Chances are you have read or been told by someone that you should ‘avoid probate at all costs.’ This is especially true if you have a relatively sizable estate, which includes at least one house and some savings and/or investments in a portfolio.
If one does not have a will, probate is the court administrative process whereby there is judicial oversight of your estate after you die so that your creditors are paid, your taxes filed and that the proper beneficiaries receive your estate. A will, however, is not a guarantee that there will be no probate. An estate worth more than $150,000 in California usually will require a probate procedure of some kind.
Probates can take anywhere from 7 months to 2 years, longer if there are complications. At the same time, a probate can cost 3-7% of the gross value of the estate. That fee amount is set by statue, i.e., the California Probate Code. Further, probates are ‘public record’ so anyone can peek at one’s will, read court pleadings and attend court hearings.
Here are some of the common ways to avoid probate in California.
Trust: Consider having a Living Trust made. One can put real property and an asset into a living trust when they are alive and direct what happens to that property after they die. You have to transfer ownership or ‘title’ of assets into the name of the trust so your trust is properly ‘funded.’ When you die, your trustee will distribute your assets according to your written instructions in the trust without court procedure or court costs. A trust is also a private document and is not public record.
Joint Tenancy/Joint Ownership: Persons can choose to hold title to real property or assets in ‘joint tenancy.’ Joint tenancy means that two persons can own something and when one dies, the other joint owner will then own the asset 100% outright as a matter of law with no court procedure necessary. Other assets such as bank accounts, vehicles or other valuable property can also be owned in joint tenancy. Married couples and registered domestic partners can also own a house as “community property with right of survivorship” which is another form of joint tenancy.
POD/TOD: In California you can ask your bank to designate another person to receive a bank account or certificate of deposit after you die. This is commonly referred to as a ‘Payable on Death’ designation. Stocks and bonds and other securities can also be designated ‘Transfer on Death’ with a TOD classification. In California, there is also a TOD form available from the Department of Motor Vehicles for your car if you die. Another person can automatically inherit the vehicle.
[There is a now a Transfer on Death deed for real estate available in California as of January 1, 2016 allowing one to leave real estate to a beneficiary in a TOD manner. This deed takes effect when you die. The property will pass to the beneficiary with no probate or court hearing.]
Non-Probate Assets: If a person has a financial asset or other monetary instruments with a named beneficiary, for example a life insurance policy or a IRA or 401K, those assets will pass outside of probate or court procedure to the named beneficiary after death.
Sometimes people think that they can put all their assets in joint tenancy or create TOD and POD designations for all their financial accounts to avoid formal estate planning and/or probate. This is a strategy, however, that should be discussed at length with an experienced estate-planning attorney. Depending on your situation, it may not be strategically wise for you to have a joint tenant arrangement with certain property or assets.
Further, sometimes a ‘non-probate asset’ can come back into one’s estate. For example, if you have a beneficiary designation on a life insurance policy and the beneficiary predeceases you and you fail to designate an alternative beneficiary, those assets might come back into your estate. If there are no other estate documents, a probate may then be necessary to allocate that asset. Designating an alternate beneficiary may be prudent.
Planning what happens to your assets and your estate when you die is complicated. There is a lot of information and misinformation on the Internet regarding probate. It is wise to consult an experienced estate-planning attorney to discuss all of the above concepts and other issues related to your particular situation. Each estate is different and may require professional individual attention. There is no ‘one size fits all’ approach.