How Proper Estate Planning Can Help Avoid Probate
Probate administration is a legal proceeding supervised by the California Superior Court that resolves a person’s legal and financial affairs after death. The two primary goals of probate are to pay off debts and distribute the remaining property to legal heirs or beneficiaries named in a will.
In theory, probate sounds good and in certain cases can be beneficial. A noticed hearing, detailed accounting, and court approval are all typically required to distribute assets. That level of formality may assuage potentially litigious relatives from accusing an estate’s administrator of impropriety.
However, the benefits of probate administration are rarely worth the time, cost, and exposure to creditors’ claims. The hassle and high costs of probate are why most Californians choose to have their assets titled in a living trust.
California Probate Administration Fees
An uncontested probate administration typically takes around one year to finalize and can cost an estate nearly $50,000 for an estate valued at $1 million. For starters, filing fees and court appraisal costs alone typically total $2,500 or more.
California probate administration attorney’s fees and executor’s fees are set by statute and are based on the overall value of the estate without adjusting for debt. For example, the statutory fee for an estate worth $1.5 million is $56,000 (that’s $28,000 each for the attorney and executor). With filing fees, you are looking at a final bill of around $60,000.
Those fees are paid by the estate before any distributions are made to heirs or beneficiaries. So, an estate that has a lot of debt to pay off may end up making nominal distributions to the actual heirs while the attorney and the administrator are the ones getting paid first.
Benefits of a Living Trust
Provided assets are appropriately titled in the name of a living trust, the successor trustee needs a death certificate, a sworn statement, and a copy of the trust to collect assets and distribute them to the trust’s beneficiaries. During the lifetime of the trust’s creator (referred to as the “settlor”), the living trust can be revoked or amended at any time – meaning beneficiaries can be changed and new property can be added to the trust without much fuss.
Also, living trusts can be drafted to help minimize estate tax, ensure pets are taken care of, and to put limits on how and when young beneficiaries receive their distributions.
Most appealing of all, a trust administration usually lasts around six months and costs dramatically less than a probate, with typical fees ranging between $5,000-$10,000, depending on the estate’s complexity and whether assets were appropriately tied to the trust.
How To Avoid Probate
A living trust isn’t the only way to avoid probate. Assets that are jointly titled or given beneficiary designations pass free of probate or trust administration.
This may include a jointly titled bank account, a home held in joint tenancy or as community property with right of survivorship, or 401(k)’s, IRA’s, or life insurance policies with named beneficiaries.
However, most California estate planning attorneys will recommend that a living trust be named as a backup beneficiary to ensure there is no way these assets end up in probate.
There is a caveat.
Property tied to a living trust must be titled in the name of the trust to avoid the probate court altogether, with the following exception: if the asset is non-real property worth less than $166,250 (or real estate worth less than $55,425), then it may be claimed through a simple summary affidavit process.
However, if the property is over these threshold values, then there are two potential outcomes:
1. if the asset is named in the trust document but was never formally titled in the name of the trust (e.g. a trust transfer deed wasn’t processed or an account was not titled in the trust’s name), then a petition may be filed with the probate court ordering that asset into the trust. This process is called a Heggstad Petition or an 850 Petition.
2. If the asset was both not named in the trust document and not titled in the name of the trust, then it will be subject to a probate administration to either confirm it into the trust via a pour-over will naming the trust as a beneficiary, or – if no will was executed with the trust – to your legal heirs.
California Estate Planning Lawyers
The California estate planning lawyers at Kugelman Law can walk through the various estate planning options available and advise on which approach is the most appropriate for you and your family.
Avoid the hassle and high costs of probate administration, and contact the Kugelman Law estate planning attorneys in California today to protect your future.