Estate Planning

There is no doubt that dying without a will can certainly cause hardships on surviving loved ones to settle the estate. For mothers and fathers of minor children, dying without a will adds more undue hardship because the State will usually decide who will be the custodian of the children. If you question the ability of the State to handle our tax money, why would you want them deciding the fate of your children?

So let’s assume that you have decided that being a responsible family member, parent and/or citizen requires a current will. While many people understand wills, they may not be aware that a will is not the best available option for estate settlement.

Wills are for one thing, probate court and probate attorneys. Speeding litigation along in a probate matter is not a reality. Probate attorneys are paid by the hour; why hurry?

So what is probate? Think of it as a lawsuit that you file against yourself. The probate process allows for all of your assets to be made public and gives disenchanted family members and strangers an opportunity to claim your assets.

The AARP is quoted as saying, “Probate is an anachronism which is dysfunctional, costly and time consuming.” The AARP goes on to say “In some cases, attorneys’ fees consume 20% or more of an estate’s value. This is especially true of small estates. For estates of the middle class, attorney and personal representative fees can deplete assets by as much as 10%, even in uncomplicated cases.”

What are the ways around probate?

POD (Pay on Death) Accounts are an option for small, simple estates with no real estate and an only child.

Jointly held property is often thought to avoid probate; however, there are issues that advisors often overlook. If assets are held jointly, then the other owner could bring in exposure to IRS and/or creditor liability. The permission of both joint owners is required to buy or sell mortgages. You lose ½ of the available step up in cost basis in assets at death of the first owner, which could cause unnecessary capital gain taxes. Joint ownership does not avoid probate and invites litigation.


Assume an estate worth $4,000,000 with mutual funds purchased for $100,000 that are now worth $600,000. The husband dies first. If the mutual funds are owned solely by the husband,(separate property, gift or inheritance), or if they are inside a well written revocable living trust & made separate property or community property, then on the death of the husband, the wife takes the mutual funds with a basis of $600,000. No taxes are due if she sells them. But if the mutual funds are owned jointly then, on the death of the husband, the wife takes the mutual funds with a basis of $350,000, (i.e. ½ the stepped up basis ). Capital gains taxes due if she sells them: $50,000+.

What happens to jointly held property at death?

Assume a husband and wife have an estate with a net worth of $4,000,000 and that all of their property, is owned jointly. Assume that the husband and wife die and using wills; they leave their $4,000,000 joint estate to their children. By owning their property jointly, they forfeit one of their $2,000,000 Federal Estate Tax Exemptions and thus Federal Estate Taxes of $185,000 – $370,000 will be due depending upon the value of ½ the stepped up in cost basis.

If they had a well written, fully funded Revocable Living Trust: Estate Taxes Due = $0

What is a Revocable Living Trust?

A Revocable Living Trust is a document created to hold all of your assets. Your real estate, checking/saving accounts, automobile and other assets will be titled into the name of your trust. You continue about your daily life just as you did prior to the trust creation.

While you are living, the Revocable Living Trust insures that you retain maximum control over your property, can be changed by you at anytime and helps you avoid conservatorship or guardianship if you become incompetent.

When you die, your assets are not titled in your name, thus your assets will avoid the high cost and lengthy process of probate, allow quick distribution of trust assets to your family, preserve your estate from unnecessary federal estate tax, provide for the support and education of minor children or grandchildren and maintain the continued privacy of your affairs.

A good revocable living trust should also have supporting documents such as, Powers of Attorney, Living Will, Pour Over Will, Nomination of Conservator, Separate Property Agreements, Guardianship Nominations and a Personal Property Disposition Memorandum.

Through our network of attorneys, Wiser Wealth Management, Inc can guide you through the Trust creation process. Please contact us to discuss your individual situation.

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