I remember a few years ago when I was a third-year law student, I put together a very basic estate plan for myself. I went over to a relative’s house to have my will witnessed, and the relative asked why I was preparing a will and estate documents. It was a good question, as I had no kids and was dirt broke. I told my relative that the bottom line is that if failure to plan is the number-one reason families pay dearly in legal fees and have disputes with one another after the death of a loved one, then I wanted to make my wishes clear. I then asked my relative if he had a plan, and the answer was no, with crickets in the room.

I have been encouraging this particular relative and his spouse to make a plan for a few years. Unlike me, this couple has multiple pieces of real property conservatively valued at about $1.5 million. I am going to briefly walk through the financial consequence of not planning properly.

Without a proper plan, it is more than likely that the surviving spouse or family member of my no-plan relatives will likely end up in court to transfer their property. As many know, going to court costs money for attorney’s fees and court fees, not to mention that the court process is slow and all your family’s business is open to public inspection.

Going back to my no-plan relatives, if the surviving spouse has to probate the deceased spouse’s share of property, that spouse will have to shell out some cash to probate the estate. What is worse is if both spouses are deceased, the estate will be subject to a full blown probate proceeding subjecting love ones to statutory legal fees per a commission schedule set out in California Probate Code § 10800 based on the following:

  •             4% on the first $100,000 or fraction thereof;
  •             3% on the next $100,000 or fraction thereof;
  •             2% on the next $800,000 or fraction thereof
  •             1% on the next $9,000,000 or fraction thereof;
  •             ½ of 1% on the next $15,000,000; and
  •             A reasonable fee on the excess over $25,000,000

Thus, my no-plan relatives could be leaving attorney’s fees of $28,000.00 for an estate valued at $1.5 million dollars! These fees, along with costs of administration of the probate, will be taken out of the estate before monies are given to love ones. Compare that to proactively creating a no-nonsense living trust for a few thousand dollars that could avoid probate and build greater benefits protections and flexibilities for the surviving spouse and love ones. A living trust can be used to protect your gifts to love ones from the hands of creditors or even your love one’s divorcing spouse. A living trust can also be used to advance your family, such as help a love one get through college or help them start a business.

Mind you, this scenario doesn’t even take into consideration the possibility of one of my no-plan relatives becoming incapacitated and unable to take care of himself or herself, and the other one has to get a conservatorship over the other. This lack of planning could leave the spouse seeking a conservatorship spending thousands of dollars to initially set up and then maintain it, plus all the costs of handling the conservatorship, appearances, and reports that must be submitted to the court. The bottom line is that poor or no planning could lead to your legal counsel being the unintended beneficiary of your estate! You need to at least have a will, with advance health care directives and financial powers of attorney. If you have real estate assets, you need to be thinking about a living trust as part of your estate plan.