The Value of a Good Estate Plan

One of the reasons that I enjoy what I do is that I'm most definitely not selling snake oil. It's quite easy to help my clients see the value of a good estate plan, even though, at first, they are often more focused on the cost of creating that plan.

1. Avoiding Probate

One of the biggest advantages you gain from having a trust is that your estate bypasses probate. Avoiding probate saves your beneficiaries both time and money. Probate is expensive in California, the fee is based on the value of the assets going through the process. This fee goes to both the attorney representing the estate and the executor (if the executor chooses to take the fee). A probate estate worth $3.5 million, for example, would generate fees of $48,000 for the attorney; $48,000 for the executor, calculated as follows:

  • 4% of the first $100,000 $ 4,000
  • 3% of the next $100,000 $ 3,000
  • 2% of the next $800,000 $16,000
  • 1% of the remainder ($2.5 m) $ 25,000

TOTAL 48,0000 (X2)

In Silicon Valley, the high cost of real estate makes probate especially onerous, as the value used to calculate these fees is the fair market value of a property, not the decedent's equity share.

Administering a trust is, in contrast, usually, much less expensive than a probate because trust administration lawyers charge on an hourly basis for the work that they do in advising the Trustee. It would be very surprising if administering the trust valued above required 120 hours of an attorney's time (at $400/hour)! Most trust administrations are more in the 10-30 hour range in terms of cost ($4,000 - $12,000).

2. Privacy

In addition to being expensive, probate is also public, which means that all documents filed in the proceeding become public records. This includes Wills, financial inventories of all assets, and any pleadings filed by beneficiaries or creditors. Administering a living trust, in contrast, is a private proceeding, and although the trust's beneficiaries and the decedent's heirs are entitled to a copy of the trust and an accounting of trust funds, no one else is entitled to such information.

3. Ease of Administration

Probate takes time. To be appointed as the executor of the estate, you have to file a Petition, wait until a court hearing, and publish a notice in a local newspaper. This process takes 6-10 weeks depending upon the court's calendar. Then, once appointed, a probate must, by law, stay open for four months so that an estate's creditors have time to file claims for unpaid bills. After those four months, provided all expenses and taxes have been paid, all the property has been valued and identified, and all the proper people have been notified, the estate can be closed. This again requires a court date, which is again 4-10 weeks out, depending on how busy the probate court's calendar is. Which is all to say that probate is slow, and the calendar is driven by the court.

Administering a trust is often easier and quicker, as long as the Trustee is willing to do a good job and focus on the tasks at hand. In truth, the Trustee must do all of the same things that an executor must do (identify assets, pay bills and taxes, notify heirs and beneficiaries), but the process can unfold at the Trustee's pace, not the court's.

4. Avoiding Ancillary Probates in Other States

Creating a trust here in California, and transferring title of out-of-state properties into the trust, is a great idea. This allows all of the trusts' property to be administered in California and avoids families having to open probates in other states where the real property is located. This can save both time, money, and Advil, as it avoids something that can be a major headache.

For all three reasons, a living trust is a great value for those with enough assets to justify a trust and enough money to be able to create one. In my practice, a living trust for a family starts at $4500, and can cost a bit more depending upon the complexity called for. For most people, the return on investment is easily 10:1 if not many times more than that, and who wouldn't like that kind of return?

If you or a friend want to create a living trust or have a question about its value, feel free to get in touch or share this article with them.