What if I die without a will or trust?
If you die without a will or trust, you die intestate. In that case, the state has provided a way to distribute your assets to your relatives: the court procedure of probate.
However, if you leave no instructions, your property may not be divided and transferred as you would have liked. The laws of intestacy and the probate process govern assets that do not pass directly to a named beneficiary (such as life insurance and retirement accounts), by joint tenancy or through a trust.
What happens in probate?
Probate is a court-supervised process for distribution of property for a person who has died with or without a will, or without a trust. It may take up to a year as the named executor (or court-appointed administrator) goes through these steps:
- notifying your heirs, beneficiaries and creditors
- gathering your assets
- paying taxes and debts
- distributing the balance of the estate to the beneficiaries
What is the cost of probate?
Probate fees are governed by statute. The executor and probate attorney will receive 4% of the first $100,000 of assets, plus 3% of the next $100,000, plus 2% of the next $800,000, and 1% of the next $9 million.
What is estate planning?
Estate planning allows you to prepare legal documents that specify how you would like your money and property distributed upon your death, how you would like your health care decisions made and your finances managed if you become seriously ill or incapacitated.
What is an estate plan?
Estate plans normally contain a will, a durable power of attorney, an advance health care directive, a trust and nomination of guardian for minor children. This coordinated plan gives you control of personal and financial affairs by laying out your decisions in advance. You choose who will:
- manage your personal and financial affairs
- care for you in the event of incapacity
- receive your assets upon your death
- raise minor children if you die before they become adults
What is a revocable living trust?
To avoid probate fees and administration, some people opt to create a revocable living trust and retitle their assets in the name of the trust. In this case, the trustor can change any of the terms at any time before death.
If your assets are in a trust, a court-supervised probate proceeding is unnecessary, so you avoid probate fees. Trust administration is usually less expensive and more streamlined than probate, leaving more for your chosen beneficiaries.
After your death, a successor trustee is responsible for distributing your assets as you have set forth in the trust document, either all at once or in installments. With a revocable living trust, you can designate a successor trustee to manage your finances if you become unable to do so during your lifetime.
What about federal estate taxes?
Having a trust avoids probate fees and can lower estate tax liability for a married couple. Federal estate taxes are assessed based on the fair market value of the estate at death.
Estate tax law has undergone significant change in recent years. In January of 2013, Congress passed legislation extending most of the 2011 provisions which allowed $5 million per person to pass exempt from estate/gift tax. There is no California estate or inheritance tax.
The $5 million estate tax exempt amount was “made permanent” and indexed for inflation, allowing $5.25 million to pass estate-tax free in 2013. The estate tax rate for estates over $5.25 million was increased to 40% from 35%.
Portability was made permanent, allowing a surviving spouse to utilize the deceased spouse’s unused applicable exclusion amount at his or her passing. In addition, the gift and estate tax treatment is unified.
What is an advance health care directive?
In this document you name an agent to make health care decisions for you if you become incapacitated. You can indicate the degree of medical intervention you’d like to receive and specify other preferences, such as whether you’d like to donate your organs upon your death.
What is a durable power of attorney?
With this document, you nominate a person to act on your behalf with respect to your money and property. You can make the agent’s power effective immediately or only if you become incapacitated. You can also specify a particular time period and what types of property are covered.
Why name an agent in a power of attorney document?
A will provides for distribution of your property after your death. However, a power of attorney allows you to authorize a specific agent to act on your behalf while you are still living – to pay your bills, receive benefits for you or sell your property, if necessary.
Without such an agent, if you were to become incapacitated by illness, accident or advanced age, you may need to be placed under a conservatorship. This process is extremely time consuming and expensive. It is better to plan ahead by naming an agent to handle your finances, in case some day you are unable to do so for yourself.
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