Time is life’s most valuable asset. In economics, scarcity of a particular item often drives up its value. No matter how much wealth you have accumulated, when your time is up, your money cannot buy you anymore. In fact, the minute we were conceived a clock immediately began ticking on our lifespan. We are the only known animals to understand that our life will end at some point in the future. This is the exciting, and scary part of our human existence. Indeed, it can be argued that the meaning of life is finding the best way to cherish our most scarce resource.
You have to remember who your estate plan is really designed to benefit. Not to be crude, but when you die, you won’t be the one handling your final affairs. It will likely be your loved ones managing that task. In a recent study, the average amount of time spent by an executor was 570 hours [1]. To put this in perspective, if you work 40 hours per week, 52 weeks a year (i.e. fulltime), you will work 2080 hours in a year. Sparing your loved ones from having to spend this amount of time winding up your affairs is akin to giving them back months of their lives to spend in other ways.
The importance of an estate plan has been detailed extensively throughout our blog and website. In fact, I believe a great portion of my job is to help educate as many people I can on the importance of having a plan in place. My efforts along with all the other practitioners in my field have paid off to a certain degree. A study found that 76% of the respondents felt that a plan is important. The other side of that survey is a little less promising. Only 40% actually had a plan in place [2]. This was primarily attributed to a lack of time. Which brings me to the point of this article.
Estate planning does take time. I can’t sugar coat that, but the benefit of taking this amount of time pays off in vast dividends. I’ve helped fix numerous clients who had rushed plans drafted by others that only blew up later, causing a bigger and more time-consuming issue for them.
I discussed the concept of “good, fast and cheap” in a previous article. In that you can have 2 of these, but not all three. Most people strapped for time and money typically settle for fast and cheap, only to pay far more later to replace it with a “good” plan. (https://filippilaw.com/do-i-need-an-attorney-to-draft-my-estate-plan)
As an attorney, my time is my product, so I recognize the value of your time. I respect it tremendously and do everything in my power to make having an estate plan a possibility for even the busiest of people. I even have a client in their tenth month working with me to finish up their plan. Their schedule has been so busy that we are only able to fit it in during bits and pieces of free time.
I am committed to getting this done for you. Whether it takes 3 weeks, or a year, I can make it happen for you. Our time on this planet is scarce and we never know when our last day with our full cognitive ability will be.
Do not wait because the day you need your plan will be a day too late.
Call us today to get the process started. The sooner you do, the sooner we can begin fitting the drafting process into your schedule.
Filippi Law Firm, P.C., provides legal services in estate planning, probate, trust administration, trust litigation, and personal bankruptcy in the greater Sacramento area, with a focus in Rocklin, Roseville, Lincoln, and Granite Bay. Give us a call at (916) 333-7910 or fill out the contact form to get in touch with our office. Consultations are free, and they can be done over the phone, via Zoom, or in person at our office in Rocklin. Prepare for your future and work with the best estate planning attorneys today.
[1] https://www.estateexec.com/Docs/General_Statistics
[2] https://www.caring.com/caregivers/estate-planning/wills-survey/2019-survey/
Regardless of your political affiliation, the next election stands to greatly affect our lives going forward. In regard to the laws taxing your estate, this couldn’t be truer. With a promise by the Democratic party to make sweeping changes to the current tax laws, including a return of federal estate taxes to their historic norms, taxpayers need to act now before Congress passes legislation that could adversely impact their estates.
Currently, the federal estate and gift tax exemption is set at $11.58 million per taxpayer, which can be doubled for married taxpayers with proper estate planning. Assets included in a decedent’s estate that exceed the decedent’s remaining exemption available at death are taxed at a federal rate of 40 percent (with some states adding an additional state estate tax).
A return to historical norms leaves open wide possibilities to speculate, but one doesn’t need to look too far into history to see alarming figures. Taxpayers in our state can easily find themselves in estate tax territory depending on the amount to which the exemption amount is lowered. Real estate ownership alone could place one in a position to pay estate taxes at their death. (see https://taxfoundation.org/federal-estate-and-gift-tax-rates-exemptions-and-exclusions-1916-2014/ – Exemption amount of $675k in 2001).
