Anything you have to your name must go somewhere after your death – and for individuals who want the ability to choose where that is, tools exist that offer several different options.
These estate planning tools are sometimes seen as instruments of the super-rich, meant to maintain their wealth and cut minimally into their fortune. However, this is not true. Estate planning is necessary for individuals on all levels, because intestate law rarely lines up perfectly with your intentions, and not assigning your own estate executor might unnecessarily prolong the inheritance process.
Something as simple as a handwritten will counts as an estate planning tool – but it is not a recommended one. One of the biggest obstacles for individuals facing the idea of eventually passing away and leaving something behind for their loved ones, is the probate process.
In most states, probate is a straight-forward process that involves the legitimizing and executing of a last will and testament. A court chooses an executor – often the one you picked before your death – and oversees the process as the executor takes care of any unfinished business you might have left behind and goes about the job of distributing every part of your will to your respective heirs.
However, in some states, the probate process can take longer than usual, and be prohibitively more expensive. This makes wills less effective in some states versus others, prompting the use of other, more complicated estate planning tools – such as a living trust – even in the case of a smaller estate of around $150,000.
To understand why you might want to consider going through the procedures of setting up a living trust for a modest estate, it is important to understand what the probate process entails and how it differs in California to other states.
How Probate in California Works
The probate process is generally the same throughout the United States, with minor differences dictated by each state’s own probate code. In California, the cost of probate is based on the rate an attorney gives you for representing you, and the rate you decide to pay your executor for arranging and executing the will, as well as any additional miscellaneous costs such as posting newspaper announcements of your death for creditors and filing the necessary paperwork for the probate process to begin.
There are limits to how much probate can cost you, as both executors and attorneys are limited by law in how much they can charge for probate services. Aside from the cost of money, probate also costs time, and is an extremely tedious and complex process. It takes time to file for probate and wait for the process to finally go through to completion – a minimum of about six months, and an average waiting time of about a year.
For probate to begin, your death and will must be filed officially at your local city hall. A probate court will be called, and an executor for the will must be chosen. Typically, you can designate an executor in your will, and the court will decide if your designated person is fit for the job. If so, they are given a certain set of financial and legal powers over your estate, and tasked with handling your debts, collecting any outstanding debts owed by others, and managing an inventory of the estate to then distribute according to the will, and within the limits of a will.
When all is said and done, probate is concluded. However, while the gist of the process – executing the will – is part of any estate plan, the costs associated with calling a probate court and legitimizing your last will and testament can be skipped through various means.
Skip the Probate Process
The easiest way to skip the probate process is by having a small estate. In California, currently, a small estate is an estate with an asset total of under $150,000. If everything you own (the contents of your accounts, and assets such as property, not including life insurance policies or IRAs) totals to less than $150,000, then you may be entitled to simply skip the probate process and go for a simplified, streamlined probate process.
Property that is owned through joint tenancy or left to a surviving spouse (any property owned by a married couple in California, rather than one person) doesn’t count towards that estate’s dollar value, so even if you do own property, if you share your name with others on that deed then you won’t have to count it as an asset (as you wouldn’t be able to pass your share of the property on to people outside the deed without a trust anyway).
If your total estate value is below $150,000, contact an estate planning professional to discuss the possibility of a streamlined probate process, and any obstacles in your way.
Alternatively, for estates larger than $150,000, probate can be skipped through the use of a living trust.
What Is a Living Trust?
A living trust is an estate planning instrument that allows you to maintain control over your assets without being in direct ownership of them. By transferring your estate into a living trust, you can bypass the probate process and use the trust’s ability to transfer assets to designated beneficiaries as an inheritance tool.
Aside from offering you safe haven from probate, a living trust is also private, as it does not have to be verified by a court, meaning you do not have to list your assets in a public document.
Setting up a living trust is more involved than creating a will, but for many estates – especially those larger than $150,000 – it is very much worth it.
Estate Planning Alternatives
There are other ways to pass on your wealth to your family after you pass away, without the use of a will or trust. For example: you can make your accounts and properties payable-on-death/transfer-on-death, allowing you to designate a beneficiary to receive the contents of an account or the deed/ownership papers of a property you own alone.
A durable power-of-attorney or a living will let you set instructions on your end-of-life care and give financial powers to a trusted individual if you are incapacitated, as these things cannot be set through a will.
Estate planning is more than a handwritten note or a hasty living trust. Every estate is different, and depending on the circumstances, your approach may be vastly different from that of a similarly-sized estate due to the contents of your estate, and the relationships between you and your family. It is important to meet with a professional to go over every possible choice before making estate planning decisions.