From a website (, comes some good "basic" information regarding Estate Planning. NOTE: this website contains "outdated" numbers, but serves as a good "primer" for understanding this complex arena.

A well prepared "Estate" package should include the following:


The following are meant to provide you the "basic" understanding of terms and what the various "instruments" are meant to do.



ESTATE PLANNING means, simply, anticipating that you will die, and planning an orderly transfer of your assets to your intended beneficiaries. The simplest of estate planning is to write and keep a Last Will and Testament. Depending upon the unique needs of the individual, estate planning may take the additional forms of a Revocable Living Trust, Advanced Tax Planning, Gift Giving, and numerous other vehicles for avoiding costs, taxes and headaches of estate administration.

When you die, your assets are transferred to your beneficiaries in essentially three different ways.


First is property owned by you in your own name, i.e., a bank account or house in your name. This property will pass either (i) to your beneficiaries through a Will, or (ii) to your natural heirs if you do not have a Will. If you do not have a Will, your property passes according to the laws of "Intestacy", in other words according to the laws of intestate (Latin for "without a will") succession of your state. If you have a Will, you are deemed to have died "testate", i.e., with a will.

Second is property owned by you in your own name, but either owned in joint tenancy, or having a "beneficiary designation". Joint tenancy property is typical where a husband and wife own their home in joint tenancy. Upon your death, this property passes directly to the surviving joint tenant by what is called "right of survivorship". Property with a beneficiary designation could be an IRA, pension or life insurance plan with a named beneficiary. At your death this property passes directly to the surviving beneficiary, and is not a part of your probate estate. Property held in joint tenancy or with a beneficiary designation is said to "pass outside of probate".

Third is property owned in the name of a separate legal entity, such as a trust. Although you set up a trust and, during your lifetime have full power to modify or even revoke the trust, upon your death the assets are deemed owned not by you but by the Trust. Thus, at your death these assets are not probated, but pass according to the terms of the trust.

Only those assets owned by you in your own name, not in joint tenancy, in trust, or with a beneficiary designation, are subject to probate administration upon your death. Although this sounds like a small slice of the pie, in reality most persons own their assets in their own name at their death. For purpose of this discussion, we shall call these assets "probate assets".

Again, if you have no Will upon your death, your probate assets pass in accordance with the laws of your State. Although state laws differ, in general the laws of intestacy divide your separate property as follows. If you are survived by:

Spouse and no children: all to your spouse

Spouse and one child: 1/2 to child, 1/2 to spouse

Spouse and more than one child: 2/3 to children, 1/3 to spouse.

No spouse and children: all to children equally

If you have a Will, your probate assets will be distributed, after payment of your debts, as set forth in your Will.

Most states also have a summary procedure whereby probate is avoided if the assets are below a certain value, or if the only heir or beneficiary is the spouse of decedent. For example, in California, if the assets of Decedent are valued less than $100,000 (property held in joint tenancy or with a beneficiary designation is not counted toward this $100,000, and no more than $10,000 of this $100,000 can be held in real estate), probate can be avoided entirely.

Whether Decedent dies testate (with a Will) or intestate (without a Will), if PROBATE is required, the following steps are usually followed:

1. The original of the Will is deposited with the Court (if any).

2. The EXECUTOR named in the Will (if there is one) or a person entitled to be the ADMINISTRATOR (if no Will) files a Petition for Probate of the Estate. Prior to being appointed Executor or Administrator (commonly collectively referred to as the "Personal Representative"), the filing of the Petition for Probate needs to be published in a local newspaper.

3. Generally, for a period of four months from the date of publication of the Petition for Probate, creditors of the Estate can file claims against the Estate. This would include any prior creditors or judgment holders, debts resulting from last illness, funeral expenses, taxing authorities, etc.

4. During this time period, the Personal Representative ("P.R.") has a duty to identify and collect assets of the Estate. In this regard, the P.R. finds all bank and security accounts, debts owed to Decedent, property owned by Decedent, and the like. The P.R. also has a duty to maintain the assets in good condition, and to collect income for the Estate. This consists of maintaining insurance coverage, protecting assets from waste and theft and damage, collecting rents, etc. The P.R. may also sell (liquidate) assets such as cars, residences, etc.

