Unless you have taken the time to create a custom, personalized estate plan for yourself, when you die many of your assets will have to pass through the court process known as probate before they can be distributed to your beneficiaries. Like most court proceedings, probate here in California is time-consuming, costly, and open to the public, and, because of this, avoiding probate is the main goal of most estate plans.
During probate, the court supervises several different legal actions, all of which are aimed at finalizing your affairs and settling your estate. Although we’ll discuss them more in-depth below, probate typically consists of the following processes:
- Determining the validity of your will (if you have one);
- Appointing an executor or administrator to manage the probate process and settle your estate;
- Locating and valuing all your assets;
- Notifying & paying your creditors;
- Filing & paying your taxes; and finally
- Distributing your assets to the appropriate beneficiaries.
In most cases, going through all these steps is difficult for the people you love.
Why? Because it is expensive, takes a loooooooong time, is often highly inconvenient, and sometimes, even downright messy.
By implementing the right estate planning strategies, you can help your loved ones avoid probate altogether—or at least make the process extremely simple for them.
To spare your family the time, cost, and stress inherent to probate, over the next two weeks, we’ll discuss how the probate process works and the different ways you can avoid probate with strategic planning.
When Probate Is Required
If you do not put a properly drafted, custom-estate plan in place, your assets will have to go through probate before they can be distributed to your heirs. This includes both individuals with no estate plan at all, those whose estate plan consists of a will alone, *and* those who have a will that is deemed by the court to be invalid.
Please note: even if you have a will in place, your loved ones will still have to go through probate.
The only way to keep your family out of court and out of conflict when you die, is by putting together several estate planning tools, which we’ll discuss in further detail below.
For those who die without a will, also known as dying intestate, probate is required to pay your debts and distribute your assets. However, since you haven’t stated how you wish your estate to be divided among your heirs, your assets will be distributed to your closest living relatives based on our state’s intestate succession laws. I like to call this the “Christmas Tree” of Intestacy. These laws typically give priority to spouses, children, and parents, followed by siblings and grandparents, and then more distant relatives, including uncles, cousins, and others. If no living heirs can be found, then your assets go to the state.
Some states allow estates with a relatively low value to bypass probate and use an abbreviated process to settle the estate. For example, California law allows estates with a total value of less than $150,000 and no real property to undergo an abbreviated probate process.
How Probate Works
How probate plays out is determined by whether or not you had a valid will in place at the time of death. However, even in cases where no will exists, or the will is deemed invalid, the probate process is similar. Basically, once the court appoints someone to oversee the probate process on your behalf, the process unfolds in a nearly identical manner, regardless of whether you had a will or not.
1. Authenticating the Validity of Your Will:
Following your death, your executor is responsible for filing your will and death certificate with the court, and this initiates the probate process. From there, the court must authenticate your will to ensure it was properly created and executed in accordance with state law, which may involve a court hearing.
Notice of the hearing will have to be given to all beneficiaries named in your will, along with all potential heirs who would stand to inherit under state law if there is no will. This hearing gives these individuals an opportunity to contest the validity of the will in order to prevent the document from even being admitted to probate.
For example, someone might contest your will on the grounds that it was improperly executed (signed, witnessed, and/or notarized) as required by state law, or someone might claim that you were unduly influenced or coerced to change your will. If such a contest is successful, the court will declare your will invalid, which would serve to act as if the document never existed in the first place.
2. Appointing an Executor or Administrator
If you created a will, the court must formally appoint the person you named in your will as your executor before they can legally act on your behalf. If you died without a will, the court will appoint someone—typically your closest living relative—to serve in this role, known as your personal representative or administrator.
In some cases, the court might require your executor to post a bond before they can serve. The bond functions as an insurance policy to reimburse the estate in the event the executor makes a serious error during probate that financially damages the estate.
3. Locating & Valuing Your Assets
Once probate begins, the executor/personal representative/administrator must identify, locate, and take possession of all of your assets and then arrange for them to be appraised to determine the total value of your estate. This includes all assets, not just those listed in your will and other estate planning documents, but also those you may not have included in your estate plan. This is why it is crucial to keep a regularly updated inventory of your assets.
Any assets the executor is unable to locate will end up in our state’s Department of Unclaimed Property. Across the U.S., there is more than $58 billion (yes, that’s billion with a ‘b’) of assets stuck in state Departments of Unclaimed Property. In California, there is over $9.3 billion. Fortunately, we can help you prevent any of your assets from ending up there. We will help you create a comprehensive asset inventory and make sure this inventory stays updated throughout your lifetime.
In the case of real estate, although the executor is not expected to actually move into your home or other residence, he or she is required to ensure that your mortgage, homeowners insurance, and property taxes are paid while probate is ongoing. These and all other debts can be paid from your estate.
Once all of your assets have been located, the executor must determine their value, typically done using financial statements and/or appraisals. From there, the combined value of all of your assets is used to estimate the total value of your estate.
4. Notifying & Paying Your Creditors
To ensure all your outstanding debts are paid before your assets are distributed, the executor must notify all of your creditors of your death. In most states, any unknown creditors can be notified by publishing a death notice with your local newspaper.
Creditors typically have a limited period of time—usually one year—after being notified to make claims against your estate. The executor can challenge any creditor claims he or she considers invalid, and in turn, the creditor can petition the court to rule on whether the claim must be paid.
From there, valid creditor claims are then paid. The executor will use your estate funds to pay all of your final bills, including any outstanding medical and funeral expenses.
5. Filing & Paying Your Taxes
In addition to paying all your outstanding private debts, the executor is also responsible for filing and paying any outstanding taxes you owe to the government at the time of death. This includes personal income and capital-gains taxes, as well as state and federal estate taxes, if your estate is valuable enough to qualify.
That said, the federal estate tax exemption is currently set at $11.7 million for individuals and $23.4 million for married couples, so most families will not have to worry about estate taxes. And for those who do exceed that threshold, we have several strategies you can use to reduce the size of your estate to avoid these taxes.
Any taxes due are paid from estate funds. In some cases, this may require liquidating assets to raise the needed cash.
6. Distribution of Your Remaining Assets
Once the court confirms all of your debts and taxes have been paid—which typically requires the executor to file an accounting of all transactions he or she engaged in during the probate process—the executor can petition the court for authorization to distribute the remaining assets in your estate to the beneficiaries named in your will, or according to state intestate succession laws, if there is no valid will.
Once all assets have been distributed, the executor will have to file a petition with the court to close probate. If all creditors and taxes have been paid, your assets have been distributed, and there are no other outstanding issues to be addressed, the court will issue an order formally closing the estate and terminating the executor’s appointment.
Keep Your Family Out Of Court & Out Of Conflict
strategies to minimize your tax bill, and we will work with your loved ones following your death in the same capacity to ensure the wealth and legacy you’ve built provides the maximum benefit to those you leave behind.
Next week, we’ll look at the ways you can do just that in the second part of this series. Until then, if you haven’t put an estate plan in place or have one that would force your family to go through probate, contact us and we’d be happy to schedule a Family Wealth Planning Session to go over exactly what would happen for your loved ones if something were to happen to you and design a plan that will avoid probate.Next week, we will discuss estate planning strategies you can use to avoid probate altogether, in Part II of our series.