Probate compared to Estate Planning

An estate plan is an orderly and predetermined method of disposing of you assets after death.  It takes the probate system, which is an expensive public proceeding in the court, supervised by a judge, and turns it into a private affair that is quicker, cheaper, and easier for the beneficiaries.  As a general rule, an estate plan is a much better method than probate.

The estate plan is designed to replace the probate process with a trustee, who takes the burden on themselves to pay bills, sell property, do the tax return, and ultimately distribute the assets.

There is one other important aspect of estate planning that has implications during your life: an estate plan, completed with powers of attorney, can often prevent the need for a conservatorship.  A conservatorship is a court administered process to give the power to another person over your finances and medical decisions.  This will often involve thousands of dollars, continued court appearances, and a process that has significant court involvement.  If you have an estate plan, you can avoid the conservatorship process entirely by presetting an individual(s) to manage your money and medical decisions, thereby saving you thousands of dollars that could otherwise be spent on your care.  I have seen contested conservatorships reach well into the tens of thousands of dollars, and your savings account will pay for this litigation.

How long does probate take?

In probate, the absolute minimum time frame before an estate can be completed and monies fully distributed in 8 months, but this is unlikely.  Often it is quite a bit longer depending on things like the sale of a house, any litigation regarding the estate.  It takes 45 days from filing the initial paperwork to start the process.  There is at minimum of four month waiting period for the creditors to make claims for money against the estate (if you know every creditor at the very beginning), and then 60 days to get a hearing on distribution.

How much does probate cost?

The cost of probating an estate depends on the amount of the gross estate (value before any loans).  Let’s assume that an average estate is $500,000.  Between the attorney handling the estate and the personal representative (they are paid equal amounts), the fees will be $26,000.  The filing fee is $395.  The fee to publish notice of the death (required in California under any circumstances) varies from $400 to $1,900 depending on where you died.  (The price really depends on the number of newspapers in an area where publication is to occur.  In Rancho Cucamonga, California there is really only one paper and I just received a quote for $1,800).  The estate has to be valued by the probate referee (a court appointed appraiser).  This cost is $1 for every thousand, so $500.  The administrator will need a bond. (I find that if there are multiple beneficiaries, a bond is required even if the will indicates otherwise).  A bond is essentially insurance that the administrator/executor will not abscond with the money.  For $500,000 the bond will cost about $1,500.  The Petition to distribute funds will be $395.

The cost would be around $30,690 without any other complications that require additional monies.

How much do you have to own to need a trust?

If you have children, you should have a trust no matter what.  If you die without a trust, your children will receive your estate when they turn 18.  I don’t care how responsible your children are, even if they receive $20,000, this will quickly disappear and be gone, and if they receive more, there is trouble in the making.

Even if you have very little, or nothing at all, the cost of probate can make anything you want to do prohibitive.  I had someone consult with me regarding a home that was underwater (worth less than is owed on it), and on land that the decedent did not own.  He had no other assets. The family knew that the decedent wanted the grandson to have the home and continue paying on the mortgage as it was less than any rent that the grandson would have to pay.  However, in order to transfer ownership of the home (even in a simplified probate), the cost would have been in the thousands and was ultimately prohibitive for this family.  The grandson could not receive house and could not contact the bank to even discuss the mortgage.  A simple trust would have solved this families problem easily without much expense.

How to maintain Probate Accountings

In probate, conservatorships and guardianships, you need to keep track of all funds and do accountings for the court, usually on a yearly basis.  I always tell my clients that in probate, you are guilty until proven innocent when doing these accountings.  It is imperative that you keep impeccable records of all money spent, including receipts from even that four dollar item.  However, it is more than just keeping receipts.  You need to keep track of what the purchase was for, why you made the purchase, and what became of the purchase.  For deposits, record what the source of the deposit was.  If you had a stray check for $20 dollars for a rebate, make sure you record what it was for, otherwise you run the risk that a year later, you will have no recollection of what you did and why.  Just because you believe you are doing right by your family, doesn’t mean the court will believe you unless you can prove it.

How to Choose a Probate Lawyer
Ask the lawyer what estates he has handled similar to this one.
Have the lawyer go through the steps of probate. This will allow you to not only have a roadmap for the probate, but it will give you an idea as to whether the lawyer knows what he is doing. This is more than a perfunctory recitation of the basics, but does the lawyer go into to details. Does he tell you about the bond. Does he tell you about the choice between Independent Administration of Estates.
Ask the lawyer about how he will handle potential family conflicts. The cost of administration can increase with litigation, but more importantly, how will he facilitate the family moving through this process intake. This can often be a tense process between siblings who may have old unresolved issues. The attorney can be invaluable in shepherding this case through the course without destroying the family.
Ask what percentage of the practice is in the probate court. 30 to 40 percent of the practice should be in the probate court.
Does the lawyer have access to other professionals in the firm to handle other areas of law. Often, probate can involve real estate litigation, family law and divorce issues, tax issues, and bankruptcy issues. Make sure that the firm has access to these resources and won’t tell you to go find another firm to handle x, y, and z issue.
Finally, do you get along with this person. This can be immensely important through the process.
Why you should change your beneficiaries on retirement plans after divorce
Husband and wife divorce with two minor children. Husband re-marries two months later and dies three months later dies unexpectedly. He had not changed his beneficiary on his 401k which was the ex wife. This case is going to end up in litigation. Who did the decedent want as his beneficiary? His wife of three months? His children? His ex wife who would likely take care of the children? What he wanted may not mattered and it may go to the person that federal law declares it to be – the ex wife.
When to pursue a conservatorship or guardianship of your elderly relative.
A conservatorship is court supervised control of a person’s health and finances. A guardianship is in reference to children. It is always difficult to take control of your parent who has traditionally been and been viewed as the caregiver, but failure to do so can cause a severe problem for you criminally and otherwise. I often have people come into the office investigating a conservatorship because they know one is necessary, but they are afraid to move forward. 70% of the time they are back in my office one month later needing an emergency conservatorship because of a fall or because adult protective services has come into the picture and are threatening the family with criminal or civil action.
Does your relative give money away to third parties or children that they really need for themselves?
Are they having trouble taking care of their daily activities?
Is their house becoming dirty or cluttered?
Are they falling a lot?
Have they taken a walk or drive and become lost?
If you react at the first signs of these issues, we can often get documents in place that will prevent the need and expense of a conservatorship.
Taking real estate as Joint Tenants or Community property with right of survivorship
I have seen many a realtor recommend Joint Tenancy to married persons, but this is a problematic thing. Although it can provide some protection against creditors, it also has a significant tax effect on the death of a spouse. When a spouse dies where the house is owned as community property with right of survivorship, the entire tax basis is assessed at the date of death as opposed to one-half of the basis in Joint Tenancy situation. If someone has lived in the house for many years, this adjustment in basis can save tens of thousands of dollars in capital gains tax when you mother needs to sell the house to move into a residential care facility.