Wednesday, January 5, 2011

What is Probate and What to Expect in Probate

Probate is the process of "proving" a will. This means that the authenticity of the will is certified by a court, and the will is then administered, according to its terms, in order to distribute the estate of the decedent.

Probate in California is generally a drawn out process which can be costly, time consuming, and difficult to understand. Probate is often required in order to establish the title to assets so that those assets can be transferred from the decedent to others (beneficiaries or heirs). The establishment of clear title is required in order to resell the assets, and the probate process can take from six months to many years.

During the probate process, the executor (who is the person nominated in the will with the responsibility of administering the estate) must ask the court to be granted authority to administer the estate. Persons having interest in the estate (heirs and relatives, for example) are given notice of the administration of the will and given a chance to object to the validity of the will or to the appointment of the executor (or personal representative).

After all objections to the will are heard (and usually, but not always, there are none) the executor must distribute the estate according to the terms of the will. This includes the following responsibilities:
  • collect, safeguard, and inventory the assets of the estate
  • notify creditors of the estate and pay debts and bills
  • file tax returns and pay taxes
  • petition the court for the final distribution of the estate
  • distribute estate assets according to the terms of the will
In general, you should try to avoid probate because it is expensive. An estate valued at $750,000 will incur probate fees of at least $36,000, even if there are loans outstanding on estate property (see This means that if the estate owns a property worth $750,000, but the decedent had a loan on the property of $500,000, the estate must still pay the $36,000 in probate fees. Also, see the post on this blog entitled "How to Avoid Probate" for ways to avoid probate and minimize probate fees: these include titling property correctly and setting up a living trust. Other fees which will have to be paid for in probate are court fees, publishing fees, appraisal fees, and potentially extraordinary legal fees.

Estate Planning for New Parents

I get asked the following question quite often: Why should new parents have an estate plan?
The simple answer is that if you don't provide an estate plan for your family, then the state of California provides one for you, and it's probably one that you don't want.


To begin with, you want to make sure that you have appointed a guardian or guardians if something should happen to you. If you do not specify who the guardian(s) of your children will be, then a local judge will make that decision for you. Obviously, you are in a better position to determine the guardians of your children than a judge who doesn't know your children or the potential guardians, and it is your responsibility to appoint the best people available to take care of your children (only you know who those people are).


In addition, California law (with minor exceptions) does not allow children to inherit property in excess of $5,000. Therefore, if all or part of your estate (in excess of $5,000) goes to your children, a guardianship of the estate will be set up. This process entails the court appointing a person to look after your children's property. Throughout the duration of the guardianship, which lasts until each child reaches 18, every significant decision concerning the property must be approved by the court, and accountings must be filed. This process is very time consuming, very costly, and usually requires the assistance of an attorney. This eats away at the children's assets.


Moreover, by law, a guardianship ends automatically when each child reaches 18. At that point, each child receives what is left of his or her assets. Unfortunately, many eighteen year old children might be inclined to squander their assets without much thought to their education or future.

Nevertheless, proper planning can avert a guardianship, as well as the distribution of assets to the children upon reaching 18.


Under California law, if you die without a will or trust, the state determines who will receive your property. California law specifies that your children will receive two thirds of your separate property (if you have two or more children), or one half of your separate property (if you have only one child). Your community property (which may comprise a large share of your estate) and the balance of your separate property will all be left to your spouse or domestic partner. This may leave your children with much less or much more than you wish for them to receive. Conversely, it may leave your spouse or domestic partner with less or more than you wish for them to receive. It is obviously better if you decide what goes to your children and spouse, not the state.


Another problem with not planning your estate properly is that you may end up paying exorbitant costs, either to attorneys, executors, probate referees, or the government. Probate fees alone, which can easily be avoided, would amount to $36,000 for an estate which consists of $750,000 (including outstanding loans). That means that if you own a home worth $750,000, even if it has an outstanding mortgage of $500,000, you will be required to pay at least $36,000 if the home is probated.


At the very least, all new parents should have a will. This will alleviate some of the problems noted above. Often, a trust might be more appropriate (and will avoid probate), but this will depend on your specific circumstances. Other estate planning documents you should look into include durable powers of attorney for health care and for finances. These documents will provide for easier planning and management of health and financial issues in case you become incapacitated.

In any event, you should take control of your situation and find out what your options are and how to provide for your new family.

Monday, January 3, 2011

Estate Planning and Divorce

What are the implications for my estate plan (or my estate planning) if I am getting divorced?

This is a difficult issue for many people who are going through a divorce. Questions revolve around: What can be done with my existing estate plan? What if I die before the dissolution (divorce) is final? Will my spouse or domestic partner receive all my assets? Can I change my estate plan during the dissolution? The following should help you answer some of the difficult questions you may face.

