Dear Liz: My friend died unexpectedly. I am helping her stepson, who is the successor trustee for her living trust, to get the estate settled. Her estranged son was a beneficiary on her main checking account and took the money as soon as she died, which was his right. However, it has taken three months for the stepson to gain access to her other funds in several brokerage accounts. In the meantime, it’s been a challenge for him to pay the lawyer and burial expenses and keep the lights on in her house while he gets it ready for sale.
I don’t want my trustee to have that same problem. Is it better to put my checking account into the name of the trust, or is it better to name the trust as the beneficiary of the account? What’s the best way to ensure my trustee has quick access to the short-term funds they will need?
Answer: Titling your checking account in the name of your living trust is generally a good idea, and should make it easier for your successor trustee to obtain control over the funds, says Jennifer Sawday, an estate planning attorney in Long Beach, Calif. After your death, the trust would still own the account; the original trustee — you — would simply be replaced by the successor trustee.
That said, some big national banks are notorious for dragging their heels on releasing funds when customers die, regardless of how the account is titled. If your bank makes it tough for you to retitle the account, that may be a sign that you need to search for a more customer-friendly institution. You may want to have a chat with your estate planning attorney, who can tell you which banks are problematic and which offer better customer service.
Sawday suggests her clients maintain at least two checking accounts, including one with a trust-friendly bank or credit union plus another at their brokerage, in addition to any accounts they have at a big national bank. That way, the trustee will have multiple options for accessing funds should any of the institutions prove problematic.
Dear Liz: I own a house with my longtime boyfriend. If one of us dies, how does the capital gains step-up affect the other?
Answer: The deceased partner’s share of the home will get a new basis for tax purposes. The survivor’s share will not.
Tax basis helps determine how much of a capital gains tax bill you might face when you sell a home or any other asset that gained value over time. Your basis is generally what you paid for the home, plus qualifying improvements.
Inherited assets typically get a step-up in tax basis to their current market value, which means that no one has to pay taxes on the appreciation that occurred during the original owner’s lifetime.
If you were married and living in a community property state such as California, then the entire house could get stepped up to the current market value when the first spouse dies. This is known as the double step up. But this applies only to married couples in community property states. Unmarried couples in community property states and couples in other states don’t get this benefit.
Dear Liz: I have retired early. I can keep my employer health insurance, thanks to COBRA, until I’m 64 years and 9 months. Do you have any suggestions on how to bridge that 3-month healthcare gap while waiting for Medicare? I am relatively healthy, but things happen.
Answer: You shouldn’t be without health insurance for a single day, if you can possibly avoid it. Fortunately, the Affordable Care Act exchange can help you bridge the gap.
Once you get the notice from your employer’s health insurer that your COBRA coverage is ending, you can start your application at HealthCare.gov.
Liz Weston, Certified Financial Planner®, is a personal finance columnist. Questions may be sent to her at 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or by using the “Contact” form at asklizweston.com.