Approximately 76% of Hispanic homeowners, and 70% of Black homeowners, don’t have a will or trust. For white homeowners, this number is only 35%.
Growing up, I rarely heard of estate planning being discussed in school, within my family, or within friend circles.
My parents own a house in the suburbs of SoCal and I assumed that if they were to pass into the afterlife, the house would become property of their children (aka me and my sister).
My parents worked hard to purchase and own a home (especially in a market like California) so you would hope that their adult children would claim automatic ownership as heirs.
But this process is not very automatic or straightforward in the slightest.
Have you ever heard of probate? Yeah, me neither up until a year ago.
Probate is the legal process (yes, you’d have to go to a courthouse in front of a judge) for reviewing the assets of a deceased person and determining inheritors.
If your parents own assets such as a home, cars, bank accounts and financial investments, then these assets would be subject to probate at the time of their passing.
However, one way you can bypass probate is if your parents establish a living trust.
A living trust is an estate planning tool that is set up by an individual while they are alive to protect their assets. They use this trust to direct their distributions after death, usually to their beneficiary which is usually their children.
To simplify your understanding of a trust, think of it like this. A magical safe where your parents have placed all of their hard-earned assets that will go directly to you and your siblings at the time of their death without any opportunity to contest this.
Do you remember that scene in the first Harry Potter film where Harry goes to Gringotts and opens his vault and sees the stacks and stacks of gold his parents left him after their death? I also like to think of it as something like this.
Okay maybe not as whimsical, but I think you get the idea.
Your parents (or you if you are a parent), are essentially ensuring that their children will not have to go through the court system for this entity to approve what you want distributed to them once you pass.
Now why should probate be avoided?
Probate is expensive (usually 3-7% of the estate’s value)
If your estate is valued at $500K, and a lawyer charges you 5% of the estate’s value for their probate services, then you’d be paying $25K for this expense
Other expenses include court fees (such as filling and certificate fees)
It can be a lengthy process
Depending on the size and complexity of your estate, probate can take anywhere from a couple months to 2 years
Probate is a public process
Probate records, including wills and related court filings, become public documents and are accessible to anyone
This means that the crazy ex that one of your parents had can attend the probate hearing and try to make a case as to why they deserve to be a beneficiary for some or all of your parent’s assets
It’s important to note that established wills still need to go through probate (although the process will likely be much less stressful), but have a living trust allows you to avoid probate altogether.
Let’s get into how much my family payed for our living trust.
We paid $1,200 for the entire process and filing.
We also established a corresponding pour-over will.
This will transfer any assets upon their deaths into the trust.
Our CPA who does our taxes recommended the Paralegal
If you don’t have kids of your own, your beneficiaries can be anyone else including your siblings, nieces and nephews, or even a charity organization you support.
It’s important to note that every family’s situation is going to be different, especially because each state has different laws and requirements regarding probate and estate planning. Please seek a certified paralegal or lawyer who practices estate law