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Estate Planning: Probate and Trusts

Estate Planning: Probate and Trusts

In our last article on estate planning, we explained why estate planning is essential and discussed the basics of wills and powers of attorney. You probably know you want to avoid probate, but you might not know precisely why.. 


This process proves a decedent’s in court as legal and determines whether the decedent’s intentions have been carried out. Wills can be contested during this process since the probate court is public. The estate of someone who dies intestate (without a will) goes through probate to determine how to handle the assets.

It can take months to years to settle probate, depending on the estate’s size and other issues.

Once someone dies, all their assets (that aren’t jointly owned) are considered part of their estate. Financial assets that have named beneficiaries, such as retirement accounts and life insurance policies, and accounts with a transfer-on-death/payable-on-death designation are exempted from probate, as are trusts.

In California, if set up correctly, houses can be transferred on death, as can vehicles. Bear in mind that the law on transferring houses sunsets 1/1/21.

The will is legally verified by the judge, showing that the decedent signed the will in the presence of two witnesses. Then an executor or court-appointed administrator sets out to execute the terms of the will.

Executors get the death certificates to show the decedent is in fact, deceased. They find all the assets and have them appraised and notify creditors. (Note the beneficiaries don’t owe any money as long as they weren’t joint signers on any debt.)

The executor also needs to pay taxes, including income and estate tax, from the estate and make any payments like homeowners’ insurance and utility bills. They notify the beneficiaries named in the will.

After paying all the liabilities and taxes, the remainder or residue is distributed to the beneficiaries. The executor or administrator gets compensated for performing all these duties.
If you have a spouse, on first death, there’s no probate. Your spouse can claim the assets. But the will of the second to die must be probated. Almost all states have a “small estate” exemption, and if the total estate is less than the limit, the will doesn’t need to be probated. In California, the limit is $166,250.

Why you want to avoid probate

There are several reasons why you might want to avoid probate, or at least have as much of your assets bypass the “probate estate” as possible. Trusts are commonly used for any property that doesn’t have a beneficiary or payable-on-death designation, especially in California.


Court records, except in some instances, are available to the public. Anything that’s in the will can be discovered by anyone willing to do the research. The will can be contested in court. If you’re a private person or there are some skeletons in the closet that your family wouldn’t want to be made public, you want to avoid probate as much as you can.
Assets that don’t pass through probate, such as trust and retirement accounts, don’t have these issues.

Length of time

The entire process can easily take years. Some courts are severely backlogged, or there may be provisions in the will that could be difficult to execute. For example, the testator (decedent) might have left small bequests to people whose addresses the executor doesn’t have. However, they must still notify the beneficiaries and distribute the assets.
In California probate takes a minimum of 7-8 months (when there’s no pandemic on) and can go for up to two years.



As noted earlier, this varies by state. Some states have a less lengthy probate process that costs less than others. However, if you live in California, the executor’s fee starts at $4,000 for a $100,000 estate. It reaches $23,000 for $1mm estate up to $163,000 for a $20mm estate.

It’s important to note that for these purposes, the debts don’t reduce the value of the property. For example, if the house is worth $1,500,000 and it has a $1,250,000 mortgage, it’s still valued at $1.5 million.

Also, filing fees range from $60 to several hundred dollars for probate petitions and fees for copies of the death certificate. Notice of the probate hearing must be published in a newspaper, and that can cost $200.

However, there is one instance where it might be preferable to allow the assets to go through probate. That’s if there are a lot of lawsuits or liabilities against the property. 

After the creditor has been notified, there’s a small window – typically six months – where creditors must notify the estate that they’ll file a claim against it. If they don’t make the notification within the window, their claim expires.


For probate to be reduced to the minimum possible, people often use trusts to hold their property. Upon death, the assets go by the language of the trust and sit outside the probate estate.

However, it’s not enough to have a trust; the assets must be placed into it. For example, if you want to put your house in a trust (almost always a good idea in California), then the house’s title must name the trust as owner. It’s not enough to write it into the trust.

Most people use a “living” trust to hold their assets. You can put real estate, bank accounts, vehicles, artwork, and other assets into a living trust. It doesn’t make sense to put retirement accounts or transfer-on-death assets into a trust, because they already operate outside probate.

You will be the trustee of the living trust, naming a successor trustee who takes over when you’re gone. Your successor trustee can also act on your behalf if you become incapacitated. They distribute the property as spelled out in the trust once you’re gone, without involving the courts.

These living trusts are usually also revocable so that you can make changes to them during your lifetime. (An irrevocable trust is set in stone.)

Trusts require you to deal with some paperwork while you’re setting them up, and the attorney’s fees to handle it. Yes, there are DIY trust documents out there, but you want to make sure that your trust is air-tight, so it’s worth having a professional do the work for you.

There’s not much ongoing record keeping required, except when you transfer property in or out of the trust. You do need to keep written records of those transfers.

As always, there’s no free lunch. You will pay to have the trust created and assets re-titled. It’s sometimes more challenging to refinance a property that’s held in a trust. If you can’t get over the hurdle by finding another lender who understands trust property, you could always transfer it back to yourself as owner for the refinance. Then transfer it back in afterward.
Creditors can sue the trust because there’s no creditor cutoff window like there is in probate.


