What to Expect During Probate

What is the purpose of probate?

Probate – although we try to avoid it, is not just another scheme devised by greedy attorneys to make money. The purpose of probate is to make sure that, after a person dies, their assets are distributed according to their wishes, and to make sure that outstanding debts are paid.

Probate is a judicial court process, which means that a judge will supervise the settling of the estate. When a will is submitted to the court, an executor will be appointed and probate begins. Probate ends after the court issues an order about how the assets are to be distributed. Until that order is issued, no one gets anything.

What occurs during the probate process?

The executor is required to notify all known creditors as well as publish a notice in the local newspaper to give creditors the chance to come forward and make a claim on the estate. The executor must prepare an inventory listing all of the estate’s assets. Once the inventory list has been approved, and all the outstanding debts and taxes have been paid, the executor is finally allowed to transfer whatever is left to the beneficiaries under a will or by decision of who would inherit under CA intestacy law.

How long does the probate process take?

At least four months minimum to publish notice and allow creditors time to make claims. However, the full probate process in California will typically take 12-18 months for the executor to finish the entire process and receive a court order to distribute the assets. If you have a property in states other than CA, you will need to open separately for probate in each of those states as well.

How much does probate cost?

In California, probate fees are determined by the total value of the assets in your estate under the probate code 10810. The fee schedule is similar to income tax, in that the fee percentage increases incrementally for certain amounts.

4% for the first 100k = 4k
3% for the next 100k = 3k
2% up to the next 800 = 2k per 100k
1% up to the next 900k = 1k per 100k
.5% up to the next 15mil = $500 per 100k
A reasonable amount determined by the court for amount above 25mil

For example, a minimum required probate of $150k will be $5,500. A 200k estate will be $7k. A 500k (1/2 million) estate would be 13k. A million dollar estate would be 23k, and a 10million estate would be 113k in fees.

Now once you have calculated the statutory fees, double them. At the end of the probate, the court assigns statutory fees to pay both the executor and the attorney. Now an attorney or the executor can request less fees or waive them entirely. This is common when the appointed executor also is inheriting from the estate, but as you can imagine, not so common for the attorney to reduce or waive.

Also, keep in mind that this is only fees not costs (such as filing fees, and mailing costs, usually 1-3k), and it takes into account only the basic probate proceedings. If probate becomes complicated by litigation or major tax issues, the court may provide additional fees at its discretion. If the probate process is disputed, the court will typically award additional fees.

How is the value of your assets calculated?

So now you might wonder how the value of your assets is calculated and might think, well I own a house, but I only have 80k worth of equity in the house, 10k in my bank account, and a 10k car, I should be under the $166,250 no problem.

Well, you would be wrong. First, CA probates a total value exceeding $166,250 in assets or $55,425 in real property. So if you own property in CA, you are basically guaranteed to go through probate. Second, the calculation used to determine the value of your estate is based on the FMV of your assets and what they would be worth if you sold them at the date of death. It doesn’t matter that you only have 80k in equity on your 500k home. Your asset is worth 500k in the eyes of the court, and that is the number used to determine the fees.

So in the example above for the house alone, you would be looking at approximately half a million in assets for statutory fees of 13k. Doubled those fees for the executor and attorneys and you come to 26k in base fees. A couple thousand for costs and you are looking at anything between 27-30k, a large chunk of the potential 80k in equity from the house. And that’s if you have a decent amount of equity. Probate could potentially drain the remaining estate and force those inheriting the property to refinance or lose the home.

Assets considered in probate:

Luckily, there are ways around probate. The purpose of probate is to prevent fraud after you die and someone taking advantage. The court steps in only to ensure that the decedent’s wishes are respected and assets are properly distributed. If you take steps to make sure your property passes outside of probate, your family doesn’t need to deal with all this mess.

Reasons to avoid, or not avoid probate:

Court fees and statutory fees take money that would otherwise be passed to your loved ones. Waiting months, or a year to distribute your assets to your loves ones is a waste of time and money. Probate is a public process. Everything that is filed is open to anyone who wants to inspect them. The inventory of your assets, who is getting what, etc.

Probate may be useful in some cases that have complicated creditor issues or complex family dynamics. In these cases, court intervention may be useful to make the determination of what goes where, so the creditors and/or family members are allowed to argue their case and any issues are resolved to prevent future litigation.

How to avoid Probate:

This is where estate planning comes into play. There are different levels of estate planning, and different methods of avoiding probate, if that is the main concern.

Having a will does not avoid probate, but if drafted properly can shorten the time required for probate.

You may remove as much as your property as you can into accounts that aren’t probated, such as joint accounts, but the options are usually very limited and there is no alternative. Eg. a joint account will pass outside probate, but there is no designation of alternate individuals, no alternative if the joint owner dies first, etc.

A revocable living trust is the preferred method, because it provides the greatest flexibility to choose exactly what you want to happen with your property, especially if you want to benefit multiple people, and you can plan for most contingencies as well as plan to avoid certain tax issues that arise upon transferring property to your beneficiary’s. People with simple estates, with just a single beneficiary may be better served using joint accounts and joint tenancy’s.