Estate Planning

Estate planning is the means by which people ensure that the assets they have accumulated during their lives are protected and distributed to their heirs.  Optimum planning smoothes the disbursement of property and minimizes  taxes due to the Internal Revenue Service upon death.  

Wills

The most popular form of estate planning is the will. Although there are rigid requirements for making a formal will, it is the least expensive method of leaving property to another.   It requires a writing signed by the person making the will in front of two witnesses who are present when the will is signed. A holographic will is a handwritten document that must be dated and signed by the person making the will.   

PROBATE

A will, whether formal or holographic, must be probated  Probate is a court procedure that passes a deceased person's assets to his or her heirs and/or beneficiares. There are two types of probate in California; for estates less than $100,000.00 the probate is a summary probate, requiring less process and procedure. For estates valued at more than $100,000 the probate is a traditional probate procedure. Probate estates are managed and disbursed by an executor (called "adminstrator" if there is no will). The fees for an attorney to probate an estate are set by law in the Probate Code, and are levied according to the value of the probate estate.  In California, the combined fees for an estate valued at $1,000,000 are approximately $46,000.00. The minimum time to propate an estate is four to six months. This is because probate proceedings have rigid laws requiring public notice, accounting, and distribution documentation.

Living Trusts

Living trusts are becoming  a favored method of estate planning  because of  potential tax savings and probate avoidance.  In a living trust the creator of the trust, also known as the trustor,  retains the right to amend, revoke or change the trust during his lifetime, thus maintaining control over his assets.    The trustor places his property, usually a home, savings and/or  stocks into the trust.  This is called funding the trust.  When the creator of the trust dies, his successor, known as the successor trustee, carries out the duties of disbursement of the trust assets much like an executor in a probate.  However, unlike a probate, there is no court supervision over disbursement of the trust assets, and there are no probate fees.  

 In addition to the avoidance of probate, a living trust reduces and possibly eliminates the necessity to pay federal estate taxes.  In 2008, estates valued at $2,000,000 or less are exempt from federal estate tax.  In 2009 this amount increases to $3,500,000.  In 2010 the federal estate tax is repealed for those dying in 2010.  In 2011 the exemption is $1,000,000.  Following 2011 the exemption reverts back to a $1,000,000 exemption. It is expected that Congress will revise the exemption amounts sometime during 2010, possibly elimating federal estate taxes for estates valued at less than $3,500.000 from 2010 onward.

For a husband and wife dying in 2008 owning $4,000.000 in assets they may effectively avoid federal estate tax by the combination of their  $2,000,000 exemptions.   This means that their heirs will inherit the entire estate and avoid the payment of federal estate taxes in the tens of thousands of dollars.  The minimum tax for estates subject to estate tax averages approximately  33% .

Lastly, conservatorships can be avoided with a living trust.  A conservatorship is a court procedure where a court appointee called a conservator,  takes over the financial and medical decisions of a person who cannot take care of himself.  Conservatorships are costly and time consuming procedures.       With a living trust in place, the successor trustee takes the place of the disabled trustor in making decisions.

Vivian Carlson can help you craft a variety of tax strategies to insure the orderly management and disposal of your property as well as lower, and perhaps eliminate, estate tax liability.