Avoid Probate

If there’s one word that strikes fear into the heart of families planning the transfer of assets after death, that word is probate. Probate court proceedings oversee the transfer of a dead person’s assets to living beneficiaries. They are often long and costly, and the smallest misstep can prolong the process, or incur vastly increased financial costs. Consulting with an estate-planning attorney can help mitigate the damage caused by probate, or even help avoid the process altogether.

The purpose of probate court is to allow the government to authenticate the deceased party’s last will and testament, and inventory the financial transition of their assets. This may involve locating and determining the value of property, reconciling outstanding bills or debts held by the deceased, and paying estate tax. It is up to the executor named in the will to file for probate proceedings, and the ensuing process typically takes between six months to a year, but can often take far longer.

Probate itself is full of strict deadlines and constraints, and the smallest mistake can prolong it further and reduce the sums available to beneficiaries; as a result of aggressive creditors, upset and impatient beneficiaries, taxation penalties, and expensive bond premiums. Even with a competent attorney by your side, the legal fees alone can quickly become staggering. California is one of the few states in which probate lawyers receive a “statutory fee” — a percentage of the value of the property going through probate — as opposed to an hourly rate or flat fee. The current rates are:

• 4% of the first $100,000 of the gross value of the probate estate
• 3% of the next $100,000
• 2% of the next $800,000
• 1% of the next $9 million
• .5% of the next $15 million

It is important to know that these rates are determined by the gross value of the estate, not what is actually owned. Because, the potential downfalls to mishandling a probate case easily overshadow even these sizable standard fees and costs for a probate, it should be no surprise that many families go to great lengths to plan a transfer of property that avoids probate entirely.

In California, the most common preemptive solution to probate is a living trust. Similar to a will, a trust outlines an arrangement in which one person, a trustee, holds legal title to a property for another person, a beneficiary. With a living trust, you still have full legal control over your property while you are alive and well, but following your death, control is transferred to a trustee you select to pass the assets on your chosen beneficiaries. The new trustee, who you preselected, will then distribute the property to those friends, family or charities as outlined in your living trust. In the eyes of the law, the property remains owned by the acting trustee of the trust, so it is simply transferred to the named beneficiaries without a required court proceeding or probate.

This transfer may still be subject to estate or inheritance tax for a small percentage with larger wealth, but the overall costs typically are a fraction of the cost of a probate battle. Furthermore, since no court proceedings are involved, a living trust keeps your family’s records out of the public eye. While it may take more than a year for probate to resolve, delays in property transfers from a trust are far less common and typically much shorter. If the heirs and beneficiaries consent, a successor trustee can transfer property to the beneficiaries in a matter of weeks, with minimal paperwork.

Once it is set-up, a living trust should not require any more maintenance than a will. Some initial paperwork is required, to ensure your property is properly transferred into your trust, but income from the trust is still filed as part of your personal tax return. A living trust will also be helpful if you own property in multiple states, since it prevents you from having to go through probate in each state.

Since a living trust is more intricate than a will, it is usually more expensive to draft correctly, but the savings on future probate fees makes it a smart investment. If protecting your family from the burden of probate is important to you, consider consulting an experienced estate-planning attorney about a living trust.