Once dissolution papers have been filed with the court, automatic restraining orders take effect which have a big impact on the ability of a spouse to make or change an estate plan. The automatic restraining order which impacts estate planning reads as follows:
"... you and your spouse or domestic partner are restrained from ... creating a nonprobate transfer or modifying a nonprobate transfer in a manner that affects the disposition of property subject to the transfer, without the written consent of the other party or an order of the court. Before revocation of a nonprobate transfer can take effect or a right of survivorship to property can be eliminated, notice of the change must be filed and served on the other party."
What this means, in plain English, is that insurance policies, pension plans, IRAs, pay on death bank accounts, revocable trusts, and joint tenancies (and other nonprobate property) cannot be altered without the written consent of the other spouse (or a court order). Note that this restraining order does not prohibit the revocation of a nonprobate transfer (including the severance of a joint tenancy), provided that notice of the change is filed and served on the other party; and it does not prohibit the alteration or revocation of an existing will, or the publication of a new will.

So, if you desire to alter an existing revocable trust and you know that you will be filing (or receiving) dissolution papers, you should probably attempt to alter the existing trust before the dissolution papers are filed. If papers are already filed, you must get consent or a court order, or you will have to wait until the dissolution is final. In addition, a new will should be drafted so that your separate property and one half of the community property will be left to beneficiaries of your choosing (and not beneficiaries determined prior to the knowledge of the dissolution).

Once your dissolution is final, you will be happy to note that both probate transfers (wills) and nonprobate transfers
(see above) to ex-spouses are invalidated under California law. California Probate Code Section 6122 automatically revokes a will, or any provision in a will in favor of a former spouse (or nominating a former spouse as executor, trustee, conservator, or guardian, or granting a former spouse a power of appointment) when a dissolution is final. (Note that these rules do not apply to a legal separation, nor to dissolutions occurring prior to 1/1/85).

California Probate Code Section 5600 invalidates any nonprobate transfer (including, for example, pension plans, IRAs, pay on death bank accounts, revocable trusts, and joint tenancies) to an ex-spouse when a dissolution is final [unless 1) the transfer is irrevocable, or 2) if there is clear evidence that the transferring spouse intended to preserve the transfer to the former spouse, or 3) a court has ordered otherwise]. Please note that section 5600 (e) specifically excludes life insurance policies from this rule.

[Lawyers: please note that this rule may be preempted by federal law regarding employer provided benefits. Egelhoff v. Egelhoff, 121 S. Ct. 1322 (2001). (ERISA may preempt state law revoking a spouse's right as beneficiary of employer provided life insurance). It is advisable to review beneficiary designations for employer-provided benefits on dissolution.]

Monday, November 24, 2008

Distributing a Small Estate

California has numerous expedited procedures for distributing small estates. These procedures can be quite useful for quickly and efficiently dealing with small estates if certain requirements are met.

One procedure (Probate Code section 13100) applies to estates which consist of less than $100,000 in assets (including real estate assets) which must be probated. (Note that the $100,000 figure does not include assets transferred through Joint Tenancy, in trust, in pay on death accounts, or by other non-probate methods; this means that this procedure can be applied to a very large estate as long as the estate only has $100,000 in assets which need to be probated.) Although this procedure expedites the distribution of the probate estate, it cannot be used to distribute real property. This procedure allows you (beneficiaries or heirs) to collect and distribute the decedent's personal property to the decedent's beneficiaries (if there is a will) or heirs (if there is no will) simply by presenting a declaration to the court.

Probate Code section 13151 also applies to estates (or portions of estates) which consist of less than $100,000 in assets, and provides for the court to issue an order which clears title to either real property or to real property and personal property (but not solely personal property). Such an order can be utilized to determine that a person (a beneficiary or heir) has succeeded to a decedent's real property, or real and personal property, as the case may be.

These procedures can be very helpful in expediting the distribution of a small estate (or a large estate with a small amount of assets which need to be probated), but they must be used with care because there are many requirements which must be met in order to utilize them.

Monday, November 17, 2008

Gifting Shares of Stock, Mutual Funds, or Bonds

It is very common for clients to ask me if they can gift shares of stock or mutual funds or bonds to their loved ones during their lifetimes.

The answer to this question is YES. But there are some implications of gifting stock that you should know about before you actually do it.

The annual gifting exclusion is presently $12,000, but will increase to $13,000 on January 1st, 2009. This means that anyone can gift $12,000 to as many people as they wish without having to pay any taxes or without having to report the gift. If a husband and wife gift jointly, they can give up to $24,000 (or $26,000, after 1/1/2009) to an unlimited number of beneficiaries without paying tax or having to report to the IRS. (In order for this to hold true, the gift should come from a joint account; if one spouse, alone, is gifting more than $12,000, then a gift tax return, Form 709, will have to be filed to show the IRS that the spouses are splitting the gift).

