What is Probate and why you want to avoid it

Probate is a legal process that is processed by the Superior Court of the county of a deceased property owner. In California, if you die with assets greater in value than $166,250, and the property is not held in a trust or in joint tenancy, or has a pay on death feature, then you will likely have to go through the probate process.

The court will try to honor the decedent’s wishes in a properly written will, or if there is no will, it will apply a fixed set of rules determining who will get the net assets of your probate estate. 

Probate begins with filing a petition asking the court for permission to open the probate and settle the estate.  Once you get a hearing date, you must notify all interested parties and the general public via newspaper announcements that a probate hearing is scheduled. The court may grant your petition or, if anyone objects, schedule additional hearings to resolve those objections.

If you are “lucky enough” to have the court grant your petition, you must then notify all creditors of the decedent and wait 120 days for them to file any claims. If you accept the claims, they must be settled prior to the probate being resolved.  If you reject any of the claims, there will be an additional period to resolve the rejection.

During the probate process you must gather up all the assets, pay all legitimate creditors, sell assets if necessary, keep and report to the court a detailed accounting of all activities, and then file another petition asking the court to discharge the probate and distribute the remaining assets to the named beneficiaries or the heirs.  The process typically takes between 7 and 10 months, and can often cost as much as 20% to 30% of the gross value of the estate.

Sound like fun? No? Then you need to consider holding your assets in a manner that avoids the probate process.  Here are the most common ways to avoid probating your estate upon your death.

TRUSTS.  California law allows assets held in a trust avoid the probate process and maintains the privacy of the trust and its terms.  When the trust is ultimately distributed, it is a very private affair that requires no court oversight.  A trust is an agreement you make with yourself (and your spouse if married) on how your assets will be managed during your life, any periods of incapacity, and when you die.  It can also save with federal estate taxes and provide creditor protection for your spouse and beneficiaries.

PAY ON DEATH.  Many assets are structured as pay on death.  Life insurance, 401k’s and IRAs, and specific types of bank accounts are common examples.    They work fairly well, except when the named beneficiary has creditor or marriage problems, is disabled, has substance abuse problems, or predeceases the owner.

JOINT TENANCY.  A common way for people to hold title with their spouses and their children.  They work fine unless all joint tenants die at the same time, one or more of the joint tenants have creditor problems, or the property needs to be sold but all the joint tenants do not agree to sell.

GIFTING ASSETS.  Gifting assets to others is a simple way to transfer assets without the need for probate.  You get the satisfaction of making the gift, and you no longer have to maintain it or pay taxes and insurance on the asset.  If you make a gift in excess of $15,000 to any one person in a tax year you must report it to the IRS.  There is no tax due at the time of the gift, but the IRS will keep track of the gift amounts and subtract the total from the gift giver’s total federal inheritance tax exemption the year they die.

If you want to discuss avoiding probate, you should talk with an experienced estate planning attorney to be absolutely clear on your options.

About Mark Breunig.  Mark Breunig has been practicing law in California since 1995.  After a successful legal career as corporate counsel with several technology companies, Breunig has focused on estate planning, elder law, trust administration and probate matters.