Probate Fees and Costs Savings:
complicated, very detailed and time consuming process, principally to insure
that all proper safeguards are followed so that:
- all debts are paid;
- all heirs and beneficiaries are properly protected; and
- no assets of the Estate are stolen.
Probate fees and costs (usually called expenses of administration) in some States are based
the appraised value of the Estate (fair market value, not equity), and in other States are based on
the amount of work reasonably performed by the probate attorney.
For example, in California the
attorney for the executor are entitled to
4% of the first $100,000 of Estate value, 3% of the next $100,000 of value, 2% of the next
$800,000 in value, and 1% of the next $9,000,000 in value. Assuming we have an Estate
consisting of a home worth $500,000, both the Executor and the attorney are entitled to probate
fees of $13,000, regardless if the home is unencumbered or has mortgage of $400,000. If the
home needs to be sold, the attorney is usually entitled to an extra-ordinary fee of $1,500 to $2,500
to do the house sale. Other expenses associated with a probate would include publication of
notice of death fee, appraiser fees, filing fees, and other miscellaneous probate costs.
With a Trust, at decedent's death the Successor Trustee, usually a family member, does
the same things the Executor in a probate is responsible for. The Successor Trustee collects
Decedent's assets, pays just debts, and distributes the assets according to the Trust terms.
Because the assets are owned by the Trust, they are not subject to probate administration, saving
the money normally paid as probate administration expenses. If an attorney or an accountant
does have to be retained, the time and expense involved will, in most cases, be greatly less than
that required in probate proceedings.
A probate proceeding normally cannot be completed in less than 5 months, and often takes
from 9 to 12 months. With a trust the transfer of assets can be completed in as little as a few
days to a month.
Court records, and all documents in the file, are open to public scrutiny. The contents of
the Will, the assets in the Estate, debts and claims against the Decedent, and who gets what is
public record. With a trust only the Trustee and the Beneficiaries have access to this
Minors are not deemed capable to manage their own financial affairs. If your children are
minors at the time of your death, an insurance company will not pay to them the policy proceeds,
nor will any brokerage firm or bank allow them to withdraw or manage the funds in the
accounts. Without a trust handling these financial affairs, state laws require that a guardianship
for the benefit of the minors be established. A guardianship has at least two main detriments:
first, similar to a probate proceeding, most or all actions require court approval, there is need or
extensive court supervision and corresponding attorney's fees and costs; second, a court will
generally not allow investment of funds into anything but a FDIC protected type of investment,
i.e., an insured bank account offering 2 - 3% return. Mutual funds or the like are generally off
limits. Holding $100,000 over ten years with a 3% return, as opposed to an 8% return makes a
substantial difference when the minor reaches 18 or 21 years of age.
Additionally, a guardianship typically ends when the minor reaches 18 (in some states up to 21)
years. Most parents don't feel comfortable with their minor having access to a $500,000
insurance policy check at age 18. A trust allows such funds to be held by a Trustee and
disbursed as needed by the minor for education or other demonstrable need. Many Trusts
prepared by the
authors of this service require a disbursement of 1/3 of the Trust principal at the minor's 25th
birthday, one half of
the remaining principal at age 30 and the remaining principal at age 35. The complexity of
distribution is only limited by the imagination.
Estate Tax Savings:
Estate taxes are charged against a decedent's assets which exceed $1,500,000 (Year 2004 and 2005; 2,000,000
for 2006 - 2008, and $3,500,000 year 2009+). Thus, a married couple, without a trust,
who had $3,000,000 in assets will pay taxes of approximately $600,000. With a married couple, a
properly drawn trust, commonly called an A/B Trust,
results in the first $3,000,000 of the couples assets being protected,
as opposed to only $1,500,000, thus saving $600,000 in Estate Taxes.
As you can see, a trust is beneficial for
many reasons. It saves privacy, time, and most
important, money for your heirs and loved ones which
would otherwise be taxed by the federal
government. As a rule of thumb, if the laws of your
State require probate administration to distribute your
assets following your death (usually based
on the value of the Estate), a Trust is cost-effective and recommended.
Attorneys normally charge from $500 to $1,500
or more for a trust or a Complete Estate
Planning Package. Even with computers, the price
has not come down much. Most law offices are not
sufficiently automated, and estate planning
packages still take 2 to 5 hours to prepare. Attorneys
still have to pay for overhead, office,
secretaries, malpractice insurance, etc. It is
doubtful an attorney will even prepare a simple will
for less than $75. Added to these costs are the costs and
inconvenience of travel to the attorney's
office, time off from work, parking fees, and the like.
Despite the time it takes for an attorney to
prepare an Estate Planning Package, most trusts and
related documents contain very similar components.
For 80% of the population, the Estate Plan which can
be prepared through this service
will be sufficient. Those persons with complicated
distribution schemes, with very unique
assets, or other unique situations, should seek
individual legal counsel. For those single persons
who have more than $1,500,000 in assets (2004 and 2005, higher in later years),
or those married couples who have more than
$3,000,000 (2004 and 2005, higher in later years) in assets, this package may be appropriate
for you, but you should also see Further
Tax Saving Techniques to lower their Estate value to
less than these thresholds, or seek
individual legal counsel to obtain further tax savings
techniques which are beyond the ability of
this Trust. However, for most of us with modest
assets, a home maybe, some securities, some
life insurance, or other assets typical of the
middle-class American population, this Trust will
meet your needs without having to employ an attorney.