Estate Planning

To most people the methods and procedures of what to do with their property after their death is at best a mystery. The purpose of this part of our site is to give you a better understanding of what estate planning is and the options available to you to make your final desires into reality.


We have broken it down into several sections:

Planning Challenges and Techniques

Probate explained

The Trust Option

Costs and Taxes

The Perfect Plan


It has been said that a failure to plan is a plan to fail. Procrastination abounds when it comes to estate planning. It's probably the last thing any of us want to do. The subject of dying is rarely one we approach with anticipation. This lack of eagerness, compounded by having to face the estate planning learning curve, keeps us from doing anything about the problem. Ignoring the problem, however, does not make it go away. So often people don't take the time to come face to face with one of life's realities and put a little effort into solving a problem that we will all have at some part in our life. I often jokingly say that the best time to plan your estate is the day before you die. I tell my clients, tongue in cheek, to call me on that day and I will draft the plan for their signature immediately. Obviously, though, none of us know when that day is.


You can't take it with you so where is it going to go? I often have clients that tell me that they are leaving everything to one child with the understanding that he will distribute it to the other beneficiaries because "He knows what I want done with it." They think that this solves everything. Of course they could not be farther from the truth. Those left behind need to have a clear map where you want us, your children, your attorney, etc. to distribute your stuff. Without that map, that plan, we can not carry out your wishes.


Did you ever think that when you are no longer here how difficult it is going to be to get in touch with you? Not only is communication difficult beyond the grave but there is the added problem that memories can change or more often the poor person you have left in "charge" takes the brunt of inter-family squabbling and invariably is the person blamed for a lot of the underlying tension that comes to the surface after the death of a family member. It is a sad commentary but death often brings out the worst in people.


If we fail to plan we can leave a mess for someone else to clean up, or worse, our lack of planning can often result in dramatically reducing the value of what we pass to our heirs through unnecessary costs including taxes and attorney fees. Don't leave us without any clear direction from you where you want your stuff to go.


Now is the time to plan ahead if you want to maximize the estate you leave to your loved ones.

Estate Planning, what I sometimes call inheritance planning presents several challenges.


Though this may sound self serving, the first challenge is to find the right attorney. Some people are intimidated by attorneys. They are concerned that they won't choose the right attorney for the job, or not choose the best one. Some fear that the attorney will take control of the assets away from them. Or that they can't afford one. As a result much of the planning that needs to be done is never started.


The attorney though is an essential part of your estate planning team. He or she plays an integral part in helping point out the problem areas and then prepares a plan to reduce or eliminate these potential snags.


The second challenge is probate. Probate is the court proceeding that concludes all the financial matters of the person who has died. The probate court makes sure that the person's debts get paid out of the estate's available assets. If there is a will, the court reviews it and rules on its validity. Finally, it changes the title of all assets from the name of the deceased to the names of the beneficiaries listed in the will.


Of course, all the court's "help" comes at a price. Attorney fees, appraisal fees, personal representative fees, and court costs all add up to take a bite out of the estate. Depending on the state, the probate and administrative fees can eat up five to ten percent of the gross estate.


Not only is probate costly in money, but it is also costly in the amount of time it takes to complete the process. The average probate can take from nine months to two years. During that time your heirs will have to wait to receive their complete inheritance until, at last, the probate is concluded.


While we all like to think of our affairs as being a private matter, the probate process airs all our laundry for anyone to see. Probate is a public process. This means that anyone who chooses, can go to the courthouse and see exactly how much you had and who you left it to. Many salesmen use the probate files to obtain leads. Kind of twisted don't you think?


The final estate challenge is estate taxes. The tax man cometh. Even in death the long arm of the government, both state and federal want a piece of what you have accumulated. On large estates the government will take as much as 60 percent of the estate!


Ways to Convey Property at Death


When you die, something has to happen to your property. You can control where your property will go or you can let the state, by way of statute, distribute the property. Needless to say it is usually better for you to take control rather than the state. If you want to direct where your property will go, then you have some choices to make as to how you want to accomplish this. For example:


INTESTACY. Simply intestacy means letting the state direct the disposition of your assets. By failing to direct what is to be done with your property after your death, the state assumes that you would have wanted it to be distributed in a certain way, and defines that way by statute.