In addition, each asset included in the decedent’s estate receives an income tax basis adjustment so that the asset’s taxable basis equals its fair market value on the date of the decedent’s death. Thus, beneficiaries realize capital gain upon the subsequent sale of an asset only to the extent of the asset’s appreciation since the decedent’s death, resulting in a significant savings on capital gains tax.
For example, an asset is purchased for $20k, and is worth $50k at the death of the owner. The beneficiary of the asset then sells the asset shortly after the death for $50k. While the owner of the asset would have paid capital gains on the difference between the $20k basis and $50k sales price prior to their death, the beneficiary would not pay any capital gains tax because the stepped-up basis is the value of the asset at the time of the owner’s death ($50k), which would result in no gain.
If the election results in a political party change, it could mean not only lower estate and gift tax exemption amounts, but also the end of the longtime taxpayer benefit of stepped-up basis at death. To avoid the negative impact of these potential changes, there are a few wealth transfer strategies that would be prudent to consider before the year-end.
Intrafamily Notes and Sales
In response to the economic crisis caused by our response to COVID-19, the Federal Reserve lowered the federal interest rates to stimulate the economy. Accordingly, donors should consider loaning funds or selling one or more income-producing assets, such as an interest in a family business or a rental property, to a family member in exchange for a promissory note that charges interest at the applicable federal rate. In this way, a donor can provide a financial resource to a family member on more flexible terms than a commercial loan. If the investment of the loaned funds or income resulting from the sold assets produces a return greater than the applicable interest rate, the donor effectively transfers wealth to the family members without using the donor’s estate or gift tax exemption.
Swap Power for Basis Management
Assets such as property or accounts gifted or transferred to an irrevocable trust do not receive a step-up in income tax basis at the donor’s death. Gifted assets instead retain the donor’s carryover basis, potentially resulting in significant capital gains realization upon the subsequent sale of any appreciated assets. Exercising the swap power allows the donor to exchange one or more low-basis assets in an existing irrevocable trust for one or more high-basis assets currently owned by and includible in the donor’s estate for estate tax purposes. In this way, low-basis assets are positioned to receive a basis adjustment upon the donor’s death, and the capital gains realized upon the sale of any high-basis assets, whether by the trustee of the irrevocable trust or any trust beneficiary who received an asset-in-kind, may be reduced or eliminated.
Example: Phoenix purchased real estate in 2005 for $1 million and gifted the property to his irrevocable trust in 2015 when the property had a fair market value of $5 million. Phoenix dies in 2020, and the property has a date-of-death value of $11 million. If the trust sells the property soon after Phoenix’s death for $13 million, the trust would be required to pay capital gains tax on $12 million, the difference between the sale price and the purchase price. Let us say that before Phoenix died, he utilized the swap power in his irrevocable trust and exchanged the real estate in the irrevocable trust for stocks and cash having a value equivalent to the fair market value of the real estate on the date of the swap. At Phoenix’s death, because the property is part of his gross estate, the property receives an adjusted basis of $11 million. If his estate or beneficiaries sell the property for $13 million, they will only pay capital gains tax on $2 million, the difference between the adjusted date-of-death basis and the sale price. Under this scenario, Phoenix’s estate and beneficiaries avoid paying capital gains tax on $10 million by taking advantage of the swap power.
Grantor Retained Annuity Trust
A grantor retained annuity trust (GRAT) is an efficient way for a donor to transfer asset appreciation to beneficiaries without using, or using a minimal amount, of the donor’s gift tax exemption. After the donor transfers property to the GRAT and until the expiration of the initial term, the trustee of the GRAT (often the donor for the initial term) will pay the donor an annual annuity amount. The annuity amount is calculated using the applicable federal rate as a specified percentage of the initial fair market value of the property transferred to the GRAT. A Walton or zeroed-out GRAT is intended to result in a remainder interest (the interest that is considered a gift) valued at zero or as close to zero as possible. The donor’s retained interest terminates after the initial term, and any appreciation on the assets in excess of the annuity amounts passes to the beneficiaries. In other words, if the transferred assets appreciate at a rate greater than the historic low applicable federal rate, the GRAT will have succeeded in transferring wealth!
