Put in its most simple terms, estate planning involves putting your affairs in order so as to maximize the benefits that your assets can provide to you during your life and to those you desire to benefit from it after your death.

Estate planning is a process that has three objectives in mind:

  • To insure that your assets will pass at your demise to those persons you designate in a manner which will give them the maximum benefit.
  • To reduce or eliminate the tax burden on your estate
  • To provide for the passing of your assets at your demise to your chosen beneficiaries without the necessity of probate and without its costs, time delays, and inconveniences.

A proper estate plan to provide for the needs of your family may include:

  • An adequate Will or Trust
  • A written agreement concerning the status of your assets;
  • A directive to your physician or a Durable Power of Attorney;
  • Final instructions of your preference.

If you already have an estate plan, it should not be considered permanent. Conditions, as well as your desires, may change. Estate plans should be reviewed at least every two-three years but, additionally, any important change in your life demands immediate review.

These changes might include:

  • Birth, death, marriage, divorce or disability of you or a beneficiary;
  • Large increase or decrease in the net worth of you or a beneficiary;
  • Substantial change in the type of your assets;
  • Purchase or sale of a business;
  • Change of residence to another state;
  • Change in tax law.
  • Lifetime management, including management during periods of incompetency, without court intervention.
  • Privacy, as probate records are public.
  • Probate is avoided and costs are generally lower after death. Routine probate-related legal services are avoided. Depending upon the complexity of the estate and the organization and adequacy of your records, such fees can be substantial, especially if you own property in more than one state.
  • Time savings, as simple probate can take four to six months or more. Most routine work in a living trust can be accomplished in a few weeks after death.

Trusts offer a number of important benefits:

  • Probate Avoidance;
  • Capital Gain Tax Savings;
  • Retention of privacy of family assets and finances;
  • Avoidance of conservatorship;
  • Creditor protection for your beneficiaries;
  • Control of distribution and management of assets during life and after death;
  • Death tax avoidance or reduction.

In larger estates where tax savings are an important consideration, the use of trusts may play a paramount role. Even relatively small estates can usually benefit from the probate avoidance offered by a Trust. Oftentimes, individuals do not realize just how large their estate is. This is especially true since all assets owned or in which one has an interest is included, such as:

  • Life insurance;
  • Joint tenancy or community property holdings;
  • Business interests.
  • A Trust can be designed to meet the needs of a large or small estate. Its cost is a fraction of what the avoided probate expense or estate tax would have been.

If you do not have a Will or a Trust and have not used other probate-avoiding techniques, upon your death your assets will pass according to the laws of the state which has jurisdiction over your assets. The “state plan” may not provide for those you desire to obtain your assets, and if it does, often presents several of the following problems:

  • Higher estate taxes;
  • Additional inconvenience and expense (probate expenses run from 2 1/2% to 5% and more of the value of the assets- see Probate Cost Chart );
  • Necessity of guardianship for assets inherited by minor children with rules probably not designed to accomplish your goals.

Despite what you may have heard elsewhere, the truth is there are always at least some loose ends to tie up when a person dies. No matter how simple the estate, there are always some loose ends to tie up. This is what we call “Estate Administration.” If the person’s assets are worth more than $1,500,000 at death there are substantial loose ends to tie up including the filing of a Federal Estate Tax Return and the possible payment of an estate (death) tax. Estates of this size generally take at least 10-12 months to settle (assuming a friendly family situation and no significant complications). If the person’s assets are worth less than $1,500,000 at death, there are usually substantially less loose ends and settlement often times takes 4-8 weeks (but see FAQ # 9 below.)

As stated in the previous question, estates of more than $1,500,000 with a Living Trust typically take 10-12 months to settle. If just a Will were used, Probate is very often required to settle the estate and this court process will typically take 15-20 months. In smaller estates with a Living Trust, 4-8 weeks used to be typical. Unfortunately (or fortunately), depending upon how you look at it, the California legislature recently passed a law requiring all trust beneficiaries and heirs of a decedent to be sent a specific notice and giving them four months (but in certain cases 6 months) to contest the trust. So now, it still generally takes 4-8 weeks to complete the substantive efforts to settle the estate, but the estate must stay open until the contest period has run its course. If Probate is required 10-14 months is fairly standard. All of this process is referred to as “Estate Administration.”

If just a Will was used, Probate Court proceedings are often necessary to settle the estate. Probate is a very formal and organized process. The more formal and organized a process, the more complicated it typically becomes and the expense usually increases accordingly. Probate fees in California are governed by statute. Statutory fees for the Attorney and the Executor are computed by formula (see Probate Fee Chart) but for estates up to $1 million can be approximated as 2% of the gross value of the Probate estate plus $3000 for each of them. In Probate estates where estate tax returns must be filed or where A-B Trusts were used, court approved extraordinary fees in addition to the statutory fees are common. If a Living Trust is used, Probate is usually avoided and attorney fees are typically less than they would be in Probate. Estimates of the national average for settling estates larger than $1 million outside the Probate Court system run in the 1.5% range of the estate value. All of this process is referred to as “Estate Administration.”

The following methods are often used to avoid probate (sometimes this is useful, and sometimes it is counterproductive): joint tenancy title, community property title, bank account trusts, pay on death accounts, life insurance proceeds, retirement proceeds (IRA’S, TSA’S, 401K’s, etc.), retirement plans, gifts made during life, revocable grant deeds. Each technique has its own ramifications for tax and other issues. As with everything else, there can be no “one right way” in all situations.

A valid Trust is one which the law will recognize. It is not particularly difficult to write a valid trust. You can probably obtain one at the local bookstore as they generally have many paperback books dealing with the subject of Trusts.

Some of these usually have tear out fill-in-the-blank forms. The cost of these books is often in the range of $19.95. Although I’ve never really checked, there’s a good probability that at least some of these forms would be valid, once completed and signed.

Of course, there is also computer software available for relatively low prices that promises to help you complete your own trust and I’ve often seen ads in magazines for the “mail-order” trust at approximately $24.95. The latter is often touted as valid in all 50 states! (I don’t know about you, but I only live in one state and the legislature here is constantly changing it’s laws. I’d guess the legislatures in the other 49 states are doing pretty much the same thing. So whatever document is “valid” today may need to be changed tomorrow!)

And then, in this geographic area, we have a mobile paralegal who will actually come to your home to do a Living Trust for you for approximately $250. Or the attorney who advertises “Why pay more?” and will do a Living Trust for approximately $395. Again, I’ve really never checked, but let’s give all of them the benefit of the doubt and say they are all valid trusts.

On the other hand, an “effective” trust is far different. It is not only valid but it also has the goal of being designed to get done in your particular situation what needs to be done in as efficient and effective manner as possible. (See my article “Father Wants Flexible and Low Cost Living Trust” and my article “Buy Advice, Not Forms.”)