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ESTATE PLANNING & PROBATE
Frequently Asked Questions
Table of Contents
- What is an Estate?
- What is an Estate
Plan?
-
What happens if I die without an Estate Plan?
-
What's involved in creating an Estate Plan?
- What is a will?
- Why is a Will
Important?
- What is Probate?
- How can
Probate be avoided?
-
What kind of costs can I expect if my property passes under
probate?
- What is a Trust?
- Why do I need a
Trust?
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How is a Living Trust different from a will?
- What is a Living
Will?
- What is a
Power of Attorney?
-
Why do I need a Durable Power of Attorney?
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How often should I review my Estate Plan?
An estate is used to describe all your worldly possession –
all your real and personal property you own upon your death.
An estate plan is simply that – a plan. It allows you to plan
for yourself and loved ones in case of your death or if you suffer a disability.
It allows the life of your loved ones to continue as smoothly as possible
because you have given clear directions on how to proceed in disposing your
assets upon your death. An effective estate plan will also avoid probate costs
and estate tax through the use of several types of trusts.
You can think of the state as already creating an estate plan
for you if you die without one. Gifts that you intend certain friends to receive
will not be received by them. You will pay an exorbitant amount in probate costs
and estate and gift tax if an effective estate plan is not created.
I am sure you heard the answer before – it depends. It depends
on how large your estate is, the type of property you own, whether you are
married, divorced, have children and grandchildren. At the very least, EVERYONE
should have a will. It may not avoid probate. However, it will allow YOU to make
the decision on who should be benefited upon your death.
A will is a document in which a person provides for the
disposition of his or her property upon death. If you draft a will, not all
property will pass under your will. Property owned in joint tenancy, property
held in a trust or in a custodial or P.O.D. account, life insurance proceeds,
employee death benefits, and community property are some examples that do not
pass under the will.
Regardless of the size of the person’s estate, if you wish to
avoid the passing of your property through intestate succession, you should have
a will. Intestate Succession is the passing of property under the state
intestate laws upon the death of a person who dies without a valid will.
Even of you have created a living trust or hold property in
joint tenancy, a will is necessary to catch the assets you may not have included
in your trust.
The important fact that everyone should know is that property
that passes under the will is subject to probate. Depending on the size of your
estate, you may be taxed heavily. For this reason, we try to create effective
estate plans to avoid probate and estate tax on your assets.
The proof that a will is valid and that its terms are being
carried out. Probate is accomplished by an executor/executrix who is paid a fee
based on the size of the estate that passes through the will. Certain trusts and
jointly owned property pass to beneficiaries without being subject to probate
and the attendant fee.
Probate can be avoided by creating an effective estate plan.
Anything that doesn’t pass under your will will not be subject to probate. Such
property may be property that you placed in a living trust.
This is an estimated average probate cost:
| Gross
Value of Probate Estate |
Total
Estimated Average Probate Costs |
Probate
Costs as Percentage of Estate |
| $50,000 |
$4,500 |
9.0% |
| $100,000 |
$8,500 |
8.5% |
| $200,000 |
$15,000 |
7.5% |
| $300,000 |
$22,000 |
7.3% |
| $400,000 |
$28,000 |
7.0% |
| $600,000 |
$40,000 |
6.7% |
| $800,000 |
$50,000 |
6.3% |
| $1,000,000 |
$60,000 |
6.0% |
| $1,200,000 |
$70,000 |
5.8% |
A legal arrangement whereby control over property is
transferred to a person or organization (the trustee) for the benefit of someone
else (the beneficiary). Trusts are created for a variety of reasons, including
tax savings and improved asset management, and when it comes to estate planning,
the avoidance of probate.
In many states, including California, the creator of the
living revocable trust is usually allowed to act as the trustee in the
administration of the trust. Therefore, the creator of the trust should not fear
that control over their property is being given to someone else.
Trusts are widely used in estate planning. Although they are
more frequently used in larger estates, they may also be used effectively in
smaller estates. Depending on the type of assets you own and how much your
estate is worth, you may save in probate costs and possibly estate and gift tax.
A living trust is different than a will in many respects:
1. It avoids the expense of probate – since property that’s
held in a revocable trust doesn’t pass under the will, it is not included in the
probate estate. Therefore, it’s not subject to attorneys fees, personal
representative’s fees, and other associated expenses.
2. It avoids the delay of probate – probate proceedings can be
drastically long (anywhere from 4 months to 3 years depending on the size of the
estate). If property is contained in a trust, it avoids these lengthy
proceedings and allows your wishes carried out immediately upon your death.
3. It avoids the need for ancillary probate – if you own
property in another state, and such property is contained in the will, a
separate probate proceeding shall take place in the state in which the property
is located. Having such property in a trust avoids these ancillary probate
proceedings.
4. It maintains the privacy of the testamentary process –
although it is not entirely important to many people, wills are considered
public record and may be viewed by anyone for any reason. However, property
contained in a revocable trust is not considered a matter of public record.
5. It avoids will contests – Wills are easy to contest and
they are regular occurrences in most probate courts. However, a revocable trust
is difficult to overturn and challenges seldom occur.
6. It can protect the settler in the event of disability – a
revocable trust along with a durable power of attorney can provide for the
settlor’s needs if the settlor becomes disabled or is unable to manage his or
her affairs.
7. It may provide protection from creditors – since a
revocable trust is not subject to probate, it is not directly subject to claims
of settlor’s creditors. Although it can be reached by an aggressive creditor,
the difficulty of process discourages many creditors.
8. It provides for continuity of management – Since the
settler may select a trustee, it can provide for continuity of management of the
trust leading up to and following the settlor’s death.
A living will is a document where you specify the conditions
where your life shall not be artificially extended by the use of life-sustaining
procedures and the person shall die in the normal course of events.
There are several types of power of attorneys: general power
of attorney, durable power of attorney and springing power of attorney.
Generally, a power of attorney is a document in which you allow another to act
on your behalf. You can define the scope in which the agent may act for you,
i.e., signing checks, making health care decisions, running the business in your
absence.
A durable power of attorney is a document in which you appoint
an agent to act for you should you become disabled or incapacitated. You are
considered the principal. Some fear that the agent will use his or her power of
attorney to perform acts not to the principal’s liking. Therefore, state
statutes created what is called a “springing power of attorney.” This is a
durable power of attorney in which it only becomes effective once you are
disabled or incapacitated.
A power of attorney is usually used in cases where you would
like someone to make decisions with respect to your health care and financial
management. If you own a business and have someone in mind that can continue the
business efficiently, you may appoint him as your agent should be become
disabled or incapacitated.
You should review your estate plan once year. However, it
should also be reviewed upon the happening of a significant event, such as the
purchase or sale of property, or the start-up of a business.
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LAW OFFICES OF ALON DARVISH
SERVING LOS ANGELES COUNTY
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