Example: Kevin executes a GRAT with a three-year term when the applicable federal rate is 0.8 percent. He funds the trust with $1 million and receives annuity payments of $279,400 at the end of the first year, $335,280 at the end of the second year, and $402,336 at the end of the third year. Assume that during the three-year term, the GRAT invested the $1 million and realized a return on investment of 5 percent, or approximately $95,000. Over the term of the GRAT, Kevin received a total of $1,017,016 in principal and interest payments and also transferred approximately $95,000 to his beneficiaries with minimal or no impact on his gift tax exemption.
Installment Sale to an Irrevocable Trust
This strategy is similar to the intrafamily sale. However, the income-producing assets are sold to an existing irrevocable trust instead of directly to a family member. In addition to selling the assets, the donor also seeds the irrevocable trust with assets worth at least 10 percent of the assets being sold to the trust. The seed money is used to demonstrate to the Internal Revenue Service (IRS) that the trust has assets of its own and that the installment sale is a bona fide sale. Without the seed money, the IRS could recharacterize the transaction as a transfer of the assets with a retained interest instead of a bona fide sale, which would result in the very negative outcome of the entire interest in the assets being includible in the donor’s taxable estate. This strategy not only allows donors to pass appreciation to their beneficiaries with limited estate and gift tax implications, but also gives donors the opportunity to maximize their remaining gift and generation-skipping transfer tax exemptions if the assets sold to the trust warrant a valuation discount.
Example: Scooby owns 100 percent of a family business worth $100 million. He gifts $80,000 to his irrevocable trust as seed money. The trustee of the irrevocable trust purchases a $1 million dollar interest in the family business from Scooby for $800,000 in return for an installment note with interest calculated using the applicable federal rate. It can be argued that the trustee paid $800,000 for a $1 million interest because the interest is a minority interest in a family business and therefore only worth $800,000. A discount is justified because a minority interest does not give the owner much, if any, control over the family business, and a prudent investor would not pay full price for the minority interest. Under this scenario, Scooby has removed $200,000 from his taxable gross estate while only using $80,000 of his federal estate and gift tax exemption.
Spousal Lifetime Access Trust
With the threat of a lowered estate and gift tax exemption amount, a spousal lifetime access trust (SLAT) allows donors to lock in the current, historic high exemption amounts to avoid adverse estate tax consequences at death. The donor transfers an amount up to the donor’s available gift tax exemption into the SLAT. Because the gift tax exemption is used, the value of the SLAT’s assets is excluded from the gross estates of both the donor and the donor’s spouse. An independent trustee administers the SLAT for the benefit of the donor’s beneficiaries. In addition to the donor’s spouse, the beneficiaries can be any person or entity including children, friends, and charities. The donor’s spouse may also execute a similar but not identical SLAT for the donor’s benefit. The SLAT allows the appreciation of the assets to escape federal estate taxation and, in most cases, the assets in the SLAT are generally protected against credit claims. Because the SLAT provides protection against both federal estate taxation and creditor claims, it is a powerful wealth transfer vehicle that can be used to transfer wealth to multiple generations of beneficiaries.
Example: Karen and Chad are married, and they are concerned about a potential decrease in the estate and gift tax exemption amount in the upcoming years. Karen executes a SLAT and funds it with $11.58 million in assets. Karen’s SLAT names Chad and their three children as beneficiaries and designates their friend Gus as a trustee. Chad creates and funds a similar trust with $11.58 million that names Karen, their three children, and his nephew as beneficiaries and designates Friendly Bank as a corporate trustee (among other differences between the trust structures). Karen and Chad pass away in the same year when the estate and gift tax exemption is only $6.58 million per person. Even though they have gifted more than the $6.58 million exemption in place at their deaths, the IRS has taken the position that it will not punish taxpayers with a clawback provision that pulls transferred assets back into the taxpayer’s taxable estate. As a result, Karen and Chad have saved $2 million each in estate taxes assuming a 40 percent estate tax rate at the time of their deaths.
Irrevocable Life Insurance Trust
An existing insurance policy can be transferred into an irrevocable life insurance trust (ILIT), or the trustee of the ILIT can purchase an insurance policy in the name of the trust. The donor can make gifts to the ILIT that qualify for the annual gift tax exclusion, and the trustee will use those gifts to pay the policy premiums. Since the insurance policy is held by the ILIT, the premium payments and the full death benefit are not included in the donor’s taxable estate. Furthermore, the insurance proceeds at the donor’s death will be exempt from income taxes.
