Don’t Let a Recession Control Your Estate Plan

Question: What do most people do during a recession?

Answer: They cut back on everything, of course.

They may cut back on dining out, vacations, gifts, and other things considered nonessential. One example of a “nonessential” matter might be their estate plans. An estate plan seems like something that can wait; something which can be taken care of some future time. But an estate plan should never be considered a “nonessential.”

The reason for this is simple: There are some things which can be controlled, while other matters cannot. Personally, I love dining out. Eating out, however, is obviously not essential. Although I love the freedom of dining in a restaurant, it’s obviously less expensive to cook. While I may be able to restrain my urge to dine out during hard economic times, there are other matters where I exercise little, if any, control — like the unpleasant issues of disability, illness and death. The fact that these events are often unexpected shows why estate planning should not be left for later, but should be dealt with today.

However, estate planning is different from other products and services. If you don’t buy a new refrigerator, you either do without, or continue using the old one. If you don’t buy a vacation, you generally stay at home. But this is not the case with an estate plan. Whether you realize it or not, everyone has an estate plan right now. The state has devised a plan for those who have never written a Will or a trust. Through the laws of intestacy, each state dictates the post death transfer of property for those who die without a Will. For example, in California, when a husband dies “intestate” (i.e., without a Will) his property will be divided in certain proportions between his surviving wife and children. But most of my clients would prefer to have their surviving spouse — often the widow — receive their entire estate, reasoning that her future earning power is much less than that of the children, and that she has a greater immediate need for the money. Yet this concern would not dictate the result in California. Should the husband die without a Will, his property will be split between his wife and children. This would be the case even if (for example) the children are incredibly wealthy, and the surviving wife lives in a public housing project in abject poverty.

Planning your estate takes control from the state, and returns control to you as the estate planning consumer. Having a Will returns control: No longer does your state legislature have the final say concerning your estate plan. Also, while a Will is a good estate planning tool, in many cases a trust is much better. Generally, owners of real property incur much less cost in transferring property through a trust than through a Will. Often with Wills it becomes necessary to open up a probate proceeding. This is usually not the case with a trust.

The reason for this added expense is simple: A probate proceeding is really nothing more than a specialized lawsuit, and in a lawsuit lawyers and the court want to be paid. While other states may differ, in California both attorney and executor fees are based upon the value of the estate as directed by a payment schedule in the Probate Code. Those fees are paid directly from the property in the estate. For example, under California Probate Code section 10800, a modest estate of $300,000 going through a California probate will cost $9,000 in attorneys fees. If the administrator or executor charges full statutory fees the cost will double to the amount $18,000. A slightly larger estate of $500,000 would cost $13,000 in counsel fees, with a grand total of $26,000 should the executor/administrator also charge his or her fees. Other costs such as filing fees and appraiser fees (called a court “referee” in California) would be extra charges added to the counsel and executor fees.

Moreover, this is only a minimum statutory charge. If the attorney engages in extraordinary services, he or she may petition the court for additional fees.

These costs should be compared to that of a typical trust, which might cost a few hours of time in meetings with the attorney and a few thousand dollars to prepare. Therefore, an uncertain economy is not a justification to avoid planning your estate. Rather, it is a reason to take control and to ensure that your decisions are carried out at the smallest possible cost for your family and loved ones.

Disclaimer: The information in this article is not legal advice, and the use of it does not create an attorney-client relationship. Any liability that might arise from your use or reliance on this article or any links from this article is expressly disclaimed. This article is not to be acted upon as if it were legal advice, and is subject to change without notice, or may include obsolete or dated information, or information not relevant to your jurisdiction. If you require legal services, you should consult with an attorney.

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