The time to plan for one of your family members' untimely departure is now, when you are level-headed. Please don't wait until it is too late and you are under the stress and grief of just having lost a loved one.
ENSURE THAT YOU DON'T MAKE ONE OF THESE MISTAKES:
Blended Families - Protecting the Surviving Spouse's Inheritance
As the number of blended families increase, there is a need for proper
estate planning to ensure the surviving spouse is taken care of and the
children of the deceased spouse are not unintentionally disinherited.
Special Needs Children
If your child is receiving state and/or federal aid due to a disability, you must distribute any cash gifts to that beneficiary through a special needs trust. Recipients of state and/or federal aid are disqualified when assets titled in their name exceeds a specific dollar amount, typically two thousand dollars. By setting monies aside for the benefit of your child in a special needs trust, the trustee may utilize those monies for your child’s basic needs. Since the monies are not titled in your child’s individual name, their state and/or federal aid will continue without penalty to your child.
Joint Tenancy - Parents & Children
Many clients title their home in joint tenancy with their children to avoid probate. This probate “solution” presents numerous problems. You should know that if your child divorces, that child’s spouse may claim that half of your home is theirs. Although your child’s spouse typically will lose this argument, such claim will cost you monies in court fees and attorney fees to defend what is yours.
Your child’s creditors may attach your home for you child’s debts. The Internal Revenue Services, for example, could lien against your home if your child owes back taxes. If your child files bankruptcy, your child’s creditors may petition the court for a forced sale of your home to satisfy the creditor’s claim.
Once you put your child’s name on title, you must obtain your child’s permission if you wanted to sell the home. If your child refuses, you will NOT be able to sell your own home.
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Animals - Honorary Trusts
If you have companion animals at the time of your death, you can fund a special trust for your animal’s basic needs, including but not limited to, setting monies aside for the animal’s veterinary, dental, and chiropractic care, grooming, doggy day care, etc. This is one way of ensuring your animal is not euthanized except in the event of a medical emergency.
Improper Trust Funding
A common mistake clients make is not “funding their trust”. A trust is funded by changing title of your assets from your name to the name of your trust. (E.g., changing title from Mary Smith, an individual, to Mary Smith, trustee of the Mary Smith Trust, executed June 1, 1999.) The type of asset determines how title should be taken, e.g., title the asset in the name of the trust, make the trust the pay on death beneficiary or name the trust as a designated beneficiary. You should consult with an estate planning attorney, tax attorney or CPA regarding title information.
Avoid a 'One Size Fits All' Estate Plan
Avoid a “cookie cutter”, “one size fits all” estate plan. There are several types of trust that do very different things depending upon your marital status, assets, etc. Ensure your estate planning attorney delves into your family background and asset/liability status to ensure your trust affords maximum protection to you, your family and your assets.
Owning Assets in a Revocable Trust Provides Creditor Protection
Titling your assets in your revocable trust does not protect them from creditors claims. If your goal is to protect assets from creditors, you should consider a qualified personal residence trust, a family limited partnership, and/or some type of a corporation.
Health Care Directive Prior to 1992? - Time for a New One!
Prior to 1992, all health care powers of attorney, also known as living wills, expired within seven years. If your health care directive was drafted prior to 1992 and contains this language, it is no longer binding. You must execute a new health care power of attorney.
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Review Your Estate Plan Periodically
You should review your estate plan upon a change in marital status, the birth of a child or grandchild, a death in the family, a significant increase or decrease in wealth, if you want to change your trustee nominations, your executor nominations, your attorney in fact nominations, your health care agent nominations, your guardian nominations for your minor children, the distribution section of your trust, e.g., who is inheriting, what your beneficiaries are inheriting or when they inherit. You estate planning attorney should keep you apprised of any changes in the law necessitating an estate plan review.
Above All, AVOID PROBATE!
Probate is a judicially supervised process whereby a judge supervises changing title of your assets from your name to your beneficiary’s name. Probate is a public proceeding. (In other words, anyone has access to your beneficiary’s contact information, your assets, your debts, etc.) You can avoid probate by executing and funding a revocable trust. By titling assets in the name of your trust, your successor trustee takes the place of a judge and changes title of your assets. The key difference is YOU decide how much money your successor trustee is paid. Probate feeds are based upon a statute whereby attorney fees are calculated based on the GROSS value of the asset, not net. (In other words, if your home has a fair market value of $500,000 and your equitable (net) interest is $25,000, an attorney may charge up to 5% of the gross value of the asset in fees, e.g., 5% of $500,000 is $20,000.00. IF your home was titled in the name of your trust, the cost of changing title would be approximately $7 to $25.00; depending upon the gross size of the estate.)
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Estate Shrinkage of Wealthy Individuals Whose Estates Were Probated |
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Gross
Estate |
Probate
Fees |
Net
Estate |
Estate
Shrink |
| John D. Rockefeller |
$26.9 M |
$17.1 M |
$9.8 M |
64 % |
| Marilyn Monroe |
$819 K |
$449 K |
$370 K |
55 % |
| Elvis Presley |
$10.2 M |
$7.4 M |
$2.8 M |
73 % |
| Walt Disney |
$23 M |
$6.8 M |
$16.2 M |
30 % |
| J.P. Morgan |
$17.1 M |
$11.9 M |
$5.2 M |
69 % |
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California Probate Fees |
| Percentage |
Fee |
Cumulative
Fee |
| 4% of first $100,000 |
$4,000 |
$4,000 |
| 3% of next $100,000 |
$3,000 |
$7,000 |
| 2% of next $800,000 |
$16,000 |
$23,000 |
| 1% of next $9,000,000 |
$90,000 |
$113,000 |
| 0.5% of next $15,000,000 |
$75,000 |
$188,000 |
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Federal Estate Tax Exemptions
(Per Spouse) |
| Year |
Amount |
| 2004 |
$1.5 M |
| 2005 |
$1.5 M |
| 2006 |
$2.0 M |
| 2007 |
$2.0 M |
| 2008 |
$2.0 M |
| 2009 |
$3.5 M |
| 2010 |
Unlimited |
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