This past month two different people called (neither of them were an existing client) with the same story. Each one had a relative close to death and wanted to know if there was anything that should be done. In each case, it turned out there would need to be probate of the dying person’s estate unless some immediate steps were taken. In one case, we had time to restructure things. In the other case, we did not. In both cases, the sick person died within days.
In both cases, the dying person owned real estate in his individual name and the property was ultimately going to his relatives.
“Alan” wished for his property to go to his children. In Alan’s case, he had previously executed a Durable Power of Attorney giving someone he trusted the ability to handle his financial affairs. Therefore, we were able to have the person Alan had named in the Power of Attorney (referred to as the “agent”) execute a deed on Alan’s behalf, transferring a so-called “remainder interest” in the property to Alan’s children, but retaining a “life estate” for Alan himself. As a result:
- Upon Alan’s death two days later, his life estate ended, leaving his children as owners of the property without needing to go through the time and expense of the probate process.
- For capital gains tax purposes, because Alan had kept the life estate, he was still the owner of the property at death, so the tax “basis” of the property increased to the date-of-death value, effectively allowing the property to be sold after Alan’s death free of capital gains tax, just as would have happened if he had not made the transfer.
“Bob” wished for his property to go to his parents. Bob had not executed a Power of Attorney. At this point, it was not even clear whether Bob would be lucid enough to sign one. Bob passed away before we got the chance to try. The property’s tax basis will still receive a step up and his parents will still receive the real estate and the bank account that was in his sole name, but only after the family has hired a lawyer to go through the probate process, and pay legal fees and court costs, and only after waiting a year to see if any of the decedent’s creditors file a claim against the probate estate.
There are two morals to this story. First, ALWAYS have a Durable Power of Attorney. Second, if someone gets sick (and before they get very sick), call your lawyer to see if you need to do anything. It’s always too early, until it’s too late.
If you need more information on this, you can contact me at (508) 860-1470 or firstname.lastname@example.org. You can also view my 10-minute Q&A Fireside Chats on Frank and Mary’s YouTube Channel, www.youtube.com/elderlawfrankmary and find more in-depth commentary on legal issues on Mirick O’Connell’s Trusts and Estates blog, “Getting All Your ‘Docs’ in a Row.”