Friday, October 20 , 2017, 10:00 pm | Fair 60º

 
 
 
 

Chris Jones: Estate Planning Is More Critical Than Ever

We have all been twisted up and down by the economy over the last 10 years. In 2008, most people told me that they had experienced a decline of 30 percent to 50 percent of their investments. With news of bank failures, manipulation of the stock market and the collapse of the mortgage lending industry, it appeared back then that there was no place of refuge.

This is — thankfully — not 2008, but there will always be ups and downs that play with our investments and our minds.

While we cannot entirely control the erosion of our investments when investments are down, we can control the inevitable losses that come from the transfer of our wealth to future generations. Why is it then that people defer taking simple action so as to absolutely safeguard from erosion of their wealth by probate fees and estate taxes?

Without proper planning, it is certain that your estate will suffer a loss of between 15 percent and 50 percent or more. Wouldn’t you rather see your assets in the hands of your family and heirs, rather than the Internal Revenue Service?

Estate Planning Goals

There are two primary goals in estate planning: the first is that your wishes be carried out. You want to make sure that you are cared for during your lifetime in the way that you want, and by the people whom you designate.

You want to be guaranteed that your wishes are observed, even if you no longer have the capacity to tell people what you want. When you pass away, you want the right people in charge of your property, and you want your estate to be administered and distributed exactly the way that you have designated.

The second goal of estate planning is to reduce the costs of administration during your lifetime and upon your death. You want the costs minimized so as to distribute as much of your estate as possible to your family and beneficiaries. You also want your administrator’s burden to be as light as possible and to be completed quickly.

Your Wishes Carried Out

The surest way to have your wishes carried out is to put them in writing. Better yet, put them in a document that courts and financial institutions will recognize. Preferably use language that is familiar and recognizable by the courts.

The law says that property transfers at death must be contained in either a will or a trust. Otherwise, there is no legally enforceable way to carry out your wishes.

I have had people tell me that they were leaving their property to someone with instructions as to how that person was to distribute it. If those instructions are not in a will or a trust, you should assume that the distribution will never happen as you intend. Moreover, your beneficiaries will not be able to do anything about it.

By creating a will or trust, you can be assured that your desires will be fulfilled.

Administrative Costs

There are two types of costs associated with the administration of an estate. The first has to do with the fees incurred in court proceedings. The second has to do with taxes, including estate, gift and income taxes.

Each of these costs is independent of the other. Since most people want to leave the maximum amount of their estate to their loved ones, the question is how to reduce these costs.

“Probate” is the court-supervised administration of a decedent’s estate. Probate is generally required where the decedent’s estate has a gross fair market value of $100,000 or more, not including joint tenancy property, property being transferred to a spouse, property subject to trusts, or contractual benefits such as life insurance or retirement accounts for which there are beneficiaries.

It does not matter whether the decedent did or did not create a will, as probate is still required.

Under the best of circumstances, probate takes a minimum of six months. Both the start and completion require notices to interested parties and court hearings, and after the representative is appointed, at least four months must be allowed for creditors to present their claims against the estate.

For the most part, your beneficiaries do not receive anything until the estate is closed. Your estate must pay fees to both an executor or administrator, and their attorney. Those fees are based upon the size of the estate. California imposes filing fees on virtually every petition that gets filed in probate.

The best way to avoid the costs associated with probate proceeding is to create a trust. Unless there is a dispute, trusts are not subject to review by the courts. They are private, quick to administer, and the trustee’s fees are typically less than half of the costs of probate.

The second kind of administrative expense is the tax owed to the federal government. Through the use of trusts and other estate planning devices, it is possible to avoid the burden of estate taxes so that your beneficiaries can receive your estate in a nearly intact condition.

With a little advance planning, all of your goals can be met, and your wishes will be carried out as you intended. Administrative costs and taxes will be eliminated or minimized. Your beneficiaries will receive everything that you wish for them. You will have peace of mind.

There is no substitute for preparation, planning and follow through!

Chris Jones is an attorney at Rogers, Sheffield & Campbell LLP, a Santa Barbara law firm. Click here to read previous columns. The opinions expressed are his own. This article is not intended to provide legal advice. For legal advice on any of the information in this post, click here for the form or phone number on the Rogers, Sheffield & Campbell Contact Us page.

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