ESTATE planning is defined as “the process of putting an individual’s personal and financial affairs in order”, by Richard S. Kinyon and Genevieve M. Moore in their “Overview of Estate Planning Practice” in California Estate Planning publication of the Continuing Education of the Bar.
The two main objectives of estate planning are: (1) the maximization of the enjoyment of a person’s estate (assets) during his or her lifetime; and (2) the maximization of the enjoyment of the estate of a person after his or her death by the beneficiaries.
An estate plan consists of: (1) management of a person’s real (estate) and personal property during his or her lifetime and the disposition thereof before and after his or her death; (2) execution of testamentary (will) or trust (living trust) plus pour-over will instruments directing the estate or trust administration and management of a person’s estate before and after his or her incapacity or death; (3) advance health care directive in case of incapacity or comatose condition; and (4) minimization of the impact of income, estate, and gift taxes.
Estate Plan by default: Intestacy
A California resident dies with a testamentary will, or a living trust, or no will and no living trust (intestate).
If a person dies intestate, that is, without an estate plan, California law kicks in and dictates the administration, management, and distribution of the estate of the deceased California resident.
This estate plan by default should be avoided by the execution of a will or a living trust, if a person desires to direct and control the administration and distribution of his or her estate.
Will Versus Living Trust for Estate Planning
A last will and testament is a written instrument (document) that disposes of a person’s estate (property) after his or her (Testator’s) death. CA Probate Code Section 88. It may be changed or revoked during the Testator’s lifetime.
No property passes to the beneficiaries in a will until a will is probated by the Probate Court. The probate process takes time due to delays in the administration of the estate and is costly due to personal representative fees and attorney fees, and other expenses.
A personal representative (executor or administrator) and an attorney for the estate receive the same amount of compensation based on the gross value of the estate according to the following schedule under CA Probate Code Section 10800: (1) four (4) percent on the first $100,000; (2) three (3) percent on the next $100,000; (3) two (2) percent on the next $800,000; (4) one (1) percent on the next $9,000,000; (5) one-half of one (1) percent of the next $15,000,000; and (6) a reasonable amount to be determined by the Probate Court for above $25,000,000.
Both personal representative and estate attorney may be further awarded additional extraordinary fees by the Probate Court. CA Probate Code Sections 10801, 10811.
A living trust does not undergo probate; and thus, is not subject to the above-stated personal representative and attorney statutory fees.
Probate of a will entails other expenses: (1) probate filing fee; (2) publication of notice fee; and (3) probate referee fee for appraisal of real property.
A living trust may or may not provide for a Trustee fee, but the administration and distribution of Trust property of a simple Trust should cost much less than those of a probate administration of a will.
Revocable Living Trust: Advantages and disadvantages
A revocable living trust is a written instrument (document) executed by a person or spouses (Trustors or Settlors) that provides for the administration by a Trustee(s) of his or her or their estate before, as well as the administration and distribution of the estate after death.
Property (assets) transferred to the revocable trust before the Trustor’s death are excluded from the Trustor’s probate estate and escape probate proceedings. The Trust estate is not subject to California probate fees. A revocable trust may be changed or revoked during the Trustor’s lifetime.
Administration of a living trust provides greater confidentiality than that of a will that undergoes public probate, although the notice requirement under California Probate Code Section 16061.7 dilutes the confidentiality of a revocable trust.
The advantages of probate administration are absent in the administration of Trust property: (1) Court supervision; (2) cutting-off of creditors’ claims; and (3) family protection provisions for family members, such as the right to probate homestead. Probate Code Section 6520.
For the above-stated reasons, revocable living trust has become the primary asset transfer instrument used by professional estate planners in California.
* * *
Roman P. Mosqueda has practiced criminal defense and Immigration law for over 20 years. He is a long-time member of the California Public Defenders Association. , and trained as a prosecutor with the Los Angeles City Attorney under the Trial Advocacy Program of the Los Angeles County Bar Association. He is also a volunteer, State-Bar trained arbitrator on attorney’s fees dispute resolution. Send comments or inquiries to [email protected] , or call (213) 252-9481 for free consultation appointment, or visit his website at www.mosquedalaw.com