When someone passes away, the procedure necessary to settle the estate depends upon the nature of the planning accomplished prior to death. If the “decedent” had developed a proper estate plan prior to death, the procedures are generally much easier, less costly, and less time-consuming. If, on the other hand, the decedent failed to properly plan, then a probate may be necessary. Following, is an overview of the probate process, as well as the process of administering the estate of someone who had developed a revocable living trust.
WHAT IS PROBATE?
If you die without a living trust-based estate plan in Orange County, and/or if you have probatable assets in excess of $150,000, your estate will be subject to the probate procedure. Probate is a legal proceeding that is used to complete a persons legal and financial affairs after death. In California, probate proceedings are conducted in the Superior Court for the county where the decedent lived, and can take at least six months and sometimes as long as several years to finish.
WHAT HAPPENS DURING A PROBATE?
The person who is nominated in the will as executor files a petition asking that he or she be appointed as executor of the estate. If there is no will, the Probate Code provides a list of persons who have priority to petition to become executor.
The will is also filed with the petition, and notices are sent to the heirs and/or relatives of the deceased to let them know when the hearing will be held. If there are objections to the petition, or if the validity of the will is contested, the hearing will be used to resolve any issues that have arisen. In some cases, this may mean that the validity of the will is not upheld, or that some other person than the original petitioner is chosen to administer the estate. If there are no objections, the petition is granted. The executor then makes an inventory of the estates assets, locates creditors, pays bills, files tax returns, and manages the estate assets. When all of the duties of the executor are completed, another petition is filed with the court asking that the estate be distributed to the heirs. If this petition is granted, the estate administration is completed by distributing the assets to the heirs and filing final tax returns.
HOW MUCH DOES PROBATE COST?
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 4% of 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. The court will determine fees for estates in the amount greater than $25,000,000.
In addition to the fees listed above, compensation may also be awarded to attorneys and executors in probate cases. Superior Court will also receive a fee depending on the size of the estate.
APPRAISAL OF THE ESTATE
Estates are appraised by probate referees, who determine the fair market value of the assets. 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 are appointed by the state controllers office and they receive a fee based on .1% of the assets that have been appraised.
FEES CAN GO HIGHER
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. A typical estate might incur $1,000 to $2,000 in court costs and other mandated fees.
ADVANTAGES OF PROBATE
The proceedings are controlled by a judge, who can decide disputes between heirs or between the heirs and the executor. Creditors are required to submit their claims against the estate within a four-month period, provided they have been notified of the probate. The executor is required, in most cases, to prepare an accounting and report all their activities.
DISADVANTAGES OF PROBATE
The cost is usually MUCH higher than would be required for the administration of a living trust for an estate valued at the same amount. It usually takes months, or even years, longer to probate an estate than to administer a trust. Most estates dont need the supervision of the court unless disputes occur.
For most families and individuals, the best way to avoid probate is to establish a comprehensive and funded living trust in Orange County with supporting documents.
WHAT IS TRUST ADMINISTRATION?
If someone who has developed and properly funded a living trust passes away, this generally avoids the need to petition the court for a probate of his or her estate. Instead, the Successor Trustee is empowered under the trust document, to carry out the terms of the trust, without the high costs and delays associated with court procedures. Carrying out the terms of the trust is called trust administration. Our office routinely assists Successor Trustees in this process, both for past clients, and those who did not develop their plan through our office. With respect to the trust administration process, Mr. McKenzie has developed a system and relationship with the client which dramatically lowers the overall costs involved.
WHAT HAPPENS DURING A TRUST ADMINISTRATION PROCESS?
Under California law, the Successor Trustee is not only required to carry out the terms of the trust as stated in the document, but he or she is also required to perform various duties as Successor Trustee.
Initially, certain notifications to individuals and entities must be made in accordance with the provisions of the California Probate Code. For example, notice must be formally served on all trust beneficiaries and heirs at law, and the notice must be in the form prescribed by the probate code. These notices must be sent within 60 days of the date of death. Formal notice must also be given to the Department of Health Care Services, and possibly other governmental agencies. Failure to make these notifications could subject the Successor Trustee to liability.
The Successor Trustee must also make sure the Last Will is filed with the proper court, and if there is any real estate in the trust, steps must be made to clear title to those properties in the name of the Successor Trustee.
It is also the job of the Successor Trustee to gather and protect all trust assets, to pay all creditors of the estate, and to make sure all tax issues are properly addressed. The trust may require a separate taxpayer identification number, also. Once all of the administrative tasks have been completed, appraisals have been made, all bills have been paid, and all tax returns have been filed, the Successor Trustee may then distribute the assets of the trust to the beneficiaries, in accordance with the terms of the trust.
WHAT IF NOT ALL ASSETS ARE IN THE TRUST?
Some assets which are not in the trust may not present a problem, if they have named beneficiaries, and those beneficiaries are living. However, if you discover that the decedent failed to place certain assets in the trust prior to death, those assets may become subject to the probate process, if the value of all of them combined is greater than $150,000. If the value is less, there are less complicated strategies we can use to collect those assets.
WHAT IF THE TRUST SPLITS INTO SUBTRUSTS UPON DEATH?
Sub-trusts are especially common in administration s of trust established by married couples. The married couple may have developed a plan for the purposes of tax planning, known as an AB or ABC trust. This ensures that when the first spouse dies, the deceased spouses assets remain available for use by the surviving spouse, but in an irrevocable trust. These types of trust are more complicated to administer, and you would be well advised to receive proper advice regarding the process.
In addition, some trusts have minors trusts for minor beneficiaries, special needs trusts for special needs beneficiaries, or other ongoing trust which survive beyond the death of the trustmaker. These trusts all have their own unique requirements with respect to the trust administration process.
HOW MUCH DOES TRUST ADMINISTRATION COST?
Because the overall cost of administering a trust estate is dependent upon many variables, it is difficult to set forth a range of potential costs, however, the cost of administering a trust is only a fraction of the cost of a probate. And, as noted above, our firm has developed a system of administering trust estates which drives those costs even lower. Finally, a trust can generally be administered in only a fraction of the time it takes to conduct a probate.
Please be advised that the information on this site is not meant to be construed as legal advice, nor is it meant to set forth all of the various responsibilities of a Successor Trustee. As such, you are strongly advised to seek legal advice if you are the Executor under a decedents Last Will, or if you are the Successor Trustee under a decedents trust. If you would like legal advice, or for more information about Trust Administration or Probate Attorney in Orange County, please contact our office at (562) 594-4200 for a FREE 30-minute consultation!