What is probate, and why do I need to avoid it?
Probate is a lawsuit you file against yourself, for the benefit of your creditors, using your own money after you die. It is a public proceeding, meaning people can (and will) find out who you leave your assets to. It is lengthy – sometimes taking up to two years in California (this is why you will hear that California is not a probate-friendly state). And it is expensive. Typically, we estimate around 5% of the gross value of your assets titled in your name will be paid in fees before making it to your loved ones. Let us explore these three things even closer.
Probate is public – Just take it from me, when I file a probate action, I get solicitation phone calls, emails, and letters on a daily basis. And I am just the attorney on the matter, not a person who stands to gain hundreds of thousands dollars from the estate like your heirs would. If you have minor children, and they come into thousands of dollars, you can bet that there are people just waiting to relieve them of their newfound financial windfall.
Probate is lengthy – In a recent interview with the LA Times, retired Judge Thomas R. Mitchell, the lone probate judge in downtown San Diego at the time, handled as many as 100 probate cases a day. Currently, in San Diego, filings are backed up for four months. So, if you want your assets to pass quickly to your loved ones, probate is not the route to take. We estimate that even the simplest of estates take a minimum of one year to fully pass through the probate system.
Probate is expensive – Because the fees are backed by statute. For the first $100,000, the statutorily set fee is $4,000. For a $400,000 estate the fees would be $11,000. Those fees are based off of the gross value of the estate. So think about what the fair market value is of your home, not the equity you have in it. And those fees are for just your personal representative; double the fees if an attorney is involved. Plus, there are filing fees, notice fees, certified copy fees, probate referee fees, etc.
Here are some other things to worry about with probate:
• If you have no will, who will be guardians of your minor children? Should the court have to guess, they will choose your selfish, wealthy brother over your loving, caring sister;
• If you have no will, who will represent your estate? Should the court really make that decision?;
• Would the court have to nominate someone to manage your affairs (called a conservator)? If so, there is shockingly little oversight to these professional conservators;
• Your representative may have to post an expensive bond, especially if they are located out of state. Also, you would have to ensure that that person could actually be bonded;
• If you do not let people know what assets you have (or maybe you don’t even know what you have), then they have to search for them. This could prove lengthy, tricky, and expensive;
• Probate is not avoided with a will. In fact, your will is basically just a letter to your creditors, inviting litigants to the table. We like to say, “where there’s a will, there’s probate”; and
• Your minor children would probably be set to receive everything outright at age 18.
When is probate a good thing?
Sometimes you want the court involved to make things official and complete. For example, if there are multiple wills, you would want the court to step in to prove the will, and thereby establish the governing document. Another example deals with creditors. Going through probate starts a statute of limitations on those creditors noticed. After a six-month period has elapsed, those creditors no longer have a valid claim to pursue.
So how do I avoid probate?
Depends. If you have under $150,000 in assets, no formal probate proceedings are required. But if you have more than $150,000 in assets that would be subject to probate, you would simply establish a revocable living trust. A revocable living trust is basically just a contract you make with yourself as grantor, trustee, and beneficiary. As long as your assets are held in trust, there is almost never a need for judicial interference. This contact, or agreement, that you make with yourself is completely revocable and amendable. But if you should die or become incapacitated, then your wishes, desires, and instructions would be carried out by those people who you choose to succeed you as trustee of your trust.
And this is where we at Zapf Estate Planners come in to the picture. We are here to guide you through the process of setting up a trust, if needed. Feel free to contact us to schedule a Family Wealth Planning meeting in the month of April and we will waive our initial consultation fee. I look forward to our long-lasting relationship!
Brandon Zapf, Esq.