In California, owning assets in a revocable trust enables your family to avoid probate, a court process used to transfer assets to beneficiaries of a will or the decedent’s heirs. One of the main reasons to create a trust is to avoid probate. Unfortunately, more often than we would like, when we assist clients with trust administration after the death of a loved one, we also need to file a probate at the same time. This is very frustrating, given that the decedent spent time and money creating a trust to avoid the probate in the first place.
The most common reasons family members end up filing a probate within a trust administration are because:
- The trust was not properly funded when it was created, meaning that assets were not correctly retitled in the name of the trust;
- Assets were acquired in the individual’s name after the trust was created, such as a purchase or inheritance; and
- An asset that did not need to be retitled in the name of the trust (such as a retirement account) did not have a completed beneficiary designation.
Fortunately, depending on the asset left out of the trust, a document called a small estate affidavit might be used to transfer an estate’s support to the trust without opening a formal probate proceeding with the court. To use a small estate affidavit, the estate must meet the following basic legal requirements:
- The total value of all of the estate’s probate assets must not exceed $184,500.00. The decedent’s personal and real property is included in this value. However, small estate affidavits are used to transfer only personal property such as bank accounts, stocks, and mutual funds to the decedent’s heirs or their trust if they have a pour-over will.
- This value of the probate estate also includes all life insurance or retirement benefits paid to the estate (but not any insurance or retirement benefits with a named beneficiary).
- The value of the estate DOES NOT include real property outside of California; property held in trust, including a living trust; real or personal property that the decedent jointly owned with someone else who had a right of survivorship; “pay on death” property that passed directly to a named beneficiary on the decedent’s death; life insurance, death benefits or other assets not subject to probate that pass directly to the beneficiaries; unpaid salary of the decedent up to $5,000; and the debts or mortgages of the person who died.
A small estate affidavit may only be used if:
- The affidavit is signed and submitted by the person entitled to inherit the asset;
- At least 40 days must have passed from the decedent’s date of death before a small estate affidavit can be used;
- A small estate affidavit cannot be used if there are pending probate proceedings for the estate (meaning someone has filed a petition with the probate court in the California county where the decedent lived or owned property); and
The form and contents of the affidavit must conform to the requirements outlined in Section 13101 of the California Probate Code. In addition, many financial institutions such as banks and brokerage companies have their own small estate affidavit forms, often available online.
After the form is completed and signed as required under the California Probate Code, present it to the bank or holder of the property and a certified copy of the decedent’s death certificate and any other requested documents in exchange for the property.
Under California law, formal probate proceedings can be opened for any estate regardless of its value. Although using a small estate affidavit is typically less expensive and time-consuming than formal probate, circumstances may dictate that a supervised administration of the estate by the probate court is needed. For example, such cases include an estate likely to involve a contentious dispute among beneficiaries or an estate that must deal with creditor claims or assets held by foreign institutions; even safe deposit boxes often require a probate.
Always check with the custodian of an asset, such as a bank, IRA company, life insurance company, etc., to make sure that they don’t have their company policies before attempting to file a probate. Sometimes, they have their own policy for the next beneficiary in line if a named beneficiary is missing or predeceases the decedent.
It is crucial to ensure that all the assets are correctly titled in your or your loved one’s trust. You can keep in mind the maximum value of assets that can be transferred by small estate affidavit ($184,500.00), but it is not safe to rely on that as a planning tool. It is more of a backup plan. Remember, anytime a financial institution requests “letters testamentary” or needs the “executor or personal representative,” they usually want a probate opened. So even if there have been no life events that require you to go over your trust this year, it might be a good time to make sure everything is titled correctly or has the proper beneficiaries designated.
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