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Law Offices of Jimmie L. Joe
A Professional Law Corporation
17700 Castleton Street, Suite 358
City of Industry, California 91748
Phone: (626) 839-8980
           (888) 988-3488


THE PROBATE PROCESS

In California, probate is the process of administering a deceased person’s estate in order to identify the deceased person’s assets, pay debts to creditors, identify proper heirs and distribute the estate’s assets to them. Probate is initiated by the deceased person’s executor, who is a person nominated by the deceased person in a Will, or by an administrator, who is a person appointed by the court if the deceased person dies without a Will. The probate process begins when the person nominated to act as the executor or administrator files a petition in court for authority to administer the deceased person’s estate. The court will notify the heirs of the deceased person of the hearing date for appointment. The heirs can appear on the hearing date to contest the appointment if they desire. If not, the appointment is usually granted. The executor then has to make an inventory of the estate's assets, locate creditors, pay bills, liquidate assets (if necessary), manage the estate’s assets, file tax returns and render periodic accountings as mandated by the probate code. Once the executor has completed his or her duties of administration, he or she must file a petition with the court rendering a final accounting and asking the court to distribute the estate’s assets to the heirs. The distribution is to be made in accordance with the deceased person’s Will or according to California law if the deceased person failed to leave a Will. If the petition is granted, distribution of the assets to the heirs can be made and final tax returns can be filed.

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BENEFITS OF PROBATE

Probate provides supervision of a deceased person’s estate by a judge. The probate court provides assurance that a deceased person’s estate will be distributed according to his or her Will or by law. The actions of the executor or administrator are supervised, debts are assured to be paid, and distribution of the estate’s assets made according to the deceased person’s Will or by law (known as “intestacy”).  Creditors of a deceased person must be file claims within four months after appointment of an executor. Any claims not filed within the statutory time period are forever barred. Thus, the beneficiaries of an estate can be assured the peace of mind in knowing that the assets received from a deceased person are free from future claims and actions. Probate works best in scenarios where family disputes are anticipated, since the court can “police” and resolve differences expeditiously.

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DISADVANTAGES OF PROBATE

Probate is usually much more expensive than administering a properly drafted living trust. The fees for probate administration are set by statute as follows: four percent of the first $100,000 of the estate, three percent of the next $100,000, two percent of the next $800,000, one percent of the next $9,000,000, and one-half percent of the next $15,000,000. For estates larger than $25,000,000, the court will determine the fee for the amount that is greater than $25.000,000. The fees are payable to both the attorney and the executor or administrator of the estate. Thus, on an estate valued at $300,000, the statutory fees alone amount to $18,000, which is payable one-half to the attorney and one-half to the executor or administrator. In addition, attorneys are paid “extraordinary fees” for services performed beyond the scope of legal services related to general administration, including preparation of fiduciary income and estate tax returns, assisting in the sale and liquidation of assets and litigation involving contests and objections. These fees are determined at the discretion of the court and are usually based on an hourly rate. Probate also involves appraisal fees for valuing the assets of the estate, fees for engaging the services of other professionals and other administrative costs incurred to carry out the administration of the deceased person’s estate.

Probate requires a longer time for administration compared to the time it takes to administer a properly drafted living trust. A usual probate matter can last anywhere from six months to more than a year. Some estates take several years to wind up administration.

Probate also makes public disclosure of a deceased person’s financial affairs and assets. Family disputes and ownership, income and expense information are brought out into the open. For many families, this alone leads to an unhappy situation.

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WAYS TO AVOID PROBATE

One of the ways to avoid probate is to place title to property in joint tenancy. At the death of the first joint tenant, the surviving joint tenant takes ownership of the property by a mechanism known as “right of survivorship”. There is no need to have the property pass through probate. However, joint tenancy can present certain problems. The first is that jointly owned property loses one-half of its “stepped-up” valuation. “Stepped-up” valuation is a tax principle that allows property to be valued as of the date of death at the fair market value. Thus, a family home acquired by a husband for $60,000 thirty years ago which he holds in joint tenancy with his wife will be valued at the fair market value as of the husband’s death. Assuming that the fair market value at the date of death is $400,000, if the wife were to sell the home at the fair market value, there would be no capital gains tax. Without “stepped-up” valuation, the sale of the home by the wife would generate a capital gain of $340,000, which is subject to capital gains tax. For joint tenancy property, only one-half of the property’s value is allowed a “stepped-up” valuation at death. The other half of the property’s original basis is “carried over” to the surviving joint tenant. When the property is later sold, the surviving joint tenant is likely to pay some capital gains tax on the half not allowed any “stepped-up” valuation. If the property is not sold, it will be subject to probate upon the surviving joint tenant’s death. In addition, jointly held property subjects each joint tenant to the debts and liabilities of the other joint tenant. Thus, parents who add the names of children to the family home as joint tenants subject the home to their children’s judgment creditors. A child who is later involved in an automobile accident and is sued would subject the home to the judgment claim.  Finally, for a married couple, joint tenancy forfeits the benefit of the deceased joint tenant’s lifetime exemption (currently $1,000,000) to eliminate or reduce estate taxes.  Upon the death of one of the couple, the property passes by “right of survivorship” to the surviving joint tenant. When the surviving joint tenant dies, only his or her lifetime exemption is available to minimize or reduce estate taxes, which will be computed by including the property in his or her estate. Estate planning with a living trust can take advantage of both spouse’s lifetime exemptions to minimize or reduce estate taxes.

