Estate planning is not just for the rich and famous.
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It’s for everybody who has any property at all,
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Hollister attorney Timothy McCarthy said,
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anybody who owns their home in California, especially in this
area of California.
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Estate planning is not just for the rich and famous.
“It’s for everybody who has any property at all,” Hollister attorney Timothy McCarthy said, “anybody who owns their home in California, especially in this area of California.”
Misconceptions abound about when and who should plan their estate. Estate planning is not just for senior citizens – people can pass away before they reach old age, and it’s important to have one’s assets planned in advance to support surviving family members.
“What people don’t think about is, ‘What if I die tomorrow?’ ” said Ira Marshall, a registered investment advisor in Morgan Hill.
Estate planning allows people to plan for an unexpected disability and direct the distribution of their property. It saves tax payments, professional fees and court costs. Most importantly, it gives people more control over their own affairs.
“There are two ways of planning your estate – you can do it yourself or the state can do it for you,” Marshall said. “… Estate planning is the accumulation, conservation and transfer of wealth.”
If a person dies without outlining where and to whom they want their assets to go, the estate can go into probate, where the court decides how to divide the estate. Families can incur legal and appraisal fees that can add up to thousands of dollars, McCarthy said. Attorney fees are set by statute and depend on the value of the estate going through probate, he said.
Marshall suggests young people, married or single, plan their estate as early as possible. Planning allows piece of mind, he said.
Not only should young people plan their estate but also people who are not millionaires. An estate is not just a house or piece of property owned. An estate includes property, furniture, bank accounts, cars, investment accounts, life insurance policies, jewelry, pension, 401(k) accounts and business ownership interests.
“People will tell me all they have is a house, but their estate is larger than they thought,” McCarthy said. “I tell people they’ll be surprised when they add it all up. People are shocked.”
It’s also important to remember that an estate includes debts as well as assets. People should prepare to leave enough money to pay off their creditors, put their children through college and take care of their surviving spouse, Marshall said.
Estate taxation also comes into play even if estates are not planned. There have been cases in which a parent died and their children inherited their land. If the land was the parent’s biggest asset and there was no estate planning or diversification of assets, the children may have to come up with a significant amount of money for estate taxes. This can force families to sell the land just to pay the taxes.
McCarthy said there are tools to prepare for cases like this, including buying life insurance that would help pay the taxes. Life insurance also allows for some liquidity in a person’s assets, Marshall said.
There are various ways to reduce estate taxes that survivors have to pay. These include giving away assets during a person’s lifetime, utilizing a marital deduction that shields property transferred to a spouse from taxes, using bypass trusts, giving away money as charitable gifts and buying into life insurance trusts.
People can give away $1 million over their lifetime and not be taxed on that amount by the state or federal government, McCarthy said.
No matter how people plan their estate, it must be done.
“It’s whatever does the most good and least harm with their money,” Marshall said.
Saving for retirement
Abbott Laboratories, Morgan Hill
401(k) – Employees can contribute 2 to 18 percent of their salary on a pre-tax and/or after-tax basis. The company contributes an additional 5 percent of pay.
Annuity retirement plan – Abbott pays the entire cost of this pension program.
City of Gilroy
CalPERS (California Public Employees’ Retirement System) – Depending on an employee’s bargaining organization, an employee pays into this pension system and employer adds to it. CalPERS provides retirement and health benefit services to more than 1.3 million members and nearly 2,500 employers. Its membership consists of active, inactive and retired members from the state, school districts and local public agencies.
457 – Deferred compensation plan. Similar to the 401(k) in which employees and employers contribute to a fund. The 457 is for the public sector while the 401(k) is for the private sector.
Health insurance – Employees can purchase health insurance through CalPERS and the City of Gilroy pays a small sum every month.
Gilroy Unified School District
STRS (California State Teachers’ Retirement System) — A pension program for educators. Certificated staff can pay up to 8 percent into this pension program and the employer matches the investment.
Hollister School District
403(b) – Instead of a 401(k), education system offers a 403(b) tax shelter that allows teachers to set aside a certain amount of money before taxes.
STRS – Teachers can pay up to 8.25 percent of their salary into the system and the employer matches the amount.
Health insurance – An employee must work in the district for 13 years to take advantage of the district’s health insurance program. At ages 59, 60 and 61, the district provides all retirees and their dependents an HMO plan at 50 percent off the premium. At ages 62, 63 and 64, HSD offers retired employees an HMO at no cost.
San Benito County
CalPERS – Available to all full-time employees. Depending on an employee’s bargaining organization, employee pays into this pension system and employer adds to it.
457 – Deferred compensation plan. Similar to the 401(k) where employees and employers contribute to a fund.
