My Dad was well organized and everything was in his desk and a small filing cabinet. It still took me days to read evrything and make sure I didn’t miss a bank account or any other hidden paperwork. Not really hidden, but easy to pass over in the piles of paper.

Please have a list pulled together with all the accounts listed for easy referral. Including PIN numbers.

Good luck, and be greatful that you can talk about this now, that they are willing to talk about planning. I have a lot of friends who have parents whose heads are buried in the sand or put their fingers in their ears and go la-la-la-la I don’t want to talk about it.