Fundamental Questions

If you own something, you have an estate.  Your estate is comprised of every single thing you own: car, house, other real property, bank accounts, savings accounts, stocks, intellectual property, business interests, life insurance, personal possessions, and even your digital assets. 

Just like it sounds, an estate plan is a plan for your estate in case of your incapacity or death.  An estate plan designates who should be in charge, who should receive your assets, how your assets should be distributed, and when your assets should be distributed.  It is not about the paperwork, but about protecting your family.  

If you do not create a plan, the state has a plan for you.  Without an estate plan, state law will determine who will receive your assets.  The state’s involvement, “probate,” is not free.  In fact, probate can be quite costly as it is based on the gross value of your estate.  Moreover, if you have a minor child and no estate plan, the court may stay involved in your child’s life until your child turns 18, at great cost to their inheritance.

There are four ways property passes at death:

1. By Beneficiary Designation: Retirement plan benefits, life insurance, and other pay on death accounts pass in this manner.
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2. By Operation of Law: Assets held in joint tenancy or community property with right of survivorship pass in this manner (e.g. real property and certain bank/brokerage accounts).  Property passing by operation of law cannot be held in Trust.  Therefore, when a joint tenant dies, it is extremely important that the survivor transfer the asset into his or her Trust in order to avoid probate.
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3. Through a Trust: The successor Trustee gains title to the assets to administer and distribute the assets for the benefit of the Trust beneficiaries in accordance with the provisions of the Trust.  Trust administration is a private matter involving only the Trustee and beneficiaries.

4. By Judicial Probate: If an asset does not pass at death through the above methods 1-3, then the assets pass through a court-supervised proceeding known as “probate.”  If there is a Will, it is admitted to the probate and serves as a guide as to who should represent the estate and who should inherit the assets.  If there is no Will, then the laws of the state make the determinations.

A probate proceeding is a public, slow moving, and costly process.  Attorney and Executor fees are set by statute and calculated based on the gross value of the assets being probated.  Probate involves a judge, court probate attorney (attorney for the court not the estate), a probate referee (a court appointed appraiser), and publishing a notice to creditors.  In most California counties the probate court docket is overloaded making the administration of the estate a lengthy process (months to get a hearing).   Proper planning to avoid probate is imperative.