Estate Planning Practice Blog

How to Nominate a Guardian for Your Children

Leanna Hamill, Esq. has an excellent blog post on this very topic. Read it here.  She practices estate planning and elder law in Massachusetts. Though it's a far cry from California, her checklist is a good approach when considering who should be nominated guardian for your minor kids.

Naming Guardians for Your Babies

Did you know that a Will is the only legal document where you can name a guardian for your minor children? You can nominate an individual or a couple to be a guardian if the worst came to bear. 

You can also express your preference for which half of the couple should be primary guardian. Say your sister is married to a man you do not care for -- you can nominate this couple so long as they are married, but if they are not married then just your sister.

Every parent knows in their own mind who would be the best person or family to care for their children if they were suddenly unable to do so. Your wishes as a parents should be put down in writing so everyone else also knows what your wishes are. This avoids the family fight over who will care for your babies.

If you are not married to your kid's natural parent and the other natural parent does not have joint custody of your child -- you may want to nominate other individual to be guardian. The best way you can do this is to write a Letter of Intent Explaining Your Choice for Guardian to include with your Will. In that letter, you calmly state facts and reasons why the child's natural parent is not best suited to be guardian and why the other individual or couple would be.

Let's say you have a teenage daughter who is going to a good high school nearby. Your daughter's mother lives out of state. As her father, your wish is that your daughter finish high school at this school because it is a good school and to maintain continunity in her life. So as her father, you decide to nominate your close friend to be this child's guardian if one is needed before your daughter turns 18.

In your letter, you can explain that the natural parent lives out of state, that your daughter's education is important to you and that this close friend you are nominating already functions as a mother figure to your child. This may be enough for a court to award guardianship to your close friend especially if the mother does not contest the proceedings or allows your close friend to assume care of your child.

There is so much at stake here. Naming a guardian for your babies in case something happens to you is doing the right thing by your children.

Primer on Placing Assets in Your Living Trust

Use your Certification of Trust to show financial institutions and others as proof that you have a Living Trust. This is a general guide for placing assets into your Living Trust and may not apply to your estate plan.

What should be included or placed into your living trust:

• Your home
• Other real property you own whether in California or out of state
• Vehicles you purchase with cash or own outright

A note with regards to your vehicles you own outright, on the back of the pink slip, write the words TOD (Transfer on Death) followed by the name of your trust or another loved one. Example: TOD Jane Smith Revocable Trust dated 1-1-05.

You should also update the beneficiaries on the following to make your living trust the primary or contingent beneficiary

• Your life insurance policies
• Your bank accounts including checking, savings and brokerage.

A note with regards to your bank accounts – instead of placing these assets into your trust, you can simply update the POD (Payable on Death) designation with your financial institution to name either your trust or another loved one. If you indicate a loved one, they will not have to share this asset with others.

You SHOULD NOT place your retirement accounts including IRAs, 401k, or 403b accounts into your living trust. This is because these assets held by a living trust would need to be liquidated upon your death and any tax benefits to your heirs would be lost. But please be sure your primary and contingent beneficiaries for these retirements are updated and reflect your wishes.

Stepped-Up Basis on Property Held By a Living Trust

Property held by a living trust will be entitled to the stepped-up basis of market value on the date of death of the person who created the trust.

The person who creates a living trust is called the settlor.

To determine the stepped-up basis of the property held by a living trust, a professional real estate appraiser should document the value of the property of the date the settlor(s) passed away.

Being able to use the stepped-up basis on the death of the settlor for property held in a living trust is a good thing. This is because when you inherit property, you want to have its value be calculated on the date the person passed away, not when the person first acquired the property.

For example, the settlors John and Jane Smith (remember this is the a legal term for the persons who created the living trust for the property) first purchased their home in California in 1977 for $60,000. When they both died twenty-five years later, their home was now worth $460,000. 

Let's say you sold this property a year later for $500,000. Entirely possible in today's real estate market.

Do you pay capital gain taxes on the difference of $500,000 minus $60,000 or $500,000 minus $460,000? If you inherited this property through a living trust or through other means (say probate), you would use the stepped-up basis to determine taxes owed, if any. Thus, inheriting property through a living trust means that you would have to pay taxes, if any, on $40,000 if there was not an exclusion otherwise.

A common exclusion that may apply is if the inherited home was your primary residence.

As an aside, if you obtained ownership of this property before someone died -- say, your Mother put you on title a year before she passed away, you would have to pay taxes on her original basis of her purchase price minus your sale price. In other words, $500,000 minus $60,000 making the amount subject to taxes to $440,000. Ouch.

Transferring Vehicles You Own Outright to Your Trust

Any vehicles you own outright should be transferred to your Living Trust to avoid probate. This includes automobiles, motorcycles, boats and recreational vehicles like RVs, quads, boats and wave runners.

This is very easy to do! Simply locate the vehicle's pink slip and write on the back of it the words TOD followed by the name of the trust or other beneficiary pursuant to California Vehicle Code 4150.7. 

TOD means transfer on death.  It is a common way to pass property upon death avoiding probate.

Say your Living Trust is named John and Jane Smith Revocable Trust dated January 1, 2006. To transfer your vehicle to your Living Trust, write TOD John and Jane Smith Revocable Trust dated January 1, 2006.  This means that upon your death your vehicle(s) will be distributed according to the terms of the Living Trust.

If you do not have a Living Trust, then you can write TOD followed by the name of a loved one that you want to receive your vehicle upon your death. This will also avoid probate.

If you do not own your vehicles outright then this procedure does not apply.