The “Government Plan” – Are You On It?

 

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What Is The “Government Plan?”

 

The Government Plan is essentially any arrangement that requires the assistance of the Government, primarily through the Superior Court of the State of California, Probate Department, a Government agency, in the handling of any matter should you or someone you love become incapacitated or die.

 

The Government Plan is the default program set up for you and your family if:

1. You have not created your own personal Estate Plan, or if
2. You have used any of these common planning techniques:
    a. You’ve created a Will;
    b. Your property is owned in Joint Tenancy, or
    c. You have used “beneficiary designations”

Let’s take a look at these items under #2 a little more closely.

 

If You Have a Will – You Are on the “Government Plan”

Image of will being signedMany people are under the impression that if you create a Will, probate is avoided and that no government assistance will be required.  Unfortunately, if you own real estate with even a little equity or have assets in excess of $100,000, this is just not true.  A Will guarantees that your family will need government assistance (i.e., Probate), and thus are on the Government Plan.

 

If Your Property is Held in Joint Tenancy – You Are on the “Government Plan”

Joint Tenancy (or any designation with “right of survivorship”) between a husband and wife will avoid probate at the first passing, but assures probate at the passing of the surviving spouse.  It also sets up the possibility of paying unnecessary taxes when they could have otherwise been avoided.

 

If You Have Used Beneficiary Designations – You Are on the “Government Plan”

Beneficiary Designations face the same problem.  The beneficiary designated (most often the surviving spouse) will get the asset in question without going through probate, but will have to deal with probate upon his or her passing.  This fact is compounded by several other issues; e.g., there being no asset protection, and the possibility of unnecessary taxation.

 

 

CONSEQUENCES OF BEING ON THE GOVERNMENT PLAN

 

If you become incapacitated you or someone you love will have to seek the assistance of the Government, i.e., the Probate Court.

Image of incapacityThe essence of incapacity is that one cannot act on one’s behalf.  In other words, you are either in a coma or in some other manner no longer have the legal capacity to act on your own behalf.  If this happens, someone else must be authorized to act for you.  Now, this happens automatically if you have created your own Personal Estate Plan.  But if not, you or a loved one will have to petition the Probate Court for a “conservatorship”, seeking a court appointed individual who will have the authority to act on your or a loved one’s behalf.  Not a pleasant prospect.

 

When a loved one dies, you’ll have to again seek the assistance of the Government, i.e., the Probate Court

This is because of the manner in which property is transferred under our system.  When you want to transfer something to someone else, it is usually facilitated through the signing of some type of transfer document.  If you’re gone, however, you can no longer sign anything. Only a judge has the power to sign on your behalf in this circumstance.  Thus, you or your family will have to petition the Probate Court to get the judge’s signature on an order, transferring your life’s work to your heirs.

 

You and your family could pay a massive amount of totally unnecessary estate tax!

Image of tax billThe essence of this issue revolves around several federal tax code sections; specifically the use of what is known as the unlimited marital deduction and our personal lifetime exemption from estate tax. You see, inefficient or improper use of our personal lifetime exemption may create unnecessary estate taxation.  In other words, failure to efficiently use this exemption can cause the imposition of an estate tax when it otherwise might have been totally avoided.

 

It is unlikely your and your families’ distribution and protection goals will be met.

By remaining on the Government Plan, you have done nothing to set up a regimen that could assure your life’s work is distributed and protected in the manner you would prefer.  By taking the time to understand the advantages of creating your own Personal Estate Plan, you will be able to decide just what level of distribution and protection goals you’d like to implement.

It should be obvious by now that the consequences of being on the Government Plan are significant and potentially disastrous.  But let me show you some additional reasons why you should avoid the Government Plan.

 

 

WHY WE WANT TO AVOID THE NEED TO USE THE PROBATE COURT

 

Probate is EXPENSIVE

Image of money flyingThe costs of going through probate are substantial and are set either by statute and/or the probate court.  As an example, the cost of going through probate due to the passing of a loved one whose gross estate had a fair market value of $1,000,000 is $46,000.  Right off the top; this is money the family will never receive.  Notice I said “gross” estate. The court is not concerned about debt owed by the estate when calculating these fees.  They are calculated on the gross fair market value of everything in the estate.  In today’s environment, especially if real estate is included, it’s pretty easy to reach this number quite quickly.

 

Probate is TIME CONSUMING

The time it will take to probate a person’s estate can take anywhere from months to years.  This can be a frustrating time for the family inasmuch as they will have little or no control over the estate’s assets during this period.

 

Probate is PUBLIC

Like all components of our court system, the probate process is a public process.  Anyone can go to the court and pull the file of any probate proceeding and discern what is otherwise very private information.  It is generally not a place where I recommend my clients “hang their laundry” so to speak.

 

Probate is COMPLEX

Image of complexityUnfortunately, in today’s society, the probate process is set up to protect everyone involved and in order to do so, has a level of complexity that must be addressed.  This is certainly one of the reasons why the process is so costly.  But in addition, the complexities can create a level of aggravation and frustration that should be avoided if possible.

 

Probate puts the REAL CONTROL IN THE JUDGE’S CHAMBERS

It should be self evident that any process that is placed in the hands of someone beyond your control should be avoided if possible.  The probate process cannot guarantee that your intentions will be met or enforced.

So…what’s the solution to being on the Government Plan?

 

Create Your Own Personal Estate Plan!

Proper planning can help you avoid Probate and all of the complicated, costly, time consuming, and very public issues related to this difficult process.  In our next video—Your Estate Plan: An Overview—find out how to stay away from the Government Plan.

If we can answer any questions or provide a complimentary counseling session to discuss your specific needs, please contact us at 805-277-5020 or e-mail info@CAestatelaw.com

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