When Should I Talk to an Estate Planner?
If any of the strategies discussed above interest you, or you feel that potential changes in legislation will negatively impact your wealth, we strongly encourage you to schedule a meeting with us at your earliest convenience and definitely before the end of the year. We can review your estate plan and recommend changes and improvements to protect you from potential future changes in.
Filippi Law Firm, P.C., provides legal services in estate planning, probate, trust administration, trust litigation, and personal bankruptcy in the greater Sacramento area, with a focus in Rocklin, Roseville, Lincoln, and Granite Bay. Give us a call at (916) 333-7910 or fill out the contact form to get in touch with our office. Consultations are free, and they can be done over the phone, via Zoom, or in person at our office in Rocklin. Prepare for your future and work with the best estate planning attorneys today.
When a trust is made irrevocable, either through the death of a settlor (the person who created the trust) or through expressed language in the trust agreement, the trust generally cannot be unilaterally amended or modified. However, this doesn’t mean that if the trust is no longer serving its original purpose, you are stuck with a useless trust.
The need to modify an irrevocable trust can arise from a multitude of different reasons, but not all allow for a modification. The first place to look is in the trust agreement itself. There are a few provisions the trust agreement may contain that provide for the process to modify the trust if it is, or has become irrevocable.
The first is a provision that authorizes the “decanting” of a trust. This power authorizes the transferring of trust assets to a new trust with more favorable terms that operate to accomplish the original intent of the settlor when the trust was created. California Probate Code § 19502 lays out the strict steps required to undergo the decanting process. However, this law was signed by the Governor less than two years ago. Meaning it is new and untested, and for those reasons may not be the best course to take. It is similar to trying an experimental medical procedure, it may work, but there are significant risks of failure. For more details on trust decanting, check out our previous article on the subject (https://filippilaw.com/decanting-how-to-fix-a-trust-that-isnt-getting-better-with-age).
Another provision that can be included in a trust agreement is that of a trust protector. A trust protector can be granted the power to amend the trust for the specific reasons listed in the trust agreement. For example, if the settlors were concerned future tax laws were going to affect the management of the trust’s assets, they could include the trust protector provision and grant that trust protector with the power to make amendments to the trust agreement should it be beneficial due to a change in tax law. This makes it so the trust agreement can be amended without involvement of the courts, thus allowing for the maintenance of privacy for trust matters. There are a multitude of powers that can be granted, but all should be carefully considered because these powers are significant and can have a detrimental impact if improperly used.
Finally, the most effective and sufficiently tested method is that of seeking a court order. California Probate Code §17200 allows the beneficiaries or trustees of a trust to petition the court to request a change or modification to the trust agreement’s terms. This is preferable in that the court’s order carries a significant amount of weight, but like any court process, it is a process left open to anyone wishing to look. Thus, privacy is the tradeoff over the previously discussed options.
Choosing which method to take requires the careful consideration of these aforementioned factors, and more. Thus, we encourage you to consult with an attorney who can discuss these options with you and help guide you in making the best decision for you and your family.
Carrying out the original intent of the trust is important so you can honor the settlor’s wishes. Don’t let an old and outdated trust prevent that from happening. Give us a call today and let’s discuss how we can make it right.
Filippi Law Firm, P.C., provides legal services in estate planning, probate, trust administration, trust litigation, and personal bankruptcy in the greater Sacramento area, with a focus in Rocklin, Roseville, Lincoln, and Granite Bay. Give us a call at (916) 333-7910 or fill out the contact form to get in touch with our office. Consultations are free, and they can be done over the phone, via Zoom, or in person at our office in Rocklin. Prepare for your future and work with the best estate planning attorneys today.
It is likely that you have heard of both a will and a living trust, but you may not be able to discern the difference between the two. You may even think that a living trust is just for the super-rich, or even worse, that both a will and a living trust are only for those in a more “advanced” age. This article is going to dispel these myths and give you the knowledge you need to understand the differences, so you can make the right decision on what is best for you and your family.