JOINT OWNERSHIP AND BENEFICIARIES. By transferring your assets, for example real property or stocks, into a form of joint ownership, after the death of one of those individuals the other takes sole title to the property without the property having to pass through the probate court. Think of both individuals, or tenants, owning 100% of the asset during their lifetime, and therefore upon the death of one of the tenants it is not necessary to probate the asset to determine the ownership of the asset. When one joint tenant dies, the surviving joint tenant automatically receives the title without probate delay. All that usually is necessary to clear the title is for the survivor to file a certified copy of the death certificate and an affidavit of survivorship. However, joint tenancy has serious drawbacks for the survivor, including (a) being subject to claims by creditors of the deceased joint tenant, (b) termination of the joint tenancy if one joint tenant deeds his or her share to a third party or to himself or herself as a tenant in common, (c) forced sale in a partition lawsuit by one of the joint tenants (d) the fact that each share becomes subject to the will when all joint tenants die at the same time, and (e) not immune from estate taxes.


WILLS. The most used method of formal estate planning is the simple will. A will directs the state through and Personal Administrator to transfer ownership in the deceased persons property to the people indicated in the will. Married couples often use reciprocal wills initially leaving the property outright to each other, then to children or other beneficiaries. However, there is the mandatory requirement, that upon the death of each spouse, the estate must be probated. By definition, a will is the document which must be probated, with all the inherent cost, time delays and complexities involved.


TRUSTS. A trust, like joint tenancy, avoids probate by transferring the property before the death of the individual, resulting in little or no estate to probate. By making the individuals who transferred the property co-trustees, the complete control over the property remains with these individuals just as if they owned it. The surviving trustee however is obligated to transfer the assets of the trust as is directed by the individual who created the trust, upon the death of the other trustee. Not only does the use of a revocable living trust eliminate the intrusion of the state in the form of the probate system but it also allows the family to possess an estate valued at a total of $5 million without paying death taxes to the federal government.




The probate process


Probate was created hundreds of years ago in England as a method for transferring title to property from a dead owner to a new owner according to the wishes of the person who died. Those wishes were most commonly found in the form of written directions called a will. As you might imagine when the person who died was no longer around to contest the validity of those directions all kinds of shenanigans can and did occur. In response the probate system evolved to implement safeguards. These safeguards evolved and grew more complex through out history until present day when it takes months to get through all the intricate legal mazes and can only be successfully navigated with the help of expensive probate attorneys.


The probate process goes some thing like this:


1. The attorney for the decedent's estate files a court petition for probate.


2. The attorney becomes entitled to fees based on a portion of the estate unless the attorney agrees to a lower fee.


3. The court appoints a personal representative (executor), also entitled to compensation.


4. A monetary bond must be posted by the personal representative unless waived in the will or by the will's beneficiaries.


5. Notice is given to creditors by publishing a legal notice in a local newspaper.


6. A survivor's family allowance can be given.


7. All assets of the deceased must be inventoried.


8. Creditor's claims of the deceased are paid.


9. Assets may have to be sold to pay the decedent's debts, plus any federal and state death taxes, as well as the fees of the attorney and personal representative.


10. Any assets left are distributed to the heirs.


11. Final federal and state tax returns, plus estate and inheritance returns, are filed.



The Living Trust Solution


When you die, most of your assets will become subject to probate, the legal process in which a court approves your will and supervises the distribution of your assets, which almost always requires an attorney. This process is costly in both time and money. Two of our most precious commodities. Most attorneys charge fees of equaling 3 to 8 percent of the estate value to administer the estate and probate the will. Additional court and transfer fees also apply. To make matters worse the probate process, that is the time it takes for your heirs to receive the assets, averages 9 months, with some lasting several years. The solution to this costly delay is the living trust.


A living trust is the common term for a revocable inter vivos trust. This type of trust offers a number of benefits. The chief benefit being the elimination of probate costs. Considerable savings are achieved since assets in the trust are not counted in the probate estate. The time required for distributing assets under the terms of the trust is generally much less than the time involved in probate, thus getting your assets to your loved ones in a more expeditious manner. Lastly, bequests via the trust are more immune from attack by disgruntled beneficiaries than those made under a will.


Unlike a will, a living trust protects your family's privacy. Once your will is admitted to probate, anyone can read it at the courthouse. But a trust document will remain secret even after the assets are distributed.


During the Grantor's life, (the life of the person creating the trust) there are other benefits as well. A Grantor of a living trust can continue to exercise control over the property throughout his or her life. Alternatively, the Grantor can be relieved of management responsibility by his naming someone else to act as trustee.


No other tax return need be filed. The person creating the trust continues to be the person taxable on income earned by the trust in the same way as if it was "his" income. In fact, according to the instructions for Form 1041, Income Tax Return for Trusts, no special trust form need be filed. Instead, the Grantor reports trust income, deductions and credits directly on his or her Form 1040.


Since the Grantor can revoke the trust at any time, transfers to the trust cannot be viewed as completed gifts. Thus, there are no gift-tax consequences on the creation of a revocable trust.


