Estate Planning | IV. The Probate Process

The Probate Process

When a person dies relatives and friends must be notified, funeral and burial arrangements must be made, and the survivors must begin to live without that person who died.

The probate process is the legal process through which the decedent's assets that are not automatically transferred to their heirs by contract or law are retitled in the name of the heirs.

In theory, every person who dies has an estate plan. If the decedent did not establish his own estate plan by executing a will, the state in which he is domiciled has created one for him under the state intestacy laws.

A person named in a will to receive property is referred to as a legatee, while a person who receives property under the state intestacy laws is called an heir. (Repeated twice in book)

Assets may be transferred and retitled through the probate process, by contract law, by state titling law, or by state trust law.

Advantages of Probate

The central advantage to the probate process is the protection of the individuals involved in the probate process. The advantaged parties include the decedent, the decedent's named heirs, unnamed heirs, and creditors.

Protect the Decedent

Since the probate process is the legal process used to implement the disposition objectives of the testator, the testator is assured that his desires will more likely be followed.

Protect the Legatees and Heirs

Probate prevents one legatee or heir from having priority over another of equal rank (brother and sister siblings)

Transfer of Clear Title

Heirs or legatees receive property free from creditor claims and other competing ownership interests.

Protect the Creditors

Money for the creditors are protected by probate and are first in line to receive payments before distributions are made to heirs or legatees.

Disadvantages of the Probate Process

The advantages of probate center around protecting individuals, the disadvantages center around the losses individuals may face.

The Time Cost of Probate (Delays)

The probate process is a complex legal process that takes time to complete.

In California probate proceedings are conducted in the Superior Court for the county in which the decedent lived, and can take at least eight months and sometimes as long as several years.

In addition, probate also ties up the decedent's probate assets during administration of the estate.

Monetary Cost of Probate (Costs)

Probate may have a large monetary cost.

In California:
California Probate Code section 10810 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.

Cost for Appraisal of the Estate:
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.

An Extra Fee Can Apply:
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.

Privacy (Publicity)

One of the biggest disadvantages of probate is the loss of privacy. Since probate is a court proceeding, information must be recorded and be available to the public.

Nontraditional Relationships

One of the most famous examples of a nontraditional party will contest occurred in the estate of Robert Kaufmann and his inheritance of Kay Jewelers shares. Individuals in nontraditional relationships, whether they be same sex or not, should consider avoiding the probate process.

A JTWROS may be an appropriate way to relinquish some control over property, or a revocable living trust may be a better alternative as the principal can revoke the trust before death.

The Process

Producing the Will (The Beginning)

The Probate Court

Personal Representative - Executors and Administrators

Surety Bonds

Managing and Distributing the Estate

Potential Problems in Distribution

abatement

Property Passing Through Probate

Property Passing Outside of the Probate Process

State Contract Law

Transfers that avoid probate by contract allow the client to select a designated beneficiary to whom the property will be transferred.

  • Life Insurance
  • Annuities
  • IRAs, SEPs, SIMPLEs, and Qualified Retirement Plans
  • Totten Trusts, Pay-on-Death (POD) Accounts, and Transfer-on-Death (TOD) Accounts

State Titling Law

Property held as a joint tenancy with rights of survivorship (JTWROS), or as a tenancy by the entiretyy (TE) pass outside of the probate process because of the automatic retitling mechanism of the survivorship feature.

State Trust Law

All trust property will pass outside of the probate process per state trust law. Seen in Section VIII.


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