Is a trust better than a will?

This is the most common question for estate planning attorneys. Most of us will say each client is different and you need to decide what’s right for you after you learn about each. This is true.  Some will say a will is always better which is likely true only for the attorney who wants to do a lot of probates in the future. Some will say a trust is always better which probably means they haven’t thought through all the issues. What’s better for YOU?

Let’s keep this basic today and if you have questions ask me.

TRUSTS:

More expensive to create but avoids probate after death.

Usually private after death. This is seen as a pro for most people but some people prefer the public oversight of the probate Court.

More cumbersome to get assets into a trust during life but simpler after death.

WILLS:

Cheaper to create but likely subject to probate after death.

Usually public after death. Generally a con but some prefer this.

No need to transfer assets during life but more cumbersome and costly probate after death.

 

Which is right for you? Only you know. If you want to plug in exact dollars into costs, attorney fees, etc… make an appointment with me. Mention this blog post and I will give you a FREE CONSULTATION to discuss YOUR case!  -John

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Minute Orders

Not sure where the name derives but most Courts issue “minute orders” after the hearing. This is a written document that states who was in Court (i.e. which attorneys) and what the Judge ordered. It is not the actual Court Order as that document would need to be signed by a Judge. A minute order is not signed by the Judge. However, if you are not in Court and want to know what the Judge ruled on a matter the minute order would be the thing to look for. In some counties, like Sacramento, they are available on-line after the case is heard (typically a few hours later). Le me know if you have questions about minute orders or any other probate or estate planning topic.  -John

Is an under $150,000 probate petition always better?

There are many different probate options. Knowing which is right for YOUR CASE depends on the facts of YOUR CASE.  There is not a simple rule. There is no one size fits all.  Each case is unique.  For example, let’s say you have a piece of real property worth about $135,000 in Sacramento. That is your mom, or other loved one, died with this property in their name and no other assets.

The first instinct of most people is to do a probate code 13150 succession to real property worth under $150,000 (this number was $100,000 until January 1, 2012). There are less attorney fees, less Court costs and it’s much faster than a full probate. However, is that best for every case?

As you probably have guessed the answer is NO, of course not.  An under $150k succession is probably good for the majority of people but not all. Let’s delve into this further.

I have a case right now where the client’s mom died owning a house that would show comparable value (i.e. “comps”) of around $185,000.  However, the real world value is probably more like $135,000 due to the horrible condition of the home. In particular the inside of the home is in almost uninhabitable condition. We could easily do a small estate probate as the total assets are under $150,000 as there is little doubt we could prove to the California probate referee that the asset is worth under $150,000. 

By forcing the above house into a small estate we will only incur Court costs of about $600 (court filing fee, inventory, certified copy and recording fees) and attorney fees of about $2,000 as it’s a pretty straight forward case.  A full probate might cost $7,000 between costs and fees.  Thus about a $3,500 difference. Obviously the small estate is better because it costs $3,500 less and only takes 2 months.

Not so fast….  In this case my client wants to keep mom’s house as a rental and maybe sell it in 5 or 10 years.  Have you heard of a thing called the capital gains tax?  The capital gains tax is an income tax (both federal and state) on the gain upon a sale.  The tax, for rough math let’s say 15% federal and 10% state, is assessed upon sale on the difference between basis and sale price.  Now the punchline… what’s the basis?

If we do a small estate the highest possible value would be $150,000 and that would establish the basis.  On the other hand the probate referee would easily appraise it for $185,000 if not $200,000 if we tell the probate referee about some of the home’s better qualities. The key here is the probate referee does not go to the house and even in the rare case that they do go to the house they don’t go inside; it’s a “drive by” appraisal.

We thus can easily have a basis difference of $50,000.  A basis of $150,000 with a small estate and $200,000 with a full probate. If that property is sold for $200,000 in 5 years there would be a $50,000 capital gain (simple math here) or a ZERO capital gain if this client had done a full probate.  The capital gains tax would be $12,500 approximately.  By spending a few more thousand now they would avoid this capital gain tax in the future.  Plus, of course we all hope the property is worth a lot more than $200,000 whenever it is sold and capital gains tax rates are historically low right now and thus could easily be higher in the future.

Why else would you want to do a full probate rather than a mini probate? There are many. I don’t have time today to go in-depth but here are some basic thoughts:

- Control -  That is control to sell the house most notably if there are multiple beneficiaries.

- File tax returns – If you don’t have a full probate you do not have “Letters” (the court document which puts you in a position of authority to sign on behalf of the decedent). Without letters how would you file tax returns? Thus you can’t clean up loose ends of taxes nor can you claim tax refunds!

- Organization – When there are lots of small assets, and possibly more that might be found later, a full probate makes things easier.

- Administrator’s Fee – Maybe you want to skew money toward you!? Even a $100,000 estate would create a $4,000 Administrator’s fee. Let’s get that for YOU rather than you having to split with others!

- Creditors – Do you want finality? Do you want to make sure creditors don’t come after you in the future? A full probate gives finality that a mini probate does not.

- Family Buy out – What if we want to enter into a distribution agreement? A full probate would be the easier place for that and increases the odds of keeping the parent to child exclusion in place so that property taxes don’t rise!

There are, of course, many other situations where a full probate is more practical and the better alternative than a mini probate. That’s not to say it’s always the case as there are many times a small estate succession petition makes more sense.  The key is talking to a California probate lawyer who knows the ins and outs of each to make sure you file the best for your case!

Contact me to discus your case!

-John

Sign your estate plan

Every few months I go through my active files and send letters to the people that have been procrastinating about getting their estate plan done. I remind them that:

AN UNSIGNED ESTATE PLAN PROVIDES NO PROTECTION!

