The following are some frequently asked questions we receive at the Bedell Law Office regarding estate planning, probate administration and estate taxes. If you have a specific question or would like further information, please contact the Bedell Law Office in Sacramento. We serve clients in Sacramento, San Benito, Placer, Monterey, Yolo, Santa Cruz, Santa Clara and Alameda counties.
A: If a person dies without a will or trust, their estate is referred to as an “intestate” estate, and will be distributed to the deceased person’s heirs as defined under California’s laws governing intestate succession, and probate administration of the estate may be required. Unfortunately, California’s laws regarding intestate succession are based on a determination of who is the deceased person’s next of kin, without regard to the intentions of the deceased as to who they would have named as beneficiaries. The best way to ensure that your estate will pass to your intended beneficiaries is to create a will and/or trust.
A. A comprehensive estate plan offers several advantages, including providing a plan in the event of future incapacity, probate avoidance, ensuring that your assets will be distributed to your intended beneficiaries in the manner you specify, and allowing you to name the person(s) who will manage and distribute your assets rather than having someone appointed by the court. There are also definite tax advantages to planning ahead, which are discussed below.
A. The answer depends upon the size of the deceased person’s estate and whether probate administration will be required. If a person dies with assets titled in their name, subject to some exceptions for a very small estate, probate administration will be required.
Probate refers to the process where the court oversees the administration of a deceased person’s estate. The purpose of probate administration is to ensure that any final bills and expenses of the decedent are paid, including any taxes owed, and any claims by creditors settled. Probate is a costly, time consuming process. Probate fees in California are high, and generally fall into three categories:
The fees paid to the personal representative and the attorney are set by law and computed upon the gross value of the estate as follows:
It is important to note that the gross value of the estate is based upon the full value of the assets of the estate, not taking into account any mortgages, debt or other encumbrances on the asset. For example, the deceased may have a home with a value of $500,000 and a mortgage of $475,000. The fee to probate the home would be based on the full value of $500,000, not the $25,000 net value of the property ($500,000-$475,000).
A. Failing to do any estate planning may also result in higher estate and generation-skipping transfer taxes. The 2010 tax act made significant changes to federal gift, estate, and generation-skipping transfer taxes (collectively referred to as “transfer taxes”). For 2011 and 2012, the exemption from federal estate taxes will be $5 million (reduced by certain lifetime gifts, and adjusted for inflation in 2012), with a 35% tax rate on the portion of the estate above the exemption. However, the new law is due to “sunset” in 2013 unless Congress and the President agree on a different result. Beginning in 2013, the exemption will generally be $1 million, with transfer tax rates as high as 55%.