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This Article is designed to be of general interest. The specific
techniques and information discussed may not apply to you. Before acting on any
matter contained herein, you should consult with your personal adviser.
In response to a recent survey we sent, over 60% of respondents asked:
WHY DON'T WILLS AVOID PROBATE?
Probate is required if a person has no Will. Probate is also required even
if a person had a Will. PROBATE IS REQUIRED UNLESS A PERSON TAKES STEPS TO
Probate is the archaic process whereby the State ensures that a decedent's
proper beneficiaries get what they are properly entitled to receive, after
payment of proper debts and taxes. The formalities set by law must be followed.
Notices must be given to relatives and creditors. Property cannot be
distributed until the Judge approves.
In theory, this is for the protection of the decedent. In fact, it doesn't;
in the vast majority of families it merely causes pointless delay, expense,
- PROBATE TAKES A LONG TIME. A simple Probate takes 7 months, even
if everything goes to the wife and children. [If a person's net worth is over
$600,000, Probate may easily take 2 years (while awaiting IRS audit approval).]
Of course, if a matter becomes even moderately complicated, it takes much
- PROBATE IS VERY EXPENSIVE: the lawyer who processes the paperwork
is entitled to a fee which averages 2.5% of the gross value of the assets.
[Gross value is BEFORE reduction for mortgages - a heavily mortgaged property
may actually have negative value, as the fee is not based on the equity but on
the total gross value.] The Executor is also entitled to a fee in the same
There are several methods of avoiding Probate. The best method is a Living
Trust. The worst may be joint tenancy.
Although it is very simple to set up, Joint Tenancy will have adverse tax
- Tax benefits are lost to a married couple holding title as joint tenants.
The "free step up in basis" gives unique income tax
benefits to community property assets. At the death of either spouse, they
are treated as if they cost the survivor the fair market value on date of death.
In other words, all pre-death capital gains are forever tax free.
- If a couple has assets (including life insurance proceeds) in excess of
$600,000, there will be death taxes at the death of the second spouse, at rates
starting at 37%. Bypass Trust provisions within a Living Trust allow a
couple to leave $1.2 million tax free. [This would easily save $37,000 for
a couple worth $700,000, or $235,000 for a couple worth $1.2 million.]
- Joint Tenancy for a married couple will NOT avoid Probate on the death of
the second spouse.
A Living Trust is a simple tool. It is a Will-substitute, Probate avoidance
device. It gives you total control over your assets, during your life, and
after your death. There are no complications to your life or restrictions on
your use and enjoyment of your property. The terms may be changed at any time.
It allows a married couple to leave up to $1,200,000 free of death taxes.
[With "Bypass Trust" provisions in a Living Trust each spouse is
allowed full use of all of the property.]
WHO SHOULD HAVE A LIVING TRUST?
1 Probate Avoidance
We are constantly told by people that they do not need a Living Trust since
their net worth is less than $600,000. Right?
WRONG! A Living Trust will save the cost of Probate, regardless of wealth.
There is no level of assets necessary before a Living Trust is appropriate,
merely a desire to avoid Probate.
2 Estate Tax Savings
Most people realize that once a married couple's assets exceed $600,000
(including life insurance proceeds and retirement plans) a Living Trust will
save substantial taxes.
3 Parents of Minors
Minors create Probate complexities. Probate might require ongoing reporting
to the Court every two years until each child is of age. This can get very
4 Disgruntled Heirs
People with potentially litigious heirs should consider a Living Trust.
This might include:
- people in alternative living arrangements who have family who would object
to gifts to non-family members;
- a parent disinheriting one child.
5 Second Marriages
A Living Trust is an ideal way to provide for children from a prior
Single People who have any of the above concerns find a Trust
IF YOU WOULD LIKE MORE INFORMATION ABOUT LIVING TRUSTS, PLEASE CLICK HERE.
If you would like to attend a Seminar on Living Trusts (in either
Berkeley, Foster City, or San Francisco), please call us or email and we will let you
know when our next Seminar will be held.
HEALTH CARE FORM
Under prior law in California, a Health Care Form (whereby you may authorize
another person to make health care decisions in the event that you cannot
communicate) was valid for only 7 years. Good news is that the NEW LAW allows
such form to be valid without limitation, IF IT IS SIGNED AFTER 1991. So, if
you have an old form which is limited to only 7 years, you should consider
signing a new form.
The main purpose of such a form is to allow someone else to "pull the
plug" if appropriate.
If you want a preprinted form prepared by the California Medical Association
(which we recommend since it is readily accepted by the medical community),
please call us.
If you have a Living Trust and have (or plan to) refinanced your property,
you may have run into a lender who "does not lend to Living Trusts."
These lenders require that you change title out of the Trust into your own name
before they will make the loan.
If this happened, MAKE SURE THAT YOU CHANGE TITLE BACK INTO THE TRUST AFTER
THE REFINANCE IS COMPLETED.