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ESTATE PLANNING means, simply, anticipating that you
will die, and doing more than nothing to plan an orderly
transfer of your assets to your intended
beneficiaries. The
simplest of estate planning is to write and keep a
Last Will and Testament.
Depending upon the unique needs of the individual, estate
planning may take the additional forms of a
Revocable Living Trust,
Advanced Tax Planning,
Gift Giving,
and numerous other vehicles for avoiding costs, taxes and headaches of estate
administration.
When you die, your assets are transferred to your
beneficiaries in essentially three different ways.
First is property owned by you in your own name, i.e., a bank
account or house in your name. This property will pass either
(i) to your beneficiaries through a Will, or (ii) to your natural heirs
if you do not have a Will. If you do not have a Will, your property
passes according to the laws of "Intestacy", in other words
according to the laws of intestate (Latin for "without a will")
succession of your state. If you have a Will, you are deemed to
have died "testate", i.e., with a will.
Second is property owned by you in your own name, but either
owned in joint tenancy, or having a
"beneficiary designation". Joint tenancy property is typical
where a husband and wife own their home in joint tenancy. Upon your death, this
property passes directly to the surviving joint tenant by what is called
"right of survivorship".
Property with a beneficiary designation could be an IRA, pension or life
insurance plan with a named beneficiary. At your death this property passes
directly to the surviving beneficiary, and is not a part of your probate
estate. Property held in joint tenancy or with a beneficiary
designation is said to "pass outside of probate".
Third is property owned in the name of a separate legal entity,
such as a trust. Although you set up a trust and, during your
lifetime have full power to modify or even revoke the trust,
upon your death the assets are deemed owned not by you but by
the Trust. Thus, at your death these assets are not probated,
but pass according to the terms of the trust.
Only those assets owned by you in your own name, not in joint
tenancy, in trust, or with a beneficiary designation, are subject to
probate administration upon your death. Although this sounds
like a small slice of the pie, in reality most
persons own their assets in their own name at death. For purpose of
this discussion, we shall call these assets "probate assets".
Again, if you have no Will upon your death, your probate assets
pass in accordance with the laws of your State. Although state
laws differ, in general the laws of intestacy divide your separate
property as follows. If you are survived by:
| Spouse and no children: | all to your spouse |
| Spouse and one child: | 1/2 to child, 1/2 to spouse |
| Spouse and more than one child: | 2/3 to children, 1/3
to spouse. |
| No spouse and children: | all to child(ren) equally |
If you have an Will, your probate assets will be
distributed, after payment of your debts, as set forth in your
Will.
Most states also have a summary procedure whereby
probate is avoided if the assets are below a certain value, or
if the only heir or beneficiary is the spouse of decedent. For
example, in California, if the assets of Decedent are valued less than
$100,000 (property held in joint tenancy or with
a beneficiary designation is not counted toward this $100,000, and no more than
$10,000 of this $100,000 can be held in real estate),
probate can be avoided entirely.
Whether Decedent dies testate (with a Will) or intestate
(without a Will), if PROBATE is required, the following steps
are usually followed:
1. The original of the Will is deposited with the Court
(if any).
2. The EXECUTOR named in the Will (if there is one) or a
person entitled to be the ADMINISTRATOR (if no Will) files a
Petition for Probate of the Estate. Prior to being appointed
Executor or Administrator (commonly collectively referred to as
the "Personal Representative"), the filing of the Petition for
Probate needs to be published in a local newspaper.
3. Generally, for a period of four months from the date of
publication of the Petition for Probate, creditors of the
Estate can file claims against the Estate. This would include
any prior creditors or judgment holders, debts resulting from last illness, funeral
expenses, taxing authorities, etc.
4. During this time period, the Personal Representative
("P.R.") has a duty to identify and collect assets of the Estate. In
this regard, the P.R. finds all bank and security accounts,
debts owed to Decedent, property owned by Decedent, and the
like. The P.R. also has a duty to maintain the assets in good
condition, and to collect income for the Estate. This
consists of maintaining insurance coverage, protecting assets
from waste and theft and damage, collecting rents, etc. The
P.R. may also sell (liquidate) assets such as cars, residences,
etc.
5. When the four month Claims period has expired, and
when all assets have been collected, real property sold, and assuming no problems
have cropped up such as a legal fight amongst the beneficiaries
or heirs, the P.R. then files a petition with the probate court
to allow a distribution of all remaining assets to the
beneficiaries/heirs, and files a detailed accounting with the
Court setting forth all monies received, monies disbursed, how
assets were invested, and the proposed plan for distribution.
6. If the Court approves the P.R.'s plan, the P.R. then
divides the assets as set forth in the Will, or if no Will, as
required by statute.
The probate process outlined above describes the
general probate requirements in outline form only. Obviously,
there are many very technical and specific procedures in the
probate process required to carry out these steps. As a
result, in many states probate law is specialized to the degree
that most attorneys will not handle probate matters, but refer
them to probate specialists.
The probate process could be completed
in a minimum of about 6 months, but usually takes longer. Some reasons
for delays are: will contests; property cannot be sold; the probate attorney
is inexperienced in probate and requires repeated continuances of
required hearings; some claimants were not notified in the original
four month period and must be re-noticed; the probate attorney is
busy.
Unless waived by the P.R., usually both the P.R. and the
attorney for the P.R. (the probate attorney) are entitled to
compensation for their services.
Using a Revocable Living Trust, the time and
costs involved with probate are substantially reduced. With a single Grantor
Trust, attorney help following the death of the Grantor is
usually not necessary,
and the collection of estate assets, and
distribution to the trust beneficiaries
can be handled by the Successor Trustee, maybe with the help of an accountant.
With a dual Grantor Trust (Husband and Wife
being the Grantors), either an attorney
or an accountant should be consulted after the
death of the first Grantor so that the
Trust is properly divided into the Decedent's
Trust and the Survivor's Trust. However,
the extensive court supervised administration
prevalent in probate administration is not
needed, thus attorney's fees as well as time
required for administration are substantially
reduced. |
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