By JUDD MATSUNAGA, Esq.

California’s death toll from COVID-19 is on the verge of 90,000, a tally that comes as the United States nears its own milestone of 1 million deaths. No state has suffered more pandemic-related deaths than California. (Source: Los Angeles TimeMay 9, 2022) In the wake of the COVID pandemic, many families are taking getting their things in order seriously.

Fortunately, the Japanese-American community has been around long enough to understand that living trusts aren’t just for the wealthy. Living trusts will help ordinary families (who own their own homes) avoid probate. The problem with probate is that it can take anywhere from 12 months to 2+ years (depending on circumstances) in California. No asset can be distributed until it is completed.

The other major problem is probate, is that probate is expensive. In California, probate fees are set by law, i.e. California Probate Code § 10810. The code caps the maximum fees that attorneys and executors can charge for a probate. There is an application fee and a fee percentage (4%, 3%, 2%, 1%, 0.5% based on the raw value of the peering domain); and may have other extraordinary costs like appraisals.

For example, if your estate consists of a $750,000 home and $250,000 in savings, the legal probate fees on a $1,000,000 estate would be $46,000. Even if you owe $300,000 on your home, mortgages and debts do not factor into the calculation of attorney fees. This means, for example, that a home valued at $750,000, but has an outstanding mortgage balance of $300,000, still counts as a $750,000 asset when probate fees are determined.

That being said, why do I still see Japanese names on probate court calendars? The biggest problem I see is that some families are saying, “We need a living trust to avoid probate,” but in the same breath they’re also saying, “Let’s save a lot of money and get a ‘Do -It- Confidence in yourself (DIY) online. The logic seems solid; after all, why pay thousands or more to an estate planning attorney when you can do it yourself?

But wait!!! Have you ever heard the old adage “Wise penny and mad pound”? This is what often happens when some families try to save a few hundred dollars by creating an online will or trust. However, your family may have to spend tens of thousands of dollars to go through administration in probate court. Or even worse, plead because there is something wrong with the document.

The first thing to know about estate planning is that there isn’t actually a single document known as an “estate plan.” Rather, an estate plan consists of a set of documents that create the necessary legal solution in the event of incapacity and possibly upon your death. Online sites and computer software are not designed to accommodate differences in family dynamics or to address your unique issues and concerns.

One of the biggest problems with software packages and do-it-yourself forms is the lack of professional guidance. While a software document can walk you through a form step by step, it can never provide advice from an experienced estate planning attorney. In fact, websites that sell these forms are required to clearly state that “no legal advice” is given.

There really is no substitute for advice from a licensed professional. It’s very easy to overlook important legal and technical planning points that can result in your family paying high probate court fees, unnecessary taxes, or losing public benefits like disability, Medicaid, or Medi- Cal. Other planning issues are children with special needs, creditor issues, or a child in a bad marriage.

It has been estimated that 40% of trusts generated fail to avoid probate. The first reason is that they are not properly funded. The biggest problem with online DIY trusts is that they don’t tell you how to properly fund your trust. So even if you create a DIY online trust, i.e. sign and notate a legal document called a “Living Trust”, it may be inefficient and your loved ones will still have to endure the probate process to finish what you started.

“Can you repeat that please?” you ask. Just executing a legal document called a Living Trust does not mean you are keeping your family away from probate court when you die. You must “fund” your trust for it to be effective, which means transferring title to your money and property to the name of the trust. This means renaming your assets in the trust, so that the trust owns the assets. As the “trustee” of your own trust, you still control your assets. But when you die, you appoint a “successor trustee” who administers the trust according to your instructions.

Another major problem with do-it-yourself trusts is that they fail to take into account changing life circumstances. For example, what if one of your children dies before you? It’s unfortunate, but it happens, for example, a car accident, cancer, stroke, etc. Will this child’s share go entirely to the surviving child? Or to his children (i.e. your grandchildren)? Surely you don’t want your assets distributed to the wrong people at the wrong time.

Additionally, some people try to avoid probate and avoid the need for proper estate planning by listing the child’s name on their home while they are still alive. They will say, “Since my child already owns my house, there is no probate required when I die!” Which brings me to a second idiom, “Out of the frying pan and into the fire.” In other words, trying to avoid a bad situation (homologation) by escaping into a worse situation.

Of course, you avoid probate by transferring title to your child’s name. But you lose the base increase that could cost your child hundreds of thousands of dollars in capital gains taxes. “Can you repeat that please?” The only time the IRS will forgive the gain is if you transfer on death. Let’s say you paid $100,000 for your house and you put your child’s name on the deed. When you die, your child sells your house for $1,000,000. They will have to pay tax on a capital gain of $900,000, or about $180,000 (20%), which is the “worst case”.

Another huge problem is that many seniors may want to tap into their home equity to help pay for home care. However, if you transferred the title to your child, you cannot. Once you put your child’s name on the title deed to your home, you lose control of your home. What if you wanted to sell your house and move into a retirement home? You can’t – it’s not up to you anymore.

Perhaps even worse, what if you put your house in your child’s name and your child is sued or divorced? Your home could be subject to a judgment creditor or complicated divorce proceedings. Even worse, what if you put your house in your child’s name and your child dies before you do? Guess what, your son-in-law or daughter-in-law could own your house. This is why any estate planning lawyer would advise you to use a living trust.

The bottom line is that a DIY Living Trust can save you time and money in the short term, but could prove to be a financial disaster in the long run. While it may be tempting to save money and do it yourself, if you want peace of mind, you need a professionally prepared estate plan tailored to your unique situation. It will pay off in the long run.

Finally, pay attention to document preparation services. A woman recently came to my office with her mother’s trust made by a document preparation service. I was shocked to learn that the non-attorney document preparation services company charged $2,500 for the estate planning package – SHOCKED!!! This is roughly the same amount a licensed attorney would charge. Why wouldn’t people go to a qualified lawyer for legal advice?

In all US states (except Louisiana and Puerto Rico), only an attorney can advise and draft a legal document for another party. Now, for the first time, a new California law known as SB1418 allows non-lawyers to prepare legal documents for people performing their own legal duties. Since January 1, 2000, these non-lawyers, called Legal Document Assistants (LDAs), can draft living trusts and powers of attorney.

However, LDAs are not attorneys and cannot provide legal advice, discuss legal strategies, answer legal questions, select consumer forms, or appear in court on behalf of the consumer. They are only authorized to assist self-represented consumers in legal matters by preparing and processing the necessary legal documents.

While many LDAs have paralegal training and experience, in California they are not the same as paralegals. Unlike a paralegal, legal document assistants do not work under the supervision of an attorney. LDAs are authorized by law to provide legal document preparation services directly to the consumer. More importantly, neither paralegals nor ADLs are licensed to practice law or give legal advice.

In conclusion, anyone who owns a home (or condo) or has assets over $166,250 needs an inter vivos trust. A living trust is a legal entity that owns your assets while giving you full control over them. Just make sure your living trust and related estate planning documents are drafted by an experienced, licensed attorney (not an online DIY trust or LDA).

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Judd Matsunaga, Esq., is the founding partner of the law firms of Matsunaga & Associates, specializing in estate planning/Medi-Cal, probate, personal injury, and real estate law. With offices in Torrance, Hollywood, Sherman Oaks, Pasadena and Fountain Valley, he can be reached at (800) 411-0546. The opinions expressed in this column are not necessarily those of The Rafu Shimpo.