The gift could just as easily be in the form of stock as cash. So, you can presently gift $12,000 in cash, or you can gift $12,000 in stock (for example, you could gift 1000 shares of a $12 stock). A stock transfer can easily be handled by a stock broker or investment advisor. No gift tax is due, nor is any capital gains tax due. The transferee (beneficiary) would retain the same cost basis and holding period in the stock as the transferor, and taxes must only be paid when the stock is sold. For example, if you have a $2 basis (from many years ago) in a stock that is currently worth $12, you can presently gift 1000 shares of that stock. No taxes would be due and nothing would have to be reported to the IRS. When the beneficiary sells the stock, which could be many years in the future, they would pay capital gains tax on the value of the stock over $2,000. The same holds true for shares of mutual funds or bonds.

It should be noted that you can also gift amounts of stock in excess of $12,000 and that only the amount in excess of $12,000 would be taxable. In addition, every individual can give $1 million, gift tax free, during their lives. So even if your gift is currently worth $100,000, you could apply the first $12,000 of the gift to the annual gift tax exclusion, and apply the remaining $88,000 fo the $1 million lifetime gift exclusion.

Wednesday, October 29, 2008

Modification of Spousal Support

California policy is that spousal support orders should be made in a way that encourages the supported party to become self supporting within a reasonable period of time, and that the failure to make a good faith effort towards self support may be a factor for modifying or altogether terminating support. (See Family Code Section 4320(l) which states that one goal of spousal support is that the supported party shall become self-supporting within a reasonable period of time. And that except in the case of a marriage of long duration - see below- a “reasonable period of time” generally is one-half the length of the marriage).

The standard rule that modifications in support orders may only be granted if there has been a material change of circumstances since the last order was designed to prevent repeated attempts to modify support orders without justification, not to circumvent the goal that supported spouses become self-supporting within a reasonable period of time. (In re Marriage of Schaffer)

California Family Code Section 3651 states that an order for spousal support may not be modified or terminated to the extent that a written agreement, or an oral agreement entered into in open court between the parties, specifically provides that the spousal support is not subject to modification or termination. This statute specifies that a spousal support order may not be modified if the parties agree that the spousal support order may not be changed (either in writing or verbally, in court). Therefore, if there is no agreement amongst the parties that spousal support cannot be modified, it follows that spousal support can be modified.

Family Code Section 4336(a) states that
except on the written agreement of the parties to the contrary or a court order terminating spousal support, the court retains jurisdiction indefinitely in a proceeding for dissolution of marriage or for legal separation of the parties where the marriage is of long duration. This means that if a marriage is considered to be of long duration (generally over 10 years in length), the court retains the jurisdiction to modify the support order.

Paragraph (c) of Section 4336 states that
the court maintains discretion to terminate spousal support (in later proceedings) on a showing of changed circumstances.

Section 4335 of the Family Code limits a court's jurisdiction in spousal support actions as follows: an order for spousal support terminates at the end of the period provided in the order and shall not be extended unless the court retains jurisdiction in the order or under Section 4336. Cases decided under section 4335 clearly state that a court does not maintain jurisdiction to extend spousal support if the period for payment of spousal support has ended, unless the court can do so under section 4336 (or unless the court has reserved that right).

Tuesday, October 28, 2008

Divorce Basics

Many people who are contemplating divorce have basic questions regarding the process. Here is a very brief guide to help you answer some basic questions.

Can either party initiate and get a divorce?
Yes, either party is entitled to a divorce under California law.

What are valid reasons for getting a divorce in California?
California has a no-fault divorce policy. This means that either spouse can request and be granted a divorce based upon the grounds of "irreconcilable differences". "Irreconcilable differences" basically includes anything from "not getting along" to much more serious issues. Therefore, California allows divorce for any reason whatsoever.

Are there any other important requirements in order to get a divorce in California?
At least one party must be a resident of California for six continuous months, and a resident of the county in which the divorce proceeding is filed for three continuous months, prior to filing.

How long does it take to get a divorce in California?
California requires a time period of at least six months before a divorce can be finalized. This time frame can be longer if there are serious disagreements between the spouses.

Who will get custody of the children?
California uses the standard of “the best interests of the children” in order to determine who the primary caregiver will be. This often results in both parents having some custody of the minor children, and in some cases, joint custody. If custody and visitation becomes an issue between the parents, mediation is often employed in order to reach agreement between the parties. If no agreement is reached, the Court can impose the recommendation of a mediator, or decide upon a different solution based upon “the best interests of the children”. In some instances, litigation may be required in order to reach a solution to intractable differences.

What is the difference between physical custody and legal custody?
Just like the name implies, physical custody relates to who the children live with. Visitation is usually granted to the spouse who does not have physical custody; sometimes, both parents are granted joint physical custody. Legal custody deals with the responsibility of parents toward their children, and generally refers to a parent's right and responsibility to make decisions for the children (usually relating to their health, education, welfare, etc.).