Do you want to talk to us about your estate plan or need a recommendation for a good attorney? Give us a call at 619.255.9554 or send us an email and we’ll be glad to set up an appointment.

Are you on track for retirement?


Dream. Plan. Do.


Paycheck Protection Program Update

Paycheck Protection Program Update

The U.S. government has extended The Paycheck Protection Program (PPP). Here’s a brief overview of what you need to know.


Paycheck Program Basics


Authorized by the CARES Act and administered by the Small Business Administration, the PPP helps employers cover the cost of their payroll so more people can remain employed during the COVID-19 pandemic. The new deadline to apply is August 8, 2020, with applications reopened on July 6.

Eligible companies have fewer than 500 employees, or meet a revenue-based size standard for their industry, or have a tangible net worth of $15 million or less AND the average net income (excluding carry-forward losses) for the preceding two years was $5 million or less. 

Independent contractors and sole proprietors are eligible. Seasonal businesses are as well, as long as they were either operating on 2/15/20 or in 8 weeks from 2/15/19 to 6/30/19. And therefore would be presumed to have done the same in 2020, absent the coronavirus.

PPP comes in the form of a loan, which may be forgiven as long as the employer meets specific criteria. Loans are offered through existing SBA lenders and additional participating institutions such as banks, credit unions, and Farm Credit Systems. 

Loans of up to $10 million are available, and businesses must spend the funds by the end of this calendar year.

If you’re interested in applying, click here for the SBA page on PPP.

Paycheck Protection Program Eligibility


For lenders to forgive the loan, businesses must spend at least 60% of it on payroll. Other costs that you can use the money to cover include mortgage interest, rent, and utilities. It’s available for the first 24 weeks of these costs.
The new loans will have a 5-year maturity. Those issued before 6/5/20 have a 2-year maturity. The interest rate is 1%, and you can defer payments for six months.
You don’t need collateral or guarantors for the loan. Neither the government nor the banks charge additional fees for small businesses.


Details on Paycheck Protection Program Forgiveness

You’ll need to submit an application to the lender to request loan forgiveness. In addition, you must meet the following criteria.

  • The 24-week timeframe

Fortunately, since not all payroll cycles sync up with the first day of loan disbursement, the SBA has an alternative payroll covered period. It begins on the first day of the pay period after the loan has been disbursed.


However, payments outside this timeframe are not eligible for loan forgiveness.


  • Payment of payroll (not just payroll incurred)

The business needs to pay their employees from the loan to be eligible for forgiveness, not just incur the payroll costs. Payments incurred during the last two weeks of the 24-week timeframe must be paid no later than the next pay period to qualify for forgiveness.


As a reminder, 60% of the loan proceeds must be used for payroll expenses in order for the loan to be forgiven. Sick leave and family leave costs are included in payroll. Payments to independent contractors and sole proprietors are excluded from payroll, as they can apply for PPP themselves.


  • Payment of non-payroll costs

Similarly, these types of expenses must be incurred and paid during the 24-week timeframe in order to be eligible for forgiveness. If they are incurred inside the timeframe but not paid until later, they must be paid no later than the next billing date to qualify.


The SBA has made clear that it will not forgive advance payments of mortgage interest, but as of yet has made no statement regarding such payments for rent or utilities. Double tax breaks are not allowed.


  • Continuation of the same number of full time equivalent (FTE) employees

Since the CARES Act did not define what a FTE is, the SBA ruled that it’s an employee who works an average of at least 40 hours per week. The loan forgiveness will be reduced, but not necessarily eliminated, if the employer doesn’t follow the rule of having the same number of FTEs during the 24-week period as it had at the beginning.


For part-time employees, the employer can choose one of two methods of calculating their FTE.  They must apply this method to all employees.


One is to calculate their average number of hours worked during the 24 weeks and divide by 40. The other is to assume that all part-timers who worked less than 40 hours on average is 0.5 FTE.


  • Allowable exceptions to the FTE rule

There are several exceptions to the maintenance of FTEs that will not reduce the loan forgiveness.


If an employee voluntarily resigns or asks to reduce hours, or if they’re fired for cause, the FTE reduction rule does not apply.


If the employer reduced FTE between February 15 and April 26 of this year, but restores the FTE before the end of the year, that temporary reduction doesn’t count against them.


Another exemption is based on employee availability and must be documented by the employer to avoid a reduction in forgiveness on the PPP loan. One factor is if the employer is unable to rehire former employees who are qualified or hire qualified ones for unfilled positions by 12/31/20.


The other is if the business can’t return to its activity level as measured on 2/15/20 due to guidance from OSHA, CDC, or HHS during the period from 3/1/20 to 12/31/20.


  • Maintaining same rate of pay for salaries and wages

A reduction in salaries and wages of 25% or more results in a loan forgiveness reduction.


However, if that reduction occurred between February 15 and April 26 of this year and pay was restored to its previous levels by the end of the year, there is no forgiveness reduction.


