How to Probate an Estate in California
March 2013, 22nd Edition
Handle the California probate process, from deciphering a will to tackling taxes
If you need to wrap up the affairs of a deceased family member or friend in California, you may find yourself wading through the process of probate. But did you know? You can save big on attorney fees by handling the probate process yourself.
How to Probate an Estate in California is the only book that provides all the forms, tips and step-by-step instructions you’ll need to settle a loved one's estate -- all written in plain English. You may even be able to handle the whole process by mail without setting foot in the courthouse!
With this easy-to-read guide, you'll learn how to:
- read a will
- determine who inherits property if there is no will
- handle probate paperwork
- collect life insurance and other benefits
- transfer community property to a surviving spouse or domestic partner
- pay bills and taxes
- distribute property left through trusts
Even if you hire a lawyer to do the probate paperwork, this book demystifies the the process so that you can make informed decisions and communicate intelligently with the attorney about the estate -- and save cash in the process. Why spend over $13,000 on a lawyer to probate a $500,000 estate, when you can do almost all of it on your own?
This edition contains important legal and tax updates, as well as newly updated probate forms.
Nolo has dozens of products created just for California residents. Check out Nolo's list of California products.
“I probated my mother’s $200,000 estate from 1,000 miles away and it cost about $200 with fees, postage and a few phone calls.”-M.B., Sequim, WA
“Marvelous book! Wonderful book! Everything worked EXACTLY as explained. Sample letters were extremely helpful.”-R.L., Lodi, CA
Judicial Council Forms
- DE-111 Petition for Probate
- DE-120 Notice of Hearing
- DE-121 Notice of Petition to Administer Estate
- DE-121 (MA) Attachment to Notice of Petition to Administer Estate
- DE-131 Proof of Subscribing Witness
- DE-135 Proof of Holographic Instrument
- DE-140 Order for Probate
- DE-147 Duties and Liabilities of Personal Representative
- DE-147S Confidential Supplement to Duties and Liabilities of Personal Representative
- DE-150 Letters
- DE-157 Notice of Administration to Creditors
- DE-160 Inventory and Appraisal
- DE-161 Inventory and Appraisal Attachment
- DE-165 Notice of Proposed Action
- DE-174 Allowance or Rejection of Creditor's Claim
- DE-221 Spousal or Domestic Partner Property Petition
- DE-226 Spousal or Domestic Partner Property Order
- DE-270 Ex Parte Petition for Authority to Sell Securities and Order
- DE-295 Ex Parte Petition for Final Discharge and Order
- DE-305 Affidavit re Real Property of Small Value ($20,000 or Less)
- DE-310 Petition to Determine Succession to Real Property (Estates of $100,000 or Less)
- DE-315 Order Determining Succession to Real Property
Non-Judicial Council Forms
- Declaration Regarding Property Passing to Decedent's Surviving Spouse or Registered Domestic Partner Under Probate Code § 13500
- Who Inherits Under the Will?
- Schedule of Assets
- Notification by Trustee
- Affidavit -- Death of Joint Tenant
- Affidavit -- Death of Trustee
- Affidavit -- Death of Spouse
- Affidavit -- Death of Domestic Partner
- Affidavit -- Death of Spouse or Domestic Partner -- Survivorship Community Property
- Affidavit for Collection of Personal Property Under California
- Probate Code §§ 13100-13106
- Deed to Real Property
- Probate Case Cover Sheet -- Certificate of Grounds for Assignment to District (L.A. County)
- Application and Order Appointing Probate Referee (L.A. County)
- Change in Ownership Statement (Death of Real Property Owner) (L.A. County)
- Affidavit or Declaration for Final Discharge and Order (L.A. County)
- Preliminary Change of Ownership Report
Julia Nissley was Probate Administrator with the Los Angeles law firm of Silverberg, Rosen, Leon and Behr for many years. She is an honors graduate of the Attorney Assistant Training Program in Probate Administration at the University of California--Los Angeles School of Law, and a member of the California Association of Legal Document Assistants. Julia is a native Californian and enjoys playing tennis and riding trains with her husband, Ron. The author of How to Probate an Estate in California, Julia now operates her own form preparation service under the name Probate Direct, assisting consumers with all kinds of probate paperwork through the mail or in person.
