What is Probate?
In a very simplified definition, probate is the court-supervised process for the changing of title on assets of a deceased person. For example, if there is a house in the decedent’s name, and the decedent had only a Will i.e. not a trust, then when the beneficiaries of the decedent try to sell the house, they will be stopped from doing so until they become the legal owners of the property, which requires that the Will go through the probate process.
It is this court-supervised administration of the Will which is the probate process. There are open court (public) hearings in the Superior Court of the county where the decedent died a resident of the determine, among other things, whether the Will is valid, should the Will be enforced as it is written, or are there other beneficiaries or creditors who have a right to the estate. We have not yet met a person who has been through a probate that would not have rather distributed the estate assets via a Living Trust without the cost, time delays and work that are involved in the probate process.
Yet, despite the overwhelming popularity of Living Trusts, there are still many people who die with just a Will, and their executors are therefore forced to use the probate process to distribute the estate assets to the beneficiaries. For those situations, the costs and time delays of the probate process must be incurred. It should be noted that if you hold property as joint tenants, then that property is not subject to the probate process; however, this is a shortsighted estate plan since when the survivor of the joint tenancy dies (assuming there’s not a simultaneous death of husband and wife) then the assets previously held as joint tenants will be subject to probate, and thus, without a Living Trust, the probate fees will in the end be incurred.
WITH ONLY A WILL, YOU MUST USE THE PROBATE PROCESS TO DISTRIBUTE MOST ASSETS.
Assets in the Living Trust Avoid Probate
Remember, the single most frequent reason that individuals have a Living Trust prepared is to avoid the costs of probate, which are significant because PROBATE FEES are paid on the GROSS VALUE of your assets.For example, if your house has a fair market value of $750,000 with a mortgage of $400,000, for probate fee calculation purposes, you would pay probate fees on the full $750,000 GROSS VALUE, not the equity of $350,000 i.e. you do not get to subtract the mortgage.
If the total of your other property (bank accounts, autos, etc.) was $500,000, then your total probate estate would be $1,250,000 ($750,000 real estate gross value, plus $500,000 of other property value). The probate fees paid on a $1,250,000 estate are $51,000, which is $25,500 to the attorney and $25,500 to the executor of your Will.
Since everyone’s probate estate value varies, the following rate table, which is taken from the Probate Code, is provided to allow you to roughly calculate how much the probate fees would be on the GROSS VALUE of your probate estate. Remember, probate fees are paid by a percentage of the GROSS VALUE of your probate estate as follows:
Amount of Probate Estate |
Percentage |
Amount of Fees |
$0 to $100,000 |
4 % |
$4,000 ($100,000 * 4%) |
$100,001 to $200,000 |
3 % |
$3,000 ($100,000 * 3%) |
$200,001 to $1 Million |
2 % |
$16,000 ($800,000 * 2%) |
$1 Million to $9 Million |
1 % |
$80,000 ($8M * 1%) |
Are you surprised by the amount of the probate fees that would be paid on your probate estate? For most people, the properly drafted Living Trust will save thousands of dollars by avoiding these high probate fees.
Remember, the concept of the Living Trust for probate avoidance purposes is that the Living Trust, not the individual who created the Living Trust, is technically the owner of the assets. Therefore upon death there are no assets which are owned by the decedent, even though during his or her lifetime as trustee the creator of the Living Trust still had complete control over all the assets.
After the death of the person who created the Living Trust, another person who was named by the creator of the Living Trust as a successor trustee becomes the current trustee, and that person then is required to either distribute the trust assets or continue the trust under the terms and conditions left by the creator of the Living Trust.
Another detriment to the probate process is that it is time consuming, taking anywhere from four months to over a year. With the Living Trust, your beneficiaries can receive their inheritance immediately upon your death, or if you decide, at periodic intervals (see Controlling the Distribution of Your Estate).
A PROPERLY DRAFTED AND FUNDED LIVING TRUST COMPLETELY AVOIDS PROBATE AND THEREBY AVOIDS THE PROBATE FEES AND TIME DELAYS.