First, let’s address the myths. Living trusts are not for the super-rich. The law does not require a minimum amount of assets to obtain the benefits of having a living trust in place. In addition, the same benefits for one with a modest estate are the same for those with a vast estate. The benefits we will soon discuss, apply to estates of all sizes.
Living trusts are not just for those of “advanced” age. While end-of-life planning may be of more of a concern for those of us that have experienced a longer life, if you have been around long enough, you know that no day is guaranteed. Tomorrow is a gift that only those of us that are lucky enough get to enjoy.
Estate planning is important for every stage of adult life and having a living trust in place makes it so those waning minutes of life are not spent worrying about how your family will deal with your loss.
Before we get to the differences, I must mention that there is nothing in the law that requires you to establish a will or a living trust. State law has an established estate plan for everyone. The probate code spells out exactly how your estate will be divided when you pass. This also includes the possibility that the state becomes your beneficiary, meaning the state could ultimately get all of your assets. We have yet to encounter anyone that gets particularly excited about that possibility.
You establish an estate plan to ensure your wishes are followed, so your family, creditors, and even those long-lost relatives aren’t left to fight over how things will be settled. While the probate code will govern this, for the most part, a will that you leave will replace a majority of those instructions in the code for your own. This allows you to decide which of your family will benefit from your estate and how creditors will be paid. It also ensures that those you don’t wish to receive a benefit, will not.
What a will doesn’t do, is avoid probate court proceedings. If you have ever had to endure the torture of experiencing a probate process for a loved one, you will understand why you would want to do whatever you can to avoid probate.
If your goal is to avoid the probate process, a living trust is one of the best tools to accomplish this. A living trust allows your estate to pass according to the instructions in your trust agreement without having the need for judicial oversight. As we discussed in that prior article, avoiding probate maintains your privacy, allows for a quicker and smoother process, and ultimately saves a tremendous amount of money.
A living trust has a tremendous amount of flexibility, limited only by very few restrictions. Like, your living trust cannot benefit organized crime, terrorist organizations, or have an illegal purpose. Other than these few restrictions, the boundaries of how your living trust will operate are limited only by your imagination. It can distribute your estate just like a will, or it can hold assets to benefit minor children, or it can benefit a charity or scholarship program, and it can even benefit your favorite animals. These are just a few examples of what can be done to craft your living trust to take care of those people and organizations that are important to you.
A comprehensive estate plan will employ both a will and a living trust. There is no single document that can possibly address every possibility of our human experience. For that reason, your will acts as a safety net to protect your living trust. If something were to happen where your living trust is not properly funded, the trust itself is legally invalid, or some other unforeseeable event occurs that affects the living trust, assets could fall into your probate estate. The will instructs the court to take those assets and either “pour” them back over to the living trust, create a new trust (called a testamentary trust) with the same terms as your living trust, or disburse your assets according to the same terms of the trust. This ensures that when the unforeseeable happens, your wishes are followed.
Our estate plans are comprehensive and customized specifically for you and your desires. The goal of our estate plans is to ensure that your legacy lives on, no matter what happens to you. Call us today to schedule your no-obligation consultation today to see how we can bring you the peace of mind a comprehensive estate plan provides.
Filippi Law Firm, P.C., provides legal services in estate planning, probate, trust administration, trust litigation, and personal bankruptcy in the greater Sacramento area, with a focus in Rocklin, Roseville, Lincoln, and Granite Bay. Give us a call at (916) 333-7910 or fill out the contact form to get in touch with our office. Consultations are free, and they can be done over the phone, via Zoom, or in person at our office in Rocklin. Prepare for your future and work with the best estate planning attorneys today.
The answer is not as easy as yes or no (of course, it involves attorneys right!). As you may know, the trustee of a trust serves in a fiduciary position in which they manage the trust. The role is different than a beneficiary who receives the benefit of the assets held in the trust (for more details, visit our previous article: CAN A TRUSTEE ALSO BE A BENEFICIARY IN A CALIFORNIA TRUST?).
The first question you must ask is who the trustee is currently. If the trustee is the trustor/settlor/grantor (all terms used to identify the person who established the trust), the trust is likely written to not allow compensation for the trustee in that case. This is because the trustee is usually also the beneficiary. Meaning, the trustee, as a beneficiary can make a withdrawal for whatever purpose the trust agreement allows. So authorizing compensation for a situation like this would be unnecessary.
