Desert Estate Planning Law Blog : Palm Springs Estate Planning Lawyer & Attorney : Daryl Binkley Law Firm : Palm Desert, Indian Wells, Southern California

"THERE’S HELL, AND THEN THERE’S PROBATE” is a J.J. Childers, J.D. quote from his book Asset Protection 101. To me this is a joke that makes me smile and cringe at the same time. In the text, Mr. Childers goes on to add that “thanks to the probate process you probably wouldn’t wish the job of executor on your worst enemy.” Yet individuals who have a modest amount of real property titled in their name alone, and procrastinate away their estate plans, will lead their loved ones straight to a government imposed estate plan in a system, that’s well, a hell.

While the joke may seem exaggerated and extreme, it certainly rings true for people I talk to that have experienced nasty probates, especially contested probates. 

In my practice, the topic of probate brings up a lot of concerns by people that come to meet with me, in fact, questions about probate are some of the most common ones I receive.  Some people have no idea about what probate involves, others have experienced it first-hand and become quite versed in the procedure. I find that many people know enough that they want to avoid it, but then have some misconceptions as to what will avoid a probate.

First, as already stated in the opening paragraph, if you have a modest amount of real property in your name alone, for example, a house worth $120,000.00, then having no estate plan—means you have opted for the government’s plan of distribution—probate. So if you think you have no estate plan, that’s Ok, the government substitute’s one for you—formally called probate. However, if you are the same individual with the same home, but have formalized your estate plan with the use of only a “Will” then guess what—you still will have a probate.  

Clearing Up the Misconception about “Wills”

From my experience, I find many people expect that a “Will” will avoid probate. A “Will” will not. I like to clarify the misconception with my own joke—that if you are single and have modestly valued real property titled in your name alone (i.e. as an individual), then generally speaking, having a “Will” alone is like having front row tickets to the probate court. Of course, as most of my jokes, it is not that good, and the reality is much worse.

If you have never heard of probate and are not sure what it is—the simple explanation is that it is a government process or system administered through the courts that helps in the orderly distribution of your assets after you have passed away (of course making sure that creditors and various governmental agencies get paid, too). The probate plan works if you do not have an estate plan (assuming you have assets of a certain value and titled in your name alone), but it even controls estates where the decedent left only a Will as their main estate planning document.

Some states are considered probate-light, where the fees related to probate and procedures are not as extensive and time consuming, at least so I have heard, but California is not one of them. 

4 Things you should know about probate

1)    Cost: Probate costs are based on the size of the estate, and there are statutory fee schedules for attorneys and executors to charge certain amounts, and on multi-million dollar estates, legal fees are usually held to a “reasonability” standard. Of course, there is an opening for “extraordinary” legal costs when contests come up.

2)    Time:  For estates with a modest amount of assets, a probate can easily take 2  years or more, and even longer if a contest arises. Hopefully, if you have a smaller estate and have no disputes, then maybe a probate could be very fast at a year to 18 months. Recently I met with someone that has been going through a probate for almost the last 10 years due to contests. The legal fees in these contests reduces the amount that your heirs will eventually receive.

3)    Loss of Control: a judge you have never met or who doesn’t know you or your family will be ultimately making decisions as to how your assets would be distributed. As we all know, someone might look great on paper and might seem like the obvious choice to be an heir of your estate, but it may not be the person you would choose to receive your assets.

4)    Loss of Privacy:  Your family matters (think “dirty laundry” in the soap opera context) and potentially the extent of your assets could become part of the public record.

4 Tips on avoiding a probate

1)    Trusts: Generally the most efficient and the most recommended way of avoiding probate is through the use of a “Trust.” There are costs associated with creating a Trust and administering a Trust but these are usually significantly less than the costs of a probate.

2)    Proper Titling: Titling assets in a non-probate form, generally married couples have a lot of options to avoid probate if one spouse passes away—of course the danger to those forms is if both spouses are killed in an accident at the same time—two probates!!!

3)    Gifts: Gifting your assets during your lifetime

4)    Live forever!

Of course, California is trying to do more to make probate a more effective system, but why not just avoid it, if possible?

• Email This
• Print
• Comments
• Trackbacks
• Share Link

The revocable living trust is a great way to avoid probate.  Probate involves unnecessary costs, delays for distributions, and potentially the loss of otherwise private information. Generally speaking, the revocable trust escapes probate and it works so well that some might think it must be voodoo or black magic. 