TABLE OF CONTENTS
Your Legal Companion for Probate 1
An Overview 3
What Is Probate? 4
What Is Involved in Settling anEstate? 4
How Long Does It Take to Settle an Estate? 5
What This Book Covers 5
Simple Estate Checklist 6
Important Terms in Probate 6
Insolvent Estates 9
Estate Taxes 10
Do You Need an Attorney? 10
First Steps in Settling an Estate 13
Who Should Act as the EstateRepresentative? 14
Responsibilities of the Estate Representative 16
Specific Duties of the Estate Representative 17
Who Are the Heirs and Beneficiaries? 33
Where to Start 34
How to Read a Will 36
Compare Schedule of Assets With Property LeftinWill 41
Who Inherits When the Will Is Ineffective? 44
If There Is No Will 47
The Concept of Right of Representation 48
What Is the Decedent's Estate? 55
Real Property 56
Personal Property 62
What Establishes Ownership of Property? 62
How Was the Decedent's Property Owned? 63
How to Determine Whether Property Is Community or Separate 66
Actions That Change the Character of Property 67
Property That Is a Mixture of Community and Separate Property 68
Examples of Property Ownership 70
Property Acquired by Couples Before They Moved to California 72
Preparing a Schedule of the Assets and Debts 75
Describe Each Asset 76
Value Each Asset (Column A) 76
How to Determine Ownership of Property (Columns B & C) 77
List the Value of the Decedent's Interest (Column D) 78
Determine Whether Property Is Probate or Nonprobate Asset (Column E) 78
List All Debts 78
Checklist of Property to List on Schedule of Assets 79
Schedule of Assets for a Sample Estate 94
How to Identify the Best Transfer Procedure 101
Nonprobate Assets 102
Assets That May Be Subject to Formal Probate 103
Examples of How Assets Are Transferred in Typical Estates 105
Sample Estates 105
What About Taxes? 109
Decedent's Final Income Tax Returns 110
Fiduciary Income Tax Returns 112
Other Income Tax Returns 113
Stepped-Up Tax Basis Rules for Inherited Property 113
Federal Estate Tax Return 114
California Inheritance Tax 117
Tax Issues for Some Typical Estates 117
Transferring Title to Real Property 119
Ways to Transfer Real Estate After Death 120
Basic Information on Recording Documents 120
Change in Ownership Statements 121
How to Record Your Document Transferring Title 124
How to Transfer Securities 131
Documents Required to Transfer Securities 133
The Stock or Bond Power 135
The Affidavit of Domicile 137
The Transmittal Letter 137
How to Sell Securities 137
The Stock Transfer Tax 137
Joint Tenancy Property 141
Where to Start 142
How to Clear Title to Real Property in Joint Tenancy 142
How to Clear Title to Securities Held in Joint Tenancy 145
How to Clear Title to Motor Vehicles and Small Boats Held in Joint Tenancy 145
How to Clear Title to Joint Tenancy Bank Accounts (and Totten Trust Accounts) 147
How to Clear Title to Money Market Funds and Mutual Funds 147
How to Clear Title to U.S. Savings Bonds in Co-Ownership 147
Transferring Small Estates Under $150,000 149
Overview of the Simplified Transfer Procedure for Small Estates 150
How to Determine Whether You Can Use Summary Procedures 151
How to Transfer the Property 152
How to Transfer Trust Property and Property Subject
to Life Estates 167
Notifying Heirs and Beneficiaries 168
Trust Property 168
Handling Debts and Expenses 170
How to Transfer Property Held in Living Trusts 170
Life Tenancy (Life Estate) 173
An Overview of the Probate Court Process 175
Do You Really Need a Probate Court Proceeding? 177
Probate Checklist 177
Dealing With the Probate Court 177
Beginning the Probate Process 183
Taking Care of the Estate During Probate 189
Closing the Estate 194
Conducting a Simple Probate Proceeding 197
Step 1: Prepare the Petition for Probate 199
Step 2: Prepare the Certificate of Assignment 216
Step 3: Prepare the Notice of Petition to Administer Estate 216
Step 4: File Your Petition for Probate 222
Step 5: Complete the Proof of Subscribing Witness Form 223
Step 6: Complete a Proof of Holographic Instrument 228
Step 7: Notify Government Agencies 228
Step 8: Prepare Your Order for Probate 230
Step 9: Study and Respond to the Calendar Notes 230
Step 10: Prepare the Letters 235
Step 11: Prepare the Duties and Liabilities of Personal Representative Form 235
