Probate
Probate
In California, probate court serves several functions. The most common is administration of the estates of persons who die, called a probate proceeding. However, probate court also handles guardianships and conservatorships. Thus, the same court may decide to appoint a conservator for an incapacitated adult, and then may administer that person's estate several years later, after death.
What Is Probate?
In a probate proceeding, the court oversees the process of identifying the deceased person's property, paying any debts, identifying the proper heirs, and distributing the deceased person's property to them. Most of the actual work is done by an executor (usually a relative or friend of the deceased person), with the assistance of an attorney and often an accountant.
Not all of a deceased person's property is subject to the probate process. Life insurance proceeds, retirement accounts, and "joint tenancy" property all pass directly to the appropriate beneficiary automatically, without any need for court involvement. If the person created a Living Trust (discussed below), any property held in the Living Trust would avoid probate, too. A bank account or motor vehicle title may also specify a death beneficiary (called "Payable on Death" or POD).
Benefits of Probate:
Probate does provide some important benefits. Most important, it provides court supervision to ensure the deceased person's property is accounted for and distributed properly.
Once the probate creditor's claim period expires (generally four months after the executor is appointed) it is very difficult for creditors or others to claim any interest in the estate. For a professional (such as a doctor, accountant, or attorney), probate may bar later lawsuits that would otherwise be difficult to defend without the help of the deceased person.
Drawbacks of Probate:
Probate has some drawbacks, which lead many people to set as a primary goal of their estate plan to avoid probate. Formal probate can take at least six months or more to complete. Often, these delays are not important. The surviving family members usually have immediate access to joint bank accounts, as well as access to life insurance proceeds. If special needs exist, the probate court usually will allow preliminary distributions or payments to family members after considering their request.
However, in certain situations, probate delays can create problems. For example, a small business or professional practice must often be sold quickly after death to avoid losing clients. If a deceased person owned stock options related to employment, those options may lapse if not exercised quickly.
Second, probate can be expensive, because of fees paid to the attorney, accountant and executor. The actual fees paid to the probate court are minimal, typically about $200 for filing fees. For property other than cash or its equivalent, a probate referee must appraise the property, for a fee equal to one-tenth of 1 percent (0.1%) of the value of the property. (Even if probate is avoided, the IRS still may require an appraisal for federal tax purposes.)
The executor's fee and attorney's fee are much larger. The Probate Code provides that the executor and attorney may each charge a fee that ranges from about 3 percent of a modest estate to less than 1 percent for a very large estate. These probate fees are computed based on the gross value of all property subject to probate (and thus usually do not include life insurance, retirement accounts, or joint tenancy property).
Streamlining The Probate Process
The delays and costs associated with probate are well known and widely publicized. Often, the best way to control these delays and costs is simply to create an estate plan - organize your assets to minimize what requires probate. There are many ways to avoid probate, and some people should consider these alternatives.
The most common non-trust way to avoid probate is to simply shift property so that it is not subject to probate proceedings. For example, real estate, bank accounts, and securities owned in "joint tenancy" will not be subject to probate when one of the owners dies because ownership is automatically transferred to the surviving joint tenant.
Further, automobile titles and most bank and financial accounts can include a "pay on death" or "transfer on death" designation (sometimes called an "in trust for" account). Such property passes automatically to the named person without any probate court supervision.
If all of a deceased person's property will pass to the surviving spouse, probate can be avoided by filing a "spousal property petition," seeking court confirmation that the surviving spouse owns the property. Married couples leaving property to each other should in most cases make sure that title is held as Community Property (and not Joint Tenancy) because Community Property receives better capital gains treatment (see discussion below).
Even when property is left to someone other than a surviving spouse, if the total value of a deceased person's property otherwise subject to probate is less than $100,000, an affidavit procedure is available to transfer personal property, and transfer of real property can be confirmed through a relatively simple petition proceeding.