Probate in California can be avoided if you have the right strategy in place with the use of a revocable living trust, saving you money in taxes, avoiding public proceedings, and the requirement for court approval. It can save you time, frustration, and in most cases, significant attorney and court fees.
The Cost of Probate in California
Estate planning experts have a long list of reasons for why you should avoid probate, and the extraordinary fees is one of them. Failure to establish a comprehensive estate plan that includes a revocable living trust will mean your family must pay various fees to probate your estate. These fees are so exorbitantly high and could end up taking a huge chunk out of your overall estate.
The State of California probates an estate based on the estate’s gross asset value. Fees that are 4% for the first $100,000 of the estate, 3% of the next $100,000, 2% of the next $800,000, 1% of the next $9,000,000, and 0.5% of the next $15,000,000.
Below is a chart listing out the statutory fees for a standard probate case. These fees are utilized by the court to compensate both attorneys and executors during probate. Please note, both attorney and executor will receive a fee and the value of the fee will be double of what is shown below.
|SIZE OF ESTATE||STATUTORY FEE|
Unfortunately if probate cannot be avoided, then your personal representative sometimes referred to as an executor, must formally notify all your creditors of your death. This action is one of the first steps in the probate process. This starts with placing a notice of death in a local newspaper(s) to which creditors respond and file a timely claim to the probate court for estate payment of the said claim.
Outstanding debts typically include credit card payments, mortgage, car payments, insurance, real estate taxes, utility bills, medical and funeral expenses, and other legal debts incurred but not yet paid. The probate timeline for creditors to file a claim varies by state. On average, between three to six months is a creditor’s window of opportunity to submit formal claims to your estate for payment. If there is no contest over the debt, the personal representative will pay the outstanding bill with estate funds; the creditor will receive payment in full, which completes the claim.
Personal representatives, beware. Do not distribute assets to beneficiaries before the balance of the estate’s taxes and all outstanding debts are completely paid or dismissed by the probate court. It is the responsibility of the personal representative to cover all estate expenses, and you may become personally liable for deficiencies in estate debt payments unless beneficiaries return their portions of inheritance to cover those outstanding debts. If you feel you must make a partial distribution to heirs, withhold enough monies to cover all estimated expenses.
If the decedent’s property does not go through the probate process, creditors’ claims remain pursuable for a year following death in California. Partly this is because there is no legal requirement to notify creditors of a person’s death. By the time a creditor may learn of the death, the debt might be so small they are unwilling to pursue its collection. A creditor may find a tax write-off of bad debt more advantageous than chasing down repayment that is not cost-beneficial.
In other cases, an estate may not have liquid assets yet hold real property with enough value to cover the outstanding debt claim if sold. Valuable inheritable property can be lost to a forced sale to cover creditor claims in probate court. A creditor forcing this type of sale drags out probate proceedings, incurring additional costs. Secured creditors receive priority over unsecured creditors. Banks are the primary secured creditor with which a personal representative may have to contend.
Suppose a person dies with substantial debt and there are limited assets to cover these debts. In that case, the estate is deemed insolvent, and there is a generally accepted prioritization of debt payment by all states. A personal representative should always pay debts in order of a state’s recognized priority list. Otherwise, debts that may be dismissible, pro-rated, or forgiven may receive payment, while secured debts never “go away.” It is essential to understand the priority order for estate debts. Note that these are generalities, and some state laws may prioritize these categories differently.
- Administrative costs – Common costs include court fees, filing fees, notice costs, attorney’s fees, and the administrator’s commission.
- Family exemptions – Many states will provide for payments helping family members handle their living expenses during the estate’s probate. This family exemption usually gets high priority to lessen financial stress as a family mourns the loss of their loved one.
- Funeral and burial costs – These expenses address funeral and burial costs by state law. Costs of cremation, interment, urns, markers, and associated funerary service costs are permissible as part of funeral and burial costs.
- Government debts – Income taxes, property taxes, and estate taxes take priority over other debt obligations.
- Final medical bills – The decedent’s final sickness or injury receive priority over other unsecured debts. Some hospitals will reduce final medical bills if the newly negotiated amount is paid promptly and in full.
- All other claims – Usually, states do not prioritize these other more general unsecured debts. Some cases permit debt payment based on the filing date of claims, and other times debts may be pro-rated.
Assets such as retirement accounts and insurance proceeds with a designated beneficiary receive different treatment and provide more protection from creditors. The same holds for an irrevocable trust which upon death also provides protection from creditors. A beneficiary designation and specific trust entity can help to shield an estate with a heavy debt burden.
When someone dies, their estate assets must be secured and eventually distributed according to the existing Will or state intestate laws. Another vital function of the estate is for the personal representative to ensure the decedent’s genuine debt obligations receive payment. When an estate has sufficient assets to pay all outstanding debts, payment can occur in any order. If the estate leans to insolvency, the personal representative should withhold asset distribution to heirs until the probate court approves the debt fulfillment priorities. Please contact us today at 833-677-3737 to schedule a free consultation to discuss your legal matters.
Thanks for reading.
Christopher E. Botti, Esq., Chief Preservation Officer and Certified Specialist in Estate Planning, Trust and Probate Law
All legal services are provided by Botti & Morison Estate Planning Attorneys, Ltd.