  • Eligibility of bonus and hazard pay

The CARES Act includes salary, wages, commissions and similar compensation in its definition of “payroll costs”. Therefore, hazard payments and bonuses (as supplements to wages) are eligible for loan forgiveness as long as the employee’s total compensation is equal to or less than $100,000 annually.


The $100,000 limit on employee compensation is limited to “cash” compensation and does not include benefits such as employer retirement contributions.


  • Retain loan documents for six years

After the loan is either paid in full or forgiven, the SBA retains the right to examine the loan documents for the following six years.


If you’d like to discuss your business finances, give us a call at 619.255.9554 or send us an email. We’d love to hear from you.


4 Ways to Simplify Your Business and Finances

4 Ways to Simplify Your Business and Finances

It seems like so many of us tend to over complicate things, whether in finances or life or business. As we move through life, we accumulate more, and we get entrenched in routines that no longer serve us. However, keeping things simple is essential at any stage of life.


Having less to keep track of is freeing! In honor of National Simplify Your Life Week, which is celebrated the first week in August, let’s take some steps to simplify our business and finances.

Simplify your business: Do the big rocks first

At this point, you probably automatically prioritize your workday routine. Taking care of the top three priorities that move the needle every day is an effective way to make sure you get the essential things done. 

One way to think of it is the “Big Rocks” theory from Stephen Covey. Suppose you have a certain amount of sand and a certain amount of big rocks to put in a bucket. When you fill the bucket first with sand, none of the big rocks will fit in the bucket. 

But if you start with the big rocks first, the sand fills in around them. With limited time in the day, it’s important to fill the hours first with the big rocks, which are your top priorities, and allow the smaller tasks to fill in around it.

Simplify your business: The Eisenhower decision matrix


Too bad it’s not possible to know how any company will perform in the future, especially a start-up! All founders and employees of newly launched companies assume that the stock will be more valuable in the future, otherwise they wouldn’t be working there. Your financial planner can talk you through this election, so you can make an informed decision.

Another way that those in business determine their most important tasks is to consider a 2×2 matrix with one axis being urgent and the other important. You might also know it as the Eisenhower decision matrix after President Dwight D. Eisenhower. 

You can sort all your daily tasks into one of the four boxes. Urgent tasks are what you need to do right now, and people typically react to them. Important tasks are the ones that lead to success, and people are responsive to them. 

The main problem is that people often tend to confuse urgent for important.

  • Not important and not urgent

These tasks should be removed immediately from an executive’s list. Delegate these is you want them done or deleted them completely.


  • Not important and urgent

They may demand attention, but ultimately these tasks don’t help achieve any goals and should be delegated or eliminated. 

Phone calls and texts often fall into this category. They may be relevant to others, but not to you, and so you should limit your time in this quadrant.


  • Urgent and important

Crises and problems fall in here. Perhaps counter intuitively, you should also try not to spend too much time here! Develop solutions that prevent the crisis from happening. Planning and organizing are good ways to reduce the tasks that fall into this quadrant.


  • Not urgent and important

Here’s where you want to spend your time. Not reacting to crises, so these tasks are not urgent. However, they help you achieve your goals and mission. 

Are you on track for retirement?


Simplify Your Finances

Needlessly complicating your financial life usually involves paying more in fees as well. You have even more motivation to streamline here. When index funds solve your need for diversification, there’s no reason to add in other types of investments, for example

Simplify Your Finances: Consolidate


It’s also helpful to consolidate your accounts with one financial advisor where possible. The exception possibly is your 401(k), which typically needs to stay with the management company until you leave the firm.

Your financial planner should be able to view all your accounts so they can properly diversify it. When you split your funds among different advisors, none of them have an overall picture, so you’re not getting the diversification you need.

It also helps to consolidate your traditional (as in, non-Roth) retirement accounts into one. Many investors who have worked at several firms maintain one traditional IRA account. They roll all their 401(k)s into it with no tax consequences when they leave each firm. All their pretax retirement money is in the same pool, making life much easier when it comes time to take required minimum distributions (RMDs) at the age of 72.

The IRS considers all your pretax accounts when calculating RMDs. If you have several traditional retirement accounts and you lose track, you could accidentally underpay your RMD.
Underpayment will result in a 50% penalty on the amount that you should have taken out but didn’t. It is much easier to have everything in one place and receive one notice from the custodian of the amount you need to take out.

Similarly, you can consolidate your checking and savings accounts. Pick the highest interest rate savings account net-of-fees to put all your money in, and the cheapest or no-fee checking account.

You don’t need more than one credit card for your personal life, and probably only one for your business. When there’s no reason to maintain multiple cards and accounts, consolidate down to one.

Simplify Your Finances: Revisit retirement goals

If you haven’t revisited your financial goals in a while, now might be a great time to do it. You may want to adjust your retirement goal and drill down to the goals that need focus. The fewer major goals that you have to focus on, the easier it will be to achieve them.


If you want to talk to us about simplifying your financial life, please give us a call at 619.255.9554 or send us an email. We’d love to hear from you.

Dream. Plan. Do.



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