We at the Lund Team had the pleasure of sitting down with Brenda and discussing the newest trends in trusts and real estate. After coffee, we asked Brenda if she would like to contribute to our blog.  Below are the top three mistakes she sees people make in regards to real estate trusts.  Enjoy!

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These are the most common mistakes I see in my practice every day. There are many myths and misconceptions out there about estate planning and real estate. This article is designed to help you recognize and avoid the most common mistakes families make in the passage of their real estate to the next generation and help your family save thousands of dollars in unnecessary taxes and probate fees.

Mistake #1: Not Understanding How Your Assets Will Pass upon Your Death

Many people think their wills control how all of their assets will pass upon their death. Yet, because many people hold much of their wealth in the form of retirement plans or life insurance, many assets today pass outside of wills or trusts. Wills and trusts control real estate and other property that you own, but there are certain assets, like life insurance and retirement accounts, that are not normally subject to probate and which a will or trust cannot affect.

These assets will pass to the beneficiaries you name in a beneficiary designation form (*however note that a revocable trust can be the beneficiary on these types of accounts with the proper trust provisions—there are many advantages to having your revocable trust as the contingent beneficiary behind a spouse for retirement accounts and as the primary beneficiary for a life insurance policy).

Here is an example: Don named his brother as the beneficiary on his retirement plan and his life insurance. Don later got married. After his marriage, Don changed his will to leave everything to his wife. But because Don never changed his beneficiary designations on his retirement account and life insurance, the bulk of his estate passed to his brother on his death and not to his wife.

This problem could have been avoided by reviewing his beneficiary designations for life insurance policies and retirement plans when he got married to make sure they fit his current situation and his estate planning goals.

Mistake #2: Trying To Plan Your Estate around Specific Assets

Unless there are compelling reasons why a specific asset should go to a specific person, I strongly discourage clients from trying to plan around specific assets. Example: Bill had three children and wanted to treat them all equally. His will even confirmed this. Several years before he died, he transferred half of his home to his older son, added his daughter asa signer on his savings account, and named his younger son as the beneficiary on his life insurance policy. When he did this, all three assets were about equal in value. But between these actions and his death, he sold the home, put the proceeds in the savings account, and let the life insurance policy lapse. The savings account passed to the surviving owner and not pursuant to his will. By planning around specific assets, he actually disinherited two of his children! This is not what he intended and this could have easily been avoided with proper planning.

Mistake #3: Relying On Co-Ownership of Property to Avoid Probate In California, co-ownership of property does nothing to avoid an eventual probate. At the death of the surviving owner, a probate must be opened. Adding someone to title simply gives them ownership of half the property and can cause tax problems you are unaware of.

For instance, if a mother decides to make her daughter a co-owner so that the property will pass to her daughter upon her death (with right of survivorship), yes, she has accomplished that if the property is in joint tenancy. However, she may have also created a host of tax issues for her daughter as well. The first of which is a reduction in the mother’s Federal Estate and Gift Tax Exemption because she gave a lifetime gift (if the half of the property was valued greater than$13,000 in the calendar year of the gift—as of 2011).

A second major issue is the capital gains tax. Because mom gave half the property to her daughter during her lifetime, the daughter takes her mother’s original basis in the half given to her. This could mean a capital gains tax would be due upon the eventual sale of the property on the half given to her. However, if the mother had given the property to her daughter upon death (say through a trust), the daughter would have obtained a full step-up in basis to the fair market value as her new basis. Thus, no capital gains tax would have been due if the property was sold shortly after her mother’s death. A third big disadvantage to making her daughter a co-owner is that she opens the door to any potential creditor claims her daughter might have in the future. The property could be subject to a claim and taken to satisfy the debt. As you can see, there are numerous tax and legal implications in the art of estate planning that could be missed, costing your family big time.

About the Author, Brenda Geiger, J.D. Brenda is a Trusts & Estates Attorney with her primary office located in Carlsbad, California (she also has satellite offices in Costa Mesa and La Jolla). Brenda graduated from the University of San Diego School of Law where she served as an Editor on the San Diego International Law Journal and published a3scholarly article in the Law Journal. Brenda is also a published author of many articles and books one state planning. The most recent book was released in January of 2011 entitled “Safeguarding the Nest,2nd Edition” available at www.SafeguardTheNest.com. Her passion is helping families protect their children and their assets and keeping families out of the court process at incapacity and death. On a more personal note, Brenda is married to Len, the CEO of the San Diego based web hosting company WebIntellects, Inc. and they have two small children, Lenny and Taylor. They also have two dogs, Starsky and Semper (their lovable German Shepherds).For more valuable information on estate planning, go to www.GeigerLawOffice.net. To request a Family Protection Planning Meeting™ with Brenda, call (760) 448-2220 or email us at info@GeigerLawOffice.net . Posted by Tyson Lund on
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