The High Toll of California Probate

from Gary Kershner, Estate Planning and Counseling 

Michael had passed away in the manner in which many of us dream: peacefully, pain free, in his own home, in his own bed. Two years earlier his wife Laura had passed as well. Their three children mourned the loss of their parents, but knew that their parents had lived full and rich lives and had died with no regrets.

While their parents were not on the level of say, Bill Gates, there had been money in the family. Their parents also possessed a sizable home with (by California standards) a decent amount of land. The children knew that some of the money was earmarked for charity and that some close friends and relatives stood to inherit, but it was understood that the bulk of the money would be divided equally among the siblings.

Prior to their parents' passing there had been some good natured squabbling about who wanted this or that piece of furniture and whether they should try to sell their father's collection of hand carved pipes on Ebay; Emily, the oldest, laid claim to her mom's tea set and collection of old evening gowns, figuring her daughter would love playing dress up with them. John, the middle child (and the most detail oriented) offered to handle the process of executing their parents' will. He had no idea what he was in for.

Although Michael and Laura had created legal wills, they had never created a living trust. As a result their estate entered the expensive and complex process known as probate. And California is notorious for having one of the most complicated and expensive probate processes in the country.

Probate is the legal process of administering an estate; resolving all debts and claims, and distributing the deceased person's property. The executor of the estate has the legal power to dispose of the assets of the deceased. 

Having a will does not avoid an estate having to go through probate. Indeed one of the first steps in the probate process is "proving the will." This one step alone involves a hearing, which is typically held no sooner than 30 days after the request for the hearing has been made. Notices of the hearing must be placed no fewer than three times in a local newspaper, anyone who stands to inherit must receive written notification of the hearing and, unless special provisions have been put in place to waive it, a fee of $800 (on top of any court fees) must be paid as insurance for the estate against theft or so-called improper activity. And that's just the tip of the iceberg. 

During the probate process, creditors must be notified, and certain legal notices must be published. Creditors must be paid before the executor can distribute assets to the beneficiaries. Estate taxes, gift taxes and inheritance taxes must be paid, based on the size of the estate and the applicable taxes. Sometimes, real estate attached to the estate must be sold in order to satisfy debts or taxes.

From start to finish the entire probate process can easily take from 12 months to over 3 years. During this time, the family may not utilize the assets of the estate. This can be a big problem for families relying on the sale of a piece of real estate or the disposition of a specific piece of property. 

Probate is also extremely expensive. Believe it or not, California State sets the rules (not guidelines, rules) for the fees associated with probate. The amount that must be paid (at least as far as executor, attorney, and filing fees are concerned) is determined by the value of the estate.

Probate is not only time consuming and expensive, it demands a tremendous loss of privacy. The probate process involves public notices, and probate matters are accessible by the general public. If a will is filed for probate, it becomes public record, and anyone can read it. This exposes the estate's assets and beneficiaries to public scrutiny, and unfortunately, sometimes people use this information to exploit beneficiaries. 

Avoid Probate with a Revocable Living Trust

You can bypass the probate process by setting up a good revocable living trust to convey assets directly to their beneficiaries. The revocable living trust directly transfers the ownership of assets from the grantor - the person who creates the trust - to the beneficiaries. Assets named in the trust don't go through the probate process, which can save costs and keep the assets and their distribution private. The revocable nature of this type of living trust means that you can make changes to the trust document while you're still alive, which makes it a great tool to adapt to life's changing circumstances. 

Incorrect use of a revocable living trust, however, can cause serious problems. Problems with improper real estate transfer and tax issues can dramatically eat into the assets you're trying to protect with your living trust. Make sure you work with an experienced estate planning attorney to establish your revocable living trust and deal with the complex issues related to this invaluable tool. 

What To Do Next

Estate planning can be deceptively complex. Not only do state and federal laws change, but every family situation is different. Seemingly small choices in how planning is done can have profound tax and family implications, and not having a plan in place can be worst of all.

Gary Kershner offers clients a No Hassle Trust and Estate Strategy Meeting, where they get experienced guidance on how to achieve total asset protection, long term security, and peace of mind for themselves and loved ones. If I cannot meet your needs; you have my commitment that I'll point you in the right direction. Just call my office at 510-336-9500 to schedule.