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Lving Trust and Probate
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!
Register and receive a fee coupon worth up to $500.
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