Why You Need It
Why You Need an Estate Plan:
1. To avoid probate.
In California, if you have real property valued at more than $166,250 (with no deduction for loans), and the property is not in a trust, that property (and any other estate property) will likely need to go through a formal probate at your death. A formal probate is generally a lot more expensive than a trust administration because of the statutory fees involved for both the attorney and the executor. As an example, if a probate estate has a fair market value at death of $400,000, probate fees, not including costs (court filing fee, publication, appraisal fees, etc.), would be $11,000. Both the attorney and the executor would be entitled to request those fees meaning the total fees in this example could be $22,000. On the other hand, to administer a trust is usually based on hourly rates (although there are some attorneys who charge a percentage or flat rate), which is usually quite a bit less than probate fees and costs.
2. To avoid confusion and conflicts among your loved ones.
Without a clear, written plan, your surviving spouse and other heirs may argue about how your affairs should be handled if you become disabled or about how your assets should be distributed when you die. Conflicts may arise about any verbal statements or promises you made while alive and with capacity. A good estate plan will address both situations – management of your affairs if you become incapacitated and distribution of your assets at your death – to avoid confusion and conflicts.
3. To protect beneficiaries.
Some beneficiaries need extra planning. These situations include when a beneficiary is a minor and can't receive an outright distribution, when a beneficiary is disabled and an outright distribution would jeopardize their public benefits, when a beneficiary has a substance abuse problem and an outright distribution would exacerbate the problem, or when a beneficiary is irresponsible with money and an outright distribution would go straight to creditors. In these types of situations, your plan can be tailored to protect your beneficiary, usually by keeping funds in trust, so that distributions can help rather than ultimately hinder him or her.
4. To avoid estate taxes.
In years past, this reason was more important than it is today because in 2020 a person can die with an estate valued at up to $11.58 million without paying any estate tax. In addition, a surviving spouse can now elect to use a deceased spouse's unused exclusion if a federal estate tax return is filed. Because most estates, even combined estates of spouses, are well under $11.58 million, avoiding estate taxes is no longer a top reason to create an estate plan.
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Benjamin Franklin once said, "In this world nothing can be said to be certain, except death and taxes."
Even though it is unpleasant, most of us dutifully file and pay our taxes every year. However, as far as preparing for the certainty of death, most of us don't plan for that inevitability, or the possibility that we will become incapacitated.
When Americans were asked in a survey whether adults should have estate planning documents, a majority responded that it was important to have, yet only 44% said they had any such documents. Other surveys put the number of persons with an estate plan at an even lower percentage – about a third.
There are many reasons and excuses given for why people haven't done any planning. Here are some of them and some reasons as to why the excuses don't make sense in the long run.
Top Reasons and Excuses For Not Doing Estate Planning:
1. I don't want to think about becoming incapacitated or dying – it's too depressing.
Agreed, there are probably thousands of other subjects to think about that are more enjoyable than thinking about our demise and death. But if you don't think about it and at least have a basic plan, than the decisions about what happens to you, your spouse, and your children if you become incapacitated, or when you die, will be made according to the laws of California. So, even though it may be depressing to think about, there is at least some comfort in knowing that you have planned for your spouse, children, and your assets if you become incapacitated, or when you're no longer here.
2. I'm too young to deal with an estate plan; it's only important once you reach retirement age.
An estate plan is much more than saying who gets your assets when you die. It includes non-monetary instructions such as an advance health directive which lays out your wishes for medical treatment, or withdrawal of treatment, if you are incapacitated. A famous example of what could happen without a directive is Terry Schiavo, a Florida woman who was in a persistent vegetative state from 1990 to 2005 because of legal dispute between her husband, who wanted to withdraw life support, and her parents and family who wanted her kept alive. If she had a properly written directive, years of court battles and years of being kept alive with no hope of recovery could have been avoided.
3. I don't have a large enough estate for an estate plan.
As seen in the Schiavo case, estate planning involves much more than just providing who gets your money and assets. In addition to an advance health care directive, an estate plan should have a durable power of attorney where an agent is appointed to handle your financial affairs in the event you are unable to do so. As far as a will and a trust, even though you might have a small estate, it is still a vehicle for you to direct who will receive your various assets, including real and personal property, and items of sentimental, rather than economic, value.
4. I don't have the money for estate planning; it's expensive and I am barely making ends meet as it is.
True, going to an attorney to prepare a proper estate plan will probably cost somewhere between $1,500 and $3,000 depending upon the size and complexity of your estate and your beneficiaries. However, if a person has limited resources, there are cheaper options for them such as legal service clinics, especially if they don't own real property and need only the basic documents in the event of their disability, and a simple will for when they die. For people that own real property that has a fair market value of more than $166,250, if they don't do any estate planning, which in that situation would include a trust, when they die, their house, and the rest of their estate, will likely have to go through a full-blown probate which will cost quite a bit more than the cost of planning in advance to avoid probate.
5. I don't like the idea of discussing my finances and personal affairs with an attorney.
The general public may not know this, but attorneys are required to keep all client information confidential. California has one of the strictest confidentiality requirements in the nation. The law here requires attorneys to "maintain inviolate the confidence, and at every peril to himself or herself, to preserve the secrets, of" the client. If a person still decides he or she doesn't want to confide in an attorney and dies without an estate plan, there will be no privacy at all if the estate goes through probate, because probate proceedings are a matter of public record. In contrast, a trust administration can be kept private and confidential among the family and beneficiaries of the decedent's estate.
6. I don't have the time to deal with it now; I'll deal with it later when I have more time.
Life is busy. As mentioned, there are thousands of other things to think about that are preferable to estate planning. But the consequences of not setting the time aside to think about and plan for the future of your family and how your assets should be distributed will almost always involve substantially more time (and money) on the back end, either by managing your affairs through a court ordered conservatorship if you become incapacitated, or by probating your estate if you die with no plan.
7. My spouse and I can't agree on what we want to do. It's more important to keep peace in our marriage than to do an estate plan right now.
This excuse comes up a lot in blended families where it is the second or third marriage for at least one of the spouses and there are children from prior marriages. Often the parent of the child from a prior relationship will want to provide for that child, but there is confusion or disagreement about how to provide for both that child and any children of the current marriage. In addition, there may be separate property in addition to community property issues which should be addressed. Although blended family planning is more complicated than a one marriage family, issues should still be addressed as far as nominating guardians and providing for children and the current spouse.
8. One of our children is irresponsible with money, is a substance abuser, or has special needs and we don't know how to be fair to that child and our other children.
Not all children are in the same situation and therefore an estate plan should not always treat all children the same. A trust is a very useful vehicle to provide for outright distributions to your children who are able to handle and manage assets, while keeping in trust assets for the benefit of your other children who may have special needs or may be irresponsible in managing their affairs. In that situation, the trustee can provide for those children without jeopardizing their inheritance or whatever other benefits they may be receiving from governmental agencies.
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In summary, remember that death is pretty much a certainty for all of us. If you plan well, your loved ones will benefit from distributions from your estate and will likely remember you fondly; conversely, if you plan poorly or not at all, your loved ones will suffer from delayed or reduced distribution and will likely not think of you as fondly as they would have had you planned well.
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If I can be of service to you, please contact me at (530) 809-0675.