5. When the four month Claims period has expired, and when all assets have been collected, real property sold, and assuming no problems have cropped up such as a legal fight amongst the beneficiaries or heirs, the P.R. then files a petition with the probate court to allow a distribution of all remaining assets to the beneficiaries/heirs, and files a detailed accounting with the Court setting forth all monies received, monies disbursed, how assets were invested, and the proposed plan for distribution.

6. If the Court approves the P.R.'s plan, the P.R. then divides the assets as set forth in the Will, or if no Will, as required by statute.

The probate process outlined above describes the general probate requirements in outline form only. Obviously, there are many very technical and specific procedures in the probate process required to carry out these steps. As a result, in many states probate law is specialized to the degree that most attorneys will not handle probate matters, but refer them to probate specialists.

The probate process could be completed in a minimum of about 6 months, but usually takes longer. Some reasons for delays are: will contests; property cannot be sold; the probate attorney is inexperienced in probate and requires repeated continuances of required hearings; some claimants were not notified in the original four month period and must be re-noticed; the probate attorney is busy.

Unless waived by the P.R., usually both the P.R. and the attorney for the P.R. (the probate attorney) are entitled to compensation for their services.

When using a Revocable Living Trust, the time and costs involved with probate are substantially reduced. With a single Grantor Trust, an attorney's involvement, following the death of the Grantor, is usually not necessary, and the collection of estate assets, and distribution to the trust beneficiaries can be handled by the Successor Trustee. Consider working with your us (your C.P.A.) to accomplish this. With a dual Grantor Trust (Husband and Wife being the Grantors), either an attorney or an accountant should be consulted after the death of the first Grantor so that the Trust is properly divided into the Decedent's Trust and the Survivor's Trust. However, the extensive court supervised administration prevalent in probate administration is not needed, thus attorney's fees as well as time required for administration are substantially reduced.

This provides you with the basics of Estate Planning. Next is a discussion of the various "instruments" involved.







What is a Will?

A Last Will and Testament is written directive of how you want your estate to be handled. It may include instructions on how to dispose of your remains, who is to handle your affairs after your death (the Executor), who is to be the guardian of any minor children (if no other parent is living or responsible for the children), who to give your assets to (naming the Beneficiaries), and many other potential matters. A Will can be very cryptic (few words) or it can be a "book".

Will & Testament Trivia
Under old common law, there used to be a separate writing disposing of real property (real estate) called a Testament, and a separate writing disposing of all other personal property (all other property) called a Will. Thus the archaic phrase "Last Will and Testament". At this date the name "Will" is recognized as covering both real and personal property, although many users still use the long, Will and Testament terminology.

Is the Will Valid?
Because Wills are directives meant to survive the death of the Testator, the laws are very precise as to what is a valid Will, and what will be disregarded as a valid Will by the Courts. The main reason behind these precise rules is to prevent fraud and to insure the authenticity of the writing. After all, the person best suited to testify if the writing is real or a fraud is dead and unable to testify.

Holographic Will
A will written entirely in the handwriting of the Testator is called a "Holographic Will". Thus, a single piece of paper that says nothing more than "This is my last Will. I give all that I own at my death to XXXXX", and that is dated and signed, is sufficient to be a valid Will. However, if any part of this writing is not in Testator's own handwriting, it will be held invalid. In addition, upon Probate of the holographic will, the court will require proof of a person familiar with the Testator's signature to proof the genuineness of the document. A holographic will does not have to be witnessed.

Witnessed Will
If the will is not holographic, i.e., it is printed, the Testator's signature and intent will have to be witnesses by at least two witnesses (three in New Hampshire). When signing the document, the Testator has to signal his knowledge that the document he/she is signing is his/her last Will. Both witnesses have to be present and watch the Testator sign the document, and both witnesses should then watch each other sign the witness declaration of the Will. To avoid will contests in the future, the witness declaration invariably contains a clause that the Testator seems of sound mind, and is not under any sort of coercion or duress in signing the will. Obviously, if the Testator seems to be mentally incapacitated to the witness or witnesses, they should not affirm by their signatures that he is of sound mind.

Witnesses may not be Beneficiaries
Most, if not all states have laws that automatically "disinherit" any person named as a beneficiary in a Will if that person is a witness to the Will. The reason behind this law is that a witness may not be truthful in his or her statements (that the Testator was the person who signed the Will, was of sound mind, etc.) regarding the execution of the Will. Therefor, make sure that if you are, or may be a beneficiary under the Will, either as a spouse, child, lifelong friend, etc., you do not witness the Will but have another person witness the Will.

