My cousin died before claiming his late father’s $2 million estate. Will I get it?
My uncle, a single man, divorced his wife 25 years ago. They had a son who was childless and also single. My uncle’s closest blood relatives are nephews and nieces that live overseas.
Although he tried to get one of his nieces to administer his estate when he felt ill, she was not a U.S. resident and could not be named a trustee. My uncle then requested that his ex-wife be a trustee of his revocable living trust and will, but he was adamant that she cannot inherit his money as they already split their assets during their divorce.
My uncle passed away a few months ago. His trust named his son as the only beneficiary of his home and had no alternate beneficiaries. Shortly after my uncle died, his son became very ill and passed away before being able to take possession of the house.
Is it true that, without beneficiaries, the trust is terminated and the remaining assets are passed on to my uncle’s estate?
‘My uncle’s will is not complete, in that he named his ex-wife as the executor and he made a list of his assets but did not name beneficiaries.’
Also, if the house becomes part of my uncle’s estate, when the estate sells the house along with stocks and CDs that are part of the estate, can the estate use the IRS “step-up in basis” and avoid paying capital gains on any asset that may have gains?
There’s one more complication in this case. My uncle’s will is not complete, in that he named his ex-wife as the executor and he made a list of his assets but did not name beneficiaries. The ex-wife now claims that her son should have inherited everything.
Given that he was single and childless, she thinks she should inherit everything ($2 million). My uncle’s closest blood relatives (nieces and nephews) think that his estate should go to them since no known beneficiaries of the trust or will exist. Nevertheless, they want to honor my uncle’s wish that the house belonged to his late son and are willing to let the ex-wife keep it. Everyone agrees that probate is out of the question.
We would greatly appreciate it if you would let us know your opinion so we can all understand this better and hopefully resolve it in a fair way but without probate.
A Nephew
Related: ‘Why am I so afraid to retire?’ I’m 60 and lost $1.2 million in a divorce. Can I rebuild my life?
Dear Nephew,
This is an unholy trinity of estate-planning misadventures.
First, there was no contingent beneficiary listed on the trust. Second, there was no completed will. Third, the family doesn’t get to decide what part of the estate does and does not go through probate. Your uncle’s ex-wife is not an heir and will not inherit the house under state law, regardless of where they live or because she believes she deserves it.
Antilapse laws, which prevent the rules of a trust or will from lapsing, vary by state. In New York, if an heir passes away before probate is complete, the deceased heirs’ siblings or “issue” — that is, children — would be next in line. In California, the inheritance would be disbursed to the deceased heir’s children, if they had any.
However, your cousin did not have any siblings or children, so that rule would not, in all likelihood, apply here. “If a deceased beneficiary was the sole heir and no contingent beneficiary is named, the inheritance may return to the estate’s residual beneficiaries, according to the Werner Law Firm, which has offices in California.
In New York, if an heir passes away before probate is complete, the deceased heirs’ siblings or ‘issue’ would be next in line.
“If no such beneficiaries exist, assets are typically distributed according to intestacy laws, which vary by state,” it adds. “Under intestacy laws, assets are generally distributed to the deceased’s closest living relatives, such as spouses, children, or siblings. The estate may eventually escheat to the state if no heirs can be located.”
As for your uncle’s house, if there was no will and no transfer-on-death deed or co-owner with survivorship rights, it would become part of his probate estate and be distributed in accordance with intestacy laws in that state. The same goes for any other accounts where there is no beneficiary listed.
In other words, the laws of the state would then decide who is next in line to receive your uncle’s $2 million estate. With no spouse, children or grandchildren living — stepchildren and former spouses don’t count — the order of succession is parents, siblings, nieces and nephews, grandparents, aunts and uncles and, lastly, cousins.
If there was no will or transfer-on-death deed, the house would become part of his probate estate and be distributed in accordance with intestacy laws.
Your uncle did not plan for all eventualities. “An estate plan should be flexible enough to adapt to life’s uncertainties, including the unexpected passing of a beneficiary,” Werner Law Firm adds. “By including clear contingencies and understanding inheritance laws, you can ensure that assets pass efficiently to the intended heirs without unnecessary legal challenges.”
Not all assets receive a step-up in basis — that is, the fair market value is taxed at the time of the person’s death, rather than the original cost of the asset. Under IRS rules, assets that are not eligible include those inside retirement accounts, including an IRA or 401(k), and irrevocable trusts, as they were technically no longer owned by the decedent.
