Frequently Asked Questions Regarding Estate Planning & Probate
What is the Difference Between Probate, a Will, and a Trust?
Generally speaking, you have three choices in developing your estate plan:
- Do nothing;
- Draft a Will; or
- Create a Living Trust.
Under the first two scenarios, your assets would have to go through the ‘probate’ process. Probate is a particular division in the Courthouse where the executor/administrator of your estate files the appropriate paperwork. Probate involves opening a file in the Courthouse, giving notice in the newspapers, paying off your debts, and, after obtaining the Judge’s consent, distributing your estate to your beneficiaries.
If you opt for a living trust, your assets will avoid probate and, instead, will be handled privately and outside the probate process.
Are There Disadvantages of Creating a Will or Going Through Probate?
Yes. The Probate process can be expensive. Probate fees, for both the attorney and administrator/executor, are based on the gross value of the estate. They can be very costly depending upon your estate. Probate is also very time-consuming, with some probates lasting several months to several years. Finally, probate is a public proceeding, which means nearly anybody can review your estate and examine your assets.
What is a Living Trust?
In short, a living trust (or sometimes called a “Revocable Living Trust”) is a legal fiction – the purpose of which is to bypass the probate process. Essentially, you create this legal instrument during your lifetime, place your assets into your living trust (a process called “funding the trust”), and manage the trust during your lifetime. After your death, the Successor Trustee steps in, manages your estate, pays off debts, and ultimately distributes your assets to your children or other beneficiaries.
Are There Any Advantages to Creating a Living Trust?
Yes. A living trust is typically much less expensive than probate, quicker, and very much easier on your heirs. Your heirs will also not have the hassle of dealing with Court proceedings. Additionally, it will be much more difficult for a trust to be challenged in Court than a will.
Also, unlike a will, with a living trust you can place some age restrictions for distributing the estate. For example, if you have young children you might want to specify some particular guidelines for distribution, such as each child shall receive reasonable living expenses up until age 21, one-half of his or her share upon attaining age 25, and the balance at age 30.
What Documents Do I Need?
To craft a proper estate plan, you may need a living trust, will, health care directive and power of attorney, as well as other corollary documents. Even if you create a living trust, you will need a ‘pour-over’ will to serve as a back-up for the trust. In your will you can nominate a guardian for your child if your child is under age 18.
What is the Estate Tax?
Under federal law, each American citizen is permitted to pass up to two million dollars net of your estate to your heir(s) tax free. In other words, if you have a three million dollar net estate value, then two million dollars will pass tax free while one million dollars will be taxed.
The exemption amount is set by Congress and varies year to year. Unless Congress acts otherwise, the estate tax exemption will be reduced to one million dollars in the year 2011.
What Can I Do to Minimize Estate Taxation?
It is highly recommended to consult a qualified attorney and CPA if you have a net estate value approaching the exemption limit or you are not an American citizen. A qualified attorney and CPA can employ various tools to minimize taxation, including an A-B Trust, which permits married couples to ‘double-up’ on the exemption limit and pass four million dollars net tax free instead of two million dollars.
How Much Does an Estate Plan Cost?
Estate plans vary depending upon the complexity of your estate, whether you are single or married/domestic partnership, and the number of properties you may own. For a living trust, the costs generally range from $1,500 to $2,500. This figure includes the A-B living trust.
Contact an Experienced & Trustworthy Probate & Estate Planning Attorney
If a loved one has passed away and you require probate assistance, trust administration, or if you would like to schedule a free initial consultation to discuss creating an estate plan, call 510-371-0979 or contact us online today.
