MARC  WEISSMAN

Estate Planner


 
FOSTER CITY
To Contact us: email
Phone/Fax/Mail
Homepage
Return to Estate Planning Directory
Return to Living Trust Directory
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 AVOID PROBATE.

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, and aggravation.

  1. 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 longer.

  2. 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 amount.

There are several methods of avoiding Probate. The best method is a Living Trust. The worst may be joint tenancy.

JOINT TENANCY

Although it is very simple to set up, Joint Tenancy will have adverse tax consequences.

  1. 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.

  2. 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.]

  3. Joint Tenancy for a married couple will NOT avoid Probate on the death of the second spouse.

LIVING TRUST

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 expensive.

4 Disgruntled Heirs

People with potentially litigious heirs should consider a Living Trust. This might include:

5 Second Marriages

A Living Trust is an ideal way to provide for children from a prior relationship.

Single People who have any of the above concerns find a Trust helpful.

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.

REFINANCE MANIA

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.

Return to Estate Planning Directory
Return to Living Trust Directory