Estate Planning FAQs
“I am not rich. Why do I need an estate plan?”
This is a question I hear on a regular basis as an estate planning attorney. The answer is simple - everyone needs an estate plan! What “type” of estate plan you need depends on your unique situation. A customized estate plan should take into consideration your unique family situation - your assets, your goals, and the values you would like to pass on to your beneficiaries. One size does not fit all when it comes to creating an estate plan.
When we think about estate planning, we immediately think of death. However, a proper estate plan will help protect you and your family while you are alive as well. Thanks to modern health care, people are living longer. This means there is a greater likelihood that at some point in our lives (hopefully later than sooner) we may be impaired physically, mentally, or even incapacitated.
Think about it...what would happen if you were unable to make medical or financial decisions for yourself? Have you discussed your wishes with your family? Who would pay your bills? Who would run your business? Do they have access to your financial accounts? Would you want to be kept alive on life support? Who would you trust to take care of your children? All of these important questions can be addressed when you create your customized estate plan.
“What is typically included in an estate plan?”
Your unique family and financial situation will help determine which “tools” you will utilize to “build” your customized estate plan. Common “tools” include wills, trusts, financial powers of attorney, property agreements, medical authorizations, and advance health care directives. Regardless of your financial situation, everyone should have an advance health care directive.
“What is an advance health care directive?”
An advance health care directive provides directions as to actions that should be taken (or not taken) regarding your health in the event you are no longer able to make decisions due to illness or incapacity. The advance health care directive also appoints a trusted person to make such decisions on your behalf.
“What happens if I don’t have time to create an estate plan?”
If you don’t take action to create your own customized estate plan, California legislators have already created a plan for you! We refer to this “plan” as the California Probate Code. When you die without a customized estate plan, your assets will be distributed per the California Probate Code and may need to go through probate.
“What is probate?”
Probate is the process by which legal title of property is transferred from a decedent's estate to the beneficiaries.
California legislators have also determined how much it will cost your estate to go through probate. The California Probate Code sets the statutory fees for attorneys and executors of the estate. The fees are 4% of the first $100,000 of the estate, 3% of the next $100,000, 2% of the next $800,000, 1% percent of the next $9,000,000, and 0.5% of the next $15,000,000. For estates larger than $25,000,000.00, the court will determine a reasonable fee.
PROBATE ESTATE VALUE ATTORNEY & EXECUTOR FEES*
$100,000 $8,000
200,000 $14,000
500,000 $26,000
1,000,000 $46,000
3,000,000 $86,000
5,000,000 $126,000
*The attorney receives one-half of the probate fees and the executor receives the other one-half. In complicated probate cases, the court has the discretion to approve fees that are higher than those listed above.
Furthermore, the statutory probate fees are based on the fair market value of the estate. This fair market appraisal value does not take into consideration mortgages or other debts. Therefore, the probate estate value may be higher than the actual equity that the deceased owned in the property.
In addition to the fees paid to the attorney and the executor, the estate must also pay court filing fees, publishing fees, and other costs associated with administration of the estate. Yikes!
“Can a will avoid probate?”
No. A will does not avoid probate. Even if a person executes a valid will, the will must be admitted to probate at death. A will contains provisions as to who will inherit the decedent’s assets and who will be in charge of administering the estate (the executor). A will has no legal effect until death and assets passing pursuant to a Will require probate administration.
“How can I avoid probate?”
There are several ways to avoid probate. It is important to work with your attorney to create an estate plan that is customized for you and your family. One way to avoid probate is to create a revocable living trust.
“What is a revocable living trust?”
A revocable living trust is a trust created during a person’s lifetime. It is essentially a contract between the "grantor" (the person contributing the assets) and the "trustee"(the person or entity that is going to manage the assets). Often the grantor and trustee are one in the same. A trust can also be “revocable” which essentially means the trust can be changed, amended, or ultimately revoked at any time while the grantor is living. Once the grantor dies, the trust becomes irrevocable.
A revocable living trust is created for many reasons – to avoid probate, to provide for incapacity of the grantor, to safeguard assets for minor children, to save money on taxes, to protect an inheritance, to ensure financial privacy, or to set up long term asset management.
If your business is incorporated or organized as a limited liability company (LLC), a living trust can help provide a smooth transition of the business in the event of your incapacity or death. In order for this to occur, the share certificates or membership certificates must be titled in the name of the trust. This is referred to as “funding” your trust. As a business owner, it is important to work with your attorney and CPA to coordinate your business succession plan with your individual estate plan.
A revocable living trust can also be an important “tool” if you have minor children. The California Probate Code states that children have full access to an inheritance once they reach the age of 18 – regardless of their maturity level or financial knowledge. A living trust can be designed in a manner that allows you to determine when they will receive their inheritance. For example, you may wish for your child to receive a partial inheritance at age 25 and the remainder at age 30. Or you may dictate to your trustee that the inheritance should be distributed only after your child reaches a certain milestone – like graduating college. These provisions can be as restrictive or as liberal as you feel is appropriate for your individual child. After all, you know them best!
Creating an estate plan will protect yourself, your business, and your loved ones from the dreaded unknown. Take action! Create a plan! Create peace of mind!
© 2011-Present Law Offices of Kimberly Lessing, APLC. All rights reserved.
Kimberly Lessing is an attorney dedicated to providing customized legal solutions to individuals, families, and businesses. Her practice areas include Estate Planning, Trust Administration, Probate, and Business Law. Ms. Lessing works with clients and their financial team to “plan, provide, and protect” their estates, businesses, and most importantly, the ones they love.
To learn more about creating your unique estate plan, please contact the Law Offices of Kimberly Lessing at (951) 279-6626 or visit http://www.lessinglaw.com/.
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