Probate

A distinguished author at Wealth Counsel defined Probate as:
A lawsuit that you file against yourself, paid for with your own assets, for the purpose of giving your property away and satisfying your creditors and disgruntled heirs

Probate is a court proceeding to conclude all the legal and financial matters of the deceased. If the decedent had a will, the disposition of decedent’s assets would be supervised by a probate court according to the terms of the will. Probate is a public process where court records are available to anyone for the asking. Probate can also be complex requiring not only a court appointed executor, but also an attorney and possibly a guardian for minor children. Fees for ordinary services paid to the executor and attorney are fixed by statute. And Probate typically takes a year or more to conclude. The Probate Court may also name a guardian for minor children.

Is probate something inherently evil to be avoided at all costs? Certainly not. If there is a chance that heirs will challenge the will or dispute their inheritance, a court proceeding will probably be necessary to resolve the issue. Or if there is any question about the fairness or bias of the executor of the estate, a probate proceeding may be the right answer since the court will provide judicial oversight over the management of the estate – thus ensuring objectivity. Finally, if the estate is small (i.e., less than $150 thousand), the estate can be distributed without probate.

Some property can pass outside of probate – by operation of law. For example, the following are non-probate transfers:

  • jointly owned property (e.g., real property owned as joint tenants, joint bank accounts);
  • life insurance proceeds to named beneficiaries;
  • certain retirement accounts (IRAs, 401(k) plans);
  • annuities.

The cost of Probate is set by a California statute. The statutory fees apply to “ordinary services” rendered by the personal representative (executor) and the attorney. For example, on an estate with a valuation of $2 million, the combined fees would be $66,000. There are other fees associated with a probate in California, such as: petition filing fee to open the probate, publication fees, probate referee fees, and fees to the court for Certified Copies of Letters Testamentary. It is also noteworthy that the fees to the attorney and executor are calculated on the gross fair market value of the property going through the probate without regard to any debt carried on the property. So if the primary asset is a house worth $1.4 million with a mortgage of $900,000, the Probate fee will be calculated on the $1.4 million (ignoring the encumbrance).

Avoiding a probate is a much more attractive option. This can be accomplished by setting up a revocable trust and transferring the property to the trust on record title with the appropriate County Recorder’s Office. Probate in California can involve significant time delays (12-24 months) to transfer the property to the beneficiaries or heirs, it can be more expensive than trust administration, and Probate opens up the estate to the prying eyes of the public.