This gives you a broad overview of the landscape, but a trust-and-estate lawyer in your uncle’s state can give you more details on what to expect. Your uncle’s estate planning left too many loose ends and there are many moving parts — the house, the trust and the rest of his assets — to deal with. Good luck to whomever inherits the $2 million.
They may already be planning how to spend it.
You can email The Moneyist with any financial and ethical questions at qfottrell@marketwatch.com.
Check out the Moneyist private Facebook group, where we look for answers to life’s thorniest money issues. Post your questions, tell me what you want to know more about, or weigh in on the latest Moneyist columns.
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Victor Reklaitis is a Washington Correspondent for MarketWatch. During his time at MarketWatch, he also has served in roles in the London and New York newsrooms. Prior to joining MarketWatch, he worked at Investor’s Business Daily and for newspapers in Virginia.
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The news these days is distracting even for Wall Street’s best, like Alger Funds’ star stock picker and portfolio manager Patrick Kelly, who kept watch on Iran-Israel headlines while sharing secrets of the
five-star Morningstar-rated Alger Focus Equity Fund’s ALAFX success.
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I’m 75 and have a reverse mortgage. Should I pay it off with my $200K savings — and live off Social Security instead?
I am a retired and divorced 75-year-old woman with one daughter. She will inherit what I’ve got and, believe me, she needs it.
About seven years ago, I had a catastrophic health issue that required me to be off work for over two years. I was self-employed and responsible for the salaries of about five other people. Then COVID hit! I had to sell all my investment properties, cash in my IRA and deplete my savings. I took out a reverse mortgage, and my current interest rate is 6.75%.
I have about $325,000 equity in my home currently, with a reverse-mortgage payoff amount of around $200,000. I went back to work for a few years and made some money, which I invested in TD Direct Investments, paying me 7% (an $80,000 investment) and 5.5% (a $125,000 investment).
‘I would own my home free and clear and have access to $525,000 equity should I need it.’
In total, my monthly income is $3,485 a month. I receive $2,500 per month in Social Security and $400 from my brother because I lent him money to pay off his house. I get $585 from one TD account and the other investment is a five-year annuity with three years left. I play poker and can count on an average of about $300 a month from that.
I managed to keep my home and I live a comfortable life. My question is about my daughter and my home’s accumulating debt: Would I be better off taking my investment money and paying off my reverse-mortgage balance of about $200,000? I would then own my home free and clear and have access to $525,000 equity should I need it.
My investments are only $200,000, but accessing them now would diminish the money I have to live on. But it would help my daughter out when she inherits my home. I believe I could live on my Social Security alone if I paid off the reverse mortgage, but I’m not sure this is the smartest plan for this stage of my life.
What do you think?
Retired & Divorced
Dear Retired,
Here is the choice you are facing: a home for life that is essentially guaranteed while you hold on to your current investments, or a home that is paid off while you have little or no savings or income beyond Social Security.
I have three things to say about this.
First, whatever you decide to do, do it for you and try not to plan your life and finances around your daughter’s needs. It’s hard enough trying to live your own life. Second, enlist the help of a financial adviser who can help you weigh up the costs of canceling the reverse mortgage against your finances and goals.
Third, and perhaps the most important: If you can live comfortably off your Social Security and investment income now, you can continue to build savings for a rainy day and put something in trust for your daughter, knowing that you will not get kicked out of your home for outliving the mortgage. You will only lose your home if you break the terms of the reverse mortgage by moving out or not paying the taxes, upkeep and insurance.
As you know, with a reverse mortgage, the interest is deferred and added to the value of the loan, which would, in theory, eat into your daughter’s inheritance. Interest is only charged on the amount you receive from the bank. You must, as always, include maintenance fees, home insurance, mortgage insurance and property taxes in your budget as ongoing housing costs.
You can stay in your home for your lifetime as long as you abide by the terms of the loan.
Reverse-mortgage rates tend to be slightly higher than those for home-equity loans or lines of credit, according to AARP. “If you die, your heirs will need to pay off the loan’s balance. They’ll have six months to satisfy the debt, though they may be able to get a 90-day extension. Heirs can choose to either sell the property or purchase it for 95% of its appraised value.” Your own interest rate is not ideal.
If this reverse mortgage continues for the next 10 years, you could end up accruing another $72,500 in interest, in addition to the interest already accrued. Your interest rate is almost three times the current rate of inflation. This would be added to the final amount if you decide to sell, move out or pay off the mortgage. But your house, ideally, has also increased in value.
