Estate planning is the creation of a definite plan for managing your wealth while you're alive and distributing your assets after your death. When we talk about an estate, we mean all assets of any value that you own, including real property, business interests, investments, insurance proceeds, personal property and even your personal effects.

These assets may be owned by you separately or jointly with others. Below are some examples of how married couples often hold title to property:

• Separate Property: Entire interest owned by one of the spouses. Property was generally acquired prior to marriage or was a gift or inheritance to one spouse alone after the marriage.
• Joint Tenancy: Individual interest owned by any two or more people in which the survivor acquires the entire interest upon the death of the other joint tenants.

All of us face three principal obstacles in planning our estates:

• Living Probate (The expensive court proceeding to manage your estate if you are disabled)
• Death Probate (The expensive court proceeding to manage and distribute your estate at death)
• Death Taxes (The taxes the government demands at your death. The federal tax starts at 41% and rises to 50% of everything you own at death)

There are four basic methods you can use to plan your estate:

• Do nothing
• Hold title to your assets in Joint Tenancy
• Create a Will
• Establish a Revocable Living Trust

Believe it or not, a majority of Americans choose to do nothing. Experts report that 70% of all Americans have no written estate plan. And, of those who have planned, most have created a simple will or rely on joint tenancy ownership of their assets to distribute their estate.  Unfortunately, for the majority who have no plan in place, state law will dictate how their estate is to be distributed at death.  As you might imagine, the government's plan of distribution has no particular concern for the best interests of your family.  

There is no argument that doing nothing can result in probate costs, attorney's fees and, of course, higher death taxes.  But most people don't realize that there can be major problems as a result of creating a simple will or holding title to your assets in joint tenancy.

Many people plan their estates by creating a document called a Last Will and Testament. A will is essentially a legal document that lays out how you want your assets distributed at death. As we've already learned, a will doesn't control the distribution of all your assets. Joint tenancy property and life insurance proceeds both pass outside your will. Wills don't take effect until you die so they are no help with lifetime planning. Upon your death, your will becomes a public document when it's filed with the probate court and is available to anyone who wants to read it. Once your will enters the probate process, your estate is no longer controlled by your family. It's in the hands of the court and the probate attorneys. Because a will guarantees that your estate will go through probate, it's a very poor estate planning document for most families.

A revocable Living Trust is a complete will substitute. It can control all of your assets both during your life and after your death. Here's how it works: when you set up your living trust, you transfer the title of all your major assets (stocks, bonds, real estate, etc.) from your name to the name of the trust. You then name yourself as the trustee and beneficiary. That gives you, and you alone, total and complete control of all your assets. You can buy, sell, trade, do whatever you want--just like you do now.

Here's the difference, and the real benefit of it. When you die, there will be no assets left in your name, and, therefore, no probate for your family to endure.  Whomever you name as your successor trustee will immediately gain control of your assets to distribute them according to your exact instructions.

When you mention the word "probate," most people think it's only something that happens when you die. Unfortunately, probate can also happen while you're alive. It's often referred to as a "living probate" but it's technically called a "conservatorship" or "guardianship proceeding." If you become mentally disabled before you die, the probate court will appoint someone to take control of all your assets and personal affairs. The entire procedure is expensive, time-consuming and humiliating.

No. Each joint tenant is required to sign documents on all major transactions involving joint property. If one of the owners is mentally disabled and incapable of handling financial matters, everything will have to wait until the probate court takes control. The court, in effect, becomes a joint owner and will continue to have a voice in managing the property until the disabled owner recovers or dies.

No. A will only takes effect at the time of your death. It has no control over events during your life.

Yes. One of the most important benefits of a living trust is that it is designed to protect you while you're alive. Part of every well-drafted living trust is a section setting forth your instructions in the event you should become legally incapacitated. You can plan in advance to look after illness, disability and even old age. The trustees you pick are bound by law to follow your instructions during these difficult times. With a living trust, there will be no need for expensive "help" from the probate court, probate lawyers and guardians.

When you think about it, probate is not difficult to understand. At your death, your assets need to be distributed to your heirs, your debts need to be paid and any loose ends need to be looked after. You, obviously, can't sign the deeds, write the checks or handle your business affairs. The probate court takes over those duties.

