Generally, no. Like the boogeyman, the Estate Tax generates a lot more anxiety than it rightfully should. Currently, the Estate Tax comes into play only for individuals with estates worth more than $5,430,000, or married couples with estates worth more than 10,860,000. Whether you are married or single, you are entitled to shelter these amounts from the Estate Tax even without a Trust.
“Probate” is the legal process under which the court divides your property after you die. To put it bluntly, probate serves the same function as a
vulture—it cleans up the mess and recycles what is left. Under California law, probate is generally required if a person dies holding virtually any interest in real estate except an interest that passes automatically to a survivor such as a joint tenant. Probate is also required if a person dies with a total of $150,000 or more in other “loose” assets (such as savings accounts, brokerage accounts, or personal valuables) that will not automatically pass to a successor. Typically, “loose” assets do not include assets such as accounts held in joint tenancy, accounts with a pay-on-death beneficiary, or life insurance, because these will automatically pass to your beneficiaries. (However, this does not apply if you make your estate the pay-on-death beneficiary—in that case, probate may be required.) Vehicles registered in California also do not count as “loose” assets.
Your Trust helps you avoid probate by serving as a vehicle to transfer your assets to your loved ones. Assets owned by your Trust will pass to your loved ones under the terms of the Trust. Therefore, they are not “loose” assets. Generally, make sure that your Trust owns all of your real estate and that the cumulative total value of your “loose” assets is less than $150,000.
A Trust can typically save your family a lot of money. California Probate Code sections 10800 and 10810 states that the probate attorney, who handles your Estate, shall receive compensation based on the percentage of the face value of your Estate—not the net value after deducting liabilities. The compensation is as follows:
- 4% on the first $100,000.
- 3% on the next $100,000.
- 2% on the next $800,000.
- 1% on the next $9,000,000.
- 0.5% on the next $15,000,000.
- For all amounts above $25,000,000, a reasonable amount will be determined by the Court.
For example, if you die with assets of $800,000 and liabilities of $400,000, the fee will be calculated on the Estate’s face value of $800,000, resulting in a statutory fee of $19,000. Additionally, if the probate attorney needs to perform any “extraordinary” services, such as selling real estate or filing a lawsuit against a debtor, he or she will also be entitled to hourly fees on top of the statutory fee.
Your Executor is entitled to claim fees as well using the same schedule, essentially doubling the fees. (If your Executor is a close friend or family member, he or she may be willing to waive this fee.) Finally, the probate court itself will charge filing fees based upon its published fee schedule.
Generally, probating an Estate will be more expensive than Administering a Trust. probate also tends to take longer—typically around 12 months. By comparison, a Trust Administration can often be completed in six months or less. Of course, an individual probate or Trust Administration can take extra time if there is a dispute among beneficiaries or a property that proves difficult to sell.
To be clear, your Trust will not be free. There are some initial fees and costs involved in setting up your Trust. And after you die, your Successor Trustee will probably need to retain an attorney to assist with administering the Trust. The Successor Trustee may be entitled to compensation too. But overall, the fees involved in administering the Trust are usually significantly lower than the fees and costs of probate. This benefits your loved ones by leaving more of the pie for them.
This is just a basic overview and is not legal advice specific to your situation. If you would like to speak with Jonathan about your situation, please email him at firstname.lastname@example.org or call him at 925-217-3255.