Why is probate a bad thing?

Avoid Probate!  Norman Dacey's 1960s book started the living trust revolution, and people took away at least this much of his message:  don't go to probate court.  Beyond that, most people aren't really sure why they're supposed to avoid probate.   The main reason is its cost.  The court costs and other costs are not too high, maybe $1,500 to $3,000, but the main expenses are the fees for the attorney and the executor.  They're based on the size of the gross estate (debts and liens are not subtracted from the total) and are $7,000 each to the attorney and executor for the first $200,000 of gross assets, 2% each of the next $800,000, 1% of the next $9,000,000, and 0.5% of the next $15,000,000. The court rules on the fee for estate amounts over $25,000,000.  The court can also allow "extraordinary fees" in addition to the fees above, usually for more complicated matters like selling assets, tax planning or dealing with disputes. Probate is generally required in California when one dies with or without a will, and the assets outside of trusts or beneficiary accounts are more than $100,000 in value. By contrast, the fees involved in settling living trusts are usually less.  Trustees, whose role is similar to that of executors, typically charge 1.5% to 0.75% on a sliding scale, with the percentage charged decreasing as the estate gets larger.  Attorneys can charge hourly or on a percentage basis, and their fees average between 0.5% and 1% of the value of the estate, with most being on the lower end of that scale.  Given the size of most estates in California, the administrative costs and fees for a trust will be less than those for a probate. The other advantage to trust administration is that it usually takes less time than a probate to settle.  There are still statutory waiting periods, but trustees can move faster without having to be tied to the court's schedule in getting hearings or waiting for orders to be approved and entered. So, probate is not a bad thing, and I've handled hundreds of probate matters, but given the choice, I'd say trusts and trust administrations are better, with less cost and stress for clients in most situations. Contact us at (888) 503-7615 or cjohnson@christopherbjohnson.com with your probate and revocable living trust questions.

Conservation easements

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One tool for estate planners is the conservation easement, by which a landowner voluntarily restricts his or her land from being developed, restricts the amount of development or protects existing features, like a building facade with historic value.

This may be particularly useful for families with a valuable family retreat they'd like to pass on to future generations, but whose value might mean a large estate tax.  With a conservation easement, the restrictions reduce the value so the estate tax is lowered, but the family members can still use the land as they always have and leave enough leeway for their future needs.

It can also be useful for owners of historic properties concerned about preserving them for the future--something like this may have saved one of my favorite properties, the Maslon house in Rancho Mirage, California, by architect Richard Neutra.  The original owners' children had to sell after the owners' deaths, and raised the price above market to attract what they thought would be an appreciative owner.  Indeed, the buyer swore he was truly in love with the house and would be a good steward, but less than 30 days later, he'd bulldozed the place to put up the Palm Springs equivalent of a McMansion.  I guess "good steward" is open to interpretation.  Actually, I've seen the same set of facts many times in my own practice--the buyers can promise all they want, but rarely are promises like keeping a house intact enforceable.

Had the original owners used a conservation easement, they may have been able to prevent the sale in the first place (as the need for cash to pay estate taxes would have been less or none at all) and also future destruction.  Trust, but verify.

The easement may also qualify for other tax benefits, but it should be carefully considered, as it's a permanent restriction on the land.


To determine the easement value, the land would be appraised at its fair market value without the easement restrictions, and also at its fair market value with the easement restrictions. 

On a different note, those living in historic properties in California should see whether they qualify under the Mills Act for lower property taxes--if so, they may see large reductions in their property tax.

For more information about conservation easements or other estate planning and probate questions, contact us today at cjohnson@christopherbjohnson.com or (888) 503-7615.

New estate tax law

It came, later than expected--there's a new estate tax and gift law, and it was worth the wait.  Estates under $5,000,000 will pass to beneficiaries estate tax free, and married couples can give double that amount.  The top tax rate has also been reduced, so if you're fortunate enough to have over $5,000,000, the tax rate has been lowered to 35%.

The other big news is that the gift tax exemption is once again unified with the estate tax, meaning the $5,000,000 limit applies to gifts you make during your lifetime as well, which means we'll probably see some large gifts being made over the next couple of years.

The only bad news is that these amounts are only in effect through 2012, when Congress will presumably agree on extending them or offering something even better.  If not, we'll be back to a $1,000,000 limit.

The new law means that very few people will be paying any estate tax.  Alan Rothschild, who chairs the American Bar Association's real property, trust and estate law section, estimates that less than one-half of one percent of people dying this year will leave estates owing any estate tax.  Back in 1977, 10.5 percent of estates paid estate tax.

Even if your estate is taxable, we still have plenty of options to reduce or eliminate it, and with the new limits, it's even easier to do so.

For the majority of people who don't have taxable estates, planning is a bit simpler now, but just as important as it's always been--a well-drafted plan avoids high probate fees, high conservatorship fees from incapacity and the wrong people getting what you have.  Contact us today at (888) 503-7615, cjohnson@christopherbjohnson.com or at our website to see how your plan can work with the new law.