Following Formalities
Make sure that the rigid formalities shown above are followed. If not, the Will may be deemed invalid. If the Will is deemed invalid, either a prior will, if any would be held valid, or the court may decide there is no valid will, in which case the estate would pass under the laws of intestacy. Either way the estate will not pass in the manner desired by the Testator, to the detriment of at least some of the named beneficiaries.

Changes to Will
Lastly, make sure that you review your Will after any material change of circumstances regarding your family make-up. A marriage or divorce is typical. For example, most state's laws presume that if your Will pre-dates your marriage, that you forgot to include your spouse, and awards your spouse the share she would have received had you died intestate. (The law would call her a "pre-termited heir") This could be devastating if, for example, you were both well off, and it was your intent to leave your estate for benefit of your parents who needed the monies. If this happened your spouse would receive all of your property and your parents none. Another example is a married couple where each spouse gifted their property to the other spouse, and after the Wills were executed had a child. If the Will is not changed, at one spouse's death the child is deemed a pre-termited heir and is entitled to receive his or her share as if there was no Will. In this situation a guardianship would have to be established to hold the monies received by the minor, and the spouse would have no independent access to this property.
Changes to the Will can be made by writing a new Will. The law presumes that by writing a new Will, the Testator wants to revoke the prior Will. Despite this presumption, most Wills include the phrase "I revoke all prior Wills (or to that effect)".
Changes to the Will can also be made by writing a Codicil. To be effective, a Codicil should make specific reference to the prior Will, and makes additions, deletions, or amendments to the prior and still effective Will. As with Wills, a Codicil can be holographic if written entirely in the Testator's hand, or can be witnessed, in which case it must follow all formalities of a witnesses Will as shown above. A witnessed Will may be amended by a holographic Codicil.

The laws of each state differ slightly with the formation and interpretation of Wills. However, the basic principles set forth above are followed by each state, and if followed the procedure for making wills discussed above, and followed in the Free Will & Testament with this service, produces a valid and legally binding Last Will & Testament.




Probate Fees and Costs Savings:

Probate is a complicated, very detailed and time consuming process, principally to insure that all proper safeguards are followed so that:
- all debts are paid;
- all heirs and beneficiaries are properly protected; and
- no assets of the Estate are stolen.
Probate fees and costs (usually called expenses of administration) in some States are based on the appraised value of the Estate (fair market value, not equity), and in other States are based on the amount of work reasonably performed by the probate attorney.
For example, in California the executor AND the attorney for the executor are entitled to 4% of the first $15,000 of Estate value, 3% of the next $85,000 of value, 2% of the next $900,000 in value, and 1% of the next $9,000,000 in value. Assuming we have an Estate consisting of a home worth $400,000, both the Executor and the attorney are entitled to probate fees of $9,100, regardless if the home is unencumbered or has mortgage of $300,000. If the home needs to be sold, the attorney is usually entitled to an extra-ordinary fee of $750 to $1,000 to do the house sale. Other expenses associated with a probate would include publication of notice of death fee, appraiser fees, filing fees, and other miscellaneous probate costs.
With a Trust, at decedent's death the Successor Trustee, usually a family member, does the same things the Executor in a probate is responsible for. The Successor Trustee collects Decedent's assets, pays just debts, and distributes the assets according to the Trust terms. Because the assets are owned by the Trust, they are not subject to probate administration, saving the money normally paid as probate administration expenses. If an attorney or an accountant does have to be retained, the time and expense involved will, in most cases, be greatly less than that required in probate proceedings.
A probate proceeding normally cannot be completed in less than 5 months, and often takes from 9 to 12 months. With a trust the transfer of assets can be completed in as little as a few days to a month.
Court records, and all documents in the file, are open to public scrutiny. The contents of the Will, the assets in the Estate, debts and claims against the Decedent, and who gets what is public record. With a trust only the Trustee and the Beneficiaries have access to this information.
Guardianship Issues:
Minors are not deemed capable to manage their own financial affairs. If your children are minors at the time of your death, an insurance company will not pay to them the policy proceeds, nor will any brokerage firm or bank allow them to withdraw or manage the funds in the accounts. Without a trust handling these financial affairs, state laws require that a guardianship for the benefit of the minors be established. A guardianship has at least two main detriments: first, similar to a probate proceeding, most or all actions require court approval, there is need or extensive court supervision and corresponding attorney's fees and costs; second, a court will generally not allow investment of funds into anything but a FDIC protected type of investment, i.e., an insured bank account offering 2 - 3% return. Mutual funds or the like are generally off limits. Holding $100,000 over ten years with a 3% return, as opposed to an 8% return makes a substantial difference when the minor reaches 18 or 21 years of age.
Additionally, a guardianship typically ends when the minor reaches 18 (in some states up to 21) years. Most parents don't feel comfortable with their minor having access to a $500,000 insurance policy check at age 18. A trust allows such funds to be held by a Trustee and disbursed as needed by the minor for education or other demonstrable need. Many Trusts prepared by the authors of this service require a disbursement of 1/3 of the Trust principal at the minor's 25th birthday, one half of the remaining principal at age 30 and the remaining principal at age 35. The complexity of distribution is only limited by the imagination.
Estate Tax Savings:
NOTE: The following numbers - show on the website are outdated. The current amount of an estate (of a someone dying in 2002) is $1,000,000.
I have left the original text "as is". Estate maximums are changing each year. When we do Estate Planning for you, we will use the "current" numbers and limits.