Sadly, some people believe that "trusts" are for the rich, you know something only the Rockefeller's and Carnegie's of this world need. 

However, in California a probate is triggered at a person's death when they own a combined total of qualifying real and personal property worth over $100,000. Sure property values in the Desert have been headed lower in recent times, but, there are a lot of homes worth over $100,000 that are not owned by the Rockefeller or Carnegie types.

I would say many home owners in the Desert have real property that is worth over $100,000, and that's before adding personal property to the overall estate value.  So probate avoidance can benefit many homeowners (clearly the average owners of real property in the Desert)--and thus a revocable living trust is a great option for homeowners.   

But some might also think that a revocable living trust is something that will complicate their lives too much, and so it is easier to be an ostrich with their head in the ground. Of course an ostrich with its head in the ground is pretty exposed elsewhere.

In general terms, a trust is merely a legal device to hold your assets so they can be transferred without the need for a probate upon your death. There is no magic involved, but it is advisable to have a competent attorney draft the provisions of a trust to fit your own needs. 

But once your trust is created, your life will not cease to exist as you know it! 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

If you die without a trust, and have only a will at your death then all of your assets go to probate, right?  Not necessarily...  

First, some estates are of insufficient size to trigger a probate, here in California this generally means having real estate and personal property with a combined value of $100,000 or less. 

Second, assuming you have assets of size that would trigger a probate, the next issue as to whether a particular asset goes to probate is generally determined by how the asset is titled (or how an asset is "held"). 

Some of the more common asset types include:

1) Real Estate

2) Bank Accounts

3) Investment Accounts

4) Life Insurance

(This list is not all-inclusive, nor exhaustive, but hopefully a good starting point to think about how your own assets are titled)

Regarding real estate, it is possible for your real property to avoid being included in a probate when it is titled in a joint form that includes the "right of survivorship" provision.  An example of this would be when one spouse of a married couple passes away, and the family home is titled in joint tenancy with right of survivorship. California now has a Community Property ownership form with right of survivorship, too. 

Under a survivorship title:  when the first spouse passes away, the real estate is not a probate asset (of course this has no effect on other assets that may still trigger a probate for those other assets).  So generally speaking, the joint form with right of survivorship prevents a probate, but it is not perfect or complete.  For example, what if both spouses die at the same time, such as in an auto collision, then there could still be a probate of the family home, if its value is over $20,000 (or $100,000 when combined with personal property).  Another problem involving a joint tenancy with right of survivorship is the potential loss of a full step-up in basis (which can help with reducing taxes on heavily appreciated property), but I will save this for another discussion.

Next, what if you are single? Some people put a child on the title of their real estate to avoid a  probate at their death--however this can cause other problems like taxation issues, or what if the child becomes estranged from the parent over time and wants to enforce their rights to the property--talk about a nightmare heir!

Regarding Bank Accounts, there is a form of titling known as POD, meaning "Pay on Death."  Here you set up beneficiaries to your account that are to receive funds deposited on your death.  Bank accounts can also be in joint tenancy form with a right of survivorship provision, but be careful with bank accounts, because you might assume your account is titled one way, when in reality it is titled in a different way.  Bank accounts can also be of a trust type, too.  And another important consideration is that the form of titling can determine the amounts FDIC will insure for the account--and in today's market environment, relying on FDIC insurance is a real necessity.

Investment account options are usually similar to bank accounts.

Life insurance is essentially a POD contract.  However, if you are not careful even the funds of a life insurance pay-out could trigger a probate.

Titling assets in a non-probate form is like creating a mini-estate plan for each asset.  In essence each asset will have one or more beneficiaries attached to it.  This has a huge downside, what if you change your mind--then you have to change every asset. And depending on how you created the title, that may not even be possible if you have already transferred ownership to someone else. 

Whereas with a trust, you can just amend the trust and then all of your accounts, assuming they have already been "funded" into the trust, will be covered by your single trust amendment.  Thus, avoiding probate is fraught with pitfalls when you change your mind in the future--and while it is technically possible (by thoroughly confirming that each and every asset you own is titled in a non-probatable format)--why do it when a trust makes avoiding probate a piece of cake???

• Email This
• Print
• Comments
• Trackbacks
• Share Link