We hear all the time about how we should avoid probate. How does it work? Simply stated, probate is a court supervised process where:
1. The decedent’s assets are collected and then identified;
2. Any debts, taxes or expenses paid, and;
3. What is left, “the inheritance”, is either distributed outright to loved ones or is administered and distributed to them through a testamentary trust [meaning trust set up after you die].
Hopefully, the records are all in a handy dandy binder or file folder and there is no sleuthing required. If it is all in shoe boxes, then that is the method of gathering of data that will be used. In most events, the mail [electronic or snail mail] will also bring important information so the Executor should be checking email and also getting all the mail via a change of address card with the post office. This will result in knowing what the assets and liabilities are.
After we now what the liabilities are, we need to use the assets of the estate to pay the liabilities. Notice to Creditors is given to start a four month period, currently and in California, within which general creditors must present their claim or they are forever barred. Known creditors are also given notice but directly. Notice to Creditors is a good thing because it closes off the time for future claims and protects the beneficiaries from creditors trying to follow the assets for payment.
Depending on whether there is a will or not, the result may change. If there is no will, there is an outright distribution to all beneficiaries over 18. Those under 18 will have funds held in trust until they reach 18. If there is a will, it may still provide for outright distribution. Finally, there may be a Trust set up after the Decedent dies which is called a Testamentary Trust and has a Trustee with discretion making the call on when and if distributions are made. It may also be that distributions are staggered at different ages. It can protect heirs from themselves, ex-spouses, creditors and maybe even bankruptcies.
California has significant probate fees set by statute that go to the attorney but also to the executor. You can plan around that to avoid it with funded revocable living trusts, transfer on death designations and beneficiary designations for life insurance and retirement funds. In a $750,000 estate, the fee is $18,000 each or $36,000 in fees! Doesn’t that sound like a big deal to you?