Estate plan still needed even for limited assets

Dear Len & Rosie,

Do I need a living trust? I live in a mobile home. I don’t keep much in the bank, and my life savings, about $400,000, are invested in a 401k.

Penny

Dear Penny,

You probably do not need a trust. The rule is simple — if your probate estate is worth under $166,250, probate is not required so a trust is not necessary for you to avoid probate. And get this: Your mobile home doesn’t count against the $166,250 cap as long as it is registered with the California Department of Housing and you don’t own the land it rests on.

The same goes for your motor vehicles registered with the DMV. When you die, your mobile home can be easily transferred to your children or other heirs using a small estate affidavit under Probate Code section 13101. The DMV has a form, called the REG-5, that does the same thing for any vehicles you own on your death.

Your 401k will also avoid probate, provided that you have designated beneficiaries to collect the account upon your death. It is vitally important for you to verify that you have done this. If you die and your 401k hasn’t got a beneficiary, then not only will it be subject to probate, costing your estate at least $9,000 in probate lawyer fees, your 401k will also be subject to income tax all at once during the probate.

If you did it right — that is, you named the persons you want to inherit the money as 401k beneficiaries, then it’s cheap and easy. All they’ll have to do is to access the money is to submit beneficiary claim forms. As nonspouse beneficiaries, they will each have 10 years to cash in their shares of your 401k, with certain exceptions for minor and disabled beneficiaries, or beneficiaries close in age to you.

Off hand, the only reason that comes to mind as to why you would need a trust is if you have a beneficiary who is a minor, disabled persons, or a spendthrift who cannot or should not receive an inheritance directly from you.

Even though you do not likely need a trust, you should still have an estate plan. You need a will to dispose of your mobile home and other assets, and you also need a Durable General Power of Attorney and an Advance Health Care Directive so that people you trust can make important legal and medical decisions for you if you ever become incapacitated.

Len & Rosie