The probate process is a long complicated and bureaucratic nightmare for most families. Here are the five basic steps to settling an estate:

A formal written petition to the court along with a filing fee must be submitted to the court to start the probate process. One of the probate court's first jobs is to approve or appoint someone to handle the affairs of the estate. This person is called the executor, administrator or personal representative depending upon the rules of the state and whether the decedent died with or without a will.

To keep things simple, we'll call this agent of the estate a "personal representative." Generally, the first thing the personal representative does is hire an experienced probate attorney. Although having an attorney is not always a legal requirement, it has become a practical necessity because probate paperwork and filing procedures can be very complex.

The second major job of the probate court is to order that the decedent's creditors be notified so that they can present their claims to the court for payment. This requires the time consuming task of cataloguing all of the decedent's liabilities. The creditors are notified either by notices in the local newspaper or directly by mail. The law sets a time that the probate proceeding must be left open to allow creditors the chance to present their claims. In most states, the creditor period is several months long.

During probate all the assets in the estate are usually frozen so that an accurate inventory and appraisal can be made. This means that, during this period, none of the assets can be distributed or sold without written permission from the court. The court will often require formal written appraisals for many items, such as real estate, antiques, collectibles, automobiles, furniture and other valuable assets. Appraisal fees can be expensive and, like all expenses, are paid for out of the estate.

Once all the debts and claims have been submitted and approved, they're presented to the court for approval of payments from the assets of the estate. Some estates may also have death tax liability and they must stay open until those taxes are paid.

During the entire probate process, disgruntled heirs or those who disagree with the provisions in the will can bring a lawsuit in the probate court. These suits are called will contests. They can hold up the distribution of the estate and are often used to intimidate heirs into settling cases that have no merit.

Finally, after the court is satisfied that all legal requirements have been met, it will order all debts, claims, taxes, attorney's fees and the personal representative's compensation and any other miscellaneous expenses to be paid. If there is not enough cash in the estate to pay these substantial claims, the judge can order that assets be sold at public auctions or estate sales. These transactions are often conducted in a depressed market or under the banner of "distressed sales"

Only after all the bills are paid, will the probate court distribute the estate to the beneficiaries named in the will, or if there is no will, to the designated heirs at law. The court then closes the file.

Despite what some probate lawyers say, probate is very expensive. One critic of the system says that the average cost is over seven percent of the gross value of the estate. A full sixty percent of the costs goes to lawyers and forty percent to personal representatives and others. One legal scholar who urges a reform in the probate system remarked that, "the cost of probate expands to consume the money available." Small estates are particularly vulnerable because even reasonable fees can eat up a large percentage of an estate's assets. There just isn't that much to go around. Remember, every dollar that goes to pay probate costs is a dollar that could benefit your family.

The way probate fees are calculated is exceedingly unfair to your family. State law sets the probate fees that attorneys and personal representatives can charge. Many states allow attorneys to charge any fee that the court considers reasonable, without any limitations. Other states limit the fees to a fixed percentage of the estate. Under either method, the fees can range from 4% to 10% of your family's gross estate.

Remember, probate fees are often levied at each spouse's death. Depending on how title was held on the date of death, a married couple could pay some form of probate fees on the death of each spouse.

Not only are these fees excessive, but the manner in which they arrive at the size of your estate bears little resemblance to its actual value. In states that use the percentage of the estate method, probate fees are calculated on your estate's gross value without deductions for liens or encumbrances. This means that if you have property worth $100,000 but owe $90,000 to a bank or some other financial institution, your probate fees will be based on the full $100,000, not the $10,000 equity interest you actually own. As you can see, this valuation method unfairly increases the size of your estate and results in the payment of larger fees.

Below is a schedule of minimum probate fees in Missouri:

The slow progress of your estate through probate can be very frustrating for the family. Although this complex process usually takes approximately one year to complete, many estates take years. Most people assume that their estates are simple and will glide through the system. Regardless of how simple an estate appears, it's very difficult to close a full probate in less than a year. That's because of all the steps that must be completed to the satisfaction of the court.

