What Is Probate & How To Avoid It

What Is Probate & How To Avoid It

WHAT IS PROBATE?

Probate is required if a person has no Will. Probate is also required even if a person has a Will. Probate is required unless a person takes steps to avoid probate.

Probate is “proving the will” through a court proceeding. If there is no will, the decedent’s property will pass to the decedent’s heirs according to California law. Probate is an archaic process to collect the decedent’s assets, pay his bills, and distribute the decedent’s assets to the rightful heirs. Notice must be given to relatives and creditors. Property cannot be distributed without the Judge’s approval.

 

WHO ARE THE PLAYERS?

Executor: The executor is the person named in the decedent’s will as the manager of the estate.

Administrator: The administrator is a court appointed executor. If the decedent had no will, the administrator will act as the manager of the estate.

Beneficiary: The person named to receive the proceeds from the decedent’s will.

Heirs: Any person, including a surviving spouse, who is entitled to take property of the decedent.

Issue: All of the decedent’s lineal descendants of all generations.

Probate Estate: All of the decedent’s property required to go through probate.

 

IS PROBATE EXPENSIVE?

Probate is very expensive. Any estate with a value of $150,000 or more, or with real estate with a value over $50,000 is subject to probate. The minimum probate statutory fee of an estate with a value of $200,000, is $14,000.

 

HOW LONG DOES PROBATE TAKE?

In addition to being expensive in terms of money, probate takes time. The smallest of estates takes 18 months. Marilyn Monroe’s probate took 39 years. John Wayne’s probate took over 20 years. Because of the California budget crisis, probates are taking longer and becoming more expensive.

 

DISADVANTAGES OF PROBATE:

  1. Cost- Probate is expensive in both time and money. Both legal and executor fees must be paid before your assets can be fully distributed. Out of state assets require out of state probates.
  2. Time- One and a half years for the smallest estate but usually longer. During part of this time, assets are usually frozen so an inventory can be taken. Nothing can be distributed or sold without court and/or executor approval.
  3. Complexity of the probate system. You must go to court.
  4. Publicity- Probate is a public proceeding so any interested parties see what you owned and your debts.
  5. Accountings are required and are expensive.
  6. Confusion- Your family has no control

 

ADVANTAGES OF PROBATE:

Protection of the heirs, creditors, and tax entities.

Termination of all creditors claims after four months.

 

WAYS TO AVOID PROBATE:

  1. Joint tenancy
  2. Life insurance
  3. Retirement plans (including IRAs) with proper beneficiary signature
  4. Revocable trusts
  5. Irrevocable trusts
  6. Totten trusts
  7. Pay on death or transfer on death accounts
  8. Annuities
  9. Property passing to a spouse
  10. Uniform Transfers to Minors Act
  11. Gifts

 

There are several methods of avoiding probate. The best is a Living Trust. The worst is joint tenancy. Joint tenancy is simple to use and is fine for the smaller estates, however, it can create a real death tax trap and income tax disaster in the larger estates because it will prevent the death tax savings provided by a trust from working at the death of the first joint tenant, and because only the decedent’s one-half gets a stepped-up value in basis for federal income tax purposes. Joint tenancy for a married couple will not avoid probate on the death of the second spouse.

 

“Totten” trusts are taxed to the creator during his lifetime and also at his death. For example, “John Doe, trustee for the benefit of John Doe, Jr.” Totten Trusts are good for the small estate to avoid probate or for an estate consisting entirely of cash. However, these “pay on death” accounts are not true trusts. Totten trusts do not avoid taxes, do not avoid conservatorships, and often do not avoid probate.

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