This is really true though. Your chosen guardian for your minor children is ineffective and you could be exposing your kids to a courthouse battle over who would have custody!  Your chosen executor and trustee is not chosen and instead the state order of priority will prevail; which may or may not be what you want. Your chosen beneficiaries might watch as the state decides who gets your money. There could be significant taxes incurred by not signing your estate plan. Lastly, you will go through PROBATE!

All of this, and more, can be avoided by simply signing your estate plan. I realize people are also trying to perfect their choices, optimize their assets, finish this or that, but let’s sign it and then make changes!

As a special accommodation to all estate planning clients I do not charge for changes to a new estate plan during the first year. So you can sign your will, trust, powers of attorney and other documents and then update it later for no additional charge!

Let’s get it done!  -John

Estate Planning Seminar

I am heading out this morning for a high level estate planning seminar at McGeorge Law School. Some of the biggest estate planning lecturers in the country will be coming to Sacramento to educate us. We will be learning about asset protection, the latest tax laws, and more. All attorneys in California have requirements for continuing legal education. It is currently 25 hours every 3 years. However, to be a Certified Specialist in Estate Planning, Trust and Probate law I have to take hours that have been approved for a higher level. That is that the courses are not basic but rather at least intermediate or advanced. Shouldn’t your estate planning attorney be required to take a high number of intermediate and advanced estate planning courses every year!?

Probate is not a 4 letter word

The word probate is seen as a bad word. It’s something to be avoided. It’s awful. It’s a tax. It’s this and it’s that.  It is what it is… a necessary process for those that didn’t do better planning before death. That’s all. It’s not the end of the world. It’s an unnecessary cost. Yes money goes to the government but not the whole estate. It’s not a tax though an attorney generally gets a very small percentage of the assets for their work (just like a Realtor gets for selling your house). 

In my mind the probate process in California is what it is. If you don’t plan before you die your family will go through probate. When it’s done right it’s only seven months (not years) and the cost is around 3% (not 10 or 20 as some think).

Plus remember that in some cases probate can help to reduce creditors, provide a place for fighting relatives to settle their differences, and give full closure.

Let me show you how easy probate can be when it’s done right!  -John

Estate Planning for the New Year

I know people have a new year’s resolution of getting their California estate plan done.  Let’s put a big CHECK next to that one!

Contact your California Certified Specialist in Estate Planning, Trust, and Probate law. If your attorney is not a Certified Specialist you might think about finding one.

Get your revocable living trust, pour over wills, durable powers of attorney, living wills, quitclaim deed, certified extract of trust, general transfer and other legal documents done now to protect your family!

-John

Personal Property Distribution After Death

When you do an estate plan you often think of your house, your stocks, your bonds, your timeshare, your IRA, but what about your jewelry, your family photos, your furniture, and all of that?  In my experience these are the things that cause problems after death!  Make sure you identify this in your estate plan. Maybe by a specific list and maybe by a general clause but think about your personal property.  No, it’s typically not “worth” a lot of money in comparison to the rest of your assets but it can create fights and hardship after death.  Plan, plan, plan!

-John

Calendar Notes

Calendar notes or probate notes or tentative rulings or whatever else they may be called are the Court’s preliminary findings after reviewing a filed probate petition.  They sometimes are easy to read and sometimes require interpretation.  An experienced California probate attorney can handle it!

Each Court has different procedures but most Courts now post notes on-line anywhere between a day and 21+ days ahead of the hearing.  These notes will often explain what is needed, if anything, to be approved on the given Court date.

If it says “RFA” or recommended for approval or pre-approved or other such tag then you know you are probably good to go on your Court date. The Judge will sign the order. On the other hand if the notes indicate things are “needed” then clarification is required to be given. Sometimes this can be given orally in Court, sometimes by email to Court staff and sometimes by a formal written reply.

Again, an experienced California probate attorney knows what to do!

If you need help with your calendar notes let me know.  -John

Testamentary Trusts Happen AFTER Probate

I was recently introduced to new clients who told me they had a “will-trust.”  I assumed they had both a will AND a trust because that is the norm for estate planning in California. That is, a “pour over will” and a revocable or “living” trust.  However, that is not what they had. As they told me they really had a will-trust… or more accurately a testamentary trust.

Let me start by saying that a testamentary trust is fine for basic planning when the clients want an estate plan but do not want to spend the money on a full living trust. However, there are basically no instances where a testamentary trust is suitable for people with assets. This is because there will be a full probate at the first death.  Let me repeat that last sentence… there will be a FULL PROBATE at the FIRST DEATH!   This is because people with assets need a trust that divides into two sub trusts at the death of the first spouse. However, to have this split trust in a will creates a probate need at the first death.

In my opinion a testamentary trust is bad as it causes an unnecessary probate at the second death.  However, then to also have it split into sub-trusts at the first death causing a probate there is borderline malpractice!  Ok, maybe it’s not malpractice but it’s definitely, 100%, taking advantage of the clients.  A fully informed client would almost never choose a testamentary trust that split into a survivor’s and a bypass trust (or an “A” and a “B” trust) if they knew they would be creating probates at BOTH deaths in addition to fees for trust administration.

Interestingly in this case guess where the original will is? You guessed it, at the drafting lawyer’s office! It is my personal opinion that creating a testamentary trust in this fashion is borderline unethical and certainly not within the community standards of California estate planning attorneys in the modern time. Yes, there was a time, about the 1940′s, where this was standard estate planning… but NOT now. It’s simply wrong.

If your attorney is suggesting you get a testamentary trust that splits into two sub trusts at the first death then I recommend you get a second opinion.  I don’t think two competent estate planning attorneys would recommend this.

-John