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How to Avoid Probate




by:
John D. Williams
Law Offices of John D. Williams - Westlake Village Office

 
November 24, 2009

A $1,000,000 estate costs approximately $50,000 to probate and takes about 1 to 2 years and many times longer. Creating and funding a living trust avoids probate.

1. Estate Distribution Plans:

A. Intestate (no will or estate plan)
B. Will
C. Living Trust
D. Others:
1. Joint tenancy
2. Totten trust (savings account, i.e.,
Mary Jones in trust for Susan Jones)
3. Small estates (under $100,000)
4. Community property
 
2. Probate: Court supervised administration of an estate if a person dies intestate or with a will.

Statutory Probate Fees:
 
Size of Estate    Attorney Fee    Executor Fee    Total Fee
$ 100,000         $ 4,000           $ 4,000            $  8,000
200,000            7,000              7,000              14,000
300,000            9,000              9,000              18,000
400,000            11,000            11,000            22,000
500,000            13,000            13,000            26,000
1,000,000         23,000            23,000            46,000
2,000,000         43,000            43,000            86,000
3,000,000         63.000            63,000            126,000
4,000,000         83,000            83,000            166,000

 
Also, most estates must pay additional fees for extraordinary services. Examples of extraordinary services are sales of real and personal property, any litigation, preparation of tax returns, carrying on a business, and others.
 
In addition, there are court costs, filing fees, publication fees, appraisal fees, and other fees.
 
3. Intestate Succession:
 
A. Estate distributed by default pursuant to rules in Probate Code
B. Estate representative (administrator) selected by default pursuant to rule in Probate Code
C. Requires probate, substantial costs and time delays
D. A $1,000,000 estate costs approx. $50,000 to probate
E. Probate usually takes 1 to 2 years and more often 2 years and many times longer.
 
4. Will:
 
A. Low establishment costs
B. Simplicity during lifetime
C. Can include a trust (testamentary trust)
D. Guaranteed results
E. Requires probate, substantial costs and time delays
F. A $1,000,000 estate costs approx. $50,000 to probate
G. Probate usually takes 1 to 2 years and more often 2 years and many times longer.
 
5. Living Trust:
 
A. Establishment of trust is a two step process
1. Creation of trust
2. Transfer of assets to trust and funding process
 
B. Titles of persons involved in process
1. Grantor or Trustor: person who creates trust
2. Trustee: person who manages trust, can be same person as grantor
3. Beneficiary: person entitled to benefits of trust, can be same person as Grantor and Trustee
 
C. Advantages
1. No court proceeding
2. Substantial cost savings; probate is avoided
3. Eliminates time delays
4. Proceeding is private; whereas probate is public
 
D. Disadvantages
1. Establishment costs more expensive than will, but in most cases cost is tax deductible
2. Requires attention during lifetime
3. Possible mismanagement by Trustee
 
6. Federal and state wealth transfer tax system:
 
A. Transfers not subject to death taxes:
1. All transfers to surviving spouse
2. All other transfers under $5,250,000
3. Annual gifts of $13,000 per donee
 
7. Further elements of Comprehensive Estate Plan:
 
A. Pour-over will if living trust is adopted
B. Durable power(s) of attorney for assets
C. Advanced health care directive(s) to physicians
D. Durable power(s) of attorney for health care
E. Nomination(s) of conservator
F. Transfers of real and personal property into trust
G. Letter of instructions
H. Burial instructions
I. Location of estate plan documents
J. Declaration of status of property; community vs. separate
K. Personalized estate plan data recorder and booklet
L. Free consultations explaining estate plan and documents
M. Review of assets and advice regarding estate plan, life insurance and retirement plans

INITIAL FAMILY TRUST
  • All assets transferred to Family Trust
  • Spouses are co-trustees
  • All assets available for support and maintenance of spouses
  • Trust may be amended or revoked in whole or in part at any time
 
One spouse dies
 
Two Trusts created
 
No death taxes payable
 
1. By-Pass Trust
  • Funded with $5,250,000
  • Income and principal available for support of surviving spouse
  • May not be amended or revoked
2. Survivor’s Trust
 
  • Funded with balance of assets
  • Income and principal available for support of surviving spouse
  • May not be amended or revoked
Surviving spouse dies
 
1. By-Pass Trust: No death taxes payable.
2. Survivor’s Trust: $5,250,000 exempt from estate tax*, balance is taxed.
 
Assets pass to beneficiaries and can remain in trust or be distributed outright.
 
*Exemption is reduced by gifts made in excess of $13,000 per donee per year
 
*The exempt amount changes as follows:
 
2011              $5,000,000
2012              $5,120,000
2013              $5,250,000

 

The views expressed in this document are solely the views of the author and not Martindale-Hubbell. This document is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance.
 

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