ESTATE PLANNING
There is an
unfortunate, widespread misconception that estate planning is only for the
wealthy. In fact, estate planning will help to protect one’s lifetime of
work under most financial circumstances. The primary reason is that an estate
plan generally contains a ‘Revocable Living Trust’ which allows you to avoid
probate. (Already Have a
Trust?)
‘Wills’ go through probate
but ‘Revocable Living Trusts’ do not.
A properly drafted estate plan will save you significant (1) time,
(2) money and (3) taxes later.
Why
would I want to avoid a probate proceeding?
 (1) Save Time. Probate proceedings, like
most court proceedings, are lengthy. Probate is a legal proceeding that
is used to wind up a person's legal and financial affairs after death. In
California, probate proceedings are conducted in the Superior Court for
the county in which the decedent lived, and can take at least six months
and sometimes as long as several years.
(2)
Save Money.
It is slightly ironic that to save money on legal fees, you must spend
money on legal fees. Probate proceedings are expensive and based on the
gross size of the state. Attorney and executor fees are set by statute.
The fees are four percent of the first $100,000 of the estate, three
percent of the next $100,000, two percent of the next $800,000, one
percent of the next $9,000,000, and one-half percent of the next
$15,000,000. For estates larger than $25,000,000, the court will
determine the fee for the amount that is greater than $25,000,000 (See Cal. Prob. Code §10810).
The following chart is the minimum cost of probate based on the gross
size of your estate:
|
Estate Value
|
Statutory
Executor/Attorney Fees
|
|
$100,000
|
$8,000
|
|
$200,000
|
$14,000
|
|
$300,000
|
$18,000
|
|
$400,000
|
$22,000
|
|
$500,000
|
$26,000
|
|
$600,000
|
$30,000
|
|
$700,000
|
$34,000
|
|
$800,000
|
$38,000
|
|
$900,000
|
$42,000
|
|
$1,000,000
|
$46,000
|
|
$1,500,000
|
$56,000
|
|
$2,000,000
|
$66,000
|
|
$3,000,000
|
$86,000
|
|
$4,000,000
|
$106,000
|
|
$5,000,000
|
$126,000
|
|
$6,000,000
|
$146,000
|
|
$7,000,000
|
$166,000
|
|
$8,000,000
|
$186,000
|
|
$9,000,000
|
$206,000
|
|
$10,000,000
|
$226,000
|
|
$15,000,000
|
$276,000
|
|
$20,000,000
|
$326,000
|
In addition to the above fees, there are additional court costs and
appraisal fees. Finally, these fees can go up in extraordinary
situations.
THE ABOVE LISTED
PROBATE FEES CAN BE ELIMINATED BY CREATING A REVOCABLE LIVING TRUST. Spending a few dollars to put together
a comprehensive estate plan will save you thousands and give you peace of
mind.
 (3) Save Taxes. Large estates are subject to the
Federal Estate Tax (“Death Tax”) and the 706C tax form must be filed. If the net estate is over $1 Million,
proper planning will offer extreme tax savings. Without it, almost 50% of the net worth
over $1 Million will go to the Internal Revenue Service under current tax
laws (after 2011).
However, a variety of legal methods are available and federal estate tax
liability can be either eliminated or significantly reduced with proper
estate planning. Planning estates that are over $1 Million often involve
creating trusts with built-in sub-trusts such as marital deduction trusts
and credit-shelter trusts. These sub-trusts are created and funded
through an allocation procedure that occurs after the passing of the
first spouse. Life insurance
trusts, charitable trusts and charitable foundations are also common tax
minimization vehicles.
These time-honored
methods are recognized by the U.S. Tax Court and will be increasingly
necessary (despite the current recession) since the Federal Estate Tax
Exemption is scheduled to fall from $3,500,000 to $1,000,000 over the next
two years.
Already Have a Trust?
Has your Trust been recently reviewed? When will you know if your Trust
is defective or missing critical provisions?
Trust laws are
continually changing. Many trusts contain provisions that are now
invalid, or could lead to potential tax liabilities and A/B allocation
difficulties upon the death of the first spouse.
Hundreds of thousands of trusts were created by, what the State Bar of
California has termed “Trust Mills”. Trusts of this nature do not fit
your specific needs and may not be legally valid. The majority of these
"trust mill" documents (even trusts drafted by attorneys
working for trust mills) need revision or total revocation. Contact me to schedule a review of your
Trust at no cost.
Trust
Administration and Probate Practice
My office also
represents fiduciaries and beneficiaries with Trust administration and
general probate practice. Contact me to schedule a no cost consultation.
You have worked
hard and planned carefully to provide for your family's needs. Don't omit
this critical step of protecting your lifetime of hard work.
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