The next question you should ask is whether the trustee is also a beneficiary. If that is the case, many trust agreements also do not allow for compensation in this situation as well, for some of the same reasons as above. The trust assets the trustee/beneficiary is to receive should be enough to compensate them for their services. But this is not always the case, especially since being a trustee is not always easy and thus requires a lot of work. So in the interest of fairness, some trusts allow for compensation for those beneficiaries who are also serving as trustees since it would only be fair that they receive a little more from the trust than the other beneficiaries who aren’t helping with the management of the trust.
That all being said, if the trustee is not barred from receiving compensation in the trust agreement, the next step is to look at the terms of the trust. Typically, the trust agreement will indicate the compensation authorized for the trustee’s services. The options available when creating a trust in this regard are open. Meaning, someone can select to leave it open to whatever compensation is reasonable under the circumstances, or they can specify a specific amount of compensation.
When drafting a trust agreement, it is sometimes better to select the open option. This is because we do not always know who will ultimately serve as trustee. When creating the trust, you typically establish a trustee succession plan whereby you name several potential trustees who would serve in succession of each other in the event the next potential trustee is unavailable, or unwilling to serve. If when the time comes for a trustee to take over and this list is exhausted, the courts can appoint a trustee. Often a professional fiduciary is the best selection when this happens so that the best interests of the beneficiaries are properly protected. However, a professional fiduciary is not going to serve in this role for free and thus would expect to be compensated for their services, and for the liability they will expose themselves to by accepting this appointment.
If the level of compensation is limited in the trust agreement, it may become exceedingly difficult to find someone willing to step into this role, and thus make it difficult for the trust to operate as designed. Thus, if the compensation allowed for in the trust is open to whatever is reasonable under the circumstances, the flexibility in this language allows for a professional to step into this role and accept the appointment.
The next question is what does “reasonable” mean when it comes to a trustee’s compensation. This is an age-old question for anyone studying the law. The courts have purposely used this word in many of their judicial precedents so that discretion can ultimately be used when later deciding. Ask any law student, they have likely pulled their hair out trying to figure out what this word means.
But any attorney will tell you that the definition of “reasonable” is quite simple; it depends. Another term the courts love to use is “totality of circumstances” which basically means that when making a decision, all factors should be considered. In this case, when determining if a trustee should be compensated $30 per hour, or $200 per hour, is going to be based on the totality of circumstances. If the person is someone who has never served in such a role, they are going to be on the lower end, while a professional is going to be on the higher end.
It also depends on how complex the job of serving as trustee will be and that often is determined by the trust. Will the trust live on for an extend period of time? Are there significant trust assets? Is there a possibility for a contest to dispute the trust? These are just some factors that could go to the complexity of the trust.
Another significant issue is location. Are you in Rocklin, California, or in another less expensive state? The cost of living in Rocklin is far more than other parts of our nation and may call for a higher level of compensation for a trustee.
The best advice when determining how much to compensate a trustee is to seek the advice of an estate planning attorney who can help judge these factors for you. The Filippi Law Firm can help with this, along with establishing an estate plan, probating an estate, or administering a trust. We make it so you do not have to worry about the details.
Give us a call today to schedule a no-hassle consultation!
Filippi Law Firm, P.C., provides legal services in estate planning, probate, trust administration, trust litigation, and personal bankruptcy in the greater Sacramento area, with a focus in Rocklin, Roseville, Lincoln, and Granite Bay. Give us a call at (916) 333-7910 or fill out the contact form to get in touch with our office. Consultations are free, and they can be done over the phone, via Zoom, or in person at our office in Rocklin. Prepare for your future and work with the best estate planning attorneys today.
You will often hear of talk about why you should take steps to avoid having your estate end up in probate court being divided and distributed by the approval of a judge. Those with the knowledge of how this process works will be the ones leading the charge when it comes to avoiding probate. And most of the time, these people are not even attorneys. They’re family members who have had to administer a loved one’s estate through the probate process. The torture of probate will make any sane person to venture into the depths of insanity. So, if you want to know why you want to avoid probate, keep reading.
