The Four Pillars of a Good Estate Plan in California

There are many reasons you want to avoid probate court, says Alejandra Rodriguez, an estate planning attorney with an eponymous firm in San Diego, but two of the biggest are fairly simple to understand: time and money.

In San Diego, Rodriguez says, “it’s averaging a year, a year and a half [to go through probate], and that’s for really easy estates. It’s not that it’s an extremely difficult process, it’s just that—at least in San Diego—there are only three probate judges. So it does take a while to get a hearing date and work your way through the processes that need to happen.”

And then there’s the money. The probate code has a statutory fee schedule that determines how much is paid the attorney and the executor/administrator, and it’s the same for both. “So it’s a double whammy. You’re paying it twice: a fee to an attorney and to the administrator,” Rodriguez says. “It’s really, really expensive.”

As an example, Rodriguez posits a home with a market value of $1 million going through probate. “Attorney fees would be $23,000 and executor fees or administrator fees would be another $23,000. So really it’s about $46,000 in fees for a million-dollar home,” she says.  

And this is regardless of how much equity is built into the home. “If the fair market value is a million dollars but you have a mortgage of 800,000, doesn’t matter, the fees are still going to be based on the million-dollar fair market value. So that’s another hit to the family that’s not so pleasant.”

All of which indicates you’d better have a good will in California, right?

Not so fast, says Rodriguez.

Sure, she adds, if you’re married, and a property is jointly owned, and if your will stipulates that your half goes to your spouse, no problem, you’ll avoid probate court. But if that property is just in your name, even with a will, the property will most likely have to go through probate.

“The way to avoid that is you create a trust,” Rodriguez says. “You transfer the property into the trust. And by doing that, now we avoid probate.”

Rodriguez estimates that 90% of her estate-planning clients choose the trust option. She adds that it’s not the value of the assets that determines which way they go, it’s the type of assets—as well as the type of beneficiaries. For a man with two minor children and a life insurance policy worth, say, $200,000, she says, “having a trust would be beneficial because you want to make sure that your minor children are taken care of. And you do that by putting the proceeds of that life insurance policy into the trust for their benefit. And on the flip side, if a person has a $10 million policy, but is unmarried, no kids, and just wants everything to go to charity, maybe that person is going to say, ‘Ah, I just want to keep it simple. I’m just going to do my will. I’ll just name the charity directly on that life insurance policy and be done with it.’”

But for most clients, Rodriguez recommends a living trust.

Within the legal document, she says, there are three different roles:

• The creator of the trust, or trustor
• The administrator of the trust, or trustee
• The beneficiary or beneficiaries

When a person is creating a trust for the first time, she adds, “They’re going to be filling all three roles. They’re the trustor of their trust, they’re going to continue to be the trustee of their own trust, and during their life, they’re going to continue being the beneficiary of all of their assets.”

You could say the trustor is also a casting director, since they have to figure out who plays the other roles once they’re gone or incapacitated. Rodriguez recommends naming not just one successor trustee but several alternates in case anything happens to the first. Beneficiaries can be as simple or complex as you’d like them to be.

The trust is what Rodriguez calls the first pillar of the four pillars of a trust plan. Two of the others are: a financial power of attorney and an advance healthcare directive, in case you become incapacitated and can no longer manage your own affairs. The fourth is a pour-over will—in the event, Rodriguez says, an asset was forgotten about or was acquired after you created the trust and never got around to adding it. Since this asset will probably have to go through probate, the pour-over will “lets the judge know … this is just going to get transferred right into the trust,” Rodriguez says.

Generally, you want the successor trustee and the power-of-attorney agent to be the same person, Rodriguez says. “If you’re incapacitated, it makes it easier when the same person is managing things inside of the trust and things outside of the trust.” This is less true for the healthcare directive, she adds. “Because the qualities you’re looking for in someone to manage your financial decisions are very different than the qualities of a person you feel is best equipped to make medical decisions on your behalf.”

For more information, see our overview of estate planning and probate law, or reach out to a reputable estate planning & probate attorney in California for legal advice.