Step 12: Prepare the Application Appointing Probate Referee 240
Step 13: Prepare Notice of Proposed Action, If Necessary 240
Step 14: Prepare the Inventory and Appraisal Form 250
Step 15: Notify Creditors and Deal With CreditorsÕ Claims and Other Debts 258
Step 16: Prepare the Petition for Final Distribution 268
Step 17: Prepare Notice of Hearing (Probate) 297
Step 18: Prepare Order of Final Distribution 297
Step 19: Transfer the Assets and Obtain Court Receipts 305
Step 20: Request Discharge From Your Duties 306
Handling Property That Passes Outright to the
Surviving Spouse or Domestic Partner 311
An Overview of These Simplified Procedures 312
Collecting Compensation Owed the Decedent 313
Affidavit for Transferring Community Real Property 313
Survivorship Community Property 318
The Spousal or Domestic Partner Property Petition 320
How to Transfer the Assets to the Surviving Spouse or Partner 338
If You Need Expert Help 341
What Kind of Expert Do You Need? 342
Using a Legal Document Assistant 342
Using a Lawyer 343
California Probate Code ¤¤ 13100Ð13106 353
Affidavit Procedure for Collection or Transfer of Personal Property 353
Judicial Council Forms 357
DE-111 Petition for Probate
DE-120 Notice of Hearing
DE-121 Notice of Petition to Administer Estate
DE-121(MA) Attachment to Notice of Petition to Administer Estate
DE-131 Proof of Subscribing Witness
DE-135 Proof of Holographic Instrument
DE-140 Order for Probate
DE-147 Duties and Liabilities of Personal Representative
DE-147S Confidential Supplement to Duties and Liabilities of Personal Representative
DE-157 Notice of Administration to Creditors
DE-160 Inventory and Appraisal
DE-161 Inventory and Appraisal Attachment
DE-165 Notice of Proposed Action
DE-174 Allowance or Rejection of CreditorÕs Claim
DE-221 Spousal or Domestic Partner Property Petition
DE-226 Spousal or Domestic Partner Property Order
DE-270 Ex Parte Petition for Authority to Sell Securities and Order
DE-295 Ex Parte Petition for Final Discharge and Order
DE-305 Affidavit re Real Property of Small Value ($50,000 or Less)
DE-310 Petition to Determine Succession to Real Property
(Estates of $150,000 or Less)
DE-315 Order Determining Succession to Real Property
(Estates $150,000 of Less)
Non-Judicial-Council Forms 405
Declaration Regarding Property Passing to Decedent's Surviving Spouse or
Registered Domestic Partner Under Probate Code¤ 13500
Who Inherits Under the Will?
Schedule of Assets
Notification by Trustee
Affidavit - Death of Joint Tenant*
Affidavit - Death of Trustee*
Affidavit - Death of Spouse*
Affidavit - Death of Domestic Partner*
Affidavit - Death of Spouse or Domestic PartnerÑSurvivorship Community Property*
Affidavit for Collection of Personal Property Under California Probate Code
Deed to Real Property
Probate Case Cover Sheet and Certificate of Grounds for Assignment to District
Application and Order Appointing Probate Referee (L.A. County)
Change in Ownership Statement (Death of Real Property Owner) (L.A. County)
Preliminary Change of Ownership Report
What Is Probate?......................................................................................... 4
What Is Involved in Settling an Estate?........................................................ 4
How Long Does It Take to Settle an Estate?............................................... 5
What This Book Covers .............................................................................. 5
Simple Estate Checklist............................................................................... 6
Important Terms in Probate......................................................................... 6
The Gross Estate and the Net Estate...................................................... 6
The Probate Estate ................................................................................. 6
The Taxable Estate.................................................................................. 9
Insolvent Estates ......................................................................................... 9
Estate Taxes ............................................................................................. 10
Do You Need an Attorney? ....................................................................... 10
What Is Probate?
