Estate & Trust Administration
What is Probate? | What is Trust Administration? | Non-Probate Estate Administration
What is Probate?
If a person executes only a will or fails to sign any estate plan documents, then at his death his estate will likely be subject to probate. Probate is the court
procedure that oversees the payment of debts and transfer of assets following a person’s death.
Probate is usually undesirable because of the costs and delays associated with the process. Probate fees (payable to the attorney
and the executor) are set by statute, and are based on the gross fair market value of the estate, not on the complexity of the case. The attorney or executor may also collect additional fees if she prepares or files tax returns, sells
real estate, or does other extraordinary work on behalf of the estate. Also, the probate process takes a lot of time, generally lasting between nine months and two years from a decedent’s death.
Statutory Probate Fees
|Size of Estate
||4% of amount
||$4,000 + 3% of amount above $100,000
||$7,000 + 2% of amount above $200,000
||$23,000 + 1% of amount above $1 million
||$113,000 + ½% of amount above $10 million
||$188,000 + reasonable amount
An executor may waive his right to executor's compensation, but it is not possible to avoid all of the costs associated with a probate. Probate costs include filing fees, newspaper publication fees, costs for certified copies,
and probate referees (appraisers), and can easily exceed $1,500.
In most cases, there is no probate if a person dies and leaves his assets to his surviving spouse. Therefore, the pitfalls of probate occur at the death of
a single person (including the death of a now-single surviving spouse), when the assets pass to his children or other heirs.
In addition to trust assets, certain other types of assets are not typically subject to probate
because, under California law, the assets automatically are transferred to the designated beneficiary on the account. These types of assets include:
A. Joint Tenancy – Assets are distributed to the surviving joint tenant
B. Community Property – Assets are distributed to the surviving spouse
C. Beneficiary Designation – Assets are distributed to the named beneficiary
- Life Insurance
- Retirement Accounts
- Other accounts in which the financial institution allows you to designate a beneficiary
D. Social Security Benefits - Benefits are distributed according to law and
cannot be changed by designation
Although probate can be avoided by adding a joint tenant to your assets, there may be unintended income or gift tax consequences associated with the addition. It is always advisable to speak
with an attorney before changing the title or beneficiary to your assets.What is Trust Administration?
If a person has a living trust, and successfully transferred his
assets to his trust during his lifetime, then no probate is necessary to transfer his assets to his heirs at his death. The successor Trustee will take over management of the decedent’s assets immediately so that she can pay the decedent’s
debts and distribute his assets to the proper beneficiaries.
Although there is no formal probate, it is still essential that the successor Trustee follow the rules set forth in the decedent’s trust along with state and federal
laws. Beyond the specific requirements of the trust, the successor Trustee will have to:
A. Notify each of the decedent’s beneficiaries of the existence of the trust and their right to see the trust instrument;
each of the decedent’s creditors, and either pay all outstanding bills or successfully negotiate with the creditor to lower or write-off the bill;
C. Diligently keep records and annually provide an accounting to each beneficiary (or obtain a waiver of the need for an accounting from each beneficiary);
D. File the decedent’s final income tax return, file an estate tax
return (if the decedent’s gross assets are greater than $12.92 million (2023), and file fiduciary income tax returns if the trust earns income before it is distributed to the beneficiaries;
E. Obtain taxpayer identification numbers
and open up new bank or brokerage accounts if new trusts are to be created for the benefit of minor, disabled, or other trust beneficiaries; and
F. Distribute remaining assets to beneficiaries in a timely fashion.
Trustee may find that the assistance of a qualified attorney and accountant will help immensely with these (and many other) tasks.
In summary, the Probate Court assumes the executor will fail to complete the process of paying
debts and distributing assets, so nearly each task must be approved by a judge. The process takes longer, but procedures are in place to ensure the executor will act honorably.
Conversely, in trust administration, it’s assumed
that the Trustee will act properly. However, if a beneficiary believes the Trustee is not complying with the terms of the trust instrument or the law, he always has the option of challenging the Trustee in Court. It is in a successor
Trustee’s best interest to consult with an attorney or accountant before taking any action that could be considered unwise or unduly favor one beneficiary over another.Non-Probate Estate Administration
There are times when it is useful to hire an attorney, even if a decedent is survived by a spouse. For instance, if all of the couple’s assets were titled in the name of the deceased spouse, financial institutions require that the
surviving spouse obtain a court order to re-title the assets in the name of the surviving spouse. Additionally, if the couple held all of their assets as joint tenancy, the surviving spouse may speak with an attorney and discover whether
it is possible to ask the Court to regard the assets as “community property” to achieve a better result for capital gains tax purposes.
If an estate is small (less than $166,250) in “probate” assets, a probate is not required.
But, a trusted relative or friend should still speak with an attorney to ensure that no assets are distributed until either the debts are paid or written-off by the creditors.