To continue….
Estate taxes are charged against a decedent's assets which exceed $600,000. Thus, a decedent who had $1,000,000 in assets will pay taxes of $153,000. With a married couple, a properly drawn trust, commonly called an A/B Trust, results in the first $1,200,000 of the couples assets being protected, as opposed to only $600,000, thus saving $153,000 in Estate Taxes.
As you can see, a trust is beneficial for many reasons. It saves privacy, time, and most important, money for your heirs and loved ones which would otherwise be taxed by the federal government. As a rule of thumb, if the laws of your State require probate administration to distribute your assets following your death (usually based on the value of the Estate), a Trust is cost-effective and recommended.
Attorneys normally charge from $300 to $1,000 or more for a trust or a Complete Estate Planning Package. Even with computers, the price has not come down much. Most law offices are not sufficiently automated, and estate planning packages still take 2 to 5 hours to prepare. Attorneys still have to pay for overhead, office, secretaries, malpractice insurance, etc. It is doubtful an attorney will even prepare a simple will for less than $75. Added to these costs are the costs and inconvenience of travel to the attorney's office, time off from work, parking fees, and the like.
Despite the time it takes for an attorney to prepare an Estate Planning Package, most trusts and related documents contain very similar components. For 80% of the population, the Estate Plan which we can help prepare will be sufficient. Those persons with complicated distribution schemes, with very unique assets, or other unique situations, will require additional measures and probably some discussions with an attorney. For those single persons who have more than $600,000 in assets, or those married couples who have more than $1,200,000 in assets, this package may be appropriate for you, but you should also see Further Tax Saving Techniques to lower their Estate value to less than these thresholds, or seek individual legal counsel to obtain further tax savings techniques which are beyond the ability of this Trust. However, for most of us with modest assets, a home maybe, some securities, some life insurance, or other assets typical of the middle-class American population, this Trust will meet your needs without having to employ an attorney.










A/B Trust Basics:

The purpose of an A/B Trust is to save estate taxes (death taxes) which are assessed by the IRS at the time of death. An A/B Trust only works if you are married at the time of your death. Here is how.

First some basics:
The federal government allows every person to give away, either through lifetime gifts or upon death up to $600,000 without being taxed. This is known as your Lifetime Exemption. (Actually, each person is entitled to a $192,800 credit against the tax owed, and is called a Unified Credit against tax, which is the tax you would have to pay on $600,000.)

Any assets exceeding this $600,000 are then taxed at a progressive Estate and Gift rate beginning at 37%. NOTE: No one pays Estate taxes at this rate, since a "credit" is given for the first $1,000,000. Thus the rate at which a decedent's estate begins being taxed is 55% (the first dollar above the $1,000,000 credit)

Also, the Internal Revenue Code allows any married person to gift, or leave at death, to their spouse an unlimited amount of assets - millions or billions, it doesn't matter. This is called the Unlimited Marital Deduction.