Many people aren’t sure what the term “probate” really means. They think of it only as some long, drawn out, and costly legal formality surrounding a deceased person’s affairs. Technically, probate means “proving the will” through a probate court proceeding. A generation ago, virtually every estate had to be reviewed by a judge before it could pass to those who would inherit it. Today there are several ways to transfer property at death, some of which don’t require formal court proceedings, so the term is now often used broadly to describe the entire process by which an estate is settled and distributed.
For example, a surviving spouse or domestic partner may receive property outright from the deceased spouse or partner without any probate proceedings at all. Joint tenancy property also escapes the need for formal probate, as does property left in a living (inter vivos) trust and property in a pay-on-death bank account (Totten trust). If an estate consists of property worth less than $150,000, it, too, can be transferred outside of formal probate. Fortunately, the paperwork necessary to actually transfer property to its new owners in the foregoing situations is neither time-consuming nor difficult. We discuss all of these procedures, as well as how to do a formal probate court proceeding.
There is one thing you should understand at the outset: The person who settles an estate usually doesn’t have much choice as to which property transfer method to use. That is, whether you are required to use a formal probate or a simpler method to transfer property at death depends on how much (or little) planning the decedent (deceased person) did before death to avoid probate. This is discussed in detail as we go along.
Both formal probate and some of the other nonprobate procedures involve filing papers at a court clerk’s office, usually in the county where the decedent resided at the time of death. In larger counties, going to the main courthouse and other government offices in person can be an ordeal. To avoid this, you may settle most simple estates entirely by mail, even if a formal probate court proceeding is required. In other words, most probate matters don’t require that you appear in court before a judge. In fact, settling an estate by mail is now the norm in many law offices. We will show you how to do this as we go along.
What Is Involved in Settling an Estate?
Generally, settling an estate is a continuing process that:
determines what property is owned by the decedent
pays the decedent’s debts and taxes, if any, and
distributes all property that is left to the appropriate beneficiaries.
When a person dies, she may own several categories of assets. Among these might be household belongings, bank and money market accounts, vehicles, mutual funds, stocks, business interests, and insurance policies, as well as real property. All property owned by the decedent at the time of his or her death, no matter what kind, is called his or her “estate.”
To get this property out of the name of the decedent and into the names of the people who inherit it requires a legal bridge. There are several types of legal procedures or bridges to move different kinds of property to their new owners. Some of these are the equivalent of large suspension bridges that will carry a lot of property while others are of much less use and might be more analogous to a footbridge. Lawyers often use the word “administrate” and call this process “administering an estate.” In this book we refer to these procedures collectively as “settling an estate.”
Most of the decedent’s estate will be passed to the persons named in his or her will, or, if there is no will, to certain close relatives according to priorities established by state law (called “intestate succession”). However, to repeat, no matter how property is held, it must cross an estate settlement bridge before those entitled to inherit may legally take possession. The formal probate process is but one of these bridges. Some of the other bridges involve community property transfers, clearing title to joint tenancy property, winding up living trusts, and settling very small estates that are exempt from probate. Again, we discuss all of these in detail.
How Long Does It Take to Settle an Estate?
If a formal probate court procedure is required, it usually takes from seven to nine months to complete all the necessary steps, unless you are dealing with a very complicated estate. On the other hand, if the decedent planned his or her estate to avoid probate, or the estate is small, or everything goes to a surviving spouse or domestic partner, then the estate may be settled in a matter of weeks by using some easier nonprobate procedures.
The procedures in this book are only for California estates. Real property and tangible personal property (see Chapter 4 for definitions) located outside of California are not part of a California estate and cannot be transferred following the instructions in this book. To transfer property located outside of California, you will either have to familiarize yourself with that state’s rules (these will be similar, but by no means identical to those in effect in California) or hire a lawyer in the state where the property is located.
What This Book Covers
Not all estates can be settled entirely by using a self-help manual. Although most California estates can be settled easily with the procedures described in the following chapters, some will require at least some formal legal assistance. Therefore, it’s important to know if the one you are dealing with is beyond the scope of this book.