Not only did you fight your way back to solvency after your health crisis, you held on to your home and managed to build up investments and savings as a cushion for your retirement years. Is the reason you want to own your home free and clear to prioritize your long-term financial stability, or is it to safeguard a larger inheritance for your daughter? Put yourself first.
Paying off a reverse mortgage
A brief recap: Reverse mortgages are loans available to people over the age of 62. The lender essentially pays you money and uses your house as collateral. The income is not taxable, and it won’t affect your Social Security or Medicare benefits. Because you’re borrowing money against the equity in your house, you don’t have monthly loan payments.
You can, if you choose, pay back the reverse mortgage in a lump sum, as you are thinking of doing. You could sell the house and repay the money (I don’t advise you do that without the counsel of an adviser), take out a new mortgage (although interest rates are even higher than 6.75% at the moment) or make payments on the loan to reduce the interest you will owe over time.
The income is not taxable, and it won’t affect your Social Security or Medicare benefits.
Reverse mortgages have few tax advantages. But that works both ways: Because the amount you receive is considered a loan advance and not income, it isn’t taxable, according to the Internal Revenue Service. “Generally, any interest (including original issue discount) accrued on a reverse mortgage is considered interest on home-equity debt and isn’t deductible,” the agency says.
“The lender pays you, the borrower, loan proceeds — in a lump sum, a monthly advance, a line of credit, or a combination of all three — while you continue to live in your home,” the IRS adds. “Depending on the plan, your reverse mortgage becomes due with interest when you move, sell your home, reach the end of a preselected loan period, or die.”
Overhaul your finances
It’s not a perfect arrangement. AARP cautions people about the complexities of reverse mortgages: “Avoiding foreclosure requires staying current on your property taxes, home insurance and home maintenance, and continuing to live in the home as your primary residence. It can deplete the equity that you have left to pass on to heirs,” the organization notes.
“Moreover, scams are common in the reverse-mortgage industry,” AARP adds. “In just the last few years, the Consumer Financial Protection Bureau has taken action against at least seven reverse-mortgage lenders and servicers for issues like poor communication, inadequate staffing, preventable foreclosures, and deceptive marketing and advertising practices.”
You have your investments, some of which will mature in three years, and I agree with your instinct not to dip into them unless you really have to. You would lose all future earnings on those investments by plundering them now. I would like you to get as close to being debt-free as possible, while keeping some money (say, $100,000) as a cushion.
These next 10 or 15 years are a time for you to enjoy your life and rest easy, and put your own needs first.
View this as a new beginning and a chance to overhaul your finances. You may need to cut back on your expenses, which I assume already include car insurance, property taxes, groceries, and phone and utility bills. If your income is $3,485 a month, where is the rest of the money going? You may want to consider downsizing to a smaller home.
Your daughter will inherit whatever she inherits and, given the fact that you gave your brother a lump sum to pay off his house — presumably before your own financial and health issues began — you are obviously a caring and generous person, perhaps to a fault. But these next 10 or 15 years are a time for you to enjoy your life and rest easy, and put your own needs first.
The ultimate question: Can you live off your Social Security and other income if you pay back the money you owe on your reverse mortgage? Could you rent a room to a tenant if you needed to? Would you have peace of mind if you paid off this loan? A financial adviser will help you weigh up your goals and your concerns for your daughter and understand how they square with your financial reality.
Make this decision based on finances, not emotion.
You can email The Moneyist with any financial and ethical questions at qfottrell@marketwatch.com, and follow Quentin Fottrell on X, the platform formerly known as Twitter.
The Moneyist regrets he cannot reply to questions individually.
Previous columns by Quentin Fottrell:
Check out the Moneyist private Facebook group, where we look for answers to life’s thorniest money issues. Post your questions or weigh in on the latest Moneyist columns.
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My friend, 83, wants to add me to his bank account to pay his bills. What could go wrong?
I’m living with an 83-year-old man and we decided to put my name on his bank account in case he is hospitalized or dies and someone needs to pay bills. He has no close family. I don’t want to place myself in a position of liability. My intention is to legally and openly be able to manage his affairs in the event of a serious health event.
An acquaintance told me that if he were in a car accident, and I’m on his bank account, I might be named in a lawsuit. Is this true?
