PROBATE – WHEN YOU NEED IT / HOW TO AVOID IT
For several years, we have been guiding our clients in creating Revocable Living Trusts to avoid Probate and minimize estate taxes. But over the past several months, we’ve had increasing demand to provide Probate services in real estate transactions. In this Blog, I’ll help you understand the Probate process and let you know when you need it and when you don’t.
What is “Probate”?
Probate is the legal process through which a Court determines who should manage a deceased person’s estate and who is entitled to receive the estate assets. If, before dying, the person made a Will, then that document would instruct the Court on who should manage and who should get the assets. If no Will exists, then California law will determine these matters.
When is Probate required?
Anytime a person dies leaving gross assets of $150,000 or more (that means asset value without discounting for debt) a Probate procedure is required. If the estate is $150,000 or less and is needed to confirm who owns real estate, then a simplified process is available. But if the estate is greater than $150,000, then a formal Probate proceding is required which includes notifying and paying all creditors (including the State) as well as all possible heirs. Needless to say, this latter process is expensive and time-consuming and generally cannot be done without the assistance of a Probate attorney.
Why is this increasing now?
Over the past decade or more, people began to use Living Trusts as a way to avoid the high costs and time delays of Probate. I’ll discuss this more below. When the economy began crashing in 2006, many people saw their assets disappear and with it estate planning became less important. For a person who died with over-encumbered property, there was no reason to spend the money Probating when there was no estate to distribute. Many chose to simply let the real estate go in foreclosure. However, as our economy has gradually improved, those who held on are now finding that there is value in the estates and Probate is being used to enable the legal heirs to sell or possibly modify or refinance the real estate.
What is the formal Process?
Formal Probate (estates over $150,000 in gross value) has basically three parts:
– this involves some interested party – typically a spouse or other family member – asking the Court to appoint them as the legal manager of the decedent’s estate. If there was a Will, then this person may have been designated as the Executor. If there was no Will, then the person would be appointed as the Administrator. Regardless of the title, this person’s job, is to identify all the estate assets and liabilities; identify all possible heirs of the deceased person; pay all the bills; and distribute the remainder to the legal heirs.
2. Information Collection
– once they are authorized by the Court, the manager has the legal authority to represent the estate in locating all of the decedent’s assets and determining their value at the time the decedent died. They also must identify all possible creditors who are owed money by the decedent and they must either pay the debts if the estate has cash or notify these creditors to submit claims. As manager, they must also identify who has a legal right to receive any assets left after the decedent’s debts are paid. As you might expect, this can lead to disputes between possible heirs. The Probate court is used to sort out conflicting claims.
– once all the information is collected and any disputes are sorted out, the manager requests the Probate Court to issue an Order confirming the work done by the manager and ordering the assets to be distributed to the rightful heirs. If the estate included real estate, this Order is often recorded and acts like a Deed to convey ownership from the decedent to the heirs. Often the real property is sold during the Probate process, and the net sale proceeds are distributed together with any other estate assets.
Why do people want to avoid formal Probate?
All of the above process takes time and money. A formal Probate can often take a year or more from start to finish and everything is available for the public to read. California law provides that the Probate attorney gets paid on a sliding scale based upon the size of the estate. For example, if the gross value of the estate were just $300,000 (such as the value of a piece of real property without counting any loans), the attorney fees would be $9,000 plus the costs of the Probate process. And the manager can get these as well. Unless the estate has enough value to pay these costs and have value to distribute, Probate may not be worth the expense.
How does Small Estate Probate differ?
When the estate is worth $150,000 or less, then the legal heirs can file a Small Estate Petition to divide and distribute the estate assets amongst themselves and confirm ownership of real property. Even with estates have little or no value, the small estate process is used to enable a surviving spouse or other family members to have authority to pursue a loan modification or other negotiations to save, refinance, or even sell the property. Because this process avoids the requirements of formal Probate, the costs and processing time can be dramatically less.
Can the Probate process be avoided?
If the person has died and left assets in their name that someone wants, ie: real property, banks accounts, stocks, etc, then some form of Probate is required. Those who are planning for their future should investigate whether forming a Living Trust would be beneficial. With a Trust, you transfer your assets now to a manager called a Trustee – usually you – who holds and uses the assets for your benefit while you’re alive and distributes them to your designated heirs when you die. Because on your death you have no assets in your name (they’re in the Trust) no Probate is required. Instead of the expensive, public, time-consuming Probate process, the Trust administration is low-cost, private, and as fast or slow as you want it to be.
BPE Law has been assisting our clients with their estate planning needs ever since we started doing business. We’ve represented clients in hundreds of Probate proceedings and similarly have helped hundreds more avoid Probate with Living Trusts. If you, your family members, or friends are dealing with how to handle property after a death… or simply want to plan ahead to preserve and protect as much of your hard-earned assets for your heirs, then get in touch with us. Our educational 1 hour Consult program can answer all of your questions and help you find the direction you need. And, if you choose BPE Law to represent you in your formal Probate proceedings or Trust preparation, we’ll credit the consulation fee back to you. To schedule a Consultation, please contact our office at (916) 966-2260 or e-mail me at