I have heard it a million times before: “I don’t need a Trust because ____________” you fill in the blank: I don’t have enough money, I won’t care when I’m dead, California probate is easy, my wife and I own everything in joint tenancy…there’s many, many excuses and misinformation regarding Trusts in California.
In California, a probate must be opened for anyone dying with more than $150,000 in personal property (things like bank accounts, brokerage accounts, stocks, bonds, etc); or more than $50,000 in real property (which in California is almost all real property). That means that if you own a home, regardless of whether the home has a mortgage or not, your estate will likely have to go through probate before it can transfer to your heirs.
Probate is no easy task. See our prior posts on probate here and here. It can take 12 to 18 months (or more) to complete, and it costs a lot. For even a modest estate worth $500,000, the statutory attorneys’ fees alone are $13,000. Add in another $13,000 for the executor and anywhere from $1,500 to $2,000 in hard costs (such as court fees, probate appraiser fees, publication of notice, etc.) and the total probate fees and costs can be around $28,000 for a $500,000 estate. That’s far more than the typical fee for a lawyer to prepare an estate plan, which can run from $2,000 to $3,000 on average.
How about estate taxes? Luckily, California does not have an estate tax or inheritance tax. But the Federal Government does have an estate tax, and the current estate tax limit is $5 million (plus a little more for inflation). That means that anyone with an estate worth less than $5 million will pay no tax.
There was a time when a Trust was necessary to save substantial money on estate taxes, back when the estate tax limit was only $600,000. Now that the estate tax limit is $5 million, most people don’t need a Trust to save on estate taxes. But a Trust still saves the trouble and expense of probate if you own real property or have more than $150,000 in personal property. It also allows for someone to manage your financial affairs if you ever lose capacity, which is reason enough to have a Trust.
Still not convinced? That’s okay because us lawyers make far more money on estates where proper planning is not done. We would much rather earn a big, fat probate fee or spend years litigating your estate after you’re gone. Not planning is a great way to make a lawyer a beneficiary, and maybe even the biggest beneficiary, of your estate.
That may sound a bit jaded, but I have learned over the years that no matter how much sense planning makes, many people just won’t do it. If you really want to save money, time, and trips to the Courthouse, it’s time to put your Trust in Trusts.