Estate Planning: It’s No Longer an Option

Last week, I attended a seminar about estate planning that was hosted by an attorney who specializes in that very topic. Now, I have been an advocate of estate planning and living trusts for a long time, but, oh boy, did this presentation light a new fire under my posterior. Especially since in my line of work, I encounter so many homeowners who do not have a logical and strategic plan in place to protect their very largest asset.

The two key takeaways for me from this seminar were that “estate planning” needs to be viewed as much more than just having a will or trust in place, and that the important aspects of your life you are planning for are not necessarily just the financial ones. For example, if you have children who are still minors, who would be designated as their legal guardians if something were to happen to you?

There are literally dozens of different important things that can be protected by a properly constructed estate plan, like the aforementioned minor children, financial accounts, real estate, equity holdings, and artwork.

For the purpose of this post, I'm going to focus on just the real estate portion, since a home is the largest financial asset that most people have.

Stay Out of Court.

If you learn only one thing from this post, that heading says it all, and it should apply to all facets of your life, not just estate planning. Nobody should ever want to be anywhere near a courtroom unless that's where you make your living. But the ultimate goal of estate planning is indeed to keep your loved ones, heirs, and beneficiaries as far away from a courtroom as possible if they are thrust into the spotlight of managing your estate.

The specific court that you're trying to avoid is the probate court. What is probate court? It is a specialized state-level court that manages the legal process of transferring a deceased person’s property, validating wills, and settling debts. It also handles matters like guardianship, conservatorship for incapacitated individuals, and, in some jurisdictions, mental health commitments.

A well-designed estate plan, of which a trust is one of several elements, will keep your assets out of probate court if something were to happen to you and/or your spouse. This is crucial because, like any other court proceeding, probate cases take a long time and a lot of money to settle.

How much? According to the attorney who conducted the seminar, probate cases can take 1-2 years to settle in the courts, and the legal costs can easily exceed $200,000. I'm going to go out on a limb here and guess that this is probably not the way you want to distribute your assets to your next of kin.

And yet, I still see far too many homeowners who are holding title to their home individually, or as a couple, with no apparent estate plan in place.

What is a Trust?

The most common and effective way of protecting your home and your assets is with a well-written living trust. This is the best definition that I have found of what a trust actually does:

A living trust is a legal document created during your lifetime that places assets (property, bank accounts, investments) into a trust to be managed by a designated trustee for your benefit and distributed to beneficiaries upon your death. It is primarily used to bypass the costly, public, and time-consuming probate process.

A key term to focus on from this definition is “managed by a designated trustee“. The person that you designate as the executor of your trust simply follows the instructions that you outlined in your trust and then distributes your assets accordingly. No judge needed, no extensive court proceedings, and most importantly, no absurd legal costs.

When you consider the danger and pitfalls of owning significant assets without an estate plan, you'd think that everyone in that situation would just automatically do it. But I'm still amazed at the number of homeowners who don't have their home in a living trust.

The Myths of Estate Planning.

So why doesn't everyone have their home and assets in a trust? I believe there are a few myths and reasons that prevent people from taking the step.

• It's Too Expensive. A well-constructed trust drawn up by a reputable trust attorney should cost between $5,000 and $7,000. That's probably the amount you spend on fire insurance for just three months, and it's far less than the six-figure legal bill your heirs will inherit to get your assets out of probate. And that cost is a pittance to protect a home that is likely worth $2,500,000 or more (which just so happens to be the average cost of a home in San Carlos).
• We Have a Verbal Agreement With Our Family. Unfortunately, verbal agreements do not hold up in court. The best intentions don't mean anything if they are not in writing.
• I Already Have a Will. Congratulations! That's at least a step in the right direction, and it's certainly better than doing nothing at all. But remember that the key reason for creating a trust is to keep you or your heirs out of court. But guess who reads your will when you die? A judge… in a courtroom.
• We Have Our Home Vested as Community Property With Right of Survivorship. This is one of the most common ways that married couples hold title to their home because it's free, and the key benefit is that the property automatically transfers to the surviving spouse upon the death of the other spouse. But what happens if both spouses perish at the same time? Car accidents and plane crashes don't discriminate.
• We Already Have an Old Trust. Again, congratulations! But a living trust is not a “fire and forget” document. If you have a trust in place, you should have it reviewed every 3-5 years to account for changes in your assets, beneficiaries, or even tax laws. The cost of reviewing an existing trust is a fraction of the cost of having a new one generated.
• We Don't Know Who To Call. This is where audience participation comes in. If you currently have an estate plan in place, and you're thrilled with your estate planning attorney, give them a shout in the comment section below by leaving their name and contact info. Be sure to tell us about your experience with them, too. You'll not only be helping the blog readers, but your estate attorney will greatly appreciate the referral (and believe me, I know the value of a referral!). You can also reach out to me, and I can provide you with a few good contacts.

A quick question for you, the readers: Would you be interested in attending a free estate planning workshop in San Carlos if I were to arrange for a similar guest speaker?

Key Takeaways.

If you own a home, creating an estate plan is no longer an option. Allowing your home and assets to go to probate court upon your death is entirely preventable, and relatively inexpensive when you consider the time and legal costs of probate court that will be heaped upon your heirs. Here are the key things to take away from this post:

• Estate planning is much more than just establishing a trust to protect your home. It's about life planning for all of your assets, and even the guardianship of your minor children.
• Getting a trust established is not expensive.
• Many estate attorneys provide initial consultations for free or at a reduced cost.
• If you already have a trust, be sure to get it reviewed by a trust attorney every 3-5 years to account for any changes in your assets, beneficiaries, or tax laws.

Author's Note: I am not an estate attorney, and the information above is strictly informational and should not be construed as legal advice. If you are interested in finding out more about estate planning and trusts, you should contact a reputable estate attorney.