If you do set up a living trust and transfer your property to it, you should still have a simple will. One reason: only in a will can you name a guardian for your minor children, another, you may leave assets out of your trust, either on purpose or by accident. Without a will, those assets will be distributed according to your state's laws rather than your wishes. But if you have a will with a so-called pour-over provision, the assets will automatically shift to your trust and pass the way you intend.


To create a living trust, you first sign the document creating the trust, then you deed your house, other real estate and major assets such as stocks and bonds, from yourself to yourself as trustee. You are the initial trustee and the initial beneficiary of the living trust. As long as you are alive, you continue to manage these assets just as before. When you die, the alternate trustee takes over and distributes your property as you specified in the trust. Incidentally, deeding them into your living trust will not cause a property tax reassessment.


But a living trust has another very important feature. If you should become unable to make financial decisions, your alternate trustee, such as your adult offspring, takes over management of your assets in the living trust. This avoids having a conservator appointed.


To summarize, the major benefits of a living trust are avoidance of probate costs avoidance of delay in transferring your property to your beneficiaries, as well as providing for management of your assets, if you should become unable to do so.


Major Benefits of a Trust


Gives you full control of your assets while you are alive and competent.


Avoids probate costs by reducing size of probate estate.


Permits assets to be distributed quickly upon your death.


Keeps the details of your estate private.


Arranges for a successor trustee to manage your assets should you become incapacitated.


Is difficult to contest.


Effectively doubles the standard estate deduction for married couples.



The Trade-Offs


Costs more in legal fees than drafting a will.


Requires retitling all assets that the trust will hold, which can be tedious and expensive.


May require you or your heirs to pay annual fees of 1% to 2% of assets if a professional trustee is used.


May leave your trust assets vulnerable to creditors' claims longer than a will does. (However this may be avoided by probating the pour over will which starts the clock running on all creditors.)

What's It Going To Cost?



Costs to have a trust drafted by an attorney vary like everything else. You should expect to pay in the neighborhood of  $2,500 for all the documents.


There are no ongoing charges.


The attorney may charge to assist in retitling the assets.


The attorney may charge to help the successor trustee wrap up the trust including filing any tax returns if necessary.



Simple wills typically have been a loss leader for attorneys. The average fee for a simple will is $75. Cheap don't you think? Not when you add in the associated costs of probate. It is here where he or she will make up the difference, and then some.


Cost to probate estate: $5,000 (Using an estate value of $100,000 and a very conservative three percent attorney fee plus costs)


Total cost to probate a $100,000 estate equals $5,075.


The above does not take into consideration estate taxes. See the next section to learn more about how to reduce or eliminate taxes on your estate.


How Much Is The Government Going To Take?


Taxes. No one likes them. Perhaps the most insidious of all taxes is the estate tax. Its as if the government has to take one last bite when the taxpayer has no way to contest it because he is dead. For most of us federal estate taxes, thankfully, are not an issue. Federal estate taxes only become a factor to plan for in estates that are approaching, or over $5.4 million.


Through the use of a slight variation of the living trust, most commonly referred to as the A-B Trust, estates of up to $9 million. A small investment in time and money now can net huge returns by tax savings upon your death. The A-B Trust is the way most people who have an estate tax problem do a quick step around the tax man, thereby passing the bulk, if not all of the estate, tax free.


The federal government allows everyone to give away up to a total of $5.4 million. You can give it away either while your are alive or at your death. Any amount that you give over the $5.4 million total is going to be taxed, and taxed heavily with tax rates starting at 37 percent and rapidly escalating.


The good news is that the government will allow you to give ANY amount to your spouse free of tax. For example, married people typically leave their assets to each other with the assets going to the children after the second spouses death. Upon the first spouses death there is no tax. The bad news is that upon the second spouses death the children get hit with the tax. By making a straight disposition to the spouse the couple has wasted one of their two exemptions and have over funded the surviving spouse's estate. Remember each person can give away $5.4 million.


The A-B Trust solves this problem by a little trick that puts a portion of the assets in a separate trust which allows the couple to fully utilize each exemption allowing $5.4 million to avoid being taxed. While a little more complex than a straight forward living trust if you have a large estate estate taxes can be greatly reduced. If avoiding income taxes were this easy!

What the Perfect Plan Needs To Do


Planning for the inevitable may not be the most enjoyable task. However, with effective estate planning it is possible to transfer the greatest amount possible in the least amount of time to those who you want to receive it. It should be the goal of every person planning his or her estate to accomplish the following:


Assure continuity of control over your assets.


Maximize access to the assets.


Increase the preservation of your capital.


Maximize family privacy.


Assure adequate management of your assets.


Minimize time to settle the estate.


Minimize cost of estate settlement.


Reduce or eliminate estate taxes.


Efficiently transfer estate to desired beneficiaries.


Clearly indicate your health care desires.


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