Despite the push over the past few decades by estate planning attorneys,
CPAs, and financial advisors to urge all individuals with any assets to
prepare an estate plan, there is a large number of people that pass away
having done no planning. This is unfortunate because by choosing not to
plan these individuals are choosing to subject their estates and their
family to the probate process. In California this process is governed
by Division 7 of the California Probate Code, §7000-12591.
What is probate?
In its simplest form, probate is the judicial supervised administration
of a deceased person’s estate by an executor or administrator, which
are both commonly referred to as the Personal Representative of the Estate.
The Personal Representative steps into the shoes of the decedent and has
full authority to handle the descendant’s assets in the same way
the decedent could have, if he/she were still alive. The Court serves
as a check on the Personal Representative’s power and acts to protect
the interests of the heirs, beneficiaries, and even the creditors. In
a probate, the decedent’s will is validated, beneficiaries and heirs
are determined, creditors are paid, and the decedent’s property
is distributed to the proper individuals.
When is a probate needed?
Generally, a probate is required when an individual dies holding property
in their individual name. However, there are some exceptions where the
property passes to the designated individuals without the need for the
probate process. For example, the following property is not subject to
- Property held in joint tenancy;
- Property held in a Trust;
- Proceeds of Life Insurance with designated beneficiaries other than the
- Pension Plan distributions; and
- Bank Accounts with a pay on death designation other than the decedent’s estate.
In addition, there are some items of property that can be transferred without
going through the full probate process because the value of the property
is less than the statutory limit. Summary procedures are available for:
- Personal Property where the total value of the decedent’s estate
in California is less than $150,000 (Probate Code §13100); and
- Real Property, where the value is less than $50,000 (Probate Code §13200).
These two summary procedures are much faster and less expensive than full
probate administration. However, because of the extremely low value thresholds,
these procedures cannot be relied upon to pass most California estates.
Also, one downside is that the beneficiary takes the property subject
to claims of the decedent’s creditors.
The probate process?
A probate is opened by the filing of a Petition for Probate. From this
initial filing date, it will generally take approximately one year to
get to the point of final distribution of the assets. This timeline can
be extended significantly by disagreements between the heirs and unexpected
issues in the administration such as tax problems.
Cost of probate
A probate can be very expensive for the Estate because attorney fees and
Personal Representative fees are calculated based on a statutory prescribed
percentage of the gross value of the estate. The rates are:
- 4% of the first $100,000 of the gross value of the probate estate.
- 3% of the next $100,000.
- 2% of the next $800,000.
- 1% of the next $9 million.
- .5% of the next $15 million
Based on this an estate with a gross value of $500,000 would be paying
$13,000 in attorney fees and $13,000 to the Personal Representative for
their respective services to the estate.
Once all of the creditors have been paid, tax returns have been filed,
and assets have been collected, the Final Account and Petition for Final
Distribution can be prepared. This final petition is a detailed report
of every action that the Personal Representative took during the administration
and an accounting of every dollar of assets that was administered. The
Personal Representative has an obligation to keep accurate records of
the administration of the estate and failure to do so could result in
a surcharge to the Personal Representative, which will be owed personally.
The best way to avoid subjecting your family to the cost and complications
of a probate is to prepare an estate plan that includes creation of a
revocable trust. Creation of a trust to hold your assets allows you and
your family to take advantage of one of the exemptions to the probate
process. It is always difficult to deal with the issues of death, but
a small investment of time and preparation in advance has a huge benefit
for your family down the road.