First, an estate that can be settled using this book (a “simple estate,” for lack of a better term) is one that consists of the common types of assets, such as houses, land, a mobile home, bank accounts, household goods, automobiles, collectibles, stocks, money market funds, promissory notes, etc. More complicated assets, such as complex investments, business or partnership interests, or royalties from copyrights or patents, are often not as easy to deal with because they involve additional factors, such as determining the extent of the decedent’s interest in the property and how that interest is transferred to the new owner. However, it may be possible to include unusual assets in a simple estate if the person settling the estate is experienced in such matters or has help from an accountant or attorney along the way. When questions arise as to ownership of an asset, or when third parties (anyone not named in the will or by intestacy statutes) make claims against the estate (as would be the case if someone threatened to sue over a disputed claim), you have a complicated situation that will require help beyond this book.
Second, for an estate to be “simple” there should be no disagreements among the beneficiaries, especially as to the distribution of the property. There is no question that dividing up a decedent’s property can sometimes bring out the worst in human nature. If you face a situation where family members are angry and lawsuits are threatened, it is not a simple estate. To settle an estate without unnecessary delays or complications and without a lawyer, you need the cooperation of everyone involved. If you don’t have it (for example, a disappointed beneficiary or family member plans to contest the will or otherwise engage in obstructionist behavior), you will have to try to arrange a compromise with that person by using formal mediation techniques or the help of a person respected by all disputants. If this fails, you will need professional help. (See Chapter 16.)
Third, and contrary to what you might think, a simple estate does not have to be small. The only additional concern with a large estate is federal estate taxes, which affect estates valued over $5.25 million. Estate income tax returns may also be required. You can hire an accountant who is familiar with estate taxes to prepare the necessary tax returns for you, leaving you free to handle the rest of the settlement procedures yourself. We provide an overview of estate taxation in Chapter 7.
Simple Estate Checklist
The checklist below shows all the basic steps in settling a simple estate in California. Each step is thoroughly explained later in the book.
This list may appear a bit intimidating at first, but don’t let it discourage you. Not all of these steps are required in every situation, and even then you won’t find them difficult. As with so many other things in life, probating a simple estate is much like putting one foot in front of the other (or one finger after another on your keyboard). If you take it step-by-step, paying close attention to the instructions, you should have little difficulty. Remember, if you get stuck, you can get expert help to solve a particular problem and then continue with the rest.
Important Terms in Probate
As you read through this material, you will be introduced to a number of technical words and phrases used by lawyers and court personnel. We define these as we go along, with occasional reminders. If you become momentarily confused, refer to the glossary, which follows Chapter 16.
The Gross Estate and the Net Estate
You will encounter the terms “gross estate” and “net estate” while settling any estate. The distinction between the two is simple as well as important. The decedent’s gross estate is the fair market value at date of death of all property that he owned. It includes everything in which the decedent had any financial interest—houses, insurance, personal effects, automobiles, bank accounts, unimproved land, etc.—regardless of any debts the decedent owed and regardless of how title to the property was held (for example, in a living trust, in joint tenancy, or as community property). The net estate, on the other hand, is the value of what is left after subtracting the total amount of any mortgages, liens, or other debts owed by the decedent at the time of death from the gross estate.
Example 1: Suppose Harry died, leaving a home, car, stocks, and some cash in the bank. To arrive at his gross estate you would add the value of all his property without looking to see if Harry owed any money on any of it. Let’s assume that Harry’s gross estate was $500,000. Now, assume when we check to see if Harry owed money, we discover that he had a mortgage of $150,000 against the house. This means his net estate (the value of all of his property less what he owed on it) would be worth $350,000.
Example 2: If Bill and Lorie, husband and wife, together own as community property a house, car, and savings account having a total gross value of $800,000, and owe $300,000 in debts, the net value of their community property would be $500,000. However, if Lorie died, only one-half of their property would be included in her estate because under California community property rules, discussed in detail in Chapter 4, the other half is Bill’s. Thus, Lorie’s gross estate would be $400,000 and her net estate $250,000.
