A lot of people have been telling me that they don’t have to think about estate planning because their spouse or kids will inherit their property no matter what. And that is technically correct. But at what cost?
In California, the legal process of transferring assets and managing someone’s estate is called Probate and it should be avoided if at all possible! Probate is a legal proceeding that is required if the decedent’s total combined assets is greater than $166,250. If that amount is reached, then Probate must be filed with the court and will delay the distribution of assets to loved ones by 12-18 months on average! On top of that, there are statutory attorney and executor fees that must be paid out before anybody receives their distributions. For example, on a $1 million dollar estate, the attorney and executor fees alone will be approximately $50,000!
And while your idea of a good time may be going to court and waiting months for the gears of justice to turn, I would highly disagree. Probate is necessary in certain cases but is by no means the only option and often times can be easily avoided.
The first thing you can do to avoid Probate is update your beneficiary designations on all of your accounts. If you name beneficiaries on all of your accounts, then they will receive access to those accounts after you die without going to court. Typically, beneficiaries need only submit a beneficiary claim form, copy of the death certificate, and proof of identity to the bank or financial institution where the account is located. They can deal with the bank or institution directly without resorting to involving the courts. However, it is entirely up to the bank whether they distribute the funds or not. So if the bank refuses to honor the claim forms and additional information that you submit to them, you would have to go to court anyway in order to enforce that distribution.
The second thing you can do to avoid Probate, is execute an estate plan that includes a Will and Trust. Now, you may be asking, “Why do I need a trust? Isn’t a Will good enough?” And the answer comes in two parts.
A. A Will may be good enough to keep a “small estate” out of Probate court but it will not be effective for the vast majority of people in the Bay Area. The Probate Code defines a “small estate” as one that is less than the $166,250 limit that requires a formal Probate filing. Accordingly, if you execute a Will and your estate is less than $166,250 then your executor will likely be able to fill out several simple forms and deal exclusively with the banks to get access to your money. However, each bank and financial institution is different. So even with a Will and the required forms, the bank may still require you to go to court and your loved ones would still be in the same situation you sought to avoid.
B. Any estate greater than $166,250 must still go through Probate, even if you have a Will! If that is the case, your Will is still useful in carrying out your wishes, but your executor and loved ones would still have to go to court, wait approximately 12-18 months, and pay tens of thousands of dollars in fees. The most effective way of covering all of your bases is to establish a Trust that will hold title to your assets so they do not get included in your estate when you die. If your assets are held by the Trust and not in your name, then they do not count towards the Probate limit of $166,250!
That is why it is extremely important to talk with a qualified California Estate Planning Attorney who can explain all of the different scenarios to you ahead of time. Only after you are apprised of all the nuts and bolts can you truly understand the potential issues that your plan (or lack thereof) can cause.
If you have any questions about Probate, Wills or Trusts, schedule a complimentary consultation with me by emailing justin@hedemarklaw.com calling (415) 692-1503, or book time with us directly by clicking https://www.hedemarklaw.com/book-online