Married couples typically have reciprocal Wills which give their property to the other spouse, with the assets going to the children after the Surviving spouse's death. This procedure wastes the first to die spouse's Lifetime Exemption, and "overfunds" the Surviving Spouse's estate. The use of an A/B Trust prevents this "overfunding of the estate", and uses both lifetime exemptions, effectively shielding $1,200,000 (this limit is being by using both spouse's Lifetime Exemptions.

(Obviously, the first to die spouse could easily provide in the Will that assets should go directly to the children, and not to the Surviving Spouse. However, this is usually (a) not desired, (b) not practical when the children are minors, young adults, or not even born, (c) assurance is required that the Surviving Spouse is adequately protected through his or her lifetime, and (d) avoids the high cost of probate.)

Here is what happens if Husband and Wife have no A/B Trust:
Assume the following facts:
Husband and Wife have assets worth $1,200,000. Husband dies, and leaves everything to Wife. This is the manner most married couples leave their property through their Will, so that the surviving spouse has use of all assets, and that at the surviving spouse's death all of the assets will be gifted to the couples' children. At Husband's death, there are no taxes due because of the Unlimited Marital Deduction.

Wife lives another 10 years. Assume the couple owned are assets that appreciated $100,000 in value (stocks, real estate, etc.), over that 10 year period. At Wife s death the assets now have a total value of $1,300,000.

Wife dies leaving everything to her children. Of the $1,300,000, Wife's Lifetime Exemption protects $600,000, leaving the upper $700,000 subject to the Estate Tax over the $600,000 Unified Credit. At our current tax level, Wife's estate will have to pay $277,000 in estate taxes. The kids get $1,023,000, not $1,300,000.

What happened in this scenario is that Husband and Wife wasted Husband's $600,000 Lifetime Exemption. Not only does this waste the $192,800 Unified Credit, but the excess $700,000 portion is taxed at a much higher rate than the first $600,000 (progressive rates), and in addition the $100,000 appreciation in value is taxed. The couple has, what is called, overfunded Wife's Estate by wasting Husband's $600,000 Lifetime Exemption.

Here is what happens with an A/B Trust.
Same facts as above, with Husband and Wife having assets worth $1,200,000. Husband and Wife have an A/B Trust in which Husband and Wife hold all of their assets in trust for their own benefit during their lifetimes. The Trust can be revoked, modified, added to or amended at any time. Husband and Wife conduct their business and personal finances essentially as if the Trust were not in existence, except that their real estate holdings, securities and other assets are held in the Trust name.

At Husband's death, the Trust will be divided into two trusts; one trust we will call the Decedent's Trust and the other we will call the Survivor's Trust.

The Decedent's Trust will contain a certain amount of assets, determined by a formula, but not to exceed $600,000. Since we can place almost any type of assets into this Decedent's Trust, we will fund Decedent's Trust with the appreciating assets, such as securities, maybe a growing business, real estate, etc. The remaining $600,000 goes to the Survivor's Trust.

During Wife's lifetime, she does not own the assets in Decedent's Trust; however, she has access to these assets for her "education, support, health and maintenance". If the assets placed in Wife's Survivor's Trust are, or become at any time insufficient to maintain Wife in her accustomed manner of living, she has access to the funds in Decedent's Trust.

At Wife's death, the assets still owned by Decedent's Trust, and thus are not included in Wife's estate. When these assets pass to the couples' children, Husband's $600,000 Lifetime Exemption protects these assets from federal estate taxes.

Recall that the assets in Decedent's Trust have appreciated in value by $100,000 (remember, we funded the Decedent's Trust with the appreciating assets). Because the assets are deemed transferred into the Decedent's Trust at Husband's death, they are valued at the time of Husband's death at $600,000 - the $100,000 appreciation in value is not subject to estate tax.

The assets remaining in Wife's Survivor's Trust ($600,000 at her death) are also transferred free of tax because Wife is using her $600,000 Lifetime Exemption. As you can see, both Husband and Wife's Lifetime Exemption were used, and the $100,000 appreciation in value is not subject to estate tax. The entire $1,300,000 is passed free of tax, and the children have $277,000 more than if their parents had not set up an A/B Trust.

