Probate is a legal process that takes place after someone dies. Technically, it means the “official proving of a Will.” However, it also includes the administration of a decedent’s estate who died without a Will. But what does that mean and when is Probate required?
When is Probate Required?
As of January 1, 2020, if an individual dies owning real and personal property (excluding assets described in Probate Code Section 13050 or assets subject to pass to a spouse pursuant to Probate Code Section 13500) with a gross value in excess of $166,250.00, a probate may be required to transfer those assets to the individuals named in the Decedent’s Will (referred to as beneficiaries) or the decedent’s relatives (referred to as heirs). If the assets are excludable from probate or have a gross value of less than $166.250.00, a summary probate proceeding or small estate affidavit may be appropriate for transferring the decedent’s property.
Once it has been determined that the decedent’s estate has a value sufficient to require probate, proceedings must be initiated to begin the probate process of administering the decedent’s estate:
- File a Petition for Probate with the court seeking the appointment of a personal representative.
- Once a personal representative is appointed, he or she begins the process of administering the estate:
- identifying, inventorying and appraising the decedent’s property
- selling any assets that need to be sold
- paying debts and taxes, and
- distributing the estate
Petition for Probate
After the death, the person named in the decedent’s Will or if no Will , a relative or spouse files papers in the Superior Court of the county where the decedent lived or owned real property. This is called a Petition for Probate and the person who files it is referred to as the Petitioner. If there is a Will, the Petitioner seeks the admission of the Will for probate and proves the validity of the Will. The Petition for Probate also includes an estimated list of the decedent’s property; the decedent’s debts and identifies who is to inherit the decedent’s assets. Relatives and individuals named in the Will (if any) are provided notice of the Petition for Probate. A court hearing is held to approve the Petition for Probate. After the Petition for Probate is approved, the Executor (person appointed if there is a Will) or Administrator (person appointed if no Will) notifies the decedent’s creditors of the probate giving the creditors an opportunity to file claims for repayment of their debts (referred to as “Creditor’s Claims“)
Identifying, Inventorying and Appraising the Decedent’s Property
The Executor or Administrator must find, secure, and manage the decedent’s assets during the probate process, which commonly takes six months to a year. This includes collecting the assets of the decedent and notifying financial institutions and lenders of the decedent’s death and the probate.
Once the assets have been determined, an Inventory and Appraisal is prepared. Any assets other than cash are appraised by a court appointed appraiser, called a Probate Referee. The Inventory and Appraisal is filed with the court and becomes the official value of the estate for purposes of distribution and calculating the compensation due the Executor or Administrator and the attorney for the Executor or Administrator.
Selling any Assets That Need to be Sold
Depending on how the estate is to be distributed and the amount of the decedent’s debts, the Executor or Administrator may have to decide whether or not to sell the estate’s real estate, securities, or other property. For example, if there is Will that instructs specific cash gifts and the estate has little cash, but other assets such as stocks, artwork or real property those other assets might have to be appraised and sold to produce cash. Or, if there are many outstanding debts, the Executor or Administrator may have to sell some of the decedent’s property to pay the debts.
Paying Debts and Taxes
The Executor or Administrator is responsible for determining the legitimacy of the debts of the decedent and paying or rejecting any Creditor’s Claims that are filed. Additionally, the Executor or Administrator must determine if the tax returns for years prior to the decedent’s death have been filed and ensure that all tax returns are filed. If required, this would include an Individual Income Tax Return for the decedent from January 1 through the date of death and a Fiduciary Income Tax Return (for the estate) from the date of death through December 31 of the year the decedent died. If the Decedent died with significant assets (in excess of $11.7 million as of January 2021) an Estate Tax Return (IRS Form 706) may also be required. The Executor or Administrator should consult a qualified Certified Public Accountant familiar with Fiduciary Income Tax Returns and Estate Tax Returns.
Distributing the Estate
After the assets have been marshalled; creditors notified and paid; tax returns filed and taxes paid; and any assets that are required to be sold have been sold, the estate is ready to be concluded and distributed. The Executor or Administrator files a Final Report with the court detailing all of the steps taken during the administration and advising that the estate is ready to be distributed and closed. Often a Final Report is accompanied by an accounting, which is presented to the court and the beneficiaries (if a Will) or heirs (if no Will). The accounting details the assets of the estate as of the decedent’s date of death (per the Inventory and Appraisal); the assets received during the administration of the estate; any gains or losses on sales of estate assets; any expenses paid during the administration; and the current value of the assets available for distribution.
The Final Report also includes a calculation of the compensation that the Executor or Administrator and his/her attorney is entitled for their work in administering the estate referred to as statutory fees for ordinary services in a California probate. Statutory fees are based on the gross value of the estate and are set by California Probate Code §10810:
Statutory probate fees are as follows:
- 4% of the first $100,000 of the 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
Examples based on estate value multiplied x 2 for the fees due each the Executor or Administrator and their attorney:
- $500,000 $13,000 x 2 = $26,000
- $600,000 $15,000 x 2 = $30,000
- $700,000 $17,000 x 2 = $34,000
- $800,000 $19,000 x 2 = $38,000
- $900,000 $21,000 x 2 = $42,000
- $1 Million $23,000 x 2 = $46,000
In addition, there are extraordinary fees for actions such as selling real estate, which are usually calculated on an hourly basis.
After calculating statutory and extraordinary compensation due to the Executor or Administrator and their attorney, the Final Report will seek an order approving payment of those fees from the assets of the Estate. The Final Report will be subject to court hearing and if it is approved, the assets of the remaining will be subject to distribution pursuant to the terms of the Will or if no Will intestate succession (essentially to the relatives and/or spouse of the decedent – see California Probate Code Sections 6400-6455) and the administration of the estate will be concluded.
In addition to the delays and compensation due to the Executor or Administrator and their attorney, there are court costs, fees to the Probate Referee, publication expenses and in some cases bond premiums that can further increase the expenses associated with probate. It can be avoided with a proper estate plan that incudes a properly funded Living Trust.
Do you have a proper plan? Take this opportunity to contact Cannon Legal Firm for a free consultation for a new plan or a complimentary review of your existing estate plan. Dana@CannonLegalFirm.com ~ (562) 543-4529. We are happy to provide a free consultation via telephone, virtual visit or socially distanced in our offices at 3020 Old Ranch Parkway, Suite 300, Seal Beach, California or at your home or office.