Probate is a court supervised administration of a decedent's estate. A judge appoints someone, referred to as the "executor" or "administrator," of the estate to collect the decedent's assets, pay their debts, and distribute the remainder to the beneficiaries. The beneficiaries will either be those persons named in the will (if one exists) or the legal heirs.
A common misconception is that probate is not required if a person has a will. However, probate is generally required whether a person dies without a will ("intestate") or with a will in place.
Probate is Not Your Friend
Probate can take a long time (up to a year or more) and is a public process, requiring several court hearings. If there is disagreement among the beneficiaries or heirs, those disagreements are resolved in court in a public hearing.
However, in my opinion the biggest downside of probate is the cost. By law, the fees paid to the attorney and the executor of the estate are based on a percentage of the gross value of the assets in the estate. (California Probate Code Section 10810). The fees are 4% of the first $100,000, 3% of the next $100,000, 2% of the next $800,000, and 1% of the next $9,000,000.
A couple of things to keep in mind. First, the fees are based on the gross value of the estate. That means that if you own a home worth $500,000 and have a mortgage of $450,000, then the probate fees will be based on a gross value of $500,000 even though you only have equity of $50,000. Second, these fees are paid to both the attorney and the executor.
The following table summarizes the total fees payable based on the size of an estate:
As you can see, these fees increase quickly! In the example above where a house worth $500,000 with net equity of $50,000 was the only asset in the estate, the probate fees would be $26,000 - leaving only $24,000 for the beneficiaries.
Revocable Living Trusts Avoid Probate
A simple way to avoid probate is to transfer your assets to a revocable living trust. You retain complete control over the living trust during your lifetime and the trust is "revocable" - meaning that you can amend and change it whenever you like. Much like a will, a living trust designates who will receive your assets after you die and appoints individuals to be in charge of that process. After your death, that successor trustee will take control of the trust assets and distribute them to your named beneficiaries. However, the trust will not have to go through probate. The trust is administered privately, outside of court and with no required probate fees. Granted, there will be some fees and costs to administer the trust but they will be significantly less than the statutory probate fees.
If you'd like to learn more about living trusts and how one might help you and your family, please contact us to schedule a free consultation.