As a last note, many couples do not think that their estate will exceed $600,000 at their death to justify the use of an A/B Trust. However, inflation has effectively pushed many estates' values above this $600,000 benchmark. For instance, a house worth $150,000 ten years ago may be worth $350,000 now. Furthermore, a couple may have a life insurance policy which provides for a death benefit of $500,000, which will be included in the couple's estate. Property which may have a nominal value to the Husband and Wife may have an entirely higher fair market value when appraised by the IRS at its "highest and best use". The couple may get an unexpected financial windfall, such as lottery winnings, proceeds from a lawsuit, or inheritance. Thus, often a couples' actual estate at the time of the second spouse's death is much higher than first expected, and an A/B Trust is necessary to avoid or reduce federal estate taxes.

As a rule of thumb, with married couples it is most prudent to use an A/B Trust to anticipate all contingencies. There is no real downside, and there are existing or potential upsides to using a Marital Deduction Trust.


Federal Estate Taxes are only charged against Estates with assets exceeding $600,000. The Estate consists of all assets held in Decedent's name, or controlled by the Decedent. For example, a person's residence, cars, securities, IRA's, bank accounts, revocable living trusts, and life insurance benefits (if the decedent owned the life insurance policy or had power to name the beneficiaries under the policy) are all assets of the Estate.

As shown in "A/B Trust Basics", the use of a Bypass Trust effectively raises the $600,000 limit to allow $1,200,000 of assets to be transferred for a married couple.

If you believe your Estate will exceed $600,000 at the time of your death (or $1,200,000 if you are married), the following techniques can be used to save death (estate) taxes by lowering the value of your Estate at the time of your death.

Gift giving will deplete the value of the Estate which otherwise would be taxed upon death. Every person is allowed each year to give the sum of $10,000 to another person without incurring any gift tax . Thus, you can give $10,000 this year to any one or more of your children, your grandchildren, cousins, etc., without incurring any adverse gift tax consequences, and at the same time reducing your taxable Estate upon your death. Be aware that a gift has to be a true gift. You cannot give your child $10,000, while at the same time keeping it in a bank account in your name or without the ability of the donee to get to the funds. Gifts are not allowed to have strings attached. (One important exception to this concept is a Crummey Trust, which is a specialized trust that allows a gift to be made while at the same time retaining control of the funds. A Crummey Life Insurance Trust is not yet featured in this package.)

A further advantage of gift giving is that assets transferred at an earlier date may have a much lower value than if transferred at death. For example, a minority share in a new business may only be worth a fraction of its value as a mature business twenty years hence. A piece of undeveloped land, stocks, or investment account, may be much more valuable twenty years hence, especially counting inflation. NOTE: A downside to a transfer is that you lose the step-up in basis if the asset is transferred due to death. For instance, if you bought property at $1000, and at your death it is worth $100,000, your beneficiary's basis is $100,000, and a sale at that price will not incur any federal income taxes. You need to offset the estate tax savings against the capital gains tax savings lost if you decide to make a pre-death gift.

Gifts paid for tuition for a beneficiary are exempt from gift taxes, so long as the gift is paid directly to the university or college, and is paid for tuition expenses (as opposed for room and board). As is true for direct payments to a college or university, you can pay medical expenses incurred by a beneficiary directly to the care provider, and such payments are also exempt from gift tax.

As a means for transferring assets to beneficiaries during your lifetime, while at the same time keeping control of the assets and making it difficult for the beneficiaries to transfer or sell such assets, a Family Limited Partnership is an effective tool. Family Limited Partnerships are more expensive to set-up and maintain, and therefore are usually used when the other forms of tax savings, such as gift giving, etc. are insufficient to reduce the estate to a level that will not incur estate tax upon death. In a Family Limited Partnership, you as the general partner own about five percent of the partnership assets, while at the same time maintaining all voting control over the partnership. Your beneficiaries will own 95% of the assets, but as limited partners have no voting or other control over the management of the partnership. Your assets, including real property, business interests, securities, and the like can be gradually transferred into the partnership, such that at your death your Estate's value is the 5% General Partnership interest - the 95% owned by the Limited Partners are excluded from your Estate. You have effectively removed a large portion of assets from your Estate, and may be able to reduce your Estate to below the $600,000 Lifetime Exemption. To establish a Family Limited Partnership, contact us.