It is a common misconception that estate planning is advisable only for those with a high net worth. The fact is that the main purpose for most estate plans is the avoidance of the time consuming and costly process of probate, which is mandated for all estates exceeding a gross value of $100,000. Probate is the legal process in which a court directs and affects the transfer of a person’s assets to the rightful heirs according to either the decedent’s will or, in the absence of an executed will, the default will of the state. The process often takes a year or more and ends up costing approximately 5-8% of the deceased’s gross estate. If the decedent simply owned a 500k home, had a 300k mortgage and no other assets, the probate fees would be $25,000-$40,000 (remember that it is the gross value that is considered for probate).

Although a Will does ensure that an estate will transfer to the proper beneficiaries, Probate will not be avoided as the court is still necessary to sign off on all asset transfers because the legal owner of the assets is now dead and therefore unavailable to sign. However, with some basic estate planning, a trust can be established which will become the legal owner of one’s assets. Once ownership of an asset is transferred to the trust, the owner of the asset (the trust) lives on after the death of the creator. As long as the creator of the trust named a trustee other than him/herself and/or a successor trustee, upon the death of the creator of the trust there will be a new trustee in place. This new trustee will have the authority to sign and affect the property transfers according to the creator’s wishes as outlined in the trust.

In addition to the avoidance of probate, there are many other important functions of estate planning such as setting up guardianship of minor children, power of attorney for all financial matters, healthcare directives, protection of one’s estate from future spouses and the ability to control the direction and the timing of the dispersion of one’s estate.

For a more complete explanation of general estate planning and the workings of a Revocable Living Trust, please read Estate Planning Basics, an article by the National Association of Financial and Estate Planners (NAFEP).

For those interested in Asset Protection planning, an alternative to the Revocable Living Trust is the Life Estate Trust. Please read Asset Protection Estate Planning, also by NAFEP, for more information.

For more information please feel free to visit our frequently asked questions page or contact us for a review of your situation.