Our Clients Save Thousands and Thousands of Dollars on Estate Plans
Estate planning is often put on the back-burner. Sometimes people never get around to it. However, planning ahead is important because doing so can save you thousands and thousands of dollars; especially if you live in Orange County. In this blog post, we’ll discuss the practical implications of planning versus doing nothing and eventually going through probate.
Key Takeaways
Probate is time consuming, expensive and often gets messy
Trusts and estates attorneys love probate because state-set fees are high, but we prefer those that plan ahead
Schlau Rogers clients save thousands and thousands of dollars on estate plans
According to Core Logic’s 2020 Home Price Index, which we’ve mentioned before, the median home price in Orange County is $900,000 (a 17.6% increase from 2020!). According to available demographic information from Onboard Informatics, the average net worth from an Orange County family, if increased by an equivalent percentage, is $981,408. For our purposes, let take note of the lesser $900,000 figure.
Now for probate. I’m sure you’ve heard of probate; that it’s expensive, you should avoid it, it can be messy, etc. All of this is true, but the key is understanding the practical implications of probate because more often than not, at least in my experience, this is what will move the needle for most people and get them planning ahead; because if you don’t plan ahead, there are very real consequences.
Before we get to the consequence that I want to focus on (and circle back to that $900,000), first let’s start with a general definition of probate:
Probate is the court-supervised administration of a decedent’s estate. It can be a long process, generally lasting between 8 and 12 months in California. There is something called simplified probate, which for certain eligible estates can be a way avoid a full probate; full probate being the version that lasts quite long in California.
Probate is also expensive. The state sets attorneys fees as follows:
4% of the first $100,000; 3% of the next $100,000; 2% of the next $800,000; 1% of the next $9 million; and so on. As you can imagine these fees get quite high.
On the one hand, as trusts and estates attorneys, we love probate because it means more fees. On the other hand, more fees isn't always the goal for us, even as business owners.
Actually, our ideal clients are your typical orange county family, married, with a couple of kids, a home and some retirement assets; maybe they own a small business; maybe they have some investment properties.
These clients typically see the value in planning ahead and thus avoiding probate. We earn markedly lower fees in providing planning assistance to this type of client. The reason we prefer this transactional-based estate planning to probate despite the lower fees is simply because we like working with people when they’re happy – things are good, lets check estate planning off our list.
Probate clients are in the midst of a very trying time. Usually we work with family members after the passing of a loved one. With all the weight of a death on their shoulders, they in turn have to deal with an attorney, a judge and a generally uncomfortable process that is out there for the world to see.
On top of that, probate usually gets messy. When money is involved, even the closest of families seem to run into trouble.
To avoid probate, you’ll need a trust. Having a will alone is not enough. In fact, a will guarantees you’ll go to probate.
To really see the consequences of failing to plan ahead and thus having to go through probate, let’s take that $900,000 into consideration. Let’s also assume that number is the value of the entire estate at issue – meaning there are no other assets and we’re just dealing with the value of the home (by the way if you’re thinking “most people have a mortgage, so doesn’t that affect the value” the answer is no, California only cares about the gross value of the estate).
So again, our number is $900,000. What are the probate fees for an estate of that size? They are $21,000. Of course your probate attorney fees would be higher if you used the $981,408 number we mentioned earlier. Either way, $21,000 is not an insignificant number at all. That’s a lot of money for most families, and a lot of money that in turn cannot be inherited, cannot go to charity, etc. If there us not enough liquidity in the estate to pay these fees, that means selling the family house, selling stock, etc. to cover attorney fees.
As is clear with the recent swing in the real estate market (17.6% in one year!), time in the market is obviously the surest way accumulate wealth. This is as opposed to trying to time the market, a nearly impossible feat – who had a global pandemic in the midst of a regional housing shortage, followed by a supply-chain fiasco on their 2020-2021 bingo card anyway?
If you’re forced to sell the family home, or sell family-inherited stock to pay attorney fees, there is a good chance you miss that next surge in price of your underlying asset; a tough pill to swallow and something that is not easily undone (unless you find more time, in which case, we need to chat!).
This situation is easily avoided by planning ahead. What we do with clients is sit them down in a complimentary consultation and go over the numbers. We’ll end up with a personal ballpark probate attorney fee versus the estate planning fee. The savings and benefits in most cases are very clear.
Our estate plans start at much lower numbers and can usually stay low for typical Orange County families. We’re talking about the potential to pay 1/10th of the above proposed probate attorney fee ahead of time to hang onto those assets and reap the rewards of time in the market. We’re no financial advisory firm, but sounds pretty good to us. In the end, this has saved our clients thousands of dollars, and working with people that understand this is great! We prefer it and believe we’ve developed lifelong partnerships that are valuable for everyone involved.
If you know of someone who is on the fence and needs some guidance as to the importance of estate planning, I’d be happy to run through the numbers with them.
To ensure you save money by planning ahead, schedule a strategy session today. Keep planning smarter.
Matthew Schlau is a co-founding principal of Schlau|Rogers and an estate and business planning lawyer practicing in Orange, San Diego, Los Angeles and Riverside counties. He is a husband, father, blogger, crossfitter, and really good at helping people achieve their goals.
At Schlau|Rogers, we do more than just estate and business planning, probate and trust administration. Our objective is to provide individually-tailored plans that allow you the opportunity to reach your goals, all while minimizing headaches and risk, and maximizing peace of mind.
On our blog, you'll find useful information about estate and business planning, probate and trust administration, as well as some tidbits on personal finance, taxes, and anything else we think will help minimize headaches, worry and risk, all while maximizing peace of mind.
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