A significant change in probate law will become effective on January 1, 2012.  Currently if a decedent's estate (excluding assets in trust, joint tenancy etc. - See post of August 8, 2010 for details) exceeds $100,000, a court supervised probate proceeding is required to transfer assets from the decedent to the beneficiaries.  As of the first of the year, the threshold amount will increase to $150,000.  This should keep many estates out of probate and simplify transfer of assets for many families.

Marge is not at all sure she wants to be in my office.  She is 73 years old with two children from her first marriage.  She has been married to Gus, age 72, for twenty years.  Marge wants to know why she needs a Will.

“Everything will go to Gus anyway, won’t it?” asks Marge.

“Well, Marge, it depends.  Let’s look at a situation where you might be surprised by the results. It is likely that some of your assets are your separate property, since this is a second marriage.”

“Yes,” said Marge.  “My stock portfolio was earned before I met Gus, but we live on the dividends and interest.  I would want Gus to get the income for the rest of his life.”

“California law provides that if the portfolio is in your name alone and is your separate property, Gus will get only ½ of it, and your children will get the other ½.”

“Well, what if I put Gus’ name on it?”

“If you put Gus’ name on it in joint tenancy or as community property, it will all go to him at your death.”

“That’s what I’ll do then,” said Marge, getting up to leave.

“And then when he dies, it will go to his heirs,” I continued.

“Not to my daughters?”

“Not unless Gus writes a Will or a Trust that provides for them.”

Marge sat back down.

“Gus doesn’t believe in Wills.  What can I do?”

“We can draft a Will or a Trust for you that will give Gus the income for life, with the remainder going to your daughters when he dies.”

Marge looked relieved.  

Dear Bev: I have heard a lot of talk about “death taxes” lately.  Do I need to be worried?  From, Perplexed. 

Dear Perplexed: Actually, very few American families end up paying estate tax.  As of January 2011 through December 2012, you do not have anything to worry about unless the net value of your estate (i.e. the market value of all your assets minus all your debt and expenses of administration) exceeds $5 million dollars.  What Congress will do with the estate tax exemption amount at the end of 2012 is anybody's guess right now. Remember, these are net figures, after all your debts and expenses have been deducted.  Even if your estate exceeds the tax threshold, there are many things we can help you do to minimize or eliminate the tax.  Don’t worry, just ask for advice for your specific situation.

Naming an adult child to be your executor or trustee of your trust is a very common practice, but it is not required.  There are times when it would be a kindness to your child not to name him or her to these positions.  First of all, these jobs can very technical and are almost always exceedingly time consuming.  Does the proposed executor or trustee have the time to tend to all the details such as empty the house and distribute, sell or give away the tangible personal property?  Is the individual organized?  Will he or she get the tax returns filed on time?  Can he or she keep clear records of all financial transactions so that proper accounting can be made to the other beneficiaries?  Does he or she get along well with the other beneficiaries?  Does he or she exercise sound judgment?

There are times when an outside professional executor or trustee is best for the proper administration of your estate and for family harmony.  I recall a case where the father named all four of his children as co-executors.  This was unworkable to begin with, and fortunately two of the children declined to serve.  This left two sons who could not stand to be in the same room with each other.  The result was each co-executor had to have his own attorney at considerably more cost to the estate than a single professional fiduciary would have been.

Probate is the court proceeding necessary to transfer some estates after death.  It is generally needed when the decedent owned more than $100,000 outside of a trust, joint tenancy or a payable on death arrangement, such as insurance.  Note that for probate, we deal with gross valuations, not net valuations.  Thus, a house worth $125,000 that was encumbered by a $50,000 mortgage would trigger a probate even though the net value was only $75,000.

There are some situations where a probate is advisable, such as where the individual might have large contingent debts or where litigation is expected.  However, most people want to avoid probate.

People are generally concerned about the cost of probate, though the time involved (on average 10 – 12 months) is also of great concern to your beneficiaries.

Probate fees are calculated on the gross valuation and run roughly as follows:

            $100,000                        $  4,000  times 2 (executor and attorney) = $  8,000

            $200,000                        $  7,000  times 2 = $ 14,000

            $300,000                        $  9,000  times 2 = $ 18,000

            $400,000                        $11,000  times 2 = $ 22,000

            etc.

In addition to the attorneys fees and executors fees outlined above, there can be extraordinary fees for unusual problems, and there are always court costs such as filing fees, bonding fees, appraisals etc.  These costs can easily top $ 1000.

Most of these fees and costs can be avoided with a properly drafted revocable living trust.