California Law / Small Estate Affidavit / Trust

[canylawq]

Hello all - My two sisters and I have a question about our mom's estate and how we should handle things. My mom had the following assets:

IRA Account
Bank Account
Real Estate

She had a "Living Trust" and a "Conveyance of Property" putting those items into the Trust. Her thinking in doing this was so her children would be able to avoid probate in California if possible. She was divorced from our father prior to her death and the creation of those documents.

Q1: When we contacted her IRA about transferring the funds they said if the property is not going through probate that we can send them a "Small Estate Affidavit" as long as the total of assets is under $150k. Do we have to factor the value of her house into that $150k number? And if so how do we calculate the value of her house? There is equity beyond $150k in the house but not sure if we have to include that equity since we don't even know if we're selling it...

Q2: If we were to sell the home we were told they would use a "stepped-up basis" for the house - meaning we could have it appraised for its value today and that would be the basis for when we go to sell and not what she paid for it 11 years ago. So with that - is the estimated value of the home as an asset going off the stepped up basis or is it off the estimated equity if we were to sell?

Hope those questions make sense. Just trying to figure out how to avoid going into probate for something like just the transfer of her IRA. We know we don't need to go into probate for the sale of house (if we go that route) so hate to have to do it for something small like the IRA and/or bank account transfers. Thanks for any feedback, happy holidays.

 

[adjusterjack]

Q1: When we contacted her IRA

An IRA cannot be owned by a trust so I suspect the IRA is in her name. Does the IRA designate a beneficiary?

If yes, read about inherited IRAs starting on Page 5 of Publ 590-B:

https://www.irs.gov/pub/irs-pdf/p590b.pdf

If not, read the following:

The IRS Requirements for IRAs With No Beneficiaries

Do we have to factor the value of her house into that $150k number?

No.

See the following from the CA courts:

Simplified Procedures to Transfer an Estate - probate_selfhelp

Q2: If we were to sell the home we were told they would use a "stepped-up basis" for the house - meaning we could have it appraised for its value today

Actually, the stepped up basis is the market value at date of death.

You can get a rough idea of the market value on Zillow, Redfin, or some of the other real estate websites that you'll find by just googling the address of the home.

We know we don't need to go into probate for the sale of house

How so? Were you the beneficiary on a transfer on death deed or a joint owner on the deed with right of survivorship?

 

[canylawq]

Hi Jack - we just assumed that because the house is in a Trust that names us as the beneficiaries we wouldn't have to go into probate to sell it. We had been told that was the whole reason she put it into a Trust so that we would avoid probate...

 

[flyingron]

If she titled the property to the trust, then no probate won't likely be necessary. However, an in vivos trust will not stop any claims against the property form debtors of the estate.

If the property is sold within a short period (9 months?) of her death, you can just treat the sales price as the FMV for capital gains purposes. Otherwise, it'd behoove you to get a proper appraisal of the value.

 

[zddoodah]

Do we have to factor the value of her house into that $150k number?

Yes.

And if so how do we calculate the value of her house?

Market value less balance due on all encumbrances.

There is equity beyond $150k in the house but not sure if we have to include that equity since we don't even know if we're selling it.

That you might not sell it is irrelevant.

If we were to sell the home we were told they would use a "stepped-up basis" for the house - meaning we could have it appraised for its value today and that would be the basis for when we go to sell and not what she paid for it 11 years ago. So with that - is the estimated value of the home as an asset going off the stepped up basis or is it off the estimated equity if we were to sell?

Not really following this, but the value for purposes of determining if probate is needed is the current value less the balance of all encumbrances.

A question for you: does the IRA or bank account designate a pay-on-death beneficiary? If so, those assets are not part of the probate estate.

the house is in a Trust

You should have mentioned that in the original post. If the house is in a trust, then it also is not part of the probate estate.

I suggest you consult with a local probate attorney. Administering estates and trusts is not a good DIY project.

 

[flyingron]

You should have mentioned that in the original post. If the house is in a trust, then it also is not part of the probate estate..

While the living trust allows the distribution of the estate without probate, it doesn't immunize the trust assets from being used to pay the surviving debts of the deceased.

 

[canylawq]

Yes.



Market value less balance due on all encumbrances.



That you might not sell it is irrelevant.



Not really following this, but the value for purposes of determining if probate is needed is the current value less the balance of all encumbrances.

A question for you: does the IRA or bank account designate a pay-on-death beneficiary? If so, those assets are not part of the probate estate.



You should have mentioned that in the original post. If the house is in a trust, then it also is not part of the probate estate.

I suggest you consult with a local probate attorney. Administering estates and trusts is not a good DIY project.

Actually you are incorrect - we do not have to calculate the value of the property as part of her total assets because the property is titled in a Trust in California.

 

[flyingron]

Actually you are incorrect - we do not have to calculate the value of the property as part of her total assets because the property is titled in a Trust in California.

No. If the property was in a revocable trust, it's still in the taxable estate as if she held it personally at her death. It counts toward the $150,000, even though it doesn't pass through the probate process itself.

 

[zddoodah]

Actually you are incorrect - we do not have to calculate the value of the property as part of her total assets because the property is titled in a Trust in California.

As my prior response indicated, your original post did not mention the trust. I clearly pointed out that the trust changed everything. I just didn't bother changing what I had already typed because you failed to provide complete information.