Why a Living Trust?

Introduction

A Forewarning

Chapter 1
Chapter 2
Chapter 3
Chapter 4
Chapter 5
Chapter 6
Chapter 7
Chapter 8
Chapter 9
Chapter 10
Chapter 11
Chapter 12
Chapter 13
Chapter 14
Chapter 15
Chapter 16
Chapter 17

Why a Living Trusts : Probate Fees vs. Trust Fees

Understanding “Lawyer Math” in Calculating Probate Fees on the Gross Not The Net:
The previous section referred to how probate fees could fully consume an estate. It is easy to understand how this can happen once you realize that probate fees are calculated on the gross value of the estate not the net value. Be clear on this, because it is a very subtle but important point that is easy to miss because of its anti-intuitive nature.

To illustrate, say an estate consists solely of a house worth a million dollars with a $900,000 mortgage against it. Common sense indicates you have an estate worth $100,000. By the time you sell the house, payoff the mortgage, and pay the average 7% closing costs (real estate agents and related fees) you are lucky if there is $30,000 left for (you think) the family. Problem is, the probate fees are calculated on the million dollar gross value of the estate not the $100,000 common sense dictates (or even the $30,000 some would think). Sorry – it’s based on the $1 Million gross value. The probate fee calculation chart (set by statute) calls for $42,300 in probate fees. Do the math. The family gets nothing.

The first to “inherit” in any probate process are always the lawyers – even if that leaves everyone else with little or nothing!

With A Will It Can Easily Cost $20,000; $50,000; $100,000 Or More
Set forth below is the California statutory scheme for probate fees. Most states follow a similar pattern. Remember, probate fees are calculated on the gross estate, not the net estate.

Probate Fee Chart

Do not think that the fees necessarily end with the above amounts! There can easily be other fees involved for special services, selling assets, appraisal fees, tax preparation, and even litigation fees. If there is any litigation the bill will skyrocket. Fact is, Henry Abts III in his excellent book “The Living Trust” quotes the results of a survey of 23,000 attorneys in a leading county bar association finding that the cost of probate typically ranged from 8% to 10% of the gross estate.

Average Legal Fees At Death With a Living Trust Typically Around $600!
Though a trustee should still consult a qualified attorney upon someone’s death the costs and work associated with settling an estate through a Living Trust are minimal – and when compared to probate, are inconsequential. (In regards to lawyers who can’t do this reasonably – find another lawyer!) The charges at our law firm have averaged around $600. (This does not include any fees paid for any needed accounting work or appraisals done independent of our office). Some attorneys charge a half of a percent of the net estate (not gross). Some even charge 1% of the net. Regardless, it is easy to see the tens-of-thousands of dollars a trust typically saves over a Will.

The difference in settlement costs is enormous! Give thought to how you would feel writing a check for $20,000 to an attorney vs. writing a check for $600! Who would volunteer to write the $20,000 check? Making matters worse, the $20,000 (or more) buys a process that takes much longer, is intensely bureaucratic, forces the family to surrender all control to the state, subjugates them to lawyers, sacrifices their privacy, and exposes them to multiple probates (if they own out-of-state property). These are the realities.

Doesn’t sound like a very good deal, does it? Again, you wouldn’t make that kind of choice while you are alive so why would you ever choose and force such a path on anyone at some future date – much less your family or loved ones?

Even if probate was free, (which it is far from being), who in their right mind would want to go through the wait, the hassle, and totality of other baggage which goes along with it? Those issues are just as unsettling as the enormous probate fees which always accompany a Will.

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