ESTATE PLANNING What is Estate Planning? Estate Planning is one of the most crucial steps you can take to protect yourself and your loved ones. Without a proper estate plan in place, your wishes may be carried out contrary to what you desired and may be subject to estate taxes. Estate Planning involves designating what would happen with your home, investments, business, life insurance, employee benefits and other property in the event of death or incapacity. It will also involve strategies to minimize estate taxes and other costs associated with handling your estate as well as directions regarding health care matters. The goals are to maximize your enjoyment of your estate during your lifetime and the beneficiaries' enjoyment of the estate after death. With the proper plan for you and your family, you can be in charge of your finances and spare your loved ones of the expense, time, and frustration in managing your affairs when you pass away or become disabled.
What is Probate? If you use a Will to leave your assets to your loved ones, your estate will pass through probate. The process is a legal proceeding to validate someone's will and designate who should receive the assets. The process can take nine to eighteen months to settle one's estate and the fees associated with it are determined by law and based on a percentage of the value of your assets. Statutory fees usually amount to 5% of the estate's total value.
Why should I avoid probate? This process is expensive, time consuming and public. The probate court can freeze your assets for weeks or months while your estate is settled and distributed. You would want your family to have immediate access to cash to pay for current living expenses while your estate is being settled.
What is a Living Trust? A living trust protects your assets from probate after your death and gives you control and the freedom to handle your own assets during your lifetime (or until you become incapacitated). You would be the trustee and beneficiary of your trust during your lifetime. You can appoint a successor trustee in the event of your incapacity or death who will take over and distribute your assets or keep them in trust for your beneficiaries according to your instructions. The living trust is revocable and you can make changes to the trust or terminate it at any time. One of the advantages of a living trust is that your assets can immediately transfer to your beneficiaries without having to go through the probate court process.
What is a Will? If you do not have a trust, a Will tells the probate court what will happen to your assets and appoints an executor to carry out your wishes. If you set up a trust, you will only need a Will for the assets that you may have forgotten to put into the trust. This is called a "Pour-Over" Will, meaning that you want all assets that you forgot to put into the trust during your lifetime to be put there upon your death.
What's included in my estate?
Your house or any other real estate
Your checking and savings accounts
Your share of any joint accounts
Life insurance policies
What is a Durable Power of Attorney? If you should become incapacitated, this document officially allows the person you designate to handle non-trust business affairs for you (ie. sign checks).
What is an Advance Health Care Directive? This document gives you the opportunity to make your own choices about your health care in advance in the event that you are not able to communicate those desires in the future. You would appoint someone to carry out your wishes. Rather than have a court appoint someone, you can nominate a conservator to handle both your personal care and your business affairs in the event you become totally incapacitated.
PROBATE What is Probate? Probate is the legal process in which a decedent’s estate is administered and overseen by the Probate Court. This process is to make sure that the the assets are properly accounted for, that all valid creditors get paid for any outstanding debts, and that the balance of the estate is distributed to the beneficiaries.
I don’t have many assets. Does my estate have to be probated? In California, estates valued more than $150,000 generally have to be probated. This is for probate assets only (ie. Property outside of a living trust or do not have designated beneficiaries). Non-probate assets include the following listed below and usually do not have to be probated:
Small estates under $150,000
Property passing to a surviving spouse
Property held in a Living Trust
Joint Tenancy property
Accounts with Pay-On-Death beneficiaries (POD) such as bank accounts, Individual Retirement Accounts (IRA)/Life Insurance, Pension Funds and Brokerage Accounts
If the estate is worth under a certain amount (ie. From $20,000 to $100,000 depending on the circumstances the the kind of property), CA has simplified procedures for transferring property.
I have life insurance and retirement benefits. Are they considered part of my probate estate? No. The benefits can be paid directly to a named beneficiary. Monies from IRAs, Keoghs, and 401(k) accounts transfer automatically to the named beneficiaries. Bank accounts that are set up as pay-on-death accounts (PODs) or “in trust for” accounts (“Totten Trust”) also pass to the named beneficiary without going through probate.
What is an executor? The executor, also called an administrator or personal representative, is the person responsible for management of the probate. This includes preparing an inventory of the assets, paying bills, filing taxes and distributing the estate after the court makes the order. The executor is the person named in the will. If there is no will, a relative may petition the court to name him or her as the administrator.
What are the executor’s duties? The executor is responsible for administrating the estate, which includes the managing of the assets to prevent loss, paying bills, filing tax returns, preparing an inventory of the assets, locating heirs, etc. The executor is essentially in charge of wrapping up all of the loose ends of the decedent’s financial affairs and distribute the estate to the beneficiaries.
How long does probate take? If the probate case have no unusual problems, it can take about 8-12 months. During that time, a 4-month creditor’s claims period takes place. The time period also depends on the court’s calendar – hearings are usually scheduled several weeks after the petition is filed. Creditors, taxes, objections or will contests may cause delays in probate. In those cases, some probate cases can take years to resolve.
How much does probate cost? The cost to probate an estate include the following:
Court filing fee
Newspaper publication cost
Probate Referee’s fee to appraise the estate
These costs usually range from $1,000-$3,000
A typical estate may incur $1,000 to $3,000 in court costs alone and other mandated fees. After adding all the fees and costs, probate can cost anywhere from 3% to 8% of your assets that could have been included in your distribution to your beneficiaries.
The estate has to also pay for the attorney’s fees and estate representative, and their fees are set by state law and based on the value of the estate. In California, the statutory fees for the attorneys and personal representative are broken down as follows:
4% on the first $100,000 in assets
3% on the next $100,000 in assets
2% on the next $800,000 in assets
1% on the next $9,000,000 in assets
0.5% on the next $15,000,000 in assets
A reasonable fee thereafter
For example, if your only asset in your estate is a $500,000 house, the statutory fee would be $13,000 based on the full $500,000:
4% of the first $100,000 = $4,000
3% of the next $100,000 = $3,000
2% of the remaining $300,000 = $6,000
This total amount doubles to $26,000 if the estate has to pay both the attorney and the personal representative.
These fees must be approved by the Court and then are paid from the estate at the conclusion of the probate process. The estate representative can choose to waive his or her fee.
If I’m the executor, will I get paid? Yes, in addition to your out-of-pocket expenses to manage and settle the estate, personal representatives usually earn a statutory fee of 2%-4% of the probate estate. The fees and expenses must be approved by the Court. The Court also may allow other fees in extraordinary circumstances.
What if there is no Will? If a person dies without a Will, it is known as dying “intestate,” and the Court will appoint a personal representative called an administrator. The decedent’s property will pass to the decedent’s closest relatives in the following order:
More distant relatives
TRUST ADMINISTRATION If the decedent died with a trust, does the Court get involved? If the decedent passed away with a trust in place, no court administration is needed. The person designated in the trust document (the successor trustee) is the person who administers the trust estate.
What are the Trustee’s duties? Some of the Trustee’s duties include:
Provide an accounting of estate assets and expenses to the Beneficiaries
Identifying and gathering all assets of the Trust
Collecting rights to any income (royalties, rental income, stock dividends, etc.) that the decedent was entitled to
Settling financial disputes
Filing the decedent’s final income tax return
Filing the decedent’s estate tax return (if necessary)
Handling creditor’s claims, and
Distributing or transferring the trust assets to the beneficiaries and heirs