An estate plan is an orderly and predetermined method of disposing of you assets after death.  It takes the probate system, which is an expensive public proceeding in the court, supervised by a judge, and turns it into a private affair that is quicker, cheaper, and easier for the beneficiaries.  As a general rule, an estate plan is a much better method than probate.

The estate plan is designed to replace the probate process with a trustee, who takes the burden on themselves to pay bills, sell property, do the tax return, and ultimately distribute the assets.

There is one other important aspect of estate planning that has implications during your life: an estate plan, completed with powers of attorney, can often prevent the need for a conservatorship.  A conservatorship is a court administered process to give the power to another person over your finances and medical decisions.  This will often involve thousands of dollars, continued court appearances, and a process that has significant court involvement.  If you have an estate plan, you can avoid the conservatorship process entirely by presetting an individual(s) to manage your money and medical decisions, thereby saving you thousands of dollars that could otherwise be spent on your care.  I have seen contested conservatorships reach well into the tens of thousands of dollars, and your savings account will pay for this litigation.

How long does probate take?

In probate, the absolute minimum time frame before an estate can be completed and monies fully distributed in 8 months, but this is unlikely.  Often it is quite a bit longer depending on things like the sale of a house, any litigation regarding the estate.  It takes 45 days from filing the initial paperwork to start the process.  There is at minimum of four month waiting period for the creditors to make claims for money against the estate (if you know every creditor at the very beginning), and then 60 days to get a hearing on distribution.

How much does probate cost?

The cost of probating an estate depends on the amount of the gross estate (value before any loans).  Let’s assume that an average estate is $500,000.  Between the attorney handling the estate and the personal representative (they are paid equal amounts), the fees will be $26,000.  The filing fee is $395.  The fee to publish notice of the death (required in California under any circumstances) varies from $400 to $1,900 depending on where you died.  (The price really depends on the number of newspapers in an area where publication is to occur.  In Rancho Cucamonga, California there is really only one paper and I just received a quote for $1,800).  The estate has to be valued by the probate referee (a court appointed appraiser).  This cost is $1 for every thousand, so $500.  The administrator will need a bond. (I find that if there are multiple beneficiaries, a bond is required even if the will indicates otherwise).  A bond is essentially insurance that the administrator/executor will not abscond with the money.  For $500,000 the bond will cost about $1,500.  The Petition to distribute funds will be $395.

The cost would be around $30,690 without any other complications that require additional monies.

How much do you have to own to need a trust?

If you have children, you should have a trust no matter what.  If you die without a trust, your children will receive your estate when they turn 18.  I don’t care how responsible your children are, even if they receive $20,000, this will quickly disappear and be gone, and if they receive more, there is trouble in the making.

Even if you have very little, or nothing at all, the cost of probate can make anything you want to do prohibitive.  I had someone consult with me regarding a home that was underwater (worth less than is owed on it), and on land that the decedent did not own.  He had no other assets. The family knew that the decedent wanted the grandson to have the home and continue paying on the mortgage as it was less than any rent that the grandson would have to pay.  However, in order to transfer ownership of the home (even in a simplified probate), the cost would have been in the thousands and was ultimately prohibitive for this family.  The grandson could not receive house and could not contact the bank to even discuss the mortgage.  A simple trust would have solved this families problem easily without much expense.

The rule is fairly simple: the person who has the children more than 50% of the time gets to claim the children on taxes and then qualifies for head of household status.  You cannot change the head of household status by agreement as this is a firm rule.  You can change who claims the dependents by agreement and the delivery of the official IRS form.  See: IRS link for Releasing Dependency

This is one of the most magical areas of the law where parties can actually “create money” by exchanging dependents in certain situations.  This is usually done by the low wage earner giving the high wage earner one or more of the deductions.  This does increase the amount of child support being paid, but it also provides tax savings for the person paying.  So even though you are paying $100 extra a month, it may be that you will have tax savings of $150 a month.  You just created $250 a month that the family did not have before.

Although there are many variations on this, and it does not work for everyone, it is a great way to provide more money for everyone.

Regardless, whenever there is a child support order, I recommend that everyone adjust their withholdings on their paycheck to make sure you are receiving the all the money you are entitled to.  Money is tight and there is no reason have the government hold your money, interest free.

The court’s are required to use a complex mathematical formula to calculate child support.  This has been adapted by a number of different programs: i.e. Dissomaster and x spouse.  There is a free calculator available online that is used by child support services.  Child Support Calculator

Although all programs use the same formula, there can be variations between them that cause swings of sometime hundreds of dollars.

All programs function by starting with your gross monthly income and taking deductions from that income based on different factors that are allowed: State and Federal taxes; tax deductions (dependents), necessary work expenses; interest payments on mortgage and property tax payments; and mandatory (pension) retirement; health insurance.

Some deductions reduce your support – i.e. health insurance.  Other deductions increase your support – i.e. mortgage interest deduction.

