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What is an Estate Plan?

The answer to this question varies according to each individual’s needs. However, a basic estate plan will include a will, a revocable living trust (if necessary), a durable general power of attorney for financial/property matters, and an advance health care directive. See below for a brief description of the benefits of these vital estate planning documents. 

Wills: Parents with minor children absolutely need wills in order to name guardians for their children. If parents don’t name their choice of guardian and they both pass away, the State of California will name a guardian for them. 

Trust: A revocable living trust will serve to eliminate the long delay and high attorney/executor fees that are inevitable when a family only has a will and their estate must be administered through probate court.

General Durable Power of Attorney: By naming an agent to act for you with regard to financial matters, your assets and loved ones are in good hands if you become incapacitated. Otherwise your life/business, etc. will come to a stand-still while your loved ones go to court to ask that they be permitted to act on your behalf during your period of incapacity.

Advance Health Care Directive: You get to name an agent who will make health care decisions for you, including life sustaining measures via hospital machinery, in the event you are unable to make such decisions for yourself. This will save you thousands of dollars by avoiding the need for a court appointed conservator to look out for your health interests should you become incapacitated.

What are the benefits of a living trust?

A living trust avoids probate, a formal proceeding of the Superior Court, which is time consuming, expensive, and public. A living trust, also known as a revocable living trust, avoids the need for a conservatorship in the event you become incompetent or incapacitated. A living trust offers the potential for tax savings. This same trust can then continue for the benefit of your loved ones.

What are two important estate planning problems and solutions for parents and homeowners?

If you have a son or daughter under 18 years old, you can designate a guardian for him or her in a Will. Otherwise the court will decide who gets custody of your child if you pass away while he or she is still a minor.
If your estate (all your assets) is over $5 million (include life insurance, and don’t subtract your mortgage if you own a house), you may owe estate taxes (death tax). If you create a joint family revocable living trust, you can reduce or completely eliminate estate taxes.

What are 7 Costly Problems of Failing to Create a Will or Trust?

  • If you own a home worth $500,000, probate will cost a minimum of $25,000
  • Everything about your estate will be made known to the public and your creditors
  • If you become incapacitated, a court chooses who will make your financial and medical decisions
  • Your estate will be tied up in probate court for an average of 16 months
  • A court will distribute your estate to your “next-of-kin” which may include someone you want to disinherit
  • A guardian for your minor children will be chosen by the court
  • You will not eliminate unnecessary estate income and capital gains taxes.

Don’t Wait Until You Are Sick.

How much is Probate?

This Chart shows the cost of probate as set by the California Probate Code.

Gross Asset Value of Entire Estate* Minimum Cost of Probate without Estate Planning Cost of Probate with Proper Estate Planning
$200,000 $14,000** $0
$300,000 $18,000** $0
$400,000 $22,000** $0
$500,000 $26,000** $0
$750,000 $36,000** $0
$1,000,000 $46,000** $0
$2,000,000 $66,000** $0

* Do NOT subtract your mortgage or other debt. Do not include private or government retirement plans, pensions, medicare.
** This is not a tax. One half of this will likely be paid to an attorney, and the other half may go to an Administrator unless you make and activate a plan.

These costs are what it takes for your executor and your executor’s attorney to inventory and appraise your accounts and belongings, contact your relatives or others named in your will, publish notices to your creditors, settle claims by your creditors, friends and relatives, and get court approval of every step of the process.

How does a trust work?

In most cases, a living trust, also known as a revocable living trust, avoids probate, and the delay, expense and public nature associated with probate. Additionally, a living trust avoids the need for a conservatorship in the event you become incapaciated or incompetent. It also offers potential tax savings. This same trust then can continue for the benefit of your loved ones.

A trust is created by drafting a trust document which names the “trustors,” the persons setting up the trust, and the “trustees,” the persons responsible for managing the trust. In family trusts, the trustors usually name themselves as trustees, so that they can preserve control of their assets. The trustors also name successor trustees, such as their children, or a bank, to act in their place upon their death or incapacity, thus gaining an additional measure of control.

The trust contains provisions providing for the distribution of the estate after the trustors pass away. These are similar to will provisions and may include trusts for younger children, gifts to charities, or giving specific items to certain people. For married couples with more than $10 million in net worth, the trust could contain an exemption trust in order to reduce or eliminate federal estate taxes.

After the trust document is completed, the trustors, with the aid of their estate planning attorney, transfers title of their assets into the name of the trust. This is referred to as “funding” the trust.

Although the cost to set up a trust is more expensive than an estate plan with just a will, the time and costs to your family to administer your estate are greatly reduced. Additionally, the administration is done privately, by a person of your choosing, and does not require court approval. Additionally, if the trustor becomes sick or mentally incompetent, a trustee can take control of the trust immediately without the cost and delay of a conservatorship. A conservatorship is a public, court-supervised proceeding that can involve substantial legal fees.