Q-and-A: Estate Planning Issues

Note From Jonathan: Every adult should have a will and other essential estate-planning documents, such as a durable power of attorney and an advance directive. Never act on the basis of something you hear or read about estate planning—including, I hasten to add, my own thoughts—without consulting a lawyer. If your situation is particularly complicated, be sure to use a lawyer who is very experienced in estate planning.

I live with my mother in her paid-off house. When she dies, I want to stay in the house. Can she sell it to me, or what can be done so I can stay here? –Cindy, Wisconsin

If your mother doesn't need money from the sale of her house, the most straightforward way to own it would be to inherit it. She would simply indicate in her will that she wants you to inherit the home.

 

Inheriting a home that has appreciated in value should also allow you to receive the so-called "stepped-up basis"; in other words, that is the value of the home as of the date of death, rather than its original-cost basis. This could be advantageous if and when you sell the inherited home, since your capital gain would be based on the higher date of death valuation.

If your mother needs money from the sale, you could buy it from her just as you would any other home. On the other hand, unless she needs a substantial amount of money from the home sale, you could pay rent to help her meet her living costs.

How much money can a parent give as a gift to an adult child? What, if any, taxes are involved? –Sharon, N.C.

You can give up to $13,000 per year to anyone without any taxes involved.

In other words, there is no tax benefit to the person who makes the gift, and there is no taxable income to the gift’s recipient.

Parents who can afford to make annual gifts can provide financial boosts to children, many of whom have been suffering financially as a result of the recession. Even in better times, a gift now may be much more useful than an inheritance a long time in the future. But affordability is essential.

 

Don't ever delude yourself into thinking that a money gift to children or grandchildren will be returned to you in the event you suffer a financial reversal. Finally, there's nothing sacrosanct about the $13,000 maximum. If you want to help a family member in the younger generation, but if you can’t afford that kind of money, you can always give a lesser amount.

I'd like to know your opinion about last-will kits offered by publishers and Web sites. I’d like to leave what I have for the common good.  –Dante, Florida

While preparing your will on your own is certainly better than having no will at all, I encourage you to have a competent lawyer prepare it and advise you on other estate-planning documents that you should have. Unless your financial situation is unusually convoluted, it should not cost much.

 

Another advantage of having an estate-planning attorney at hand is that you can check with him or her about any alterations necessitated by changes in your personal circumstances or by changes in federal or state regulations. There are a lot of mistakes that we make in life that can be fixed. But if you mess up your self-prepared estate-planning documents, not even a séance will help.  

 

That said, congratulations on wanting to prepare a will. Single people may believe that they don’t need a will, but that’s not the case, particularly if you want to leave money to charities. State laws pertaining to people who die without a will require that the estate assets be distributed to family members. There’s no way that the money will be channeled to a charity unless you provide for the charity in a will.