The Probate Estate
The “probate estate,” quite simply, is all of the decedent’s property that must go through probate. This is very likely to be less than the total amount of property the decedent owned, because if an asset already has a named beneficiary, or if title is held in a way that avoids probate, then it isn’t part of the probate estate. To return to the bridge analogy we discussed earlier, this means that property that is held in one of these ways can be transferred to the proper beneficiary using one of the alternate (nonprobate) bridges.
As a general rule, the following types of property need not be probated:
joint tenancy property
life insurance with a named beneficiary other than the decedent’s estate
pension plan distributions
property in living (inter vivos) trusts
money in a bank account that has a named beneficiary who is to be paid on death (this is sometimes called a “Totten trust”)
individual retirement accounts (IRAs) or other retirement plans that have named beneficiaries, and
community property or separate property that passes outright to a surviving spouse or domestic partner (this sometimes requires an abbreviated court procedure).
Put another way, the probate estate (property that must cross the formal probate bridge) consists of all property except the property that falls into the above categories. Where there has been predeath planning to avoid probate, little or no property will have to be transferred over the probate court bridge. To repeat, whether or not probate is needed is not in your hands. The decedent either planned to avoid probate, or didn’t—there is nothing you can do once death has occurred.
You can simplify the settlement of your own estate. The best resources covering this subject are Plan Your Estate, by Denis Clifford (Nolo), and 8 Ways to Avoid Probate, by Mary Randolph (Nolo). You can also find lots of good information at Nolo’s Wills, Trusts & Probate Center at www.nolo.com.
Checklist for Settling a Simple Estate
n 1. Locate the will, if any, and make copies.
n 2. Order certified copies of the death certificate.
n 3. Determine who will be the estate representative.
n 4. Determine the heirs and beneficiaries and get their names, ages, and addresses.
n 5. Determine the decedent’s legal residence.
n 6. Collect insurance proceeds, Social Security benefits, and other death benefits.
n 7. Arrange for final income tax returns and estate fiduciary income tax returns, if required.
n 8. Assemble and list assets such as:
• Bank accounts
• Cash and cash receivables, uncashed checks, money market funds
• Promissory notes and other debts owing to decedent
• Stocks and bonds (including mutual funds)
• Business interests, copyrights, patents, etc.
• Real property
• Antiques and collectibles, motor vehicles (including motor homes)
• Miscellaneous assets including household goods and clothing, and
n 9. Determine whether each item of property is community or separate property and how title is held (for example, in the decedent’s name alone, in joint tenancy, etc.).
n 10. Estimate the value of each asset and, if the decedent was a co-owner, the value of his or her share.
n 11. List debts and obligations of decedent unpaid at date of death, including:
• Funeral and last illness expenses
• Income taxes
• Real property taxes
• Encumbrances or liens on real or personal property
• Debts outstanding, and
• Approximate expenses of administering the estate, such as court filing fees, certification fees, appraisal fees, etc. (These fees usually total $1,500, unless the estate is large.)
n 12. Determine priority of debts.
n 13. Pay debts having priority, as soon as estate funds are available.
n 14. Prepare and file U.S. estate tax return, if required.
n 15. Determine method of transferring assets:
• Terminate joint tenancy title to property; transfer bank trust accounts to beneficiaries.
• Transfer estates under $150,000 without formal probate administration.
• Transfer property going outright to surviving spouse or domestic partner without formal probate.
• If property is in a living trust, the trustee named in the trust document may transfer (or administer) the trust property in accordance with the trust’s provisions.
• Begin simple probate court proceedings if necessary to transfer other property. (A detailed checklist of the steps in the actual probate court process is in Chapter 13.)
The Taxable Estate
Although this book is primarily about settling an estate, we include some mention of taxes because estates over a certain value are required to file a federal estate tax return. Therefore, you should know how to compute the value of the decedent’s estate for tax purposes, which—not surprisingly—is called the “taxable estate.” Keep in mind that the property that must go through probate (probate estate) is not necessarily the same as the taxable estate. Not all assets are subject to probate, but they are all counted when determining whether estate taxes must be paid. In other words, the taxable estate includes all assets subject to formal probate, plus joint tenancy property, life insurance proceeds (if the decedent was the owner of the policy), death benefits, property in a living trust, and property in any other probate avoidance device. However, if any of the assets are community property (discussed in Chapter 4), only the decedent’s one-half interest is included in his or her taxable estate.
