While most clients request the type of estate plan that will help them with avoiding probate, not everyone really understands what that means. It does not mean avoiding estate taxes. Another misconception is that only individuals who die without a will must go through the probate process. If you want to know about avoiding probate, here are four options you can consider.
What is probate and why is it necessary?
First, you should understand what the probate process is and why it is required in some cases. A simple way to look at it is that probate is the process required when there is no other way to transfer ownership of assets to beneficiaries. In other words, probate is the last resort, when the property has not been transferred by trust, will or other estate planning instrument. Through probate, the property is transferred to the intended beneficiary through the court’s final order for distribution.
Four mechanisms for avoiding the probate process
In California, there are basically four ways to transfer ownership of the assets in an estate, outside of the probate process. They include the following:
- operation of law
- summary probate
If these methods are used properly, with the assistance of an estate planning attorney, you can avoid the lengthy and often expensive process of probate.
Transfer of an estate by operation of law
California has established by statute, a set of rules known as the California Multi-Party Account Laws. These rules determine who owns the funds that remain in a bank account, upon the death of the bank account holder. The decedent’s share of the funds will pass according to the terms of the contract with the bank, or by operation of law to certain survivors. Once the death certificate is presented to the bank, a new account is opened in the name of the survivor. Probate is not required.
Transfer by right of survivorship
If two individuals hold title to property in “joint tenancy” then they have designated themselves as the individuals who will have full ownership upon the death of the other. This is known as the “right of survivorship.” Spouses in California may also hold property as community property with right of survivorship. Unlike joint tenancy, community property without the specific designation “by right of survivorship,” does not pass by survivorship. Instead, it is controlled by the decedent’s will. The right of survivorship applies to both real and personal property. However, it does not apply to bank accounts, which are instead governed by the Multi-Party Account Laws discussed above.
Transfer by designation of beneficiary
In California, there is also a statute that provide the Nonprobate Transfer Rules. This is where transfers by beneficiary designation is authorized. The most common types of beneficiary designation transfers are life insurance policies and retirement accounts. Upon the death of the insured or the employee, the funds in these types of accounts will pass to the person designated as beneficiary. The Nonprobate Transfer Rules also govern Transfer on Death (TOD) and Pay on Death (POD) securities.
Transfer by trust agreement
Any assets that you have held in trust will be able to avoid the probate process. With a trust agreement, your property is transferred to the name of the trust, to ultimately be transferred to the named beneficiary after your death. The trustee is the person who manages the property until that time. Historically, the trustee had to be a third-party. However, the law has changed over the years and the person creating the trust can now also serve as the initial trustee, at least until their death.
California’s summary probate procedure
The Probate Code in California allows for summary probate procedures. Through this abbreviated process, the terms of the decedent’s will are followed to distribute the assets, with the need for a full probate proceeding. This can be a less expensive and less time-consuming option. The nature of your estate must fall into one of these categories before his process can be utilized:
- personal property not exceeding $100,000 in aggregate value
- real estate of less than $20,000
- real estate of less than $100,000
- the asset (regardless of type) passes under the will or by intestate succession to the surviving spouse
Requirements for summary probate proceedings
When the personal property does not exceed $100,000 or the real estate does not exceed $20,000, the transfer of property only requires an affidavit signed by the beneficiary and/or an appraisal. No court filing is required. When the value of the real estate is between $20,000 and $100,000, then a separate petition must be filed by the beneficiary, along with an appraisal. Though a court hearing is required, the full probate process can still be avoided. If the assets pass, either by will or intestate succession, to the surviving spouse only, then the transfer can be accomplished with a simple petition and court hearing.
Join us for a FREE seminar! If you have questions about avoiding probate, or any other estate planning needs, please contact the experienced lawyers at the Schomer Law Group for a consultation, either online or by calling us at (310) 337-7696.