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.]