I’ve spoken to you on numerous occasions about what I do, estate planning, trusts and probates, and today I brought some friends I met on my last cruise to help visualize the 3 most common reasons people come to do estate planning with me: the Probate Penguin, the Tax Turtle and the Fish Family, and of course my son named all these. They look soft and cuddly and they are, but they can also get in the way of proper estate planning so I want to talk to you about the three reasons people do estate planning. The first is to avoid probate. The most common mechanism we use to avoid probate is the revocable living trust and I’ve had the pleasure of assisting many people in this room with their own revocable living trusts, probates, and trust administration. What we do for a trust is draft a trust document and if you own real estate in California, we include that in the trust and that’s the most simple process to avoid probate. When you don’t do that, the probate Penguin appears and can really slow you down because your assets get frozen for a period of time, usually over a year to get your assets out of the Probate Penguin’s grasp. There’s usually a 2-month period to get the administrator or executor appointed, after those months there’s another period of at least 4 months for creditors to come forward and file claims. Legal claims, medical bills, hospital bills, tax bills, and so forth, so it takes so long because it’s the slow process of getting everything cleared so the title can move on to your heirs. The probate penguin likes being in the spotlight, probates are very public proceedings, we all learned that from the Michael Jackson probate and all the dirt going on because it’s a public record. The same thing can happen to you, all your assets are listed by the court, appraised by the court, and at the end of the probate, after a year or so, names and addresses of your beneficiaries are listed, exactly what they inherit, and what they’re worth, so if you like being in the probate penguin spotlight, that’s what you do. It’s something one of these creatures you don’t have to visit if you do a proper trust.
The second reason people do proper estate planning is to avoid the Tax Turtle. The tax turtle is friends with the IRS, again, they look soft and cuddly, but they’ve got a hard shell, and it’s hard to break through a tax barrier when you owe the tax. Taxes can snap a large portion of your estate. A couple of days a go, we were teetering on the fiscal cliff and that was going to have a huge impact on estate taxes. Had Congress not compromised, there would have been a 55% tax on every estate over $1 million, so that would have been a huge loss to beneficiaries. But in this case, Congress did make that compromise and make the estate tax exemption of $5 million including inflation and they did make the rate 40% instead of 55%. So this does help estates below $5 million but at our office we still watch out for that tax turtle so he doesn’t snap your estate and people with estates over $5 million should include that in their trust.
The other time you should see us, anytime there’s an estate administration, if you’re an administrator and your spouse is deceased, there is a new provision from 2010 that allows a spouse to utilize the deceased spouse’s estate tax exemption, but you have to do it within 9 months after your spouse passes away, so that’s something you can do and Congress just added it to the estate tax bill so it will continue, so it is important to avoid the tax turtle by seeing us for proper advice when you’re handling the estate after a death.
The one that got away, here’s the Fish Family, the third common reason people do estate planning, to protect and give instructions to your family and beneficiaries. Sometimes there’s just one fish, sometimes there’s a whole school of fish, but sometimes, they’re not as cute as this one, or as smart as this one, sometimes they get away, sometimes they get trapped in nets, so we’re here to help your family and help you stay out of the nets. Sometimes your fish are good, sometimes they’re slimy and rotten, so when you schedule a complimentary estate planning appointment, we can talk about it, we’ll listen to your fish stories, some people tell me their estate is this big when it’s really this big, but it’s important so we’ll listen to your story.
The moral of my story is between the probate penguin, tax turtle, and your fish family, there’s a lot of creatures out there, and when you’re ready to discuss it, you can see I’m creative in thinking about estate planning, I can be creative in crafting your estate plan, so I invite you to come in and take advantage of your Le Tip relationship for a complimentary estate planning meeting and you can tell me your fish stories.
Before I go, I want to remind you that some attorneys out there are sharks. You don’t want that, instead, let me work for you and take care of these creatures so you’re in control of your own estate planning and don’t get eaten by the sharks. So remember, Alban is the man for your estate plan.
You mentioned a law about spouses 9 months after a death?
That is an estate tax law. It allows you to utilize your deceased spouse’s unused estate tax exemption. So if your spouse passed away and was worth $3 million and isn’t using $3 million of their exemption, if you file an estate tax return and show that, you can claim that $3 million in addition to the $5 million exemption you have and when you pass away, you might be able to shield $8 million from the IRS.
What creature would you have used for the IRS?
We might have used a giant squid, squids have tentacles on every arm, so maybe next Christmas or Hanukkah we’ll allow a squid for my son.
Regarding the inheritance taxes, the $5 million exemption and the rate is 40% on every amount above the $5 million?
Yes, and it’s indexed for inflation, so this year it’s currently $5,120,000 so if you haven’t used that amount in your lifetime, it’s excluded and wouldn’t be subject to an estate tax, but everything over that does go to the IRS at 40%. And it’s due within 9 months after someone passes.