In our line of work, there are two main reasons why people come to an attorney for an estate plan. One is to choose guardians for minor children in the event that both parents pass away. That’s a great reason and is incredibly important. But what if you don’t have little ones running around? The other reason people usually want an estate plan is to preserve all the “stuff” (read: houses, bank accounts, family heirlooms, business interests, etc.) from falling into the wrong hands (the state, the IRS, creditors, estranged family members). The second reason, in its own way, is good too, but it doesn’t tell the whole story.

Start from the Beginning: What Happens to the Stuff When People Pass?

When a person passes away without a plan in place, the state (in our case, California intestacy law) decides what happens with all of the stuff left behind. There is a specific process, called probate, that includes gathering all of the person’s stuff (real estate, bank accounts, business interests, personal effects), determining the total value, satisfying any outstanding debts, and then distributing whatever is left to the deceased person’s family. The process is long, public, and incredibly expensive. Not to mention, if the stuff really should be passing to someone other than the nuclear family (as defined in the state’s default laws), it may never make it there. So, what do people do to avoid this situation? They write a will.

Even with a Will, Everything Has to Pass Through Probate

You’ve heard of people writing a Last Will and Testament to ensure that their stuff goes to the right family members or friends when they die. The will is also where people can make that important guardianship choice regarding who should step in to care for young children, if that situation arises. All in all, a will is an incredibly important document. But, there are a few things you may not know about a will.

Although wills are able to be much more specific about your intentions than the default laws in your state, they don’t actually avoid probate. Even with a will, everything has to pass through the probate process, which is still time-consuming, part of the public record, and — most of all — expensive. In the State of California, the whole probate process can end up costing between 3-6% of the total value of the estate, and that’s without any lengthy court battles about who gets what!

Be Honest, Who Really Benefits from a Well-Planned Estate?

A lot of attorneys out there are putting the guilt trip on Baby Boomers, reminding them that, if they don’t put an estate plan in place soon, their loved ones will be out of luck in the future. The standard narrative is this: 1) Get an estate plan. 2) Feel peace of mind knowing your loved ones are cared for. Of course, that sounds great, and a good number of people do end up getting their affairs in order just to feel like they’ve checked the box. BUT, let’s be honest, peace of mind isn’t a super persuasive pay-off. That’s why over 60% of Americans don’t even have so much as a will, let alone a probate avoidance estate plan.

Here’s the thing, Gen-Xers and Millennials, you, not your parents, are the ones who will benefit from their probate avoidance estate plan. And you are also the ones with the most to lose. Do you really want to go through the process of probate? Do you really want to have to wait twelve to eighteen months just to receive a dime from your parents’ wealth? Do you want the details of everything you will inherit to be available on the public record? And do you really want to lose 3-6% of the total value of your inheritance right off the top? Of course you don’t.

Let’s do the math. Say your parents own a home that’s valued at $550,000. And maybe they have about $75,000 in stocks, $30,000 in cash, and a $17,000 car. In total, that’s a $672,000 estate. You will lose, right off the top, about $33,000. Then, if they still owe anything on their house or to any other creditors, those debts will have to be paid back, too. Plus any additional court costs, appraisal costs, attorneys fees, funeral costs, the list goes on and on.

Surprise! Estate Planning is Actually in Your Best Interest

Take it from us — probate is not fun and you stand to lose a lot of money in the process. But, there is a way to avoid it. A probate avoidance trust is a relatively simple set of legal documents that keeps your parents stuff out of probate. This kind of trust, alongside a standard will, is a secure way to ensure that you are able to inherit quickly, easily, and without the hassle and expense of probate when your parents pass. To us, it’s a no-brainer. Sure, setting up a probate avoidance trust costs a little money now, but it’s nothing compared to what you will save in the long run. Talk to your parents. If they aren’t willing to put up the money to create a trust, consider offering to pay for it yourself. After all, it’s your money to lose. Consider it an investment in your future.

Want to learn more about setting up a probate avoidance trust to protect your inheritance? Give the Trust Brothers a call at (626) 331-1515.