Bus, that is also true for other states - non-probate assets (assets held in joint tenancy or with a designated beneficiary like POD accounts, life insurance policies, retirement accounts, etc.) do not go through probate. CA lets lawyers assess a fee based on the value of the probate estate, which could be a real robbery, but CA does not have estate tax though.
I also asked about probate in WA, and my source confirms that in WA, probate is very efficient compared to some other states. We are a community property state, so the biggest issue could be sorting property into community and separate property. Community property goes to the surviving spouse if there is no will, and separate property gets split between the spouse and kids (or other relatives according to the statutory scheme). If your parents want to make everything really quick, they can get a one page document called community property agreement that says that all of their property is community property. Then all of it will go to your surviving parent without questioning - if that is their intent that the surviving parent inherits everything. But⊠if the parent remarries, things can turn ugly.
Yes, I believe income tax for trusts is higher than individual rates, so they made sure to take expenses from the trust so it would net no income. We had the professionals manage it all but ultimately paid no income taxes for the trust and only kept it long enough to settle the estate.
I think the only thing that would end up being in probate would be the house and belongings. Everything else has beneficiaries designated. But I plan on not having to deal with this for a very long time.
Do you carry umbrella insurance to help cover your assets? Is there a formula of x umbrella to y net worth? We donât have jobs with high exposure but I worry about a car accident or something.
Many (20?) years ago we took an umbrella of 1million and I donât know if that is good enough. We thought at the time that a million was the kind of round number one sees in lawsuits which isnât exactly analytical thinking.
On a retirement note - my husband was reading on Bogleheads about how each person has a different point at which they relax and say they have âenoughâ. He was working with figures to attempt to get a handle on the new tax situation. We worked for a few minutes and came up with a net worth number. He is a very generous person and usually says things like âour cup runneth overâ as he helps a relative but he had a really hard time choking out that what we have is âenough.â I donât know if it the driven entrepreneur in him or the kid who grew up poor and never had âenoughâ.
@âSnowball Cityâ , there are some assets that canât be touched by lawsuits, but technically, future income (i.e., human capital) is fair game. The price for each additional million is pretty low, so we went for $5M.
On Bogleheads, there are also people who never say âenough.â I had enough years ago (in both senses of the phrase :)) ). My wife is perennially a few years from enough. My personal âenoughâ was 30-50x residual annual expenses (i.e., expenses less SS and pensions).
@âSnowball Cityâ I have no idea if my approach is correct, but I took out umbrella to cover the value of my home and all âmoneyâ (IRA, brokerage, etc). I still have two young male drivers living with me when not at college, so I assume the premium will decline a little once/if they move out. I had not considered human capital as @IxnayBob referenced.
Price it with both your homeownerâs and your car insurance carriers. There was a significant price difference between the two.
Thank you both for your input. The human capital in my husbandâs earning potential is considerable and something I had not considered. The current umbrella does not cover the value of the brokerage either.
It gets complicated, but IME, I donât want a court deciding what is reasonable for our ongoing support. Iâd rather overinsure, and will consider bumping ours to $10M. In NJ, being in an auto accident is considered almost as good as winning the lottery. There are scam rings of doctors and lawyers just waiting for me to be in the vicinity of an accident. I wasnât paranoid until I lived in NJ and had a few nickels to rub together.
Fwiw, we have auto, homeowners, and umbrella with Chubb, who AFAIK will only do umbrella if they have the other policies. I donât mind, as I donât want a situation of two different insurance companies placing liability on the other and it turns into a game of ânot my circus, not my monkey.â I also will note that Chubb ihas very high premiums, but they make filing a claim painless and they are very fair.
Many years ago, our nanny (our youngest is 19 now, so that should give you an idea of how long ago this was) totaled our minivan. I prepared to argue how much the vehicle was worth, got on the phone with Chubb, they made an offer well higher than I expected, I accepted, and Bobâs your uncle.
@IxnayBob âHmmmâŠhad not considered potential liability ownership hassles by placing auto separately. Chubb writes my HO and umbrella, but their auto rates were high. Now torn between crossing my fingers and hoping for the best, or moving auto to Chubb and paying more.
@CT1417, under those circumstances, I think Iâd leave well enough alone. I was protecting against a black swan, i.e., a massive lawsuit where it was unclear if it was a homeowner or auto issue. Something like a kidâs car hitting someone walking on our path :)) As Iâve mentioned before, Iâm a belt and suspenders kind of guy; donât let my neurosis affect you
We have an independent insurance agent. She helps us get our policies and sticks with companies who have reasonable premiums and are good at paying claims when needed. We have most of our policies with local insurer. We have $2m in umbrella coverage, as was recommended by our agent, up from $1m. The premium wasnât much higher as we sleep fine at night.
We have had an umbrella for $1 MM for a long time. Chubb has our homeowners but not auto. I didnât know tey did auto. Not sure who has the umbrella.
This new tax bill combined with the current political environment, is likely bad for retirement planning, I would think. All who thought they would use Medicare in retirement should probably set aside additional funds medical care. The political game will be to say that we have a huge deficit (uh, exacerbated by a $1.5 trillion tax cut) so we have to cut Medicare, Medicaid and Social Security.
I am interested in finding out what the final compromise is on treating pass-through income. Twenty-five years ago, I looked around for a really good tax accountant whose client base was tech entrepreneurs and found one. He helped me design ways to reduce taxes significantly. Heâs the first name in the name of his firm and is phasing out his participation over time, but said that we would need to sit down after the bill is passed and likely reorganize the company, possibly dividing it into several pieces to maximize the benefit from pass-through income. But a 20% deduction represents a 7.4% decrease in the highest marginal tax rate. In good years, that could be worth quite a bit.
In addition, I assume it would made sense to ensure that all real estate investments be organized so as to be characterized pass-through income so long as pass-throughs can deduct taxes and mortgage interest. I wonder if 2nd homes and even first homes are purchased by LLCs and rented out a little bit so that one gets to deduct taxes and interest. If they canât, Iâm guessing there is a meaningful drop in the value of real estate (there may still be). This mostly affects the blue states, which was the political intent.
I suspect that, for me, the value of the pass-through deduction is likely to exceed the cap on state and local taxes. But weâll have to wait and see exactly what the law is.
Just catching up - we recently doubled our umbrella insurance. It was much less of a premium increase than I expected. it was like a 15% increase in the premium.
Our future income isnât huge (DH is retired) but Iâm a worrier. Our rate at State Farm is based on keeping both auto and homeowner with them also.
I know someone who just inhered a home that was held in a trust. He got a significantly stepped-up basis!
