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Key Estate Planning Documents
Introduction
This article will outline and serve as an introduction for the most essential
part of the financial planning process, the explanation and illustration of the
estate planning forms you need. Use the following information to keep in mind
the framework of where the discussions will take you.
What Five Documents
Do You Need
There are five key categories of estate planning documents.
These five include: trusts, financial and health care powers of attorney, wills, ethical wills,
as well as advanced directives.
What Does
Traditional Services for Estate Planning Cost?
Our clients want value with a robust legal discussions and
excellent outcomes.
Living trusts also require thorough funding to avoid
probate. This introduces another universe of documents that must be
prepared and, in some cases, recorded. Estate documents also require storing for long periods of
time. Keeping track of these documents is very expensive. Our
clients can expect our law office to stay in business for decades from the date the documents are signed.
Law Offices typically charge $1,000 to $1,500 to
do estate plans. More complex cases may be charge between $2,000 to $2,500, or more, to
do estate planning for situations involving second families,
special needs, family businesses, sudden illness and the like. To
cut corners and operate like a trust mill, paralegals and unlicensed financial companies charge $495 to $1,000 and use
your trust as a "loss leader" to sell financial products, leaving out
valuable services like funding the trust with your property. These companies
also lack malpractice insurance. They are doing unlicensed work, which could lead to expensive litigation later on.
Certainly, when buying an estate plan at $495 you are not going to be
talking much about your "hopes, dreams, and desires" for your
family or beneficiaries. You will also be doing
much of your own asset transfers to the trust, and "the devil is in these details."
At this figure, you get canned documents, not legal representation with a
professional relationship, hence, the
term---trust
mill.
We offer a better option to trust mills at lower fees than a traditional law office.
Although living trusts have been around for centuries, only recently have
they achieved a high degree of popularity among the general public. The reason
for this surge in popularity is that living trusts help to avoid probate. You
might be wondering, "What is probate, and why is everyone trying so hard
to avoid it?" The short answer is that probate is a court-supervised
procedure for collecting a deceased person’s assets, paying debts and taxes,
and distributing the property to the person’s beneficiaries (either
according to the instructions the person set forth in his or her will or as
determined by state law if the person died without a will). The probate
process usually takes six to 12 months to complete, although it may take
longer in complicated cases.
Probate is not a tax. When people refer to the high costs of probate, they
are usually referring to the attorneys’ and personal representative’s
fees. In California, these fees are calculated as a percentage of the gross
(not net) value of the assets in the estate ($3,150 on the first $100,000, 2%
of the next $900,000, and so on). For example, let’s say that D, who is not
married, dies owning one asset, a house worth $200,000 with a mortgage of
$120,000. D has a will that leaves the house to D’s two children, A and B. A
is named as executor. The probate fees for this case would be as follows:
$5,150 to A’s attorney (plus any "extraordinary fees," which are
billed hourly) and $5,150 to A (if A decides to take a fee), for a minimum
total fee of $10,300. These fees are calculated without regard to the $120,000
mortgage, since the fees are charged on the gross (not net) value of the
estate.
One of the reasons living trusts have become so popular in recent years is
that real estate prices in California have skyrocketed, leading to much larger
estates and, hence, higher probate fees. In states where real estate prices
are lower or where attorneys’ fees for probate work are based on an hourly
fee schedule rather than a percentage scale, living trusts are not as popular
as they are in California.
Living trusts avoid probate with respect to those assets that are
transferred into the living trust before death. In other words, living trusts
avoid the court procedure otherwise required to transfer assets to a person’s
beneficiaries at death. However, as we explain below, even though no court
procedure is involved, that does not mean there is nothing to do. The living
trust makes administration easier, but it does not do away with administration
altogether. For example, assets still have to be collected and managed pending
distribution to the beneficiaries, appraisals of assets have to be made, debts
and taxes have to be paid, tax returns may be required (living trusts do not
avoid estate taxes, as some people have been led to believe), and legal
documents must be prepared in connection with the distribution of the trust
property to the beneficiaries. These activities are very similar to a probate.
The major difference is that, with a living trust, everything is handled
privately, without court supervision, which makes for (in most cases) a
faster, less expensive administration process.
Thus, although it may come as a surprise to you, you should realize that
post death administration of a living trust will take time and cost money,
such as legal fees, accounting fees, asset transfer fees, and your own Trustee
fees if you decide to accept any. The other beneficiaries of the Trust, if
any, will also need to understand that the process may take longer than they
anticipated. However, in comparison to probate, these delays and costs are
substantially reduced, often resulting in time savings of months and costs
savings of 50 to 90 percent.
In addition to the Trust, the Trustor signed what we call a "pour over"
will. The purpose of the pour over will is to provide for the distribution of
assets that were omitted from the Trust, either intentionally or
inadvertently. One of your first tasks will be to determine what assets, if
any, were omitted from the Trust. If any such assets they exceed $100,000 in
gross value, a probate may be required to transfer these assets to the Trust.
If these assets do not exceed $100,000 in value, you can collect such assets
under a declaration procedure authorized by the Probate Code. At least 40 days
must elapse after the date of death before you can use this declaration
procedure. Whether or not a probate is required, the original will must be
deposited for safe keeping with the County Clerk within 30 days of the date of
death.
A Will is used to
appoint an executor (the person to manage your estate), and to exercise your
right to assure that property will be distributed the way you wish. You can also
use a will to name a guardian for any minor children you may have. If you don't
have a will, the intestacy laws of your state (the laws that determine what
happens when you don't have a will) will determine who the executor of your
estate will be and how your property will be distributed.
Emergency Financial Information A listing of emergency financial
information must be readily available. If key personal financial information is
not provided to the people you or your family will rely on in an emergency, even
the best documents may be of little use.
Letter of Instruction There are often a host of personal issues that
your agents, executors, trustees, and others need to know. A personal letter can
provide valuable guidance, avoid fights, and help assure your wishes are carried
out.
Finally, Ethical Wills insure that the trustee
exercises its discretion in ways intended by you.
Financial & Health Care Powers of Attorney with Advanced Health Care
Directives
A proper financial durable power of attorney is used to assure that, in the event of
your illness or disability, someone can take care of financial matters for
you. These include filing tax returns, IRA elections, gifts, changes to
your trust, etc.
A living will and medical health
care proxy is used so that, in the event of a medical emergency, you
will have
established a line of authority to make the medical decisions on your
behalf. (As of July 1, 2000, these documents are called in
California
Advanced Directives.)
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