Aretha Franklin Died Without a Will or Trust. Now what?
I was fairly surprised to hear that Aretha Franklin, Queen of Soul, died without a trust or even a will – she died intestate. She was 76 years old at the time of her death and her net worth is estimated in the high $10s of millions. If Ms. Franklin had prepared an estate plan, her heirs would be inheriting substantially more money. Why? Because her estate plan would have allowed her estate to save a huge sum of money on probate costs and on federal taxes.
When a Californian passes away without a Will or an Estate Plan, the deceased person's estate, will potentially have to be probated. There are a few short-cut methods for married people with only community property and for others with low value assets. However, the general rule is that an estate with a value over $150,000 in assets will have to be probated (note, the value of any liens is not taken into account and does not reduce the value of the asset for this purpose).
As I have written about before, probate fees for the personal representative and the attorney are sizable in California. In addition, there are other costs such as filing fees, probate referee fees, sales commissions to real estate agents, and publication fees, to name a few. Just avoiding the cost of probate is more than worth the time and expense of an estate plan.
Probate cases also take a considerable amount of time. Uncomplicated estates without litigation will still take many months to work its way through the courts but if heirs begin fighting amongst themselves or sue the personal representative, the end of probate will be stretched out further. It is only at the end, after the judge approves distribution, can the heirs get their share of the estate. Litigating reduces everyone's inheritance.
If the deceased person is very wealthy, then their heir's inheritance will be reduced considerably by taxes. Fortunately, for someone who dies in 2018 and owns less than $11,180,000 in assets, their estate is not going to be required to pay federal estate taxes. For the few people who do have more than $11,180,000 in assets, their estate will be heavily taxed if they have not taken care to make an estate plan. Ms. Franklin's heirs are going to see Uncle Sam take his 40% cut on the value of all assets in excess of $11,180,000. Ouch.
Alas, you do not have to be a millionaire to find additional benefits for estate planning in comparison to intestacy. Your estate plan will provide clear instructions for many things, from the care of your minor children to your choices of health care during any time when you cannot speak for yourself. You can protect your children from a prior marriage from getting disinherited altogether. You can make sure that your grandchildren are not disinherited. You can ensure that your loved ones do not have a hard time taking over finances if you no longer have the capacity to do so.
A Revocable Living Trust is the heart of the estate plan, not only will it prevent your estate from having to be probated, it will protect you and your loved ones better than anything else out there.