WHAT HAPPENS WHEN A PERSON, MARRIED COUPLE, OR AN ESTATE HAS NO WILL?

INTESTATE SUCCESSION (No Will or Living Trust)

If you have no will or trust, the law dictates where your property will go. Further, this law is changed from time to time. In addition, there is generally no alternative to probate and the attendant fees unless you do not own real estate valued at more than $20,000 and your total estate is less than $100,000. If this suits you, you don't care who administers your estate and you don't mind paying probate fees or paying taxes on your estate in excess of the tax-free amount ($1,000,000 for 2002, and for 2011 and later), then you don't need an estate plan.

JOINT TENANCY (Tilted Property)

Joint tenancy is often extolled as a cheap way to avoid probate, but it has some drawbacks. If you hold property as a joint tenant and you die, the other joint tenants get the property, no matter what your will or trust says, and despite the law of intestate succession.

Joint tenancy also has a tax detriment for married couples, when compared to community property. When one passes away, the survivor gets both halves of community property stepped up to fair market value for tax purposes, but only half of joint tenancy property gets stepped up. For example, an investment property worth $500,000 but which was purchased many years ago for $100,000, will have a new basis of $500,000 if community property, but only $300,000 if joint tenancy. This will mean $200,000 more taxable gain if sold, and $200,000 less basis to use for depreciation if rented out.

Under EGTRRA, the step-up in basis for decedents dying in 2010 will be limited to $1.3 Million worth of property chosen by the executor, and another $3 Million of property passing to a surviving spouse. The balance of property from a decedent will be subject to the carry-over basis rules that apply to lifetime gifts. This ends in 2011.

Further, if you put property in joint tenancy with your heirs, then creditors of any of the joint tenants can place a lien on the property. If the property is, instead, in a trust, then creditors of the heirs cannot touch it.

PROBATE FEES ARE TAXED TO THE ESTATE BOTH WILL, OR WITH NO WILL, SO WHAT IS THE DIFFERENCE?

The biggest difference between having a Will, and not having a will, is the manner in which you estate is administered, or the manner in which it is passed on to others. With no planning, equally meaning no Will; then you have the State and Federal Legislature which controls, dictates and directs the manner in which your estate is administered, and to whom. With a Will you have at least provided some directions for the administrator who will follow these instructions.

For persons or estates involving a will, and those involving no will (meaning you did not have a Living Trust Prepared). The statutory basic probate fees would apply. These fees are the same for both the probate attorney, and for the executor/administrator, are based on the gross estate, as follows:

These fees apply in any case where a will is in place, or a person passes intestate meaning no will. The only manner to avoid much of the expense, delays and trauma is to take action now by setting up a Living Trust for you and your family.

Again, the above fees (estimates due to possible changes in the law) are on the gross estate, before reduction by debts such as mortgages on real property. In addition, for extraordinary work (like will contests, contested matters, real property sales and preparing the estate tax and fiduciary income tax returns), the attorney can will be able to get additional fees from the estate.

When a person, or a married couple (in the latter case upon the death of the second person to die) passes away with either no will(s) or the standard mom and pop wills; this will result in the entire estate being subject to estate taxes, fees etc. Of course, if married it is the second death, which results in this activity. So whatever tax benefits at the time of death are available then only one tax-free amount ($1,000,000 per person [or $2,000,000 for a couple with proper planning] in 2002 or 2011 and later), can pass tax-free.

Post-mortem planning, such as a disclaimer by the surviving spouse of the tax-free amount will require regular probate (and fees) of the disclaimed amount, and the surviving spouse does not have access to the disclaimed amount if needed.

CONTROL

Some larger consideration comes as between a Will and a Trust in terms of who controls the estate. In a Will, this document will named the person within the will, who is to becomes the executor. However, the court ultimately would have to appoint this person properly. The Executor means that this is the person who directs and handles the estate. An attorney would normally represent the proposed executor.

When you have a living trust, the surviving spouse is normally the trustee of the whole trusts after one spouse dies. Thereafter, a different person is named in the trust document. No court approval is needed for this authority to happen legally. This gives the survivor, or subsequently named power holder, control over the assets and provides both actual and emotional security.

Conversely, in a Will you seek the appointment from the probate court. Sometimes, this can be a legal contest in the appointment of the executor of the trust.

PRIVACY AND SPEED

Probate generally takes at least six months, but more often can take several years when te court process is involved. It is also a public court proceeding, so that anyone who wants to can look at the will and what property was in the estate.

Living Trusts, and trusts in general are more private (although notices must now be sent to intestate heirs and trust beneficiaries) and can pay some income or property to the beneficiaries almost immediately. Due to creditor and other risks, there is usually some delay before full distribution. Following are discussion of some of the reasons to use a trust.

If your reading this now, you need to take the time and resources to handle this planning ASAP. This avoids so many issues or problems in any given estate.