Probate and Estate Administration
Once the grief of a loved one's death has passed, someone must turn to the business of probating the will or administering the trust. If you are the executor of a will or the trustee of trust, you can expect many demands are going to be made on you. Beneficiaries want their money, the government wants taxes paid, and creditors want their bills paid. Our firm can help demystify the probate, wills and trust administration process for you.
We have significant experience in assisting with the administration of estates and trusts, both in advising personal representatives and trustees, and assisting beneficiaries regarding their rights and expectations. We have been involved in preparing estate tax returns and dealing with the Internal Revenue Service on various estate tax related issues, including valuation disputes and significant legal issues. Our staff is very experienced with complex estate and trust administration matters, allowing us to accomplish all of the necessary tasks efficiently.
Planning Ahead to Avoid Probate
A trust is a legal relationship, usually evidenced by a written document called a “Declaration of Trust” or “Trust Agreement,” whereby one person, called the “Settlor,” transfers property to another person, called the “Trustee,” who holds the property for the benefit of another person, called the “Beneficiary.” The same person may occupy more than one position at a time. For example, in my own living trust I am the Settlor, as long as I am alive and I also am the Trustee and Beneficiary. On my death, a “Successor Trustee” (the person I named) will take over as Trustee and must follow the Settlor’s (my) instructions, which are set forth in the Trust, concerning the distribution of property and the payment of taxes and expenses.
Although living trusts have been around for centuries, only recently have they achieved a high degree of popularity among the general public. The reason for this surge in popularity is that living trusts help to avoid probate. You might be wondering, “What is probate, and why should I try so hard to avoid it?” The short answer is that probate is a court-supervised procedure for collecting your assets, paying your debts and taxes, and distributing your property to your beneficiaries (either according to the instructions you set forth in your will or as determined by state law if you die without a will). The probate process usually takes 6 to 12 months to complete, although it may take longer if your estate is complicated or contested.
Probate is not a tax. When people refer to the high costs of probate, they are usually referring to the fees paid to attorneys and the personal representative. In California, these fees are calculated as a percentage of the gross (not net) value of the assets in the estate. These rates are set out in Probate Code §§10800 and 10810 (4 percent on the first $100,000, 3 percent on the next $100,000, 2 percent on the next $800,000, and so on). For example, let’s say that upon your death you owned only one asset, a house worth $600,000 with no mortgage; And you had a will that leaves the house to your three adult children and named your brother as executor. The probate fees for this case would be as follows: $15,000 to the attorneys (plus any “extraordinary fees,” which are billed hourly but subject to court approval) and $15,000 to your brother (if he decides to take a fee), for a minimum total fee of $30,000. These fees are calculated without regard to any mortgage, if there were one, because the fees are charged on the gross (not net) value of the estate.
One of the reasons living trusts have become so popular in the last 20 years is that real estate prices in California have skyrocketed, leading to much larger estates and, hence, higher probate fees. In states where real estate prices are lower or where attorney fees for probate work are based on an hourly fee schedule rather than a percentage scale, living trusts are less popular than in California.
Living trusts avoid probate with respect to those assets that are transferred into the living trust before death. In other words, living trusts avoid the court procedure otherwise required to transfer assets to a person’s beneficiaries at death.
That is not to say that there is nothing to do following death. The living trust simply makes administration easier and more efficient, but it does not do away with administration altogether. For example, assets still have to be collected and managed pending distribution to the beneficiaries, appraisals of assets have to be made, debts and taxes have to be paid, tax returns may be required (living trusts do not avoid estate taxes, as some people have been led to believe), and legal documents must be prepared in connection with the distribution of the trust property to the beneficiaries. These activities are very similar to a probate. The major difference is that, with a living trust, everything is handled privately, without court supervision, which makes for (in most cases) a faster, less expensive administration process.
While postdeath administration of a living trust will take time and cost money, such as legal fees, accounting fees, asset transfer fees, and Trustee fees, in comparison to probate, these delays and costs are substantially reduced, often resulting in time savings of months and costs savings of 50 to 90 percent.