What is estate planning?

Estate planning is the process of anticipating and arranging, during a person’s life, for the management and disposal of that person’s estate during the person’s life and after death, while at the same time minimizing certain taxation.

What is the purpose of an estate plan?

The primary purpose of an estate plan is to help you examine your financial needs and assets in order to make sure that your heirs are provided for in the best possible way, including lifetime planning as well as disposition of property at death.

What is the definition of estate planning?

Estate planning is the act of preparing for the transfer of a person’s wealth and assets after his or her death. Assets, life insurance, pensions, real estate, cars, personal belongings, and debts are all part of one’s estate.

Who should create an estate plan?

Everyone! Whether your estate is large or small, you should designate someone to manage your assets and make health care and personal care decisions for you if you ever become unable to do so for yourself.

If you fail to plan ahead, a judge will appoint someone to handle your assets and personal care and your assets will be distributed to your heirs according to a set of rules known as intestate succession. Contrary to popular myth, everything does not automatically go to the State if you die without a will. Your relatives, no matter how remote, and, in some cases, the relatives of your spouse, have priority in inheritance ahead of the State. Still, they may not be your choice of heirs; an estate plan gives you much greater control over who will inherit your assets after your death.

What is a will?

A will is a traditional legal document that:

– Names individuals (or charitable organizations) who will receive your assets after your death, either by outright gift or in a trust.
– Nominates an executor who will be appointed and supervised by the probate court to manage your estate; pay your debts, expenses and taxes; and distribute your estate according to the instructions in your will.
– May include nominations of guardians for your minor children.

Assets in your name alone will be subject to your will when you die. Some exceptions include securities accounts and bank accounts that have designated beneficiaries, life insurance policies, IRAs and other tax-deferred retirement plans, and some annuities.

What is a Revocable Living Trust?

A Revocable Living Trust is a legal document that can, in some cases, partially substitute for a will.
With a revocable living trust (also known as a “Revocable Inter Vivos” trust or “Grantor” trust), your assets are put into the trust, administered for your benefit during your lifetime and transferred to your beneficiaries when you die. All of this is done without the need of court intervention.

Most people name themselves as the trustee in charge of managing their trust’s assets. By naming yourself as trustee, you can remain in control of the assets during your lifetime. In addition, you can revoke or change any terms of the trust at any time as long as you are still competent. (The terms of the trust generally become irrevocable when you die. However, when married couples create trusts, some or part of the trust may continue to be revocable by the surviving spouse.)

In your trust agreement, you will also name a successor trustee (a person or institution) who will take over as the trustee and manage the trust’s assets if you should ever become unable to do so. Your successor trustee would also take over the management and distribution of your assets when you die.

A living trust does not, however, remove all need for a will. Generally, you would still need a will — known as a “pour over will” — to cover any assets that have not been transferred to the trust or to name a guardian for your minor children.

What is Probate?

Probate is a court-supervised process for transferring a deceased person’s assets to the beneficiaries listed in his or her will. Typically, the executor named in your will would start the process after your death by filing a petition in court and seeking appointment. Your executor would then take charge of your assets, pay your debts and, after receiving court approval, distribute the rest of your estate to your beneficiaries. If you were to die intestate (without a will), a relative or other interested person could start the process. In such an instance, the court would appoint an administrator to handle your estate.

An advantage of probate court is that it resolves disputes about the distribution of assets fairly quickly through a process with defined rules. In addition, the probate court reviews the personal representative’s handling of each estate, which can help protect the beneficiaries’ interests.
Disadvantages are the cost and the publicity. Your estate plan and the value of your assets will become a public record. Also, because lawyer’s fees and executor’s commissions are based on a statutory fee schedule, a probate may cost more than the management and distribution of a comparable estate under a living trust. Time can be a factor as well. A probate proceeding generally takes longer than the administration of a living trust.

What are the Probate Fees in California?

California Probate Code Section 10810 states that for ordinary services the attorney shall receive compensation based on the appraised value of the estate as follows:
(1) 4% on the first $100,000 = $ 4,000, plus
(2) 3% on the next $100,000 = $ 3,000, plus
(3) 2% on the next $800,000 = $16,000, plus
(4) 1% on the next $9,000,000 = $90,000, plus
(5) 0.5% on the next $15,000,000 = $75,000, plus
(6) Over $25,000,000 = the court determines a reasonable amount.
As you can see, avoiding probate court can save your beneficiaries time and money!

For more information on Estate Planning contact:

Christopher Bott
(925) 675-6535

Pacific Pension & Benefit Services, Inc. and LPL Financial do not provide legal advice or services. Please consult your legal advisor regarding your specific situation.