Staying Away from Probate Court Protects Your Privacy
Privacy matters, at least to most. It is even written into our nation’s laws and is stringently protected. But where you have no privacy, is where you would hope it would be protected the most, your finances when you pass. Right now, you likely don’t walk around handing your financial statements to everyone you share a few minutes with. But when you pass without a trust in place, your finances will become part of the public record when your estate is submitted to the jurisdiction of the probate court. The court process, for any legal issue, is a matter of public record. Meaning that anyone wishing to do so, can look at the assets in your probate matter.
Avoiding Probate Court Saves Time and Hassle
Ever hear of that super quick, hassle-free court process? Yeah, neither have I. Maybe as rare, and nearly as impossible as finding a unicorn, the quick and easy court experience is few and far between. The better bet is that such a court experience doesn’t exist.
Probate is a highly technical, detail-oriented legal matter. It requires strict adherence to the probate code, rules of court, and following past judicial precedence. Navigating it is never easy, even for those that do it for a living.
The probate process is slow (usually 6-12 months minimum) and requires a tremendous amount of work. While the attorney does a majority of the work, the personal representative that administers your estate is required to complete many very time-consuming tasks that drain energy even from the most prepared. The impact is intensified by the emotional impact from losing a loved one.
The best thing that can happen to my estate planning practice (where I draft wills and trusts), is for someone to be involved in the probate process for a loved one. That single experience is enough to cause everyone who has experienced it, to run to my office to have a trust drafted so their loved ones won’t have to go through the torture of probate when they pass. Probate causes everyone who goes through it to do anything they can to avoid it. This alone speaks volumes.
Sidestepping Probate Saves Money
As consumers, we should all be hyper aware of how we spend our hard-earned money. Previous generations have lived by the adage that “a penny saved is a penny earned”. While not all cost cutting is wise when it comes to estate planning (See Previous Article), having an estate plan in place will save your estate a tremendous amount of money.
Trusts have amazing flexibility and are nearly unlimited in their deployment. One of the most important functions of a trust are to save large estates on estate taxes upon your passing. Depending on the size of your estate, this could mean millions saved.
Trusts also function to distribute your estate, like a will, but without the expense of going through the probate process. Yes, I heard it, your mind softly say in the back of your head, “who cares?” But let me give you a few examples.
In California, the Probate Code sets the compensation for both the attorney for the estate and the personal representative, the person who acts to administer your estate (formerly known as an executor). It is a tiered scale based on the gross value of the estate, without taking into account any debts owed.
Thus, if your estate is valued at $200,000, the compensation is $7,000 for the attorney and $7,000 for the personal representative. Plus, there are also roughly $2,000 to $3,000 in costs and fees for the court filings, mailing of notices and the required newspaper publications. Meaning, the costs for probate for this relatively small estate could be $16,000 to $17,000. Those costs are deducted from the estate before anything is distributed to your beneficiaries. What’s worse is if the estate included real estate, the costs of sale could potentially wipe out any inheritance to your loved ones.
Since the value of real estate in California is so significant, having an estate valued at $1 million isn’t all that unlikely. Here, the fees for the attorney and personal representative are $23,000 each, for a total of $46,000!
Some attorneys who also handles probate matters would prefer you not have a trust set up, because they make far more money when you don’t have a trust. The cost of probate is the single largest motivating factor for someone to want have a trust established. It doesn’t matter if your estate is small or large, the probate costs are massive, and a trust will help mitigate the costs for your loved ones.
The advantages of avoiding probate are numerous, but the privacy factors, the time and hassle involved, and the costs incurred, are the three most significant issues. Individually, they are enough, but together, they make having an estate plan established a major priority for everyone, regardless of your estate’s size.
I can help you protect your privacy, save you time and hassle, and limit the costs to administer your estate. Reach out to us today to schedule your no-obligation consultation today. The people you love the most will be very thankful you did!
Filippi Law Firm, P.C., provides legal services in estate planning, probate, trust administration, trust litigation, and personal bankruptcy in the greater Sacramento area, with a focus in Rocklin, Roseville, Lincoln, and Granite Bay. Give us a call at (916) 333-7910 or fill out the contact form to get in touch with our office. Consultations are free, and they can be done over the phone, via Zoom, or in person at our office in Rocklin. Prepare for your future and work with the best estate planning attorneys today.
