Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, December 13, 1993 TAG: 9312130005
SECTION: MONEY PAGE: B-6 EDITION: METRO
SOURCE: MAG POFF
DATELINE: LENGTH: Long
My estate is not large, but I have stated in my will what goes to each heir. I am very confused about this. I have checked into several books and they do not give me much help. A friend told me that a living trust means you have to give each heir a set amount each month until your death.
A: Oprah is trying to scare everyone again.
J. Lee Osborne, a lawyer with the Roanoke firm of Carter, Brown & Osborne, assured you that your basic will probably is just fine and you do not have to change anything for fear of unreasonable taxes or a significant reduction in the size of your estate.
This assumes that your will was prepared by a competent attorney and will be properly executed under Virginia law.
If your estate does not exceed $600,000 (after adding back any taxable gifts which you may have made during your lifetime), then you do not have to be concerned about your heirs paying estate tax.
Your estate will have to pay some costs of administration, which may include executor's commissions, qualification costs of the executor and probate tax, but these expenses are relatively moderate under Virginia probate law. Your qualification fee and probate tax will be significantly less than 1 percent, and executor's commissions normally will not exceed 5 percent. Therefore, the bulk of your estate will pass to the persons you have directed in your will.
Osborne said your confusion about the terminology and recommendations of the lawyers you saw on television is common. But it is not clear whether the lawyers were discussing estate taxes, probate costs or administration expenses.
In many states, Osborne said, the administration costs associated with probate are significantly higher than they are in Virginia. And an estate the size of yours should not be concerned with estate tax.
Further, a living trust - legally a revocable inter vivos trust - does not usually accomplish any estate tax savings at all. It will, if properly funded, avoid probate costs.
Osborne said it will not avoid the expenses of a trustee, which would be the counterpart to the executor of your estate. Normally to avoid these expenses, you would name yourself as trustee while you are living and able to serve, then name a successor, which could be a family member, other individual, bank or trust company.
The same considerations that you would use in designating the trustee of a living trust would be used in naming the executor of your estate, he pointed out.
The real advantage of a living trust, however, is not probate avoidance. Osborne said the real advantage is the availability of the trust to manage your assets during your life in the event that you should become incompetent and unable to manage these assets yourself.
Osborne advised you to consult the attorney who drew your will to be sure it still accomplishes your intentions. You should also discuss with him or her your questions concerning a living trust. If your lawyer is not knowledgeable in this area, ask for a referral to an attorney who is.
In summary, Osborne in his practice uses living trusts primarily as a standby in case of incompetence and only secondarily to avoid probate. He uses them for all sizes of estates, whether estate taxes are involved or not.
But he said there is nothing wrong with a simple will, and the costs under Virginia law are very small.
Capital gains on stocks?
Q: Your column had an item in June about exchanging one tract of investment real estate for another like-kind property. If you meet the time restraints and other conditions, you can carry over the tax basis in the old land to the new investment property, thus postponing taxes on the capital gain.
Does this type of option apply to stocks, or is it limited to realty?
If it's not applicable to stocks, is there any other type of action wherein one can delay capital gain tax on stock transactions?
A: Bruce Stockburger, a tax and estate lawyer with the Roanoke firm of Gentry, Locke, Rakes & Moore, said you cannot use this law (Section 1031 of the Internal Revenue Code) except for investment real estate.
He said the law specifically excludes intangible securities.
The rationale, he said, is that exchanging one duplex for another duplex leaves you with essentially the same investment. But 10 shares of IBM is not the same investment as 10 shares of General Motors.
Stockburger knows of no way to delay paying capital gain taxes on the sale of equities.
Mag Poff will help find answers to your personal finance questions. Send them to her at the Roanoke Times & World-News, P.O. Box 2491, Roanoke 24010. Or leave a recorded message by calling (703) 981-3434 and when asked for a mailbox number, press 66639 (MONEY), followed by the # symbol.
931213 MONEYMATTERS STORY #15116 TOPIC MONDAY 12-13 KEYWORD DESK AUTHOR:12/13/93 for monday MONEY PAGE kreed SUB\ MONDAY MONEY PAGE, POFF Q&A headline author
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