Do you own a home in California? If so, your estate is headed to Probate! Are you upside down in your home? Your estate is STILL headed to Probate! While that may not seem so bad at first glance, let’s discuss some of the facts about the Probate process, the costs associated, and the time involved.
With that in mind, let’s take a quick look at the Probate process. The first step is to determine where to file your Probate case. Is it in the county where the person lived; where he or she died; where the property is located; where you are located? These factors may all come in to play at some level and you will have to make a decision. Next, what forms need to be filed and how much will that cost? Each county can have a slight variation in terms of fees and required forms. In general, the cost of the initial filing is going to be around $500.
Ok, so you have managed to file the appropriate forms with the right court, now what? Next, you must publish certain information in the proper newspaper or publication. Wait, there’s a “proper” newspaper or publication? Yes, there is. The court in which you have filed your Probate will have certain approved publications for Probate matters. You must publish very specific, required information in the proper newspaper and meet other requirements regarding the duration and content of the publication. Oh, and did I mention that this will also costs up to $400 in some areas?
Phew, we have finally made it through the bare minimum steps to get this Probate started. Now, there will be court proceedings to determine who will administer the estate. Oh, you thought that your family was already doing that and starting to make decisions about how things should be divided, sold, etc? Not yet! You must wait to get permission from the court before making any decisions about the estate. Don’t forget, there may be more than one person who wants to control those decisions. In which case, the court will decide which potential executor will be awarded control. But don’t worry, it should only take a few months to get into court and get that all sorted out. Certainly your family can wait that long while someone continues to pay the mortgage on your home.
When the court finally decides who will administer your estate, the court will also determine whether that person can act independently, or if he/she will have “limited authority” over your affairs. In some counties, limited authority is granted to anyone who is not represented by an attorney in a Probate matter, regardless of other factors. In other counties, limited authority may be based on other factors pertaining to your estate or the person handling the administration. Either way, your estate will now have to foot the bill of attorney’s fees or additional court costs as the administration of your estate will need further approval and monitoring by the court.
Now let’s look back at that home you owned. Since your estate is in Probate, your home will be appraised for the court. That’s another $400-700 fee depending on the appraiser, county, etc. This appraisal will be entered into the court record and your administrator will be challenged to sell your home for no less than 90% of the appraised value. In the event that your administrator cannot sell your home for that amount, he/she will have two choices: 1) get a new appraisal to show a lowered value, and pay another fee in doing so, or 2) petition the court to give him/her special permission to sell the home at a lower price. And you guessed it; that means more court fees and/or attorney’s fees.
Now, you may have heard that attorneys in Probate are paid a statutory fee. This is true…to a point. Attorneys receive a percentage of the gross value of your estate as a fee. Remember above when I mentioned being upside down on your home? Well, in the world of Probate, that makes no difference in terms of what your family’s attorney is owed for services. Also, property sales and other such administrative headaches can lead to something called extraordinary fees. These are additional fees above and beyond the statutory minimum fees that your family’s attorney may request from the court. If awarded, those fees will also come directly out of your estate before any money is paid out to your loved ones.
Alright, now back to the process of Probate. Now some of you may be thinking that if you just leave your home to a child or loved one, this can all be avoided. The problem is that a house may still need to be sold in order to pay fees associated with the Probate, or to buy out one person who doesn’t want a stake in a piece of property. In these cases, Probate can still become messy and complicated and lead back to those extraordinary fees mentioned above.
Well, what about Joint Tenancy? Many people use Joint Tenancy as a means of dealing with the transition of property at their death. However, there are issues with Joint Tenancy as well. Particularly, Joint Tenancy can lead to a step up in basis for tax purposes, which can lead to complications and insurmountable fees and liens in future Probate matters. For example, if mom and dad hold a property in joint tenancy and dad dies, mom may face a step up in basis for taxes on dad’s half of the property. However, mom never files the proper paperwork because it doesn’t seem necessary at the time. Later, mom dies and the house passes to her children. Unfortunately, because mom never filed the proper paperwork to record the step up in basis on the home when dad died, the house now has a $40,000 tax lien for unpaid taxes following dad’s death. None of the children can afford to pay the taxes, so the family home must be sold and the proceeds used to pay taxes, attorneys, and court fees…and maybe the children are lucky enough to have a small amount leftover to split amongst themselves.
At the end of the day, going to Probate will result in your assets be divided amongst your heirs, or given to the persons or organizations of your choice. Unfortunately, there may be some compromises along the way. Probate will be costly and will reduce the inheritance you intended to leave behind. Probate will take a minimum of a few months and in the case of someone with a home (or homes), it will likely take more than a year. The average Probate in California takes over 2 years. Since all your records regarding your death, your intentions (ie your will) for your estate, and the general amount of your estate will be public record, there is greater opportunity for disagreement over how your estate should be distributed. There may also be more claims on your estate than you had anticipated. All of these factors act to diminish the inheritance you had intended to leave behind for loved ones. Also, it should be noted that in the event that you didn’t leave a will (and sometimes even if you did), the court will decide who gets what from your estate, regardless of your thoughts or wishes on the matter.
This process only gets more complicated when you add in minor children, grandchildren, charitable donations, making sure that a loved one with special needs is cared for, or trying to set up a plan to take care of a beloved pet. And you guessed it, along with added complications come added time and costs. The best method for dealing with Probate is to try to avoid it altogether. Is that always possible? No. However, people who plan for these eventualities generally are able to avoid most or all of the Probate process; are able to greatly reduce the cost of administration; and are able to significantly reduce the time needed to wrap up his/her estate. All of these things help your loved ones to cope with your passing without adding stress and hardships to an already difficult time.