No. All probate proceedings are open to the public. Anyone who has an interest can pull your probate file and examine many details of your financial life. The file will disclose an inventory and appraisal of every asset you owned at death. It reveals the name of all your creditors and amount owed to each. It lays out the names of all your beneficiaries and the amount and conditions of their inheritances. This information is often compiled and sold to those who use the information to sell products and services to vulnerable surviving family members. It can be particularly damaging if you owned a business. Your competitors will have a treasure trove of confidential business information at their finger tips in the probate file.

A probate must be instituted not only in the state where you lived, but in every state where you owned real estate. This is called an ancillary probate. Each state has probate jurisdiction of the real property located within its borders. That means that your family will have to file a new probate in each state and hire local counsel to represent the estate. Of course, this will add to the expenses that must be paid before your family receives its share.

Yes. Perhaps the most important disadvantage of death probate is that your family loses control of the estate. During probate, they may not be able to sell assets without court approval, even if they need the money. Opportunities can be lost because the cumbersome probate system moves so slowly.

Your family may pay an emotional price in probate, as well. Because the process takes so long, it can be a constant reminder of the loss of a loved one. It can also foster arguments among family members who would normally seek support from one another. It's common to see family members taking out their frustration about the system on one another, especially if one of the family members has been named the personal representative of the estate.

Well, the answer is yes and no. In the case of a husband and wife who own their assets in joint tenancy, there's no death probate when the first spouse dies because title passes automatically to the surviving joint tenant. However, when the surviving spouse dies, there will be a complete probate on the entire estate.

The fact that joint tenancy ownership avoids death probate at the first spouse's death is a small reward for the many other disadvantages of joint tenancy ownership.  It can lead to huge unexpected liability when parents and children own assets together. It can create unintended beneficiaries and often causes gift and death tax problems. For these reasons, estate planning experts agree that joint tenancy may be the poorest estate planning tool.

No. In fact, a will guarantees probate. The word probate actually comes from the latin term meaning "to prove the will". All property that is controlled by your will must go through the probate court. Once your estate enters the probate process, it's trapped in the system until the judge releases it.

Yes. All assets transferred to a living trust completely avoid the probate process, both during your life and at your death. Living trusts are not new. They've been successfully used in one form or another since the Middle Ages. Both then and now, the living trust has required that the owner of assets transfer title from his or her name to the name of trust. This really means changing the title to your property. For real property, it means you will sign a new deed. For other assets, you sign special transfer documents changing ownership to the name of your trust. Once the process is complete, all your assets will be owned by the trust.

Almost nothing will be owned by you personally. Your living trust has title to the assets, but don't worry, you, or you and your spouse if you're married, have complete control of the trust while you're alive. You can amend the trust or even revoke it whenever you like.  But when you die, there are no assets in your name so there's no need to go through probate. The trust already has your written instructions directing your hand picked agent, the successor trustee, about how you want your estate distributed.

With a living trust, there's no need for "help" from the probate court or probate lawyers. Your trust will completely eliminate these unnecessary costs. Moreover, your estate can be distributed instantly at your death. There are no judges to consult or bureaucrats to please. Your trustee merely follows your instructions in distributing your estate according to your wishes.

In addition to the expense and delay of probate, your family may also be liable for death taxes. There are two types of death taxes: the federal estate tax and the state inheritance tax. The federal estate tax is one of the largest taxes a family will ever have to pay. It's a tax on your right to transfer property to others at your death. Currently the federal estate tax rates start at 37% and quickly rise to 55% of every dollar in your estate over the amount of the exemption.

No. The federal government has given every person in the United States an exemption for estate tax purposes. Presently, the exemption is $1,000,000 in 2001 with a planned gradual increase to $2,000,000 in 2006. That means if your estate at the time of your death is less than the exemption, there will be no federal estate taxes due. In deciding whether your estate is greater than or less than the exemption, the government includes everything you own, even the face value of your life insurance policies.

Yes. In addition to the phased-in personal exemption that everyone gets, the federal government has exempted all transfers of wealth between a husband and wife. This is called the Unlimited Marital Deduction and it means that regardless of the size of your estate there will be no federal estate taxes levied when the first spouse dies and leaves the estate to the surviving spouse.

Keep in mind, however, that this is merely a postponement of tax. There will be a tax on the estate of the surviving spouse when it passes to the children or other beneficiaries. Since in all probability the estate will continue to appreciate in value, taxes may be paid at a higher rate.

