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Financial Planning for Karen to Avoid Post-Mortem Disputes Karen owns a home she purchased many decades ago just a few houses away from her childhood home. She also owns her childhood home, having pu
Financial Planning for Karen to Avoid Post-Mortem Disputes
Karen owns a home she purchased many decades ago just a few houses away from her childhood home. She also owns her childhood home, having purchased it from her parents via a family annuity prior to her father’s death. Karen’s daughter, Judi and Judi’s two children live in “Momma and Daddy’s house” (Karen’s parents’ home), paying Karen close to fair market rent. Karen lives in her own home. Her son, David, was recently living there with her but has moved out to live with friends. Karen would like Judi to inherit Momma and Daddy’s house, and she would like David to inherit her house. David and Judi used to be are close, but they aren’t sure about the idea of living near each other. Karen’s home has a mortgage of $60,000. Karen intends to stay in her home for some time, but when she does decide to move to a retirement facility, David is prepared to move in and take over the home. Karen has asked you, her financial adviser, to help her decide the best method for her children to inherit these two homes. Due to some other family land that may generate significant income (from gas royalty rights), Karen is concerned about her estate tax 3 situation. You have analyzed the potential income tax cost of losing the step-up basis on either or both houses in the estate.
1. How can you determine that Karen is competent to sign the estate planning documents?
2. Should the homes be put in a trust? Should the homes be put into two separate trusts?
3. If you were to recommend a trust(s) for the homes, what type of trust would you recommend? Should they be written for a certain term?
4. Should Karen consider using a fully funded revocable living trust instead of a will as her primary estate-planning document? Please provide your rationale.
5. Should Karen use a “Terrorem Clause” in her will or trust(s)?
6. Who should pay the real estate taxes and make maintenance improvements on each property?
7. Karen wants to know how she can lower her income liabilities. A. What are your recommendations for the rental money Karen receives from Judi? B. What are your recommendations for the royalties she receives from her other land
8. Can Karen make gifts to her children to lower her estate taxes? Please provide details about your recommendations and show your calculations.
9. What possible post-mortem disputes do you envision?