While we would all like to think we will live long enough to set up a will or complete some kind of estate planning, not everyone will make it that long. For those people in Sacramento who don't have their final wishes written down in a will, it is possible that all the individuals they hoped to give money or property to will spend time and money fighting about the estate in probate court.
Californians that own their own home or have a large estate may also wish to avoid estate taxes and probate. One of the best ways to do this is by establishing a trust. A living trust is a confidential way to transfer property and money to a loved one after your death. Because trusts will avoid probate, your final decisions about who should get what will not be dragged out into the public eye. They also allow you to have a little more control about how and under what conditions money should be given out.
A trust can also avoid estate taxes, which is extremely important for someone with a high net-worth estate. Currently the federal exemption for an individual is a little over $5 million, meaning each person can only give out that much before they will be taxed at the staggeringly high rate of 35 percent. Having a trust, however, would allow someone to get past the estate tax exemption. And, since it is unclear how long the $5 million exemption will last, it may be wiser to establish a trust.
Although estate planning may only seem appropriate for senior citizens or people who are ill, there is no knowing when you may suffer a horrible accident or develop a serious medical condition. Estate planning instruments are not permanent and can easily be changed as who and what is important to you changes.
Source: Forbes, "A Common Sense Approach to Estate Planning," Nancy Anderson, Jan. 19, 2012