If the estate is large enough to require a federal estate tax return, any tax is computed on the net value of the decedent’s property (net estate). That is, the tax is determined by the value of all property, less any debts owed by the decedent and certain other allowable deductions.
An “insolvent estate” is one that does not have enough assets to pay creditors in full. Insolvent estates are subject to special rules and we do not include specific details here. Usually you must consult an attorney.
In general, however, creditors are divided into classes according to their respective priorities. (Prob. Code § 11420.) First priority is given to debts owed to the United States or to the State of California, such as various taxes. Those debts must be paid before other debts or claims. (Prob. Code § 11421.) Next in priority are administration expenses (attorneys’ fees, court costs, etc.) and, after that, funeral expenses, last illness expenses, judgment claims, and general creditors are paid, in that order. Each class is paid in full before going to the next class.
When you come to a class that cannot be paid in full, the payments are prorated. For example, if Creditor One is owed $5,000 and Creditor Two is owed $10,000 and only $1,000 is left, Creditor One gets one-third of the $1,000 and Creditor Two gets two-thirds. An accounting must be presented for insolvent estates in a formal probate court proceeding. In summary proceedings (Chapter 11), the successors are responsible for paying the decedent’s unsecured debts out of the property they receive. The debts are paid in the same order, and the successors are not personally liable for debts that exceed the value of the estate property.
Most estates will not owe estate taxes. A person who dies in 2013 may own assets worth up to $5.25 million without owing any federal estate taxes. This exemption amount will rise witih inflation. Estates having a gross value over the exemption must file a federal estate tax return. The tax is computed on the net estate after certain allowable deductions have been taken.
If the net estate is under the exempt amount, a return must still be filed if the estate has a gross value over the exemption amount, although no tax will be owed. For example, if someone who dies in 2013 has a gross estate of $5.5 million and debts of $400,000, a federal estate tax return must be filed, although no tax will be due because the debts reduce the net value of the estate to less than the $5.25 million exempt amount. We discuss federal estate tax in more detail in Chapter 7.
California does not impose its own inheritance tax or estate tax.
Pay taxes first. Although most estates don’t have to worry about federal estate taxes, if yours is a large estate for which federal estate taxes are due, the taxes should be paid before property is transferred to the people who inherit it. Many wills set aside money for the payment of taxes, so this isn’t a problem.
Federal and state income tax returns for the decedent’s last year and sometimes for the estate (if there is a formal probate) must also be filed. (See Chapter 7.)
Do You Need an Attorney?
The law does not require you to hire an attorney to settle an estate. The average simple estate can be settled with the guidelines and background information in this book. Nevertheless, some complications that require special knowledge or handling may crop up even in an otherwise simple estate. Some examples are:
Ambiguities in the will. For example: “I give $50,000 to the poor children in the County Hospital.” This would raise several problems. Does “poor” mean low income or just unfortunate enough to be in the hospital? And what did the decedent intend when it came to dividing the money? Is it to be divided among all the children in the hospital, or did the decedent intend to set up a central fund to be used to make life a little easier for all kids in the hospital?
Contested claims against the estate (for example, a surviving spouse or domestic partner who claims a community property interest in property left by will to someone else);
The decedent’s unfinished contracts (for example, a sale of real property begun but not completed prior to death);
Insolvent estates (more debts than assets);
Claims against the estate by people who were left out or think they were given too little; or
Substantial property given to a minor, unless legal provisions to handle this are made in the will.
Besides the satisfaction of doing the estate work yourself, another advantage is not having to pay attorneys’ fees. In a probate court proceeding, standard attorneys’ fees have been set by law and are based on a percentage of the gross estate (the gross value of the assets that are subjected to probate). It’s important to understand, however, that even though allowed fees are set out in the statute, you have the right to negotiate a lower fee with your lawyer. In other words, think of these statutory fees as the maximum the attorney is allowed to charge, and negotiate downward from there.
