Last updated: June 2019
Below is a list of frequently asked questions in estate planning. Click on the question to see the answer.
What’s the difference between a will and a living trust?
The major difference between a will and a living trust is that property that is owned by a living trust does not need to go through probate. That means that if you have a living trust, and you’ve properly transferred your property to the trust, when you die your property will pass to your beneficiaries without the need to go to court. By contrast, if you only have a will, then after you die your beneficiaries will need to go through the probate process.
Probate in California has several downsides. First, it’s a long process, at least 12 to 18 months—possibly much longer if a family member contests your will or there’s a lawsuit pending (e.g., a wrongful death suit). Second, it’s totally public. Anyone can request records from the court and see the your most intimate financial details, including the final distribution to your beneficiaries or heirs. Third, it’s very expensive. Probate costs total 5-7% of the gross probate estate. So, for every $1 million of assets, probate is going to eat up $50,000 to $70,000. That’s money that could go to your heirs.
There are costs associated with administrating your trust once you pass away, but they are significantly less than what probate costs.
What’s the difference between a will and a living will?
A will and a living will are completely different. A will specifies how your assets will be divided up and distributed upon your death. A living will, also known as an advance directive, sets forth your end-of-life decision, such as whether you should be placed on life support, receive CPR, etc.
What’s the difference between a living will and a living trust?
A living will and a living trust are completely different. A living will, also known as an advance directive, sets forth your end-of-life decision, such as whether you should be placed on life support, receive CPR, etc. A living trust is a trust created by you during your lifetime for the purpose of avoiding probate and minimizing estate taxes upon your death.
How can I avoid probate?
There are two main ways to avoid probate in California. The first, and most effective, way to avoid probate is to set up a living trust and transfer title of all your property to the living trust. Then, upon your death, there will be no reason for anyone to start the probate process because you won’t “own” anything, the trust will own it all. Your successor trustee will perform a similar function to what a probate executor would do. He would identify the trust’s assets (remember these are your assets that you transferred to the trust), sell any if necessary, and then distribute them to your beneficiaries in accordance with the trust document.
The second way to avoid probate is if your assets are valued less than $150,000. California has streamlined procedures for transferring assets under this amount without going through the full-fledged probate process.
There are other asset-specific ways to avoid probate for a particular piece of property. But, if you’re looking for the peace of mind of knowing that your estate plan will keep your family out of court and out of conflict when you pass away, then it doesn’t make sense to cobble together different strategies for different pieces of property you own. A living trust would be the better choice.
What are the benefits of a living trust?
Under today’s laws, the main benefit of a living trust is avoiding probate. Probate is the court process used to distribute your property to your heirs or beneficiaries when you pass away.
A living trust is much better than going through probate for three main reasons: First, administering a living trust is much less expensive than going through probate. In California, a routine probate costs 5-7% of the total estate—that $50,000 to $70,000 for every million dollars in assets. Second, the administration of your living trust after you pass away is done in private whereas probate is a public court proceeding. Third, the administration of a living trust can be significantly faster than probate, which typically takes 12 to 18 months in California.
Historically, another significant benefit of a living trust was the ability to maximize the estate-tax exemption for married couples. But, under current law, the estate tax only applies to families with about $20 million of assets. So, for most Americans, the federal estate tax simply isn’t a concern.
California does not currently have an estate tax.
What’s the difference between a revocable and an irrevocable trust?
The main difference between a revocable trust and irrevocable trust is whether the terms of the trust can be changed. In most cases, an irrevocable trust cannot be modified unless the trust’s beneficiaries agree to the changes.
Revocable trusts can be changed at any time up to the death of the person who created the trust. Upon the death of the trust’s creator, a revocable trust become irrevocable.
What is estate planning?
The purpose of estate planning is to get your affairs in order before you pass away. Thus, the basic goal an estate plan is to ensure that your wishes regarding your children, your property, and your health are followed when your become incapacitated or when you pass away.
The most-common elements of estate planning are wills, living trusts, guardianship nominations, advance directives, and durable powers-of-attorneys. Wills and living trusts specify who will get your property. Guardianship nominations indicate who should take care of your minor children. Advance directives inform medical providers of your end-of-life decisions. And durable powers-of-attorney authorize an individual to make decisions and take action on your behalf should you become incapacitated or unable to communicate.
Do I need an estate plan?
If you pass away without a plan in place, then California law and a probate judge will decide who raises your children and who gets your property. And the proceedings will be completely public.
If you would prefer to choose, and that these matters be handled privately, then you need an estate plan.
Learn more about estate planning here.
Do I need a living trust?
If you want to avoid the costs and delays of probate, then a living trust is your best option.
How much does estate planning cost?
Honestly, this like asking how much a hamburger costs.
If you order a “hamburger” from McDonald’s, In-N-Out Burger, and Chili’s, you’ll get three different things and pay three different prices. Each business calls their product the same thing—a hamburger. But each “burger,” and your experience ordering and eating it, is completely different.
Estate planning is the same.
There are plenty of places to get cheap legal documents online. You can get a living trust, plus some related documents, for as little as $300 on some websites.
It’s important to consider, however, whether these bargain documents will actually achieve your goals. Online documents are created using one-size-fits-all templates that do not provide you with all the available options. You won’t receive any education about estate planning basics or advanced techniques. And you won’t have your questions answered because these documents providers cannot provide legal advice.
If what you’re looking for is the peace of mind of knowing that when you pass away, 1) that your children will be raised by the guardians you choose and will never be in the care of strangers, 2) that their inheritances won’t be squandered or stolen, and 3) your family will be kept out of court and out of conflict, then the cheap online alternatives aren’t a solution to your problem.
As they say, you get what you pay for.
There are things in life to go cheap on and there are things where it makes sense to pay for quality. My take is that, if you’ve been thinking about estate planning, then protecting your family is probably important to you. In that case, it makes sense to go for quality. I try to be as open and upfront about my pricing as possible. My plans start at $2,000. Visit my pricing page to learn more about the packages I offer, what benefits they provide, and what they cost.