Beginning on July 1, 2001, a husband and wife may now own property in California as community property with right of survivorship. The advantages are probate avoidance and the benefit of “stepped up” valuation to the fair market value at death for the full value of the property. In addition, community property is not subject to probate in California. However, holding title as community property with right of survivorship for a married couple suffers from the same shortcoming as joint tenancy when it comes to reducing or eliminating estate taxes. The survivor will not be able to take advantage of the predeceased spouse’s lifetime exemption upon his or her death. Moreover, upon the death of the second spouse, the property would then be subject to probate.

In California, estates valued at $100,000 or less are not subject to probate due to their small size. Such estates are administered by preparing a declaration that can be presented to various institutions (banks, etc.) requesting that the deceased person’s assets be turned over. The assets are then turned over to the person named as executor in the will, and distributed according to the provisions of the will. If there is no will, the assets are distributed according to the rules of intestacy (according to California law).

When a deceased person dies leaving a surviving spouse, the surviving spouse can file a spousal property petition with the court. This will allow the surviving spouse to request that titles of the assets held by the deceased spouse be changed to the surviving spouse's ownership. This process takes less time than a probate and is less costly. However, when the surviving spouse passes, the assets must pass through probate at that time.

Certain assets, such as life insurance proceeds (as long as they are not payable to the estate of a deceased person), IRA’s, 401K’s, retirement accounts, etc., already have beneficiaries designated by the deceased person. As such, it is not necessary that these assets pass through probate.

Assets held in a living trust do not have to pass through probate. In addition, there are many other benefits offered by living trusts, including the advantage of administering an estate privately and expeditiously and reducing or eliminating Estate Taxes. Living Trusts are discussed more fully in The Importance of Estate Planning.

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OTHER CONSIDERATIONS

Proper estate planning requires that an individual inform family members of important information that will assist in winding up affairs. Such information includes, but is not limited to, the following:

  • Information concerning placement of important documents (marriage, birth, death, divorce, adoption)

  • Information concerning employment records

  • List of assets and property (including partnerships/joint ownership/corporate ownership)

  • Location of deeds, including reconveyances

  • Mortgage, tax and insurance information

  • Names of persons most knowledgeable about property

  • List and location of valuable personal property.

  • Employee disability and survivor benefits information

  • Placement of Retirement Benefits Information: e.g. IRA, pensions, 401(k) Social Security

  • Statements of bank accounts and investment/brokerage accounts

  • Statements of accounts for children (including trust and custodianship accounts)

  • Statements of Investment accounts

  • Location of important Business documents (e.g. corporate records, documents, share certificates)

  • Asset valuation information

  • Names of professionals (attorney, accountant)

  • Statements of mutual funds

  • Location of original shares of stocks

  • Location of Bonds (including corporate bonds, municipal bonds, savings bonds)

  • Ownership information for intellectual property: copyrights, patents, trademarks, etc.

  • Post death plans, including prearrangements for burial and funeral arrangements

  • Ownership information for vehicles (description; location; title information; loan and insurance information)

  • Ownership information for stock options

  • Information on safe deposit boxes; storage lockers; safe(s); lock box(es) (location and keys; list of contents)

  • Information on insurance (policies; Life Insurance company, policy number, amount; disability insurance; health insurance (including Medicare/Medi-Cal); amounts for each policy; premium payment information).

Consulting with an experienced estate planning attorney is the best way to help you evaluate and plan for the future by taking into account your individual needs and concerns about wealth preservation and distribution. Please call our office at (888) 988-3488 if you need assistance in planning your estate or if you are involved in estate administration through probate. We offer a free initial consultation by telephone as a convenience to prospective clients.

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The information contained on this website is not intended as a source of legal advice. You should not act upon or rely on information at this or any other website without the advice of competent counsel, especially if you reside outside the State of California, where I am not licensed to practice law and don’t give advice. Nothing provided by this website is intended to create an attorney-client relationship. Sending e-mail to this firm or to an attorney at this firm will not create an attorney-client relationship. This website is intended for educational and informational purposes only. Please read the full Disclaimer page to this site by clicking here.

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