“Gross value” refers to the total value of the property before subtracting any encumbrances or debts owed by the decedent. Computing attorneys’ fees based on the gross estate, of course, means lawyers do very well, since the gross value of the property is often higher than the value of what the decedent actually owned after the debts and encumbrances are subtracted. For instance, the gross value of your house may be $350,000, but after you subtract your mortgage, you may actually own only a portion of this (say $50,000). Yet the attorneys’ fees are based on the $350,000 gross value figure.
The formula for computing attorneys’ fees in a formal probate court proceeding is found in California’s Probate Code §§ 10810 and 10811. An attorney may collect:
4% of the first $100,000 of the gross value of the probate estate
3% of the next $100,000
2% of the next $800,000
1% of the next $9,000,000
0.5% of the next $15,000,000, and
a “reasonable amount” (determined by the court) for everything above $25,000,000.
For example, in a probate estate with a gross value of $100,000 the attorney is allowed $4,000; in an estate with a gross value of $200,000 the attorney may collect $7,000, and so on. If, for example, a probate estate contains only one piece of real property, perhaps an apartment building worth $600,000, the attorney could collect $15,000 to transfer title in a probate proceeding, even if the building might have a substantial mortgage that reduces the decedent’s equity to only $150,000.
If an estate doesn’t require formal probate because it can be settled in another way, such as a community property transfer to a surviving spouse or domestic partner or a joint tenancy termination, then an attorney is not entitled to receive a statutory fee. In these situations, an attorney will bill for his or her time at an hourly rate, which commonly varies from $200 to $400 an hour.
In a probate court proceeding, the court appoints a personal representative to handle the estate, called either an “executor” (if there is a will) or an “administrator” (if the decedent died without a will or without naming an executor in his or her will). This person is entitled to fees, called the estate representative’s “commission.” These fees are set in the Probate Code, and are listed in this book in Chapter 13. Because the commission is subject to income tax and most probates are family situations where the executor or administrator is a close relative or friend who will inherit from the decedent anyway, the executor’s or administrator’s fee is often waived.
Example: Returning to Harry’s estate for a moment (discussed above), if a lawyer were hired to probate Harry’s estate, the attorney’s fee could be as high as $13,000, computed on a gross estate of $500,000. Let’s assume that Harry’s will left all of his property to his daughter, Millicent, and son, Michael, and one of them, acting as executor, probated Harry’s estate without an attorney and also waived the executor’s fee. The entire job could be accomplished through the mail for the cost of administration expenses only, which would amount to about $1,500 (including filing, publication, certification, and appraisal fees).
California is one of only a few states with this kind of fee system. The California Law Revision Commission has recommended that statutory fees be abolished, but the legislature hasn’t acted.
Some people hire attorneys to settle even simple estates for much the same reason they order over-fancy funerals. When a friend or loved one dies, everyone close to the decedent is naturally upset. It often seems easier to hire an expert to take over, even one who charges high fees, than to deal with troublesome details during a time of bereavement. Obviously, there is nothing we can do to assuage your grief. We would like to suggest, however, that expending the time and effort necessary to keep fees to a minimum and preserve as much of the decedent’s estate as possible for the objects of his or her affection is a worthy and honorable endeavor, and may even constitute a practical form of grief therapy.
Just because you do not wish to hire an attorney to probate an entire estate, however, does not mean you should never consult one as part of the estate settlement process. As we discuss in detail in Chapter 16, there are at least three times we believe a consultation with a lawyer is wise:
Complicated estates. As noted above, not all estates are relatively simple. If the estate you are dealing with is likely to be contested, or has complicated assets, such as a going business owned by the decedent or substantial income from royalties, copyrights, trusts, etc., see a lawyer.
Questions. If, after reading this book, you are unsure of how to proceed in any area, get some help. You should be able to consult an attorney at an hourly rate, clear up the problem area, and then finish the estate settlement job on your own.
Checking your work. If you face a fairly involved estate, you may want to do all the actual work yourself and then have it checked by a lawyer before distributing the estate. This will be much less expensive than paying the attorney to handle the whole job and, at the same time, it will make you feel more secure.