WARNING: Recent changes in the tax law have eliminated the unlimited marital deduction for surviving spouses who are not U.S. citizens. Without special planning, all non-citizen spouses are restricted to the tax-free transfer of the personal exemption amount from their deceased spouses.

Yes. While an estate under the exempt amount is free from federal estate taxes, you will probably not avoid a living probate if you become disabled or a death probate when you die. Remember, probate and federal estate taxes have nothing to do with each other.  Estate taxes are paid to the federal government for the right to transfer property at your death. Probate fees and costs are paid to the probate court, attorneys and the personal representatives of your estate for supervising the administration of your estate and distributing assets to your beneficiaries.

The first step is to make an appointment for a free, no obligation meeting with one of our estate planning professionals. You should be prepared to discuss the following issues:

• How your assets are to be distributed after your death, and
• The names of the people you want to manage your assets if you become mentally disabled, and after your death.

Yes, If you are competent to handle your financial affairs now, there's no legal reason why you can't be the trustee of your own living trust. In fact, most living trusts have the people who created them acting as their own trustees. If you're married, you and your spouse can act as co-trustees.

If you're the trustee, you can do anything you want with the trust assets. When you set up your living trust, you are transferring the title of all your assets from you as an individual to yourself as the trustee of your trust. You then must manage the property for the benefit of yourself as the beneficiary. What this means is that you will have absolute and complete control over all the assets of your trust. If you want, you can spend, save, invest or even give the assets away at your discretion. There are no restrictions on what you can do with the assets in your living trust. Moreover, if you don't like the terms of the trust, you can amend it or revoke it at any time without penalty.

No. The purpose of creating your Revocable Living Trust is to avoid living probate, death probate, and reduce or eliminate federal estate taxes. It's not a vehicle for reducing income taxes. In fact, if you're the trustee of your living trust, you will file your income tax returns in exactly the same way you filed them before the trust existed. There are no new returns to file and no new liabilities are created.

No. Transfers into your living trust have no effect on your property taxes.

Yes. Your share can go into the trust without changing the interests owned by others.

Yes. There is no limitation on where your trustees or beneficiaries must reside.

No. Once your current assets are transferred to your living trust, you take title to all new assets in the name of the trust and they will automatically be owned by your trust.

No. Your living trust is a private document which is not recorded. However, if you own any interest in real estate, the new deeds showing trust ownership will be recorded.

Yes. You sell assets in the same way you currently do. You will, however, add the word "Trustee" after your signature.

Yes. While you're alive and competent, you can alter your living trust or even revoke it without penalty at any time.

Yes. In fact, all real estate should be transferred into your living trust. Otherwise, upon your death, there will be a death probate in every state where you own real property. When it's owned by your living trust, there is no probate anywhere.

No. Your living trust has been authorized by the law for centuries. The government has no interest in making you go through a living probate or a death probate. Those proceedings only clog up the court system. The only portion of your trust that will be affected is the amount of the federal estate tax exemption. The exemption is $1,000,000 in 2002 with a gradual increase to $2,000,000 in 2006. A properly drafted living trust can double the amount you can pass tax free. If the law retains its planned gradual increases, your trust will allow you to pass $1,350,000 estate tax-free as of 2001, and up to $2,000,000 as of 2006.

Yes. The drafting of your living trust should only be done by an attorney trained in the area of tax and trust law. After all, your trust will be the document which manages and disposes of all your hard earned wealth. Make certain you choose a law firm that is both qualified and experienced.

Yes. Your living trust is valid in all 50 states, regardless of the state where it was originally created.

No. A living trust can help anyone who wants to protect his or her family from unnecessary probate fees, attorney's fees, court costs and federal estate taxes. In fact, if your total estate is greater than $40,000, a living trust offers substantial protection for your family.

Yes. If you're widowed, divorced, or unmarried, a living trust offers protection for your estate, as well. It will completely eliminate a living probate, a death probate and you can pass $675,000 free of federal estate taxes in 2001, and up to $1,000,000 in 2006.

No. Because you have complete control of all assets in your trust, you're free to manage your living trust in any way you want. Also, because your living trust is revocable, you have the right to make any changes in it while you're alive and competent.