avoid probate With a Revocable Living Trust
Probate is the court process for the distribution of a person’s estate upon their death. If there is a will, a court will determine whether the will is valid and operative and then oversee the administration of your estate consistent with the will. However, if you do not have a will (or trust), then the court will determine how your assets will be split in accordance with California law.
If you haven’t gone through probate, thank your lucky stars. Probate in California is expensive, time consuming, and public.
California has a statutory fee scheme for probate matters. It is a cap on fees (not a minimum) but because the probate process is relatively complex and time-consuming, most of the time lawyers (and personal representatives, depending on the situation) will not agree to a lessor fee unless the estate is very large. To add insult to injury, the fee is based on the gross total value of the estate which means that if the estate has a significant mortgage or other debt, it won’t be taken into account when the fees are assessed.
As an example, let’s say that a hypothetical person died with only her house, personal property (car, jewelry, etc), and $3,000 in the bank. She had a $800,000 mortgage on the house which was worth about $1.2 million at her death. Let’s say her personal property is worth about $2,000. In assessing probate fees, the gross estate would be $1,205,000 since the mortgage is ignored for the purposes of calculating the fees. This would come to fees of $25,050 each for the lawyer and the personal representative, or a total of $50,100. Plus court filing fees and costs are extra. This means the fees eat up over 12% of her estate – money which could have gone to her beneficiaries instead if her estate avoided probate.
Probate generally takes anywhere from 9 months to 2 years from the start of proceedings until the estate is closed. While your estate is going through this process, you have to wait until the court has given the personal representative authority to take the actions required to administer the estate. Until that authority is granted by the court, the house cannot be sold, there is no access to bank accounts, etc., which means your beneficiaries may not be able to take advantage of a hot real estate market or may be stuck in a position where they don’t have liquidity to pay outstanding bills or funeral expenses.
In contrast, a trust allows your trustee to access your trust accounts and have authority over your house or other property without having to deal with a court process. Additionally, it allows you to instruct or permit your trustee to distribute funds before the entire estate is wrapped up whereas with probate your beneficiaries have to wait until the very end to receive any distribution(s).
Have you ever wondered how the juicy details of celebrity estates or conservatorship proceedings end up splashed all over entertainment news? Well, it’s simply because court proceedings are public (unless sealed). The same thing can happen to you if you do not set up a trust. If your estate ends up in probate, financial details, beneficiary allocations, and any disputes or fights between family members are public.
However, if your assets are all within your trust, you avoid the spectacle entirely. Even if you fail to transfer all of your assets into your trust, if you have a pour-over will (which “pours over” the estate into your trust) only limited information becomes publicly available keeping your privacy intact.