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Estate Planning

The decisions you make today will have a major impact on what happens to your spouse and family when you pass away.  It is imperative that you carefully consider your options and make an informed, intelligent decision, with the aid of an attorney.

Estate Taxes
If you are married (and assuming your spouse is a citizen or resident alien), there will be no estate tax to be paid on any property which you leave to your spouse, regardless of the size of your estate.  When your spouse dies, all of his or her property will be subject to estate tax unless the value of his or her property (including any property which you left to him/her) is under $650,000.  (Please note, under current federal law, this exemption amount will increase to $1 million by the year 2006.)

Whether you are married or unmarried, there will be no estate tax paid with respect to any amount of property up to a total of $650,000 which you leave to any one or more persons whether or not your spouse is one of such persons.  You can leave this $650,000 to your spouse in such a manner that it will not be counted in his or her estate when your spouse dies.

Probate
Probate is the legal procedure which transfers your property to those persons, or that one person, you want to inherit your property.  There is a set fee payable to your attorneys for conducting the probate.

This fee ranges from $3,150 for an estate worth $100,000 to $21,150 for an estate worth $1 million, to $111,150 for an estate worth $10 million.

Not all of your assets are subject to probate.  For example, the proceeds of life insurance pass directly from the insurance company to your named beneficiary.  If you establish a joint bank account, then upon your death, the person who is named as your joint tenant receives the entire amount in the account without going through probate.  However, all such assets are considered part of the "estate" for determining the amount of estate taxes owed.

Living Trust
A living trust is a document which allows you (or you and your spouse if you are married) to hold your assets as "trustees" and direct the manner in which such assets will be distributed upon your death without having such assets subject to probate.

However, a living trust does not save or eliminate estate taxes.  If your assets are transferred to the trustee(s) of the living trust prior to your death, the living trust eliminates both the need for a probate and the probate fee to your attorney.

Will
Even if you use a living trust, you will still need a will.  However, it is a simple will which refers to the fact all your assets are to be distributed as provided in the living trust.

Living Will
A "living will" is not the same as a living trust or a will. Rather, a living will is a document which sets forth your desires regarding medical treatment in the event you are unable to make medical decisions for yourself.  Under California law, a document called "Advance Health Care Directive" is used to appoint a person to make medical decisions for you in case you are unable to do so.  Click here to learn more about living wills.

Life Insurance
Life insurance which you own is counted as a part of your estate for estate tax purposes.  However, life insurance may be purchased by a person other than yourself with the premiums being paid indirectly by you.  The proceeds of such life insurance can be excluded from your estate (and from your spouse's estate if you are married) and be made available to your children (or other beneficiaries or your estate) to pay estate taxes.

What About Low-Cost Living Trusts?
We have all seen advertisements for low-cost living trusts, some as low as $500.   While it might be tempting to purchase one of these low-cost trusts, a word of caution is in order.  Quite simply, "you get what you pay for." 

At a minimum, a well-crafted estate plan should include (1) a will which is designed to insure all of your personal property is transferred into the trust, (2) an Assignment of Assets document which is also designed to insure your assets are properly transferred to your trust, (3) a Limited Power of Attorney, to insure your property is correctly transferred into the trust in the event you become incapacitated before the trust is funded, and (4) a Power of Attorney for Health Care (click here to learn more about the Power of Attorney for Health Care).  Few, if any, low-cost living trusts include all of these essential documents.

But there is even more to it.  Since attorneys typically charge about $150 per hour (or more), it is safe to assume that at $500, the attorney is spending just three hours at most to interview you and prepare the trust documents. In fact, it is likely that a paralegal or clerk is doing the actual work.   At $500, the attorney simply does not have the time to meet with you and learn about your circumstances, or to do such things as contacting your insurance agent to make certain your life insurance policy shows the correct beneficiary, or that unusual problems are accounted for.

Any reputable attorney will want to spend two to three hours meeting with you to learn about your situation.  Another eight to ten hours will be needed to carefully craft the documents necessary to ensure you have a living trust which will be effective.

Even if you are young and do not have a large estate yet, some day you will.  In short, after working hard your whole life to amass a respectable estate, does it really make sense to risk having your heirs incur major expenses and taxes simply because you chose to go to a low-cost living trust "mill" run by an out-of-town law firm?