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                                                                                                   Probate, Trusts & Estates

       Serving the Silicon Valley and the greater SF Bay Area

The Basic Probate Process

If probate is necessary, someone must come forward to start the process. If there's a will, the executor named in the will should get the ball rolling. If there's no will, or the person named to serve as executor isn't available, then usually a family member asks the court to be appointed as the "administrator" of the estate. It's the same job.

The executor's job will probably last six months to a year. First, the executor files the will, along with a document called "Petition for Probate," with the probate court in the county where the deceased person lived. There is a filing fee of about $435; some counties charge a bit more. Some other forms may need to be filed as well, and formal notices need to be given to beneficiaries, particular family members and creditors. The will, if there is one, must be shown to be valid; usually this is done by having the witnesses sign a sworn statement that's submitted to the court. When everything is in order, the court issues "Letters Testamentary" or "Letters of Administration," appointing an executor and granting that person authority over estate assets.

Once the executor has this authority, the process of gathering the deceased person's assets can begin. It's also the time for the executor to get organized, set up a filing system so that benefits and bills aren't overlooked, apply for a taxpayer ID number for the estate, and open an estate bank account. The executor will need to compile, and file with the court, an inventory and appraisal of all probate property.

If all this sounds overwhelming, remember that it doesn't all have to be done at once. It does involve a lot of paperwork (and usually, phone calls), but most well-organized and conscientious people can handle it. And the executor can always get help, from family members or from an attorney who understands the process and can serve as a guide.

Most probate cases in California are handled under the state's Independent Administration of Estates Act, which lets the executor take care of most matters without having to get permission from the probate court. ( and following.) The executor can usually sell estate property, pay taxes, and approve or reject claims from creditors without court supervision. Certain other acts—for example, selling real estate—require court approval. 

During the probate process, it's the executor's job to keep all assets safe. For example, a house must be insured and maintained; heirlooms must be safeguarded from theft or damage. The executor is also responsible for filing tax returns for the deceased person and for the estate.

In California, creditors have four months to come forward with their claims. Many estates don't receive any formal claims from creditors; instead, the executor simply pays outstanding bills (for expenses of the final illness, for example). If there isn't enough money to pay all valid claims, however, state law sets out the order in which claims are to be paid from estate assets. 

Finally, when all bills and taxes have been paid, the executor asks the court to close the estate. That's when the executor can distribute all the estate assets to the people who inherit them.

Probate Attorney Fees in California

In most states, lawyers charge by the hour or collect a flat fee for probate work. Not so in California. It's one of only a few states that let lawyers charge a "statutory fee"—an amount that is a percentage of the value of the assets that go through probate. The percentages are set out in state statutes.

Here are the current rates:

  • 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

  • A reasonable amount (determined by the court) for any amounts higher than $25 million

 

In practice, this means that probate lawyers' fees can be very high in relation to the amount of actual work done. Probate is usually a matter of filing papers; there's no trial and there may be no court appearances at all. So, let's say your probate estate contains a $600,000 house you own in your name alone, plus some bank and brokerage accounts and a car. The total value is $900,000. The attorney's statutory fee would be $21,000—for very little paperwork.

But wait, what if there's still $200,000 to pay on the mortgage, reducing your equity to $400,000? The attorney's fee would still be $21,000—it's based on the gross amount of the probate assets, not what you actually own.

California lawyers don't have to charge this way—they can bill by the hour or charge a flat fee. They do it because the statutory fees are such a good deal for them. And the fees are only for ordinary work—if there's something "extraordinary," the lawyer can ask for a bigger fee.

 

Avoiding Probate: Living Trusts

What Is a Living Trust?

A "living" trust (also called an "inter vivos" trust) is simply a trust you create while you're alive. The beneficiaries you name in your living trust receive the trust property when you die. You could instead use a will, but wills must go through probate—the court process that oversees the transfer of your property to your beneficiaries.

 

Many people create a revocable living trust as part of their estate plan. These trusts can be modified or revoked at any time. Typically, you'll name yourself as the "trustee" of your trust. This means that while you are alive, you retain control of the trust and its property. In your trust document, you will also name a "successor trustee" to take over and manage the trust (distribute your property) after you die. (If you create a shared living trust, as is often done by spouses, then your successor trustee would assume control after both spouses have died.)

In contrast, irrevocable trusts cannot be revoked or modified after they are signed. Irrevocable trusts can be useful tools for specific goals, like reducing taxes, but they require giving up ownership and control of trust property.

Do I Need a Living Trust in California?

When you set up a living trust to transfer your property to your loved ones after your death, you can potentially save them a lot of time, hassle, and money. Property left through a will (rather than a living trust) might be tied up for months or even years in probate court, and could involve court costs and lawyers' fees. By contrast, property left through a trust can be distributed to your beneficiaries almost immediately, and often without the need for an attorney.

Some states have fully adopted a model law called the Uniform Probate Code, which streamlines the probate process, but unfortunately California is not one of these states. However, California does offer simplified probate processes for "small" estates:

  • Your surviving spouse can petition the probate court for any amount of property to be transferred "without administration."

  • Your inheritors can skip the probate process altogether and instead use a simple affidavit process to claim property in estates that are up to $166,250 in value, or real estate up to $55,425 in value.

  • Your estate may be able to use a separate probate shortcut if the total value of the estate is $166,250 or less. (You can exclude a great deal of property when adding up the value of the estate for example, real estate outside of California, joint tenancy property, property that goes to a surviving spouse, life insurance proceeds, death benefits, payable-on-death accounts, and much more.)

 

If your estate qualifies for one of these shortcuts, the probate process might be straightforward and relatively inexpensive, so you might not need to worry about making a living trust just to avoid probate.

Additionally, in California, you can transfer real property using a transfer-on-death deed; this can keep your home out of probate without using a living trust.

In California, If I Make a Living Trust, Do I Still Need a Will?

Yes, you'll still need a will. This might seem confusing—isn't the point of a living trust to avoid needing a will? Yes, it is, and your will might never be used. But you should still write one, for one or both of the following reasons:

  • Designating a guardian for minor children. You cannot use a trust to name a guardian for your minor children. For this reason alone, if you have minor children, you should write a will that names the guardian.

  • Accounting for property that you have not transferred to your trust. It happens all the time—people create a trust and forget to formally transfer property to the trust (for example, they never get around to changing the deed on their house). Or, people buy or inherit property after they've set up their trust, and forget or don't know to take ownership as the trustee of their trust. Either way, the property will not be distributed according to the terms of the trust. You should have a will as a backup to dictate how assets that are not in the trust should be distributed.

 

If you don't have a will, any property that isn't transferred by your living trust or other method (such as joint tenancy) will go to your closest relatives as determined by California state law.

Can a Living Trust Reduce Estate Tax in California?

Probably not. Most people do not need to worry about federal estate taxes because the federal estate tax is levied only on estates worth close to $12 million. California does not have its own estate tax.

That said, if you have an estate worth close to $12 million (or you and your spouse or partner have a combined estate of close to $24 million), you might be able to use a more complicated trust (such as an AB trust) to reduce or avoid estate taxes.

 

How Do I Make a Living Trust in California?

To make a living trust in California, you:

  • Choose whether to make an individual or shared trust.

  • Decide what property to include in the trust.

  • Choose a successor trustee.

  • Decide who will be the trust's beneficiaries—that is, who will get the trust property.

  • Create the trust document. 

  • Sign the document in front of a notary public.

  • Change the title of any trust property that has a title document—such as your house or car—to reflect that you now own the property as trustee of the trust.

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