The Friend
Dear Friend,
The advice from your unnamed source was well-intentioned, but, for the most part, they are misinformed. This can happen when we reveal too much about our affairs to third parties. Everyone has an opinion — a doctor might give you investing advice, a hairdresser could give you a vacation recommendation — that doesn’t mean they have an expertise in that area.
Perhaps this acquaintance misunderstood the nature of your financial relationship with this friend: If you shared a joint bank account and deposited your own money into this account, those funds could indeed be targeted by an aggrieved party in a personal-injury lawsuit. Given this is all his money, your friend is effectively the one who is taking that risk.
Given this is all his money, your friend is effectively the one who is taking that risk.
Some people — friends or neighbors – might take advantage of a situation like this. This reader’s grandmother gave her neighbor $6,000 to buy a car. You don’t want to be in a position where relatives/heirs are accusing you of exploiting your friend’s vulnerability when they start asking questions like why his tenant/friend inherited his bank accounts.
If your friend died without a will, intestate succession laws in your state would take precedence. The probate court would appoint an administrator whose job it would be to locate any legitimate heirs. The order of succession usually goes in the following order: surviving spouse, children, parents, siblings, and others including nieces/nephews, aunts/uncles and cousins.
Reviewing his estate plan
But it has raised other questions for you regarding your friend and putting your name on your friend’s bank account. You should be a co-signer, someone who has the power to pay bills on behalf of the owner, and not a co-owner of the account. The latter would mean you would be on the hook if the account were to be in arrears and, yes, inherit the funds when he passed away.
In addition to paying bills, your friend may eventually wish to put in place an estate plan — appoint an administrator/executor of his estate and, to your point, give a trusted friend or professional (elder-care attorney, for example) a durable power of attorney document to oversee his financial and medical decisions if/when they arise.
If your friend died without a will, intestate succession laws in your state would take precedence.
Who will manage his affairs if he becomes incapacitated? Does he have a “do not resuscitate” order, a directive written by a healthcare provider to instruct doctors not to perform CPR or other life-sustaining measures in the event that his heart or breathing stops? If no such order exists, hospital staff will automatically initiate all life-saving measures.
While both are legally binding, there is also a difference between a “do not resuscitate” directive and an advanced healthcare directive. The former is specific to end-of-life sustaining decisions, while the latter is a more far-reaching document overseeing a range of decisions like appointing a healthcare agent, deciding on hospital choices and even nursing homes.
Durable power of attorney
“We live our lives and don’t realize the necessity of a durable power of attorney until we start noticing that the person we admired our whole life is struggling,” according to Sedita, Campisano & Campisano, a law firm based in Fairfield, N.J. “It could be a partner, elder parent or senior family member who forgot to pay the bills for a second month.”
“Many people think an estate plan is the same as drawing up a last will and testament,” it adds. “A will is only one part of the estate planning process. The other documents in the estate plan dictate who should make decisions on your behalf while you are still living but incapacitated for various reasons. It includes a healthcare POA or ‘living will’ and a durable power of attorney.”
Use this moment as an opportunity to take a holistic look at his estate plan.
You’re not the only one who is confused about giving access to bank accounts. Chad A. Ritchie, an attorney in Bloomington, Ill., says this issue comes up a lot. “Whenever I meet with a client for the first time, we usually will talk about how their bank accounts are owned and who has access to the client’s bank accounts both during their lifetime and upon their passing. Many times, there is general confusion as to how bank accounts are owned — either jointly or individually — and whether bank accounts have named beneficiaries or not.”
Ultimately, you want to make sure no one is on the hook for the other person’s activities, whether they’re bad debts or the result of an accident involving a third party, and whether your friend wishes to add someone as a beneficiary to inherit his account he’s gone. Use this moment as an opportunity to take a holistic look at his estate plan. If he does not have any family, perhaps he has favorite charities to which he would like to leave at least part of his estate.
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You can email The Moneyist with any financial and ethical questions at qfottrell@marketwatch.com, and follow Quentin Fottrell on X, the platform formerly known as Twitter.
The Moneyist regrets he cannot reply to questions individually.
Previous columns by Quentin Fottrell:
Check out the Moneyist private Facebook group, where members help answer life’s thorniest money issues. Post your questions, or weigh in on the latest Moneyist columns.
By emailing your questions to the Moneyist or posting your dilemmas on the Moneyist Facebook group, you agree to have them published anonymously on MarketWatch.
By submitting your story to Dow Jones & Co., the publisher of MarketWatch, you understand and agree that we may use your story, or versions of it, in all media and platforms, including via third parties.