When people hear the words estate plan, will, trust, or probate, they may have no idea what those concepts actually mean, but they know they deal with death, which is a difficult topic.  No one wants to think about the death of a loved one or their own death.  Often people are years into their retirement before they actually sit down to plan for what happens to their assets when they die.   An estate plan is something everyone needs, no matter what age, medical condition, or net worth.  It is a set of instructions on what their last wishes would be.

Probate–  So just what happens when someone dies?  If the person dies with or without a will, there is a legal process to collect and give the person’s things to their heirs, after paying off their debts.  That legal process is called probate.  In California, there is a special section of the local county courts that only deal with probate cases.  Typically, a case is filed in the courts by an attorney familiar with how the process works and the courts oversee the collection and distribution of assets, along with payment of any liabilities.  The process is just like any court case.  It can take a few months to a few years to finish and close the case.

Costs of Probate–  The current cost of probate just for the attorney to handle the case in California (as of March 2014) are:

Size of Estate                                   Compensation

First $100,000                                      4%

Next $100,000                                     3%

Next $800,000                                     2%

Next $9 million                                      1%

Next $15 million                                    1/2%

Excess over $25 million              “Reasonable amount to be determined by the court”

The size of estate is determined by the gross asset value.  This means that there is no deduction for the debts owed.  For example, someone with a home valued at $200,000 would get an estate value of $200,000 and compensation would automatically be awarded of $7,000, even if the home had a mortgage of $180,000 that would have to be paid off.

These amounts are automatic and set by law.  If there is a personal representative in addition to the attorney, the amount would double.  Also, the out of pocket expenses for any appraisals, filing fees, or other costs would be taken out of the estate as well.

Dying Without a Will–  Someone who dies without a valid will in place is said to die “intestate.”  Since there are no instructions on what to do with their stuff, the laws of the state decide what happens.  They are the default instructions on what to do.  So, if you wanted to give everything to only one son because the other son was foolish with money, you would be out of luck.  You have no say in what happens to your things.  That could mean things like a former spouse getting your money if the divorce was never finalized or some distant relative you hate getting everything when you would rather give your money to charity.  Your case would still go through a probate court to determine what happens to your things, so there is the time and expense of going through the court process.

Dying with a Will–  If you have a will, it must be valid and would be submitted to the court through probate.  The will tells the court what you want done with your assets.  For example, you may want to give a specific gift of some valuable jewelry to your daughter or give 10% of your assets to a local church.  The process and validity of wills is set by state law, but generally, it must be in writing, signed by the deceased, and witnessed in some fashion, sometimes by two or more witnesses and sometimes by a notary.  It also complicates things if there are more than one version of a will and no one knows which is the correct version or if the people signing as witnesses are also getting the bulk of the assets.  It is always best to have independent witnesses so there are no claims that the witness signature is not valid.

Alternatives to Probate– There are a number of ways to avoid probate courts.  The best way to avoid probate is to set out all of your wishes in a trust.  This is a written document similar to a will, but stays private and does not need to go through a probate process.

There are other ways to avoid probate for certain small estates, for transfers of property through joint tenancy or community property laws, or to beneficiaries automatically for things like life insurance.

The key advantages to consider about whether to get a will:

  • State your wishes to avoid assets going to unwanted people
  • Avoid fighting between family members after you die
  • Appoint a personal representative or administrator of your will to keep some level of control outside of the courts
  • Set terms on distributions to those below certain age or appoint trustee to oversee distributions and avoid mismanagement by the person receiving the money

Additional considerations to use a trust over a will:

  • Keep terms of the trust and its distributions private forever (a will goes into probate and gets entered into a court record)
  • Avoid probate process, time, and costs
  • Allows maximum flexibility and can be used with other asset protection