What is a probate and how does it compare to a trust administration?

Many persons elect to use a revocable inter vivos trust instead of just a last will and testament primarily to avoid a probate of part or all of their estates upon their death. Probate is a court-supervised process that has as its ultimate goal the transfer of property from an individual who has died (the "decedent") to that individual's beneficiaries who are identified in his/her last will and testament or, if the decedent died without a last will and testament in place, to that decedent's heirs who are described and listed under California law. Administering a decedent's estate via the probate process does provide advantages over the administration of a revocable living trust upon one's death. However, most legal experts agree that administering a decedent's estate via the probate process is more problematic and costly than via the administration of a revocable living trust upon one's death. Generally, your "probate estate," which is a subset of your gross estate, consists of all of the following items of property:

    a. All assets/accounts (either real property or personal property) held (by legal title) in your name alone (i.e., in your individual capacity);

    b. An undivided one-half (?) interest in any property designated as your and your spouse’s community property;

    c. Proceeds of insurance policies (owned by you and on which you are the insured) in which your estate is designated as the primary beneficiary or is the beneficiary by default;

    d. Proceeds of annuity contracts (owned by you and on which you are the annuitant) in which your estate is designated as the primary beneficiary or is the beneficiary by default;

    e. Proceeds of retirement plans (owned by you) in which your estate is designated as the primary beneficiary or is the beneficiary by default; and

    f. Proceeds of any other "pay-on-death" asset that you own in which your estate is designated as the primary beneficiary or is the beneficiary by default.

Under current law, a formal probate of your estate is required if, upon your death, the cumulative fair market value of the property in your probate estate at the time of your death equals or exceeds $100,000. For purposes of this calculation, the gross fair market value of the property used to determine if a formal probate is necessary (i.e., you would not subtract your debts and mortgages from your property before determining if a formal probate of your estate would be necessary).

Your property may often be transferred without a probate proceeding. You may have owned a home, stock, and bank accounts in joint tenancy with another person(s) or in your trust, and owned life insurance insuring your life that entitled designated beneficiaries (other than your "estate") to the death benefits. None of these assets is subject to probate administration (i.e., probate of these assets is avoided). However, avoiding a probate of your estate does not mean that your property will automatically be transferred to your beneficiaries or heirs at no cost. Moreover, avoiding a probate of your estate does not mean that estate or other inheritance taxes will be avoided.

Avoiding probate: The advantages of a probate proceeding over the administration of a trust include quick resolution of disputes between beneficiaries. For example, if a dispute arises between beneficiaries or heirs of an estate regarding the distribution of a your property, the probate court is quite well-suited to resolve such disputes expeditiously and in accordance with well-defined rules. Another advantage of probate is the quick resolution of creditor’s claims. Creditors must file their claims against your estate (i.e., to collect on your debts that existed at the time of death) more quickly in the probate proceeding than when the estate passes via a trust administration or otherwise (i.e., Creditors generally have 4 months to file their claims versus one year or longer to file their claims when one’s estate passes via a trust).

The disadvantages of a probate proceeding over the administration of a trust upon one’s death include its public nature, its much higher cost, and the usually great delay in finalizing the administration of the decedent’s estate. Probate fees and expenses include (1) the cost of filing a Petition for Probate of your estate; (2) the compensation paid to the Executor of the estate, and (3) the compensation paid to the Attorney the Executor retains to assist him or her with the administration of the estate. Other expenses include fees paid to probate referees (a requirement of the court) to appraise the property in the probate estate.

California Probate Code sets the maximum statutory fees that attorneys can charge for a probate. Higher fees can be ordered by a court for more complicated cases. The fees are four percent of the first $100,000 of the estate, three percent of the next $100,000, two percent of the next $800,000, one percent of the next $9,000,000, and one-half percent of the next $15,000,000. For estates larger than $25,000,000, the court will determine the fee for the amount that is greater than $25,000,000.

If both the attorney and the executor receive a fee, the amount paid for a probate can be double. The value of the estate is determined, in general, by the inventory for the estate. (If an accounting of the estate has been waived, the total value of the estate for attorney's fees purposes is the inventory, plus gains on sales, minus losses on sales.) Debts are not included in determining attorney's fees, and if a house is appraised at $1,000,000, for example, and it has a mortgage of $800,000, it is still considered a $1,000,000 asset for the purpose of calculating attorney's fees.

Attorney's fees can still vary depending on any work an attorney performs at the request of the executor that is not related to the probate.

In probates that are complicated by lawsuits or tax problems, the attorney and executor can ask the judge to approve fees that are higher than those set by state law.

In addition to the statutory fees, there are costs for appraisal fees, publication costs, and miscellaneous fees charged by the county. Estates are appraised by probate referees, who are appointed by the State Controller to determine the fair market value of the asset. The fair market value includes mortgages and other debts, which can result in an appraisal of the property that is higher than the equity that the deceased owned in the property. Probate referees receive a fee based on .1 percent of the assets that have been appraised. A typical estate might incur $1,000 to $3,000 in court costs and other required fees.

In the end, the probate process can be very costly and depending on the size of the estate, the costs of both time and money can far exceed what is paid to have proper estate planning documents in place.

To learn more about the cost of probate, please visit our FAQ page for Probate.


Print Print  Email Email