A few years ago, we had an unfortunate situation arise with a client who ignored our advice to create a Living Trust. She believed that a Trust was unnecessary for her, given what she perceived as a modest-sized estate. After she died, the half-interest she had owned in a California home ended up being just over the limit for triggering a Probate. In the end, it took two years and $16,000 in Probate fees for her heirs to receive their inheritance from her estate.
As this story illustrates, California Probates are infamously long and expensive. Most people who know what a California Probate entails want to avoid it. In this blog post, we’ll share valuable tactics to help you avoid Probate, whether your estate is small or larger.
First, let’s talk about how small estates can avoid Probate. We previously discussed this topic in this video and we will go into a bit more detail in this blog post. In California (as of 2020), if an estate has less than $166,250 in non-real property (that’s anything other than real estate), or real property worth less than $55,425, it is considered a “small estate”. For small estates, the personal representative of the estate can often avoid a formal Probate by using a procedure called a Small Estate Affidavit.
If the estate does not include real property, then the personal representative can use a Small Estate Affidavit to obtain the personal property from whichever entity holds it. If the estate includes real property, you will need to file the Small Estate Affidavit with the Probate Court. We recommend seeking legal counsel to advise on the appropriate procedure for each individual circumstance.
If the decedent’s estate includes real property, the personal representative will need to file a Small Estate Affidavit with the Probate Court. Here are the steps to do this:
1. The personal representative of the estate must obtain and complete a form called a California Small Estate Affidavit from the Probate Court where the decedent lived.
2. Next, add the following attachments:
- A certified copy of the decedent’s death certificate
- Proof that the deceased person owned the listed property
- Proof of your identity (such as a driver’s license or passport)
- An Inventory and Appraisal (Form DE-160) of all real property owned by the decedent in California. Before attaching this form, get it signed by a Probate Court Referee.
- You may need to get signatures from all legal heirs of the estate allowing you to inherit the listed property.
3. Sign the Small Estate Affidavit in front of a Notary Public.
4. Transfer the property. By law, this step cannot be completed until at least 40 days have passed after the date of death.
As you can see, a Small Estate Affidavit can be a useful tool for smaller estates to avoid Probate. Instead of waiting 9-18 months to distribute the property as with an average Probate, assets can be distributed after the 40 days have passed. It is also typically less expensive than a formal Probate proceeding.
What is considered a larger estate in California? If an estate has more than $166,250 in non-real property, or if it contains any real estate worth more than $55,425, this estate is considered larger and is subject to a Probate after death. For larger estates, there are several options to avoid Probate. Here are 3 ways to avoid Probate (also discussed in this video):
One way to avoid Probate is to reduce the size of your estate by gifting to your family or intended beneficiaries. However, there are drawbacks.
First, no one knows when they are going to die. This makes it difficult to give away the exact amount that will allow you to avoid Probate but still have enough money to support yourself financially.
Second, be aware of gift tax implications. If you give away more than $15,000 in any one year to an individual, then you must file a gift tax return. However, you can make $15,000 gifts to as many people as you desire every year, tax-free.
2. Joint Ownership
Adding another person as a joint tenant on the title of your assets, including real property, is a second way to avoid Probate. The surviving joint owner’s interest in the asset will not pass through Probate. However, there are limitations and drawbacks to this strategy. Here are a few:
- When the second joint owner passes away, the property will need to be Probated if another person hasn’t been added.
- Adding a child as a Joint tenant will be considered a gift, meaning a gift tax will be owed.
- For married couples, Joint Tenancy will not offer the full step-up in basis for Capital Gains tax that a they would receive if they used a Trust.
- For very large estates, using Joint Tenancy instead of a Trust means a married couple will forfeit a double Federal Estate tax exclusion.
- Joint Tenancy exposes one Joint Tenant to the financial liabilities of the other Joint Tenant.
So there you have it – how to avoid Probate for any sized estate in California. If you have any questions on avoiding Probate, or if you need to Probate an estate, feel free to contact us.