If an individual can pass more than five million dollars ($5,000,000) without paying any federal estate taxes, why do I need an estate plan? We have heard this question over and over. Here are some things to think about:
- Write your desires, or the law will do it for you. If you do not properly prepare a testamentary instrument like a will or trust, the law has already dictated who will receive your assets and property. Sometimes the law matches what you want, but many times it does not. Under California’s default estate plan, your estranged uncle stands in line before your close nephew, your rich son shares the same as your disabled daughter, and your grandchildren will receive their inheritances without any strings attached upon their 18th birthday. Don’t let loved ones you intended to benefit miss out, receive more than they need, or squander their gift.
- Probate is expensive. Probate is the court-supervised process that gathers your assets after you die and then distributes them to according to your will or the state’s default estate plan. This process is shepherded by an appointed person called a personal representative, who usually requires an attorney’s help. The law sets statutory fees for the personal representative and their attorney: 4% each for the first $100,000, 3% each for the next $100,000 and 2% each of the next $800,000. That’s $23,000 in statutory attorney’s fees and another $23,000 in statutory personal representative’s fees to pass a million dollars of wealth! However, these fees are based on the gross appraised value of your property. This means that if you leave real property with a fair market value of $1,000,000, but with a mortgage or mortgages, the statutory fee remains the same. Additionally, attorneys and personal representatives can earn extraordinary fees for a variety of matters like a house sale, eviction of a tenant, or a will contest. A proper estate plan can help you avoid probate, saving your family thousands of dollars.
- Probate is a very public process. From the filing of the will (or opening petition if no will is found) to the last of the court’s orders—everything is public record. That includes a complete listing of all of your assets making up your probate estate, and all of your relatives’ addresses.
- The Court has a say. In the probate arena, the Judge decides the most important issues, like who receives what and when. The personal representative’s authority is limited by statute. Outside of probate, you entrust this same power in a friend, relative, or entity.
- Trusts have certain advantages. The right trust expresses your testamentary desires (i.e., who gets what, and when). It is normally private, and normally does not involve the courts. It costs money to create a trust while you are alive, and it takes a little time to administer it after you die, but you can often save thousands in fees over the cost of going through probate. A trust can also help during your life. When coupled with a power of attorney, a properly funded trust can kick in to help you manage your money and assets when you no longer can, again avoiding court involvement like a court conservatorship.
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Trusts are not for everyone. For some, jointly titling assets will ensure that their family is taken care of after they’re gone. For others, a simple will can effectuate their desires. We will take a hard look at your current situation, with a sharp eye on the future, and recommend those estate planning tools documents you agree best meet your needs.
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