John E. Richardson, Jr.
CPA - CFP
Certified Financial Planner
Senior Financial Advisor
for Strongtower Financial

Of all the devastating mistakes someone can make in the area of financial planning, one of the biggest is having an improperly prepared estate plan or worse, having none at all. If you die without an estate plan, the state of California will prepare one for you. Yes, the state will determine who inherits your property and even who raises your minor children if you have not executed a proper estate plan. A typical estate plan includes a Revocable Living Trust, Will, Advanced Care Directive, and Durable Power of Attorney. Each of these documents has a specific purpose to make certain your wishes are carried out when the time comes.

First, let's discuss the Revocable Living Trust. It is a legal entity typically created by an individual or a couple that holds title to real and personal property. It provides an orderly distribution of assets upon the death of the owner(s). While you are alive, it is revocable and you have full control over the assets the trust owns. Once the owner(s) of the trust pass away, it becomes irrevocable. At that point, the successor trustee must carry out the wishes of the original owner(s) as spelled out in the trust document.

There are significant advantages to having a Revocable Living Trust in addition to a Will. First and foremost a trust can allow you to avoid probate. This saves your heirs both time and money. The California Probate Court currently has about a 2 year back-log. That's a long time to wait to distribute assets after your death. Also, probate is expensive! Probate costs can approach 6% of the value of the probated assets. For example, your only real asset is a home worth $500,000. It can cost up to $30,000 for that home to go through probate even if you have a mortgage. That's because the probate cost is based on the home's value, not the equity. Although an estate plan prepared by a competent estate planning attorney will cost between $1,500 and $3,000, it's a bargain when compared to probate costs.

More advanced forms of a Revocable Living Trust like an AB Trust or an ABC Trust can help protect your estate from paying unnecessary estate taxes which can rob your heirs of up to 45% of their inheritance. If you have charitable intent, there are planning techniques that can help you completely avoid estate taxes and provide an income stream to you for life without disinheriting your heirs. Look for a discussion of these fascinating topics next week!

John E. Richardson, Jr., CPA, CFP® is a Senior Financial Advisor with Strongtower Financial in Escondido. If you have any questions or comments, please contact him at (760) 705-3520 or by e-mail at
jrichardson@strongtowerfinancial.com