Another Self-Help Estate Plan Gone Awry

Mr. B, having decided not to consult with attorneys or accountants, made lifetime transfers of property to his son and his three stepchildren. His son received securities in the amount of $150,000 and his stepchildren received the family home. Mr. B passed away 18 months later.

Robert L. Moshman, Esq., The Wrong Gift, Est. Analyst (Nov. 2007), tells us about the consequences of Mr. B’s lifetime transfers:

The house, being highly appreciated, was a poor asset to select to make a lifetime gift. Because it was transferred during life, the children received it with Mr. B’s basis instead of a stepped-up basis at death. Sale of the home by the three stepchildren resulted in over $80,000 of capital gains liability.

Nor did the lifetime transfers improve transfer tax liabilities. As gifts made within three years of death, the house as well as the securities had to be included in Mr. B’s gross estate for estate tax purposes.***

The moral of this story: Spontaneous self-help by a Testator/Grantor can backfire and deprive heirs of large percentages of an estate and prompt family tensions. Professional planning would have made a huge difference for Mr. B.