Law Offices of Alyssa T. Nguyen

What is an estate plan?

An estate plan generally consists of several documents that provide for the following:

1. Your health care due to your illness or other incapacity;
2. Your financial management due to your illness or other incapacity; and
3. The disposition of your assets upon your death.

If you do not have an estate plan in place, then California law will determine how your assets will be distributed, which may not be in accordance with your wishes.

To properly state how you wish your assets to be distributed, you should establish either a will or a trust, which are further discussed below.

What happens if you die without an estate plan?

If you die without establishing a Will or a Trust (also known as dying intestate), then your assets will be subject to a process called probate in which the Probate Court will identify, appraise, divide and distribute your assets according to California law.  First the Court will deduct from your estate the funeral expenses and any unpaid medical bills, taxes and other debts.  Then your assets will be distributed to individuals based on your marital status and your surviving relatives.  If you are married, then all of the community property will pass to your surviving spouse.  If you have separate property, then its distribution will depend on whether you have any living children, parents or siblings.  Please contact our firm for more information.

What is a Will?

A will is a written document that states how your assets will be distributed, i.e., provides for who will get what asset.  If you have minor children, your will can also designate certain individuals to be the guardian(s) of your child(ren).  There are 3 types of Wills: holographic (handwritten), statutory (fill-in-the blank) and a third-party prepared document (usually prepared by an attorney).  For information about these types of Wills, please contact our firm.

If you have a will and assets in California with a value of more than $100,000.00, then your Will must be submitted to the Probate Court and your assets will be subjected to probate administration.  The probate process is further discussed below.

What is a Trust?

A trust is created when the owner of a property (called the grantor) transfers property to a person or institution (called the trustee) who holds legal title to the property and manages it for the benefit of a third party (called the beneficiary).  In other words, a trust is a method or device in which property is legally held by the trustee for the benefit of the beneficiary.  One person can wear all three “hats”, i.e., you can be the grantor, trustee and beneficiary of the trust.  The trust instrument is a written document that states the identities of the grantor, trustee and beneficiaries and sets forth the terms of the trust, i.e., how the trust property should be managed and distributed.

By utilizing a trust, upon your death, your assets held in trust will not be subject to estate administration by the probate court.  This means that your survivors are not required to disclose to the public the details of your possessions and debts.  Your estate avoids probate because your trustee is the legal owner of the trust assets and is legally obligated to carry out the terms of your trust in accordance with the trust provisions.  Note, however, that a major disadvantage of a living trust is the loss of some flexibility over the control of your assets, as the trustee (and not you individually) is now the owner of the trust assets.

In addition to avoiding probate, a trust can be structured to take advantage of the estate tax credit.  Under current federal law, your estate will be subject to estate tax if it exceeds $1 million if you die on or after 2011.

There are many complexities with the use of a trust.  We recommend that you contact our firm for more information on what kind of trust, if necessary, is the right one for you and your family.

What is Probate?

Probate is a legal process in which your assets are identified, appraised, and distributed in accordance with the provisions of your will, or California law if you die without a will.  Probate is a public, costly and lengthy process.  Probate will not be required (thus, avoided) if you die owning assets with a value of less than $100,000.00 or if all of your property is held in joint tenancy or in trust.

Upon your death, the probate court will first determine whether you left a valid will.  If you left a valid will, the probate court will administer your property according to the terms of the will.  If you did not leave a will or the probate court determines the will is invalid, then the probate court will apply California law in administering your property.  The probate court will then appoint a personal representative (executor or administrator) to administer the estate.  The personal representative is required to publish your death in a publication of general circulation.  The probate court will oversee the administration of your estate, and may also take the following actions:

• Supervising the actions of the personal representative, including payment of state and federal taxes
• Deciding which property is subject to estate administration
• Determining your true heirs
• Hearing any contested claims by creditors or others seeking to collect payment from the estate
• Supervising the transfer of assets to beneficiaries named in your will
• Appoint a guardian and overseeing the guardian’s use of the property placed in trust for the benefit of children or dependents
• Overseeing the distribution of the assets of the estate

In a probate administration, the personal representative must provide a 4-month creditor’s period (providing notice to all known creditors) in which the creditor may make a claim against the estate.  The probate administration may take as short as six (6) months, if the administration is being carried out properly by the personal representative and the court’s schedule so permits, or carry on for many years (possibly due to contests in the estate, creditor’s claims, or other reasons).  The length of the probate administration varies for each estate.

In addition to being a public process, a probate administration may be very costly to the estate.  Under California law, the personal representative and attorney representing the estate is entitled to a statutory fee for ordinary services.  Ordinary services include, but are not limited to, the filing the petition for probate, identifying assets, collecting assets, notifying beneficiaries of the decedent’s death, obtaining an appraisal of the decedent’s assets and notifying creditors.  The statutory fee does not include extraordinary fees for services relating to the sale of an estate asset or the filing of the decedent’s estate tax return.

Pursuant to California Probate Code section 10810(a), the statutory fees are based on the fair market value of the estate property as follows:

(1)     Four percent on the first one hundred thousand dollars ($100,000).
(2)     Three percent on the next one hundred thousand dollars ($100,000).
(3)     Two percent on the next eight hundred thousand dollars ($800,000).
(4)     One percent on the next nine million dollars ($9,000,000).
(5)     One-half of 1 percent on the next fifteen million dollars ($15,000,000).
(6)     For all amounts above twenty-five million dollars ($25,000,000), a reasonable amount to be determined by the court.

For example, if you die owning a house with a value of $600,000.00, the statutory fee is determined as follows:

(1)     4% of first $100,000.00 = $4,000.00 ($500,000.00 *value left)
(2)     3% of next $100,000.00 = $3,000.00 ($400,000.00 *value left)
(3)     2% of next $400,000.00** = $8,000.00

Total statutory fee of $15,000.00.

(*value for purposes of determining statutory fee)
(**the statute provides for an amount up to $800,000.00; in this example, only $400,000.00 is left in value for determining the statutory fee)

The statutory fee is the fee that the personal representative must pay to the attorney and to the personal representative.  In the example above, the personal representative must pay from the estate a total of $30,000.00 ($15,000.00 each) to the attorney and the personal representative.

The estate must also pay a fee to the probate court based on the value of the estate.  The probate fee varies from county to county.

How Can You Avoid Probate?

The publicity and costly disadvantages of a probate administration can be best avoided by the use of a Trust (discussed above).  You may also avoid probate if the value of your estate at your death does not exceed $100,000.00 or if your property is held in joint tenancy.  Summary procedures may be available if the estate meets certain provisions.  Please contact our firm for more information.