4 minute read
Finance Savvy
Five Estate Planning Myths
BY SHELLI STRAHLE
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As parents and as partners, we work hard to provide the best opportunities for our children and to make sure our partners will be okay if something happens to us, but are we following through when it really matters?
MYTH #1:
My child is protected because I have life insurance.
You took out a $500,000 life insurance policy. Life insurance is a great way to provide liquidity in the event of your untimely demise. However, life insurance will not pay out to a minor. In the absence of a living trust with an adult trustee in charge, the funds will be frozen until an expensive and time-consuming Guardianship of the Estate proceeding is completed. The Guardian may have to request funds from a blocked account or be bonded. Once your child turns eighteen, he or she will have access to all the funds at once with no oversight.
MYTH #2:
My spouse will inherit everything so we do not need a living trust or estate plan.
Are you and your spouse both on title on your accounts? Frequently, married couples are both on title for real estate, but when it comes to banking or investing, many couples have individual accounts or business accounts. If the total value of all accounts is over $184,500, these accounts will be frozen upon death. The surviving spouse completely loses access to them. Probate or a Spousal Property Petition will be required in order to transfer the assets. Business accounts can be even more complicated depending on the situation. Just because you are married does not automatically mean that you inherit or that you will continue to have access to everything. The fantastic aspect of having a living trust in place is that even if your assets are not titled in trust, they can easily be transferred to trust by court order.
MYTH #3:
I don’t need a living trust. I am not wealthy. I only own a house.
The average home value in Santa Cruz County is over $1.4 million. When there is no living trust in place and real property is passing to someone who is not on title, the estate must go through Probate. Probate is a tedious court process that can take between five and twelve months to complete. Ordinary probate fees start at 4% of the fair market value of the real property at death even if there is a lien against the house. Mortgages do not reduce these fees. It will cost $27,000 to probate a $1.4 million estate. If there are other assets, the fee will be higher. This amount does not include filing fees, publication fees, appraisal fees, executor fees, or extraordinary fees. Probate subjects the estate to creditors, whereas living trusts can protect against certain debts such as Medi-Cal reimbursements. Administering a living trust post-death is usually easier, faster, and cheaper than Probate.
MYTH #4:
This is my common law spouse so we do not need to do any estate planning.
Common law marriage does not exist in California. Let me repeat that. There is no law giving rights to individuals who live together for a long time in California. This is a myth! If you want your nonspouse partner to inherit instead of your family, you need to create an estate plan and put it in writing.
MYTH #5:
I have a will so my family is protected.
Probate means “to prove” in Latin. Wills must be probated and proven to be valid in Court. Therefore, in many circumstances, you will not avoid Probate with a will if you have over $184,500 in assets. Moreover, your minor child cannot inherit the funds outright in Probate. When your child turns eighteen, he or she will inherit everything outright all at once and will thoroughly enjoy the new Ferrari.
Many people with young children, property, or both delay setting up an estate plan for fear of facing mortality, fear of making decisions, or fear of the associated costs. Setting up an estate plan is a gift for your loved ones. Protect them when it matters most.
Shelli Strahle is a local mom and the founding attorney of Strahle Legacy Planning Law Offices in Capitola, California. Ms. Strahle can be reached at Shelli@SantaCruzEstatePlanning.com or (831) 621-2165. Strahle Legacy Planning focuses on Living Trusts, Wills, Trust Administration, and Probate.
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