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Estate Planning For Single Guys

(And Gals)

Who Own Houses And Other Stuff

I won’t lie – the majority of my estate planning clients are married with children. But there are some bachelors (and bachelorettes) who believe that setting up their revocable trust is a worthwhile pursuit – and as you'll see, they are onto something.

Reason #1: spare your family the cost of probate

So, the bachelors I am talking about in this blog post usually own homes. In CA, a transfer of any real estate, unless it goes to a spouse, must take place in probate court, through a process called “probate process.” You can read what happens during this probate process here: http://www.modlinlegal.com/estate-administration.html

Here, I want to tell you about the attorney fees associated with the cost of the probate process. This is how the attorney fees are calculated, from the value of the GROSS estate (no deduction for loans):

4% on first $ 100,000

3% on next $ 100,000

2% on next $ 800,000

1% on next $ 9,000,000

Basically, a court-appointed appraiser drives by formerly your house, takes a quick look, in the office looks at comparables, and comes up with the gross value of that house. So, if the market value of your house is $1.1m (anyone here lives in Mountain View?... ), the mandatory attorney fees will be at least $21,000, regardless of how much you actually owe on the house.

In addition to attorney fees your family may also face executor’s fees (equal to attorney fees), unless the executor chooses to waive them, real estate appraiser fees, court filing fees, realtor fees if the family decides to sell your house, and “extraordinary fees” that everyone involved could be entitled to if things don’t go perfectly smoothly.

If you didn’t happen to leave $21,000+ in cash just sitting there, your family will have to come up with this money on their own before they can complete the probate process and receive the title to your house. And they won’t be able to take out a mortgage on your house to get that cash out, as they won’t yet have the title (it’s a catch-22 that happens to “cash-poor estates”).

If however, you put your house in a revocable trust before dying, your estate will not go to probate, and thus the attorney fees will not be mandated by statute, but will be negotiated with the attorney directly. In my practice, a typical post-death trust administration usually costs the family about $3,000, on average, as opposed to $21,000. The savings are dramatic.

Reason #2: make sure your toys go to the right people

When a person in CA dies without a will, a law called “the law of intestate succession” dictates who inherits from them. Here is a summary of this law:

If you die with:

Here’s what happens:

Children but no spouse, parents, or siblings

Children inherit everything

Spouse but no children, parents, or siblings

Spouse inherits everything

Parents but no children, spouse, or siblings

Parents inherit everything

Siblings but no children, spouse, or parents

Siblings inherit everything

The law, as one might expect, does not take into account anyone’s tastes or preferences. So, even if you’ve chosen to invest a large portion of your sizable software engineering paycheck in, say, fast cars or rare electric guitars, they’ll all go to your mom, regardless of how she feels about such items… Unless you at least write a will (but ideally, set up a trust), to specify that your vintage LP collection should go be inherited by someone who is not going to immediately donate it to Goodwill.

Reason #3: leave gifts for little nieces and nephews – without costly and annoying court involvement

Real-estate owning bachelors usually have nieces and nephews whom they love very much. Without a will, they will not inherit anything, unless they are your nearest living relatives.

A proper estate plan ensure that your nieces and nephews inherit from you whatever it is you want to leave to them, AND will spare your siblings the pain and the cost of setting up a “guardianship of estate” (assuming that the beneficiary kids are under 18).

The “guardianship of estate” is a court-supervised management of minor’s assets to benefit the minor. Here’s a quick comparison of what you get with no estate planning (guardianship of estate) vs. what you get after a few quick visits to an estate planning attorney (minor’s trust):

Guardianship of Estate

Minor’s Trust

It costs about $3,000 in attorney fees to set up

The setup fees are built into the cost of your estate planning, and there’s nothing new to set up

Ongoing costs require attorney fees on every step of the way, or a purchase of an insurance policy large enough to cover the minor’s entire estate

No ongoing court involvement, thus every action does not have to first be blessed by a judge, thus not motion-related attorney fees every time any of the trust assets are spent

The court nominates the guardian - most of the time it’ll be the child’s parent, regardless of your opinion about that adult’s ability to manage someone’s money

You state who you want to manage the minor beneficiary’s assets – so if you think that your sibling is terrible with money, nominate your dad to manage the nephew’s inheritance

Guardianship terminates at 18, and the minor can buy a reeeeeeaaaaallly fast car

Trust terminates whenever you specified it’ll terminate – usually after the child graduates from college

The number one argument against estate planning I hear is “who cares what it’ll take, I’ll be dead, it won’t be my problem”. And yes, that’s true. But, why not care what you leave behind? After all, we care about all sorts of things – we don’t show up emptyhanded to parties, we help friends that fed us wash the dishes, we worry when our loved ones are sick and call to express our concern.

The shape in which you leave your estate is the very last thing you’ll do for your family (as far as I know). So, you have a choice: don’t plan, and have your family paying a fortune just to get your inheritance thought the court, a year or more after you pass away, or visit an estate planning attorney, set up a trust, and have everything transferred to the people you want to inherit from you, in a timely manner, and at a fraction of the cost.

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- Richard H., as posted on www.Linkedin.com on 6/23/10

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