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.