Wills and Trusts
Wills and Estate Planning
What is Probate?
Probate is the legal process by which the property (estate) of a deceased person (decedent) is distributed. Probate generally lasts several months to over a year before all of the property is distributed, and there are substantial court costs associated with that. Probate is required to identify the rightful heirs to the estate and what each will receive, transfer legal title into the name of the heirs and finalize, identify and pay the decedent’s creditors and claimants.
Therefore having a valid will prepared assists the court in identifying the rightful heirs and their shares. Unless there is a valid will, the state will determine the decedent’s
heirs and their share and takes that power from you. The process of creditor and claimant identification and the transferring of your property still must be handled through a court administered probate.
Problems with Probate:
Many people avoid probate because it can be a time consuming and expensive process. An average probate will cost between 4% to 10% of the value of the estate, so an estate worth only $300,000 could cost $12,000 to $30,000 to probate. The value of the estate will be based on the gross fair market value of the property, and not on the net worth or equity. Therefore probate will cost the same if an estate has debt or not. Some probates go through long litigation that take several years because of family battles or inaccurate creditor claims. One other downfall of probate is that the procedures
and documents are public record, so there is no family privacy once probate has begun.
There are several mechanisms to avoid probate, such as a family estate planning trust, either a living trust or a life estate trust, by setting up P.O.D (paid on death) designations on bank accounts and T.O.D (transfer on death) on brokerage accounts, 401ks and IRAs that pass automatically to designated beneficiaries, life insurance and joint tenancies with the right of survivorship.
Probate is the legal process by which the property (estate) of a deceased person (decedent) is distributed. Probate generally lasts several months to over a year before all of the property is distributed, and there are substantial court costs associated with that. Probate is required to identify the rightful heirs to the estate and what each will receive, transfer legal title into the name of the heirs and finalize, identify and pay the decedent’s creditors and claimants.
Therefore having a valid will prepared assists the court in identifying the rightful heirs and their shares. Unless there is a valid will, the state will determine the decedent’s
heirs and their share and takes that power from you. The process of creditor and claimant identification and the transferring of your property still must be handled through a court administered probate.
Problems with Probate:
Many people avoid probate because it can be a time consuming and expensive process. An average probate will cost between 4% to 10% of the value of the estate, so an estate worth only $300,000 could cost $12,000 to $30,000 to probate. The value of the estate will be based on the gross fair market value of the property, and not on the net worth or equity. Therefore probate will cost the same if an estate has debt or not. Some probates go through long litigation that take several years because of family battles or inaccurate creditor claims. One other downfall of probate is that the procedures
and documents are public record, so there is no family privacy once probate has begun.
There are several mechanisms to avoid probate, such as a family estate planning trust, either a living trust or a life estate trust, by setting up P.O.D (paid on death) designations on bank accounts and T.O.D (transfer on death) on brokerage accounts, 401ks and IRAs that pass automatically to designated beneficiaries, life insurance and joint tenancies with the right of survivorship.
Trusts
What is a Trust?
A trust is a legal entity that can hold title to property for the benefit of one
or more other persons or entities. A settlor, or a creator of a trust, transfers ownership of his or her real property from himself or herself to a trust which he or she controls and can revise (except in the case of an irrevocable trust.) Upon death, a trustee that you pre-selected will distribute the property to the persons named as beneficiaries in the trust. Since a probate is a public process, a living trust shields private affairs of the deceased and the heirs from public scrutiny and helps the estate to avoid estate
tax.
With a trust, you retain complete control of the property during your life, but the trust is considered to be the “legal owner” of the property. There is a great deal of flexibility and control versus probate. After your death the trustee can handle
everything quickly without court supervision, excessive costs or delays.
Why get a Trust?
Joint Tenancy is not always reliable - Joint tenancy with rights of survivorship is when one joint owner dies, the surviving joint owner or owners will automatically receive the decedent’s interest in the property without probate. While it sounds easy, there are several potential problems:
- The asset held in joint tenancy is subject to all of the liabilities of all joint owners. If one owner gets a judgment, tax lien, etc., the lien holder can take the entire property to satisfy the judgment. If a parent holds a home in joint tenancy with a child, and that child gets a divorce, the divorcing spouse of the child can potentially take the whole house in the divorce settlement.
- The Decedent’s wishes are not carried out when a spouse dies and leaves assets to the surviving spouse through joint tenancy because the surviving spouse may give some or all the assets away to a new spouse or lover, leaving the intended heirs out of the estate and the decedent’s wishes completely disregarded.
- If one joint tenant becomes incapacitated for any reason, the property is in legal limbo. This is due to the incapacitated owner being incapable of conveying legal title or signing legally binding documents, which can prevent the property from
being sold or leased.
