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Transfer of Property after Death;  Probate vs. Living Trusts

 

          When someone who owns a home or other real estate passes away, record title to the property remains in the decedent’s name.  To change that, someone must file an appropriate document with the local recorder’s office reporting the decedent’s death and naming the new owner.

        Sometimes the document can be very simple.  For property owned by joint tenants, an Affidavit of Death of Joint Tenant serves the purpose.  If the property is held by husband and wife, a Community Property Affidavit can be used.   If the property is held in a trust, and the decedent is a trustee, the appropriate document is an Affidavit of Death of Trustee and Successor Trustee.  In most other cases, it’s necessary to report the death to the superior court by starting a proceeding toprobate the decedent’s estate.

        In theory, probate proceedings are straight forward and easy to understand.  The court appoints someone to serve as “personal representative” of the estate.  That person takes charge of decedent’s assets, provides the court with an inventory and appraisal, notifies creditors of decedent’s death, pays legitimate claims, and, finally, after accounting for receipts and payments, obtains a court order authorizing distribution of the estate assets to the rightful heirs.  The heirs are those named in the decedent’s will, which is presented for approval to the court; or, if there’s no will, the heirs are determined by law the laws of intestacy.

Problems with Probate

        There are two major problems with the probate process:  It takes too long and costs too much.  That’s why so many people have had living trust instruments drawn up to control and convey their property after death instead of subjecting the heirs to the probate process.

        Delay:  The probate takes many months to complete and in many instances can take years, even with small estates.   The delay is partly due to the nature of the proceeding, partly due to court backlog, and partly due to procrastination of the responsible parties.  I mentioned earlier that, at the outset, the probate judge appoints a personal representative.  Simple enough, but before the judge can make such an appointment,  a petition must be prepared and filed and notice sent to all possible heirs (those named in a will and those left out).  The matter is set on the court calendar, typically to be heard six to eight weeks later.  There’s a required four-month period for creditors to file claims.   

        The representative must prepare a written inventory detailing all the decedent’s real and personal property (including autos, financial accounts, personal belongings, etc.).  The inventory is presented to a court appointed appraiser who determines the value of each the listed items.  

        More petitions may be filed during the course of the probate.  Each requires service of prior notice, and each will add to the duration of the probate process, with an unavoidable lag time before the hearing on the petition.  Examples, include a petition to approve a property sale, a petition for instructions, a petition to approve a compromise settlement.  The list goes on.  

        At the end of the process, the representative files another petition, this time for an order authorizing distribution of the estate to the appropriate heirs and, usually at the same time, presents the court with a final account detailing to the nearest penny the value of all assets and income received, losses and gains on sale, and all expenditures made.  Typically an additional six to eight weeks will pass before the final petition is heard.

         It’s worth noting that with most petitions, a filing fee in excess of $400 will have to be paid.  That leads to the next section - -  the high cost of probate resulting from fees.

        Probate Fees:   A recent probate in a north bay county provides an excellent example of how fees can slash the distribution to the heirs. The estate was a modest one, with a gross value of $480,000.  After sale of the assets and payment of debts, $269,000 remained, but that balance was further reduced by $57,600.00 of fees incurred during the course of probate!  The fees amounted to almost 22% of the net assets of the estate, all of which might have been saved for the heirs  if probate had been avoided!

        The fees in that case broke down as follows:  

            1.  Miscellaneous fees totaling $2,751 consisting of:  Bond fee ($1,145), Filing Fees ($830), Appraiser’s Fee ($551), and Newspaper Notice to Creditors ($225).

            2.  Statutory and Extraordinary Fees for the representative and her attorney, totaling $54,850!

        Statutory Fees.  Probate Sections 10800 and 10810 authorize two fees: one payable to the personal representative and one for the representative’s attorney.  The fees are identical, with the “statutory” minimum of each fee based on the grossvalue of the estate as follows:

                 4% of the 1st $100,000

                 3% of the 2nd $100,000

                 2% of the value from $200,000 to $1,000,000

                 1% of the value from $1,000,000 to $10,000,000

                 ½% of the value from $10,000,000 to $25,000,000, and

                 For amounts over $25,000,000, a reasonable amount determined by the probate court.

 

         But there are more fees allowed!

        Extraordinanry Fees.  The law allows the personal representative, and also his or her attorney, to seek an award of “extraordinary fees” for services considered beyond the normal work required in a probate proceedings.  That can include fees for time spent preparing tax returns, handling property sales, negotiating creditor claims, dealing with disputes between heirs, etc.  

        In the probate case mentioned above, the court awarded the personal representative over $30,000 in “extraordinary” fees, based on an hourly rate of $190.00 (None of the heirs contested the representative's request for fees, or the result might have been different).

    Use of Living Trusts to Avoid the Costs and Delay of Probate

     Today, people now usually create revocable (or “living") trusts to avoid the cost and delay of probate,  They (typically a husband and wife, acting as “Trustors”) transfer their property to the trust and name themselves as trustees to keep full control during their lifetimes.  They name a successor trustee to take over when the surviving Trustor passes away.  If properly drawn, the trust can be amended or revoked at any time during the Trustors’ lifetimes.

    The trust document spells out what’s to become of the assets following the Trustors’ deaths, functioning very much like a will.  The difference is that carrying out the provisions of a will usually requires full probate of the decedent's estate, with all the costs and delay that entails.  With the living trust, the owners’ wishes are carried out privately by a successor trustee whom they name in advance (typically a responsible family member) and who takes over when the Trustors die or become incapacitated.  The successor trustee then manages and winds up the decedents' affairs and expeditiously distributes the trust assets to the heirs as provided in the trust instrument, usually without any court involvement whatsoever - -  unless disputes arise that the parties cannot resolve themselves.