ESTATE PLANNING BASICS

Law Offices of William G. Wais, Esq.

(818) 244 - 1894

I. INTRODUCTION

Basic estate planning is the process of planning for the transfer of your property in a cost-efficient manner .

When you sell your home during your lifetime, you must sign a deed.  If you die, you can no longer sign such a legal document. 

After your death, the only way your heirs will be able to transfer your home will be through probate, unless you have a living trust. 

Basic estate planning involves understanding how that transfer process works and how to transfer the best way possible. 

Good estate planning also involves picking people to help you if you become incapacitated. 

Estate planning is a complex subject that goes well beyond these basics. However, everyone needs to start by understanding the basics .

DYING WITHOUT A WILL: INTESTATE SUCCESSION

You already have an estate plan. The State of California has established a system which determines who gets your property when you die. 

Unless you change this plan, the State of California will decide for you and charge your estate a probate fee. 

With no will and no trust, your property will be divided some to your spouse and some to your children.  

3. WILLS

A Will is a written instrument in which you direct where your property will
pass when you die. Many people execute Wills simply because they do not wish
to let the State of California decide who gets their property. 

Even with a Will, there will still be a probate charge against your estate. 

There are basically three types of Wills in California:

1 . A "holographic " Will, which you must write out all in your own hand, sign and date;

2. An "attested" formal Will, which you must sign and date, and which must be witnessed by two disinterested witnesses all in your presence at the same time; and

3. A "statutory" Will, which is a preprinted form published by the State Bar of California, in which your signature also must be witnessed by two disinterested witnesses; this form is relatively narrow and inflexible in scope.

IV. PROBATE

Whether you die with or without a Will, your property will pass through the probate process. 

"Probate" is the court-supervised process of transferring title to your property following your death as provided in your Will or if you die without a Will.

The commissions charged by executors or administrators in the probate process are determined by law.

Statutory probate fees on the first $100,000 of property run $8,000. The probate fees are then six percent of the next $100,000, and four percent of the next $800,000, which brings us up to $1 million in value.

The probate fee on a $300,000 house would be $18,000.

The probate fee on a $400,000 house would be $22,000.

The probate fee on a $1,000,000 house would be $46,000.

The attorney for the estate is entitled to half that total amount. The executor or the administrator receives the other half. In some situations, you only pay half the fee, if the executor does not take his fee.

Probate commissions and fees are based on the gross value of the property passing
through probate, plus other charges. 

Mortgages on real property and other liabilities are not deducted when computing executor's, administrator's, or attorney's commissions and fees.

The absolute minimum duration for a probate proceeding is five months and it is not uncommon for a probate proceeding to last two years or more. The size and
complexity of the estate determines its duration.

4. AVOIDING PROBATE 

Because of the high cost of probate, basic estate planning usually involves avoiding probate. 

One of the most common probate substitutes is holding property in joint tenancy.

Joint tenancy only avoids the probate at the first death.  At the second death there is a probate unless the survivor has set up a living trust. 

Due to the serious disputes which often arise over ownership of the property, we strongly recommend that you do not hold property in joint tenancy with anyone other than your spouse merely to ensure that such person will receive the property when you die.

The most common probate avoidance device chosen in estate planning today in
California is the living trust.

VI. LIVING TRUSTS

A living trust is a contract between the you as the Trustor and you as the Trustee. 

We also have a backup Trustee after you die who can avoid the probate court. 

Simply speaking, we use the signature of your backup Trustee to avoid the judge's signature. 

VII. ESTATE AND GIFT TAXES

Estate taxes and gift taxes are federal taxes on the right to leave property to someone when you die or give property to someone during your lifetime.

Subject to the following rules and exceptions, the following chart will give you some idea of the current estate and gift tax rates.

ESTATE OR GIFT TAX

TAXABLE ESTATE        TAX               RATE ON EXCESS

    FIRST $1,500,000 - NO FEDERAL ESTATE TAX

    $1,000,000                 $0                                41%

    $1,500,000                 $0                                45%

    $1,600,000                  $45,000                        45%

 

UNLIMITED MARITAL DEDUCTION :

Simply put, there is no federal estate tax on the transfer from husband to wife.  The government has chosen not to tax widows and widowers, but they tax the heck out of the kids. 

The only exception is a non - citizen spouse. 

ESTATE TAX - "TAX SHELTER":

(UNIFIED CREDIT - EXEMPTION AMOUNT)

Each of us is given a credit (the "unified credit") equal to $555,800 against our estate taxes.  This credit gives each of us the ability to "tax shelter" $1,500,000 of our property. We can give this much to our heirs when we die. 

YEARLY GIFTING:

The law allows each of us to give away $11,000 per person per year with no tax. 

A married couple with two children could give them $44,000 in one year without paying any gift tax or filing any gift-tax return.

SHELTERING $3,000,000:

If a married couple has a complex trust, they can shelter up to $3,000,000 in assets from federal estate tax. 

If the married couple does not set up the complex trust while they are both alive, then $1.5 million in tax shelter is lost. 

This is a "use it or lose it" tax shelter. 

Any excess over $1.5 million would be taxed at 45%.  

A complex trust can save a married couple over $700,000.

VIII. DISABILITY PLANNING

If you become incapacitated in California, a court may select a conservator to manage your property and make your personal decisions.

As mentioned above, the living trust prevent the necessity of a conservatorship. 

DURABLE POWERS & LIVING WILL:

In addition, you should have a Durable Power of Attorney for Property, a Durable Power of Attorney for Health Care, and a Living Will in the event that you become disabled.

A Durable Power of Attorney for Property allows you to select the person who would write checks for you and access your retirement plans if you should become disabled. 

Your Health Care Power of Attorney can determine who would make health care decisions for you. 

Lastly, a California Living Will is the "pull the plug" document. . 

IX. CLOSING

We have discussed some of the basics of estate planning and living trusts. 

We look forward to working with you and your clients in formulating estate plans to meet these personal goals.

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For more information contact Bill Wais at (818) 244-1894.