If you own real property in California, the California Probate Code almost forces you to create a trust to avoid fettering away your children’s or your heirs’ inheritance. While trust and probate law is a very complicated area of practice with numerous intricacies that requires the assistance of an attorney well versed in this practice area, below are some of the reason why it is so important in California to create an estate plan, which most likely would need to include a living trust.
Although there are some exceptions, if your home, other real property, and other assets have a combined gross value of over $150,000.00, and you do not have a trust or other vehicles for your assets to be transferred upon your death, such as “payable on death accounts”, then your assets will be required to go through probate before they can be distributed to your heirs[1].
Probate is time consuming, expensive, and the information disclosed therein is part of the public record. Even a simple probate concerning a home with a value of over $150,000.00 takes at least six months to be completed, but typically longer. Almost all of the documents filed in a probate are part of the public record and can be viewed by anyone. However, the greatest determent to your heirs and family is the cost of probate. California law imposes statutory fees to be paid to both the attorney that probates your estate and your personal representative (the person appointed by the Court to handle your assets and debts during the probate process). Pursuant to California Probate Code section 10810(a), these fees are as follows:
“(1) Four percent on the first one hundred thousand dollars ($100,000).
(2) Three percent on the next one hundred thousand dollars ($100,000).
(3) Two percent on the next eight hundred thousand dollars ($800,000).
(4) One percent on the next nine million dollars ($9,000,000).
(5) One-half of 1 percent on the next fifteen million dollars ($15,000,000).
(6) For all amounts above twenty-five million dollars ($25,000,000), a reasonable amount to be determined by the court…”
Thus, if you have an estate consisting of a home with a gross value of $550,000, the statutory fees to probate your estate would be $14,000 to the attorney and $14,000 to the personal representative. Thus, your heir will automatically lose $28,000 of their inheritance if your estate has to be probated.
To avoid these extensive fees, a person should consider creating a trust. A trust in California can be as simple or as complicated as your particular assets, desired distributions, and tax needs require. However, whether you need a relatively simple trust or a complex trust, these instruments provide you with possible asset protection, privacy, and expedite the distribution of your assets following your death. Unless there is litigation, the administration of a trust is not done through the courts and is not part of the public record. Also, the creator of the trust, the settlor, can decide how his or her assets are to be distributed and to whom. Such benefits are not available if your estate is probated. While a Will allows an individual to decide who will receive his or her estate, it will not avoid probate, nor does it provide the assets protection associated with a trust.
Further, the cost of preparing a trust should be far less than the cost of probate. While there can still be some attorney’s fees associated with administering a trust upon the creator’s death, these attorney’s fee are typically far less than those mandated by statute for a probate. Also, the creator of the trust can decide the fees that will be paid to the person they choose to administer the trust, the trustee.
Therefore, through estate planning, including a trust, a person or couple, can avoid time consuming, costly probates and ensure that their heirs and beneficiaries receive as much of their estates as possible. Thus, it is imperative for people to discuss their estates with an estate planning attorney before it is too late to avoid the pitfalls set forth above.
Eric A. Hirschberg is an attorney with Schneiders & Associates, L.L.P., who focuses his practice on estate planning, trust administration, and probate. If you have any questions about how to best protect your estate, please do not hesitate to contact Mr. Hirschberg and schedule a consultation.
[1] If your real property is held as “community property with right of survivorship” or in Joint Tenancy, then the property will go to your spouse or joint tenant. However, if your survivor passes without a trust then the property would have to be probated.