At a recent seminar, the speaker asked the group if any members of the audience had an estate plan. While not many people raised their hand, the speaker laughed and said, “Well, you all have an estate plan, the question is whether you have decided to go against what the state has planned for you!”
The speaker hit on a crucial point: If you die without a will, you die “intestate,” which means your assets will pass according to how the state where you live dictates they should pass. For most states, that means the estate must go through probate, a legal process involving a series of filings and hearings overseen by a probate judge in which a person’s assets are distributed. Even if you do have a will, your heirs might not be able to avoid the probate process. If you don’t engage in estate planning before your death, your assets might not pass according to your wishes and you may leave a costly and time-consuming situation for your heirs.
For example, California law dictates that intestate assets pass to relatives in a certain order. If you are survived by a spouse but no children, the surviving spouse inherits the entirety of your probate estate. If you die and are survived by a spouse and one child, your spouse will inherit all community property and your separate property is distributed to your surviving spouse and child, one-half to each. If you have a surviving spouse and more than one child, one-third of the separate property goes to your surviving spouse and two-thirds goes to your children. The California probate code outlines further rules dictating who receives what based on their relationship to the deceased.
Typically, only those assets you own alone in your own name are those affected by the probate code/intestate succession laws. Assets that are NOT subject to intestate succession include:
- Assets held in a trust
- Property held in joint tenancy (such as real estate or bank accounts)
- Property that has beneficiary designations (IRAs, retirement accounts or life insurance)
- Securities held in transfer-on-death (TOD) accounts or payable-on-death (POD) accounts
The above assets will pass to the surviving co-owner or designated beneficiary, whether or not you have a will. Unless your assets are held in trust or with the beneficiary designations mentioned above, they will go through probate, which in California can end up taking 18–24 months and involve a multitude of fees amounting to 4% to 7% of the total probate estate value. In California, you can avoid the probate process if the total amount of the decedent’s personal and real property is less than $166,250 (2021). For anyone who owns real estate in California, that probably means you qualify for probate!
To avoid a lengthy and expensive process for your heirs, it is best to see an estate planning attorney to draft an estate plan. The five basic elements of an estate plan are a will, revocable living trust, durable power of attorney, advance healthcare directive, and authorization for release of protected health information (HIPAA release). An estate planning lawyer can make sure you have a valid will, including named guardians for your minor children and documents that ensure your desires for your health are carried out, and they can help properly title your assets into an appropriate vehicle such as a revocable living trust.
Please contact CCMI and we would be happy to answer any questions you have about this process and refer you to an estate planning attorney.
CCMI provides personalized fee-only financial planning and investment management services to business owners, professionals, individuals and families in San Diego and throughout the country. CCMI has a team of CERTIFIED FINANCIAL PLANNERTM professionals who act as fiduciaries, which means our clients’ interests always come first.
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