Problems With Beneficiary Arrangements:
Many assets may be transferred to heirs quite well with beneficiary arrangements as with pension plans, insurance policies, annuities, bank and investment accounts. When the original owner dies, the remaining amounts or death benefit will be paid to the named beneficiaries without probate. There are some problems and limitations with this system, however:
- There is no controlled or timed pay outs to the beneficiaries.
- Beneficiary distributions will be subject to the lawsuits, liens, bankruptcies and divorce problems of the beneficiary.
- There will often be problems if the beneficiary predeceases the original owner. One problem is the payment of the money to the spouse of the beneficiary, rather than the money being held for or paid to the beneficiary’s children.
Asset Protection. A trust can protect estates from divorce, lawsuits and judgments. So, if you are expecting an inheritance, you need to make sure you and your heirs are protected from divorce and creditor risks. Also trusts can prevent your
heirs from hasty spending decisions.
Through the preparation of a tailored and comprehensive estate planning package, your family can avoid costly attorney's fees, court costs, and reduce or eliminate possible federal estate taxes, minimize stress and keep your personal affairs
completely private.
A trust is a legal entity that can hold title to property for the benefit of one
or more other persons or entities. A settlor, or a creator of a trust, transfers ownership of his or her real property from himself or herself to a trust which he or she controls and can revise (except in the case of an irrevocable trust.) Upon death, a trustee that you pre-selected will distribute the property to the persons named as beneficiaries in the trust. Since a probate is a public process, a living trust shields private affairs of the deceased and the heirs from public scrutiny and helps the estate to avoid estate
tax.
With a trust, you retain complete control of the property during your life, but the trust is considered to be the “legal owner” of the property. There is a great deal of flexibility and control versus probate. After your death the trustee can handle
everything quickly without court supervision, excessive costs or delays.
Why get a Trust?
Joint Tenancy is not always reliable - Joint tenancy with rights of survivorship is when one joint owner dies, the surviving joint owner or owners will automatically receive the decedent’s interest in the property without probate. While it sounds easy, there are several potential problems:
- The asset held in joint tenancy is subject to all of the liabilities of all joint owners. If one owner gets a judgment, tax lien, etc., the lien holder can take the entire property to satisfy the judgment. If a parent holds a home in joint tenancy with a child, and that child gets a divorce, the divorcing spouse of the child can potentially take the whole house in the divorce settlement.
- The Decedent’s wishes are not carried out when a spouse dies and leaves assets to the surviving spouse through joint tenancy because the surviving spouse may give some or all the assets away to a new spouse or lover, leaving the intended heirs out of the estate and the decedent’s wishes completely disregarded.
- If one joint tenant becomes incapacitated for any reason, the property is in legal limbo. This is due to the incapacitated owner being incapable of conveying legal title or signing legally binding documents, which can prevent the property from
being sold or leased.
Problems With Beneficiary Arrangements:
Many assets may be transferred to heirs quite well with beneficiary arrangements as with pension plans, insurance policies, annuities, bank and investment accounts. When the original owner dies, the remaining amounts or death benefit will be paid to the named beneficiaries without probate. There are some problems and limitations with this system, however:
- There is no controlled or timed pay outs to the beneficiaries.
- Beneficiary distributions will be subject to the lawsuits, liens, bankruptcies and divorce problems of the beneficiary.
- There will often be problems if the beneficiary predeceases the original owner. One problem is the payment of the money to the spouse of the beneficiary, rather than the money being held for or paid to the beneficiary’s children.
Asset Protection. A trust can protect estates from divorce, lawsuits and judgments. So, if you are expecting an inheritance, you need to make sure you and your heirs are protected from divorce and creditor risks. Also trusts can prevent your
heirs from hasty spending decisions.
Through the preparation of a tailored and comprehensive estate planning package, your family can avoid costly attorney's fees, court costs, and reduce or eliminate possible federal estate taxes, minimize stress and keep your personal affairs
completely private.
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Copyright © 2010 Upland Law Group. All rights reserved
The information in this web site is provided with the understanding that the publisher is not engaged in rendering legal, tax or investment advice. Consult an attorney for legal advice. While every attempt has been made to provide current and accurate information, neither the author nor the publisher can be held accountable for any errors or omissions. You agree not to hold rancholawgroup.com liable for action you take from the information on its website.
818 North Mountain Ave. Suite 219 - Upland, CA 91786 | Phone: (909) 919-7201 | Fax: 866-919-4325
Copyright © 2010 Upland Law Group. All rights reserved
The information in this web site is provided with the understanding that the publisher is not engaged in rendering legal, tax or investment advice. Consult an attorney for legal advice. While every attempt has been made to provide current and accurate information, neither the author nor the publisher can be held accountable for any errors or omissions. You agree not to hold rancholawgroup.com liable for action you take from the information on its website.