Although it seems counter intuitive that a mandatory expense, like a mortgage, should increase your support payment, the reason is that the code assumes that the primary obligation is child support, before food, housing, clothing, etc.  It also calculates support after it does your deductions and when you have an mortgage interest payment, this means that you can deduct this from you can deduct this on your taxes.  When you deduct this on your taxes, you reduce the amount of tax you end up paying for the year.  When you reduce the amount of tax you pay, you have more money to pay support.  When you have more money to pay support, your support payment goes up.  If you are the person receiving support, it works the other way so that a mortgage interest payment that you make will reduce your support payment received.

What if my new spouse works?  How does that effect my support?

People are often concerned that their new spouses income will be used in considering support and don’t want to reveal this income to the court.  But really, you want your new spouses income considered.  New spouse income is only considered for a determination of what your tax bracket is, and is not considered as cash available for support.  So, if you spouses income pushes you into a higher federal tax bracket, then you will pay more in taxes to the government.  If you pay more taxes, then the you have less cash available for support.  If you have less cash available, then your support payment is reduced.  Again, if you are the payee, then this is reversed and your new spouse income will increase the support that you receive.

Questions to ask yourself- Does he/she experience one or more of the following?

-          Hoarding

-          Car accidents and a refusal to stop driving

-          Inability to maintain property

-          Repeated Falling

-          Repeated Injury

-          Unusual Requests for money

-          Self-Isolation

-          Family Member/Caregiver isolation

-          Requests to change estate plan to exclude children

-          Requests to change estate plan to include “well-wishers”

-          Concern expressed by physician

-          Diagnosis of dementia/Alzheimer’s

-          Handyman doing lots of repairs to the home

-          New visitors/friends

-          Giving away items

-          Loans to family members or friends

-          Talk of documents signed

-          Abnormal credit card charges

-          Loss of weight

-          Increasing anger/volatility with family members

If you have answered yes to any of the following and want more information on what it requires to become a conservator call our office at 909-980-2242.  We can schedule you a free initial consultation and you can get some questions answered.

In probate, conservatorships and guardianships, you need to keep track of all funds and do accountings for the court, usually on a yearly basis.  I always tell my clients that in probate, you are guilty until proven innocent when doing these accountings.  It is imperative that you keep impeccable records of all money spent, including receipts from even that four dollar item.  However, it is more than just keeping receipts.  You need to keep track of what the purchase was for, why you made the purchase, and what became of the purchase.  For deposits, record what the source of the deposit was.  If you had a stray check for $20 dollars for a rebate, make sure you record what it was for, otherwise you run the risk that a year later, you will have no recollection of what you did and why.  Just because you believe you are doing right by your family, doesn’t mean the court will believe you unless you can prove it.

Division of community property is easy, unless of course it isn’t, and then you need to have others involved: Attorneys, accountants, mediators – But that, of course, is what we are trying to avoid.

The simplest form of division keeps a balance sheet. Each person gets an asset or a debt and that value is assigned to their column. A positive value is added to their total. A negative value is subtracted. When everything is assigned to each party, you add up the totals for each person. The idea is that each party will walk away with an equal amount of community property. In order to accomplish this, the person with more in their side of the column pays the other person until the two columns are equal.

This is the mathematical approach, but this is often not the most advisable when trying to talk about make decisions about money in a negotiation with your spouse. This mathematical analysis is something that you need to do before you have this discussion in order to understand where you are going and what you are willing to give up on. You need to know the numbers in order to make an informed and intelligent decision.

The best way to have a discussion with the other side is likely not to go through the hard numbers. If they are not prepared, this can only terrify them. It is best to discuss generalities. Who gets the car and the house. Furniture and furnishing. “You should take the visa. I’ll take the discover.” “My IRA is about the same as yours. We can each keep our own.”

Once you get the large details worked out, you can work down to more finite details. That way there is gradual realization of the mathematical realities.

Posted by Matthew Sheasby

Copyright 2010

Questions to be discussed:

___ Child Custody:
___ Physical
___ Legal

___ Child Visitation:
___ Holiday
___ Summer

___ Who will take which credit card/other debt
___ Who will take which car/vehicle
___ Who will keep the house:
___ Sell
___ When
___ Refinance
___ How long will someone have to refinance

___ Were there any inheritances and do you agree where the money went
___ List of Property:
___ Agreed Values
___ Disputed Values

___ How much money will each person need to live
___ What personal property will each person keep
___ Open new bank Accounts
___ Split available Savings – Keep Safe
___ Support (Careful with this one)

Documents needed:
___ Last three paychecks
___ Last Three Tax Returns
___ Current Bank account statements
___ Current Credit Card Statements
___ Student Loan Statements
___ Mortgage Statements
___ Life insurance statements
___ Investment account Statements
___ Retirement Account Statements
___ Budget for each spouse after separation
___ Registration for each vehicle

Posted By: Matthew Sheasby