The automatic way to determine succession and asset transfers is costly and time-consuming.
Probate is the default method of changing the ownership of assets after death. It is a court-supervised process that is used to transfer ownership of property from a person who has died into the name of the heirs. In California, a probate can be initiated when the deceased has more than $208,850 in assets. While there are new exceptions for a primary residence valued under $750,000, it can be easy to trigger a probate without careful planning and consideration.
If you are the executor of an estate and need help with the probate process, we can help. If you are looking to avoid the probate process for your heirs when you die, we can help with that too.
The problem with probate
In California, a probate is required if someone dies owning more than $208,850 in assets. This dollar amount is based on the value of the assets before deducting for any debts owing against the assets. There is a new exemption for primary residences in California that exclude the value of the home if it is under $750,000. However, it is very easy to get above the $208,850 figure and trigger the requirement for a probate. For someone who has done no estate planning or who merely has a Will, a probate may be necessary.
There are three primary reasons for avoiding probate.
First, it takes too long. Probate rarely takes less than nine months to complete, and can often take longer than a year.
Second, it is too expensive. Between filing fees, publication fees, and related expenses, there will be $1,500 or more in procedural costs alone. Attorney’s fees are set by law, and are based on the gross value of the estate and can get very high. For example, if you have a $1 million estate, the attorney’s fees would currently be $23,000. The attorney can also charge more fees for “extraordinary services.” This allows the attorney to charge extra for anything unusual.
Third, any assets passing through probate will be subject to Medi-Cal recovery. If the person who died spent time in a long-term care facility, it is likely that there will be a Medi-Cal recovery debt. Assets that pass to heirs using any method other than probate will not be subject to a Medi-Cal recovery debt.
There are three common tools for avoiding probate.
The first option is to put property into joint ownership with heirs. This is generally a bad idea. Whereas it will accomplish the goal of passing property to heirs without the need for probate, it puts assets under the joint control of heirs during one’s lifetime. It also makes assets vulnerable to the heirs’ debts. Most significantly, it misses out on significant tax savings opportunities.
The second option is to use “paid on death” designations. This can be done with bank accounts, investment accounts, retirement accounts, life insurance and even many kinds of real estate (with a “transfer-on-death” deed). The advantages of this option are that it avoids probate and Medi-Cal recovery while preserving control one’s your assets and taking advantage of tax savings opportunities. The disadvantage is that this method cannot ensure that shares for young or disabled beneficiaries are managed appropriately. Also, particularly with a “transfer on death” deed, if a chosen heir predeceases, that share may not go to their children.
The third option is to prepare a Revocable Living Trust. This is typically the best option. It avoids probate and Medi-Cal recovery while preserving control over assets during one’s lifetime and taking advantage of tax savings opportunities. It also allows for complex families, contingencies, and can better enable that shares going to young or disabled beneficiaries are properly managed.