The latest buzz amongst seminar givers, article writers and cocktail party know-it-alls, related to estate planning, is why you do not need a living trust. Or at least that is how many people hear it! With the tax changes of 2013 each of us can now give away up to $5million when we die without tax. Congress and the President called it a “permanent” change but by mid-April we are already talking about lowering the exemption. Though our house prices have gone up substantially, or we may have hit a homerun with a certain dot com stock, not too many of us will have $5million to give away when we die. The mistake that many people make is that they do not need a living trust, or even want to revoke the one they have, because they “only” have $400,000 in assets. This is a big mistake because the federal estate tax exemption has absolutely nothing to do with the California probate laws! I encourage you to talk to a qualified estate planning attorney before you decide if you really do not need that living trust!
I write this article as an attorney with a substantial amount of experience writing trusts, administering trusts after death and helping families through probate Court when their loved ones did not have a trust. Helping family members administer a trust after death is substantially easier and less costly than going through the Probate Court. A trip to the probate Court is generally required after death, in California, if total assets exceed $150,000.
Do you know what the financial cost of “going through probate” is? A $400,000 estate would generate a $11,000 attorneys fee, about $1,200 in Court costs and a $11,000 Executor’s fee. Yes, almost $25,000 to collect, divide and distribute your estate after you die! As the fees and costs are based on a percentage of the total assets these numbers go up as the size of your estate goes up! Interestingly the total estate size is based on the gross value of your assets and not the net and thus a house with a huge mortgage is valued at the fair market value and not the smaller net equity value! As a probate attorney I can assure you I love the attorney fee structures of probates!
Do you know how long a probate takes? Assuming we are able to meet every deadline, to the day, a probate can be completed in 7 months in most counties in California. However, any little hiccup and your probate will take 8, 9, 10 months… and in rare cases a year or two! I am working on one probate right now where the husband died in 1996 and we are still not quite finished with the probate for a variety of reasons! The probate attorney can help move things along but the Executor can stall things in a major way!
Yes, the fees and time delay of a standard probate are great. However, do you know what happens if you own real estate in another state. Most people claim they do not own real estate in another state but how many of you own a timeshare in Hawaii, a cabin in Tahoe or oil rights in Oklahoma? I encounter clients all the time with one of these “assets.” They are often not worth a lot but if not properly included in a trust it is likely your Executor will need to hire another probate attorney in that other state to help move the asset to your heirs. I recently worked with a client with timeshares in Hawaii, Nevada and Mexico. Additionally, they had oil rights in Oklahoma and Texas. Lastly, of course, was their house and everyday assets in California. The total value of the assets was $500,000. Due to the need for attorneys in multiple states the costs and fees were $40,000 and it took almost two years to get everything into the kid’s names! Not a “wealthy” person by some definitions but probate attorneys everywhere benefited from their lack of planning.
What about the first death between a husband and a wife, do you know what can happen there? Could your estate end up in probate? There is a common misconception that all assets owned by husband’s and wives belong to the other, automatically, at death. This can be the case but is not an automatic rule. Additionally, it is rare that a husband and wife, especially in a second marriage, successfully get all their assets into both of their names. Last year I was retained by a woman whose husband of five years had died. He had children from a first marriage, real estate in his name, a business in his name, lots of debt and of course no living trust! In addition to the costs and delays of probate this new widow had to fight with her husband’s sister about the widow’s interest in the family business, file a lawsuit to divide real estate her husband owned with a friend of theirs and fight with a large life insurance company over a life insurance policy that her husband had forgotten to change the beneficiary on. The mental drain was far worse than the financial drain though the financial cost was substantial!
Just because your estate might be below the $1.5million federal estate tax exemption level does not need you do need a trust. The costs and delays of probate are very real and have no connection to the estate tax exemption levels. All of the above can be avoided with a properly drafted and funded living trust. You can avoid the huge costs and delays of a standard probate, you can avoid any disputes at the death of either spouse and you can avoid the need for multiple attorneys if you happen to own assets in other states or countries. A living trust can save your family many thousands of dollars, avoid any delays and make sure your assets are distributed exactly as you desire! Do not let your family become the focus of an article like this… call a qualified estate planning attorney and get your living trust put together today!