Highlights from the Dave Ramsey Show

QUESTION: Dan in Tampa says his father is terminally ill. Dan and his two brothers had a sit-down with their dad about estate planning. Everything will be left to the three kids, but he wants the $80,000 home left to his longtime girlfriend. It's not in the will that way, though. Should they change the will to reflect this desire?

ANSWER: Change the will to reflect what you want to happen. If he is still of sound mind and able to do that, then the will should state what he wants to happen.

There is another thing that you could do. I'm fine if he wants to just give her the house, but he could leave her a life estate that says she gets the use of the home as long as she's alive. Then upon her death, it becomes yours. It's left to you, but she has use of it during her life. That is a more normal thing, but I'm fine if he doesn't want it to be normal. If he wants to just leave it to her, that's fine.

But if he is concerned about her just having a place to live, I see people use a life estate more often for that. You might ask the estate attorney about that if you are using one.

The will needs to say what is happening. It doesn't need to say one thing and you have a side deal going on where you know what dad wants—wink wink, nod nod. No! The will needs to say what is happening. If he deeds the house to you and then you give it to her, you'll have gift tax. You don't want to get into that. It's not the proper way to do it.

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QUESTION: Daniel in Buffalo says his mom passed away about a month ago, and he doesn't know what to do with her car and the debt associated with it. She had a retirement account, but it's being divided between grandchildren. If the car is sold, it'll break even. Dave has a warning for Daniel.

ANSWER: The first thing you must understand is that her entire estate, everything she owned, has to stand good for her debts before any grandchildren get anything. If she has any debts that have to be paid, those have to be cleared before the estate can be settled. You can't just write checks out of this and pay everybody and then not pay the creditors. They will come back after the entire gang.

It sounds like the retirement account and the car is her whole estate. As long as you can sell the car for a break-even price or better, you will be fine for distributing the retirement accounts to the grandkids as requested.

You have to get court approval here. Someone has to be assigned as the executor in order to sign the title. Then you can just sell the car. You just act like the owner of the car. Your sister has court approval to do business on behalf of the estate. She just has to sell the car for enough to pay off the debt, just like if you were the owner of the car and you sold it.

If you have to get something from probate court, that varies from state to state. Just get a motion from the judge. Since it's a very small and simple estate, if it's possible in New York state to avoid running it through probate, that might save you $1,000, which might be the difference in this whole thing working or not.

But you have to have a valid way to sign the title. You can't pass title if you don't have proper permission to do that. For instance, I bought a property in Tennessee not long ago from an estate. In order for the title company to give us title insurance, the court had to give approval for the executor to sign on behalf of the estate. We had to file a motion with the court. In our state, it's not that expensive, but we are a very low tax state.

You have to check on that and find out if there is a way to transfer the car title without running the entire estate through probate. I doubt there is, but I'm not an attorney, and certainly I'm not one in New York state.

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QUESTION: Angie in Colorado wants to know when a couple should think about creating a family trust.

ANSWER: The family trust can mean a lot of different things. One time that it would be created is if both husband and wife were to pass away. It's not unusual for the will to create a family trust to be managed for the good of minor children.

As far as a family trust in order to avoid estate taxes, you don't have to look at that until you have assets in excess of $5 million. You begin to have an estate tax problem at that point, based on current law, anyway. I don't think there's a time where you would create a family trust to manage money while you're alive unless it has some estate-planning implications.

Our family reached the point with our giving that we chose to start running our giving through a family foundation that one of my daughters runs. But that would be at the point where the level of your giving is high enough that you can justify the legal expenses and the tax expenses of setting that up and operating it.

When we were giving a small amount away, if we had set that up, it would have all gone to the lawyers. That would not have made sense. We had to reach the point that our giving was big enough that it made sense.

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