What You Should Know About PROBATE

If you are like me, you avoid all things related to death or dying.  But I recently received my Certified Probate Real Estate Specialist (CPRES) designation, and I urge you to read this article, if you or your loved ones own anything of value – especially real estate.

The definition of Probate is: the legal process for the transfer of assets – houses, cars, stocks, bonds – from a deceased person’s name to his or her estate, so they can be sold or distributed to their heirs.

In California, if the decedent was married and their spouse is the beneficiary, things for the most part, will roll over to the spouse. But if both spouses die at once, or if there is only one owner of an estate, a few things can happen:

1. If their estate is set up in a Revocable Living Trust, the estate is distributed based on the Will (unless an heir contests the Will, which is another story).
2. If there is a Will, but no Living Trust, the Will needs to be reviewed by the court in the county of the decedent’s residence, and the Executor is assigned duties and (sometimes limitations) to settle the estate.  This is called Testate.
3. If there is no Will, the court will appoint an Administrator, or an heir can step forward and request to be the Administrator, but the court determines how the estate will be distributed.  This is called Intestate.

Settling an estate is cumbersome and most Executors and Administrators hire an attorney. The entire process can also be very expensive. You can estimate the following expenses:

Attorney Fees

Also called “statutory” fees – these are based on the fair market value of the assets in the estate. The fee doesn’t take liabilities into account! The probate code establishes a sliding scale:

▪                4% of the first $100,000

▪                3% of the next $100,000

▪                2% of the next $800,000

▪                1% on the next $9,000,000

▪                0.5% on the next $15,000,000

A reasonable fee thereafter

Example

Say the only asset in an estate is an $800,000 house, and there is a $400,000 mortgage on it. Based on the full $800,000 value (not the equity of $400,000) the fee would be as follows:

▪                4% of the first $100k = $4,000

▪                + 3% of the next $100k = $3,000

▪                + 2% of the remaining $600,000 = $12,000

Total: $19,000!

Fees paid to the Court

▪                There is a fee of approximately $395 payable to the court for each petition you have to file. In simple probate cases you only have to file two petitions: the initial “Petition to Probate” the estate and a “Petition for Final Distribution”.

▪                For more complex cases, you may have to file additional petitions.

You’ll also have to file a Notice of Probate in a newspaper. You are required to use only certain newspapers, and their charges will vary. Expect the notice to cost anywhere from $100 to $450.

Fees paid to the Executor

Did you know that the Executor is entitled to charge the same fee as the probate lawyer charges?! Often the Executor is a family member who starts out saying he/she will waive the fee.  But in many cases, once they find out all that is involved in the process, they change their minds.

Appraisal fees

All of the assets that the decedent owned need to be “inventoried” and “appraised”. The Court appoints the appraiser, whose fees are 0.1% of the value of the appraised assets (so in a $800,000 estate the appraisal fee would be $800).

Example of Total Costs (not including creditors)

Here’s how the fees would add up on a simple $800,000 probate case.

▪                $395 fee to file “Petition to Probate”

▪                $100 publication fee

▪                $800 appraisal fee

▪                $395 fee to file “Petition for Final Distribution”

▪                $19,000 attorney’s statutory fee (see above example under “statutory fee”)

▪                Possibly a 
$19,000 Executor’s statutory fee

Total: $20,690 to $39,690! This is not including property taxes, creditor fees, funeral costs, etc.

One last thing to note; many people with Revocable Living Trusts, neglect to update them after refinancing their mortgage or after a number of years pass and their financial situation changes. Any items that are ‘outside’ of the trust will also need to go through probate.

So to sum it up, most of these costs can be avoided by setting up (and keeping up!) a Revocable Living Trust, yet statistics show that 95% of all people don’t have one. Now, don’t you think it’s time to start looking into it?