FILING A PROBATE IN CALIFORNIA
By Tom Caldwell
Your loved one has passed away and never got around to creating and funding a trust. Unfortunately it was easily avoidable but now reality has set in. Probate is a very expensive and time consuming process. The good news is probate courts are courts of equity which means that the probate judge has the authority to apply principals of equity (think fairness) and opposed to hard principals of law only. That being said probate courts follow strict procedures and confusing forms and rules that trip up even the most talented attorneys. The positive side is that the estate administration process will be overseen by a capable judge that will usually protect the family from fraud and silly claims made by disgruntled love ones (or unloved ones).
Time Frame
Probate Code §8001 states: “Unless good cause for delay is shown, if a person named in a will as executor fails to petition the court for administration of the estate within thirty (30) days after the person has knowledge of the death of the decedent and that the person is named as executor, the person may be held to have waived the right to appointment as personal representative.” So it is not a good idea to delay and dilly dally.
Under California Probate Code §1220, you have to give all heirs at law, beneficiaries of any will and known creditors fifteen (15) days’ notice of any hearing. For trust matters being heard in the probate court you have to give thirty (30) days’ notice. Notice must also be published in a newspaper.
Under California Probate Code §8003 the initial probate hearing when Letters Testamentary are issued must be held thirty (30) days after filing the probate petition. Unfortunately Los Angeles County does not follow state law due to the extreme back log that has occurred since all the probate courts where shut down except in downtown and in Lancaster. The initial hearing may not be set for three or four or more months in Los Angeles County.
The probate attorney (a clerk that works at the court, not the estate’s attorney) doesn’t issue their notes (questions and nit picky time wasting action items) until a couple days before the hearing. Once the notes are posted you have to scramble to get documents together to file the required supplements and obtain verification signatures. If you can’t get it altogether in time you have to get back in line for a new hearing date. In Ventura County this problem is worse because the probate attorney does not post the notes until the night before the morning of the hearing so you have to work through the night to get it together if you don’t want your hearing postponed.
Once you have your Letters Testamentary and Probate Order you are ready to get started. You can sell the real property, deal with creditors, liquidate the assets and collect them in a bank account in the name of the estate.
The probate referee will appraise all of the assets. The good news here is that the probate referee’s appraisal fees are much less than a typical certified appraiser. Once you have the probate referee’s appraisals you can file the inventory and appraisal. The inventory and appraisal must be filed no more than four (4) months after the date of the Letters Testamentary. Once everything is consolidated, you can begin preparing the very detail oriented final accounting that must include every single debit and credit, including interest. This process can be very difficult so on complicated estates it makes more sense to have a CPA firm that specializes in probate accountings prepare the final accounting.
The Probate Code requires you to file an accounting no more than one (1) year after the Letters Testamentary are issued. If have an inventory and appraisal are filed, you have waited four (4) months to give any potential creditors time to file a claim and everything is ready, you can theoretically file your final accounting four (4) months from the date of the Letters Testamentary.
Probate Fees
The filing fee in Los Angeles, Orange, Kern, San Bernardino and Santa Barbara Counties is $435. In Ventura County the filing fee is $465. In Riverside County the fee is $450. You then have to pay an attorney service to actually file the documents. Starting in 2017 the Los Angeles County Probate Court only accepts electronic filings so the attorney service fee to do the electronic filing is much less than it was to walk it in.
You are only dealing with probate because the decedent was likely too cheap to set up a trust or the decedent was a huge procrastinator, often times both. The cost to administer a trust after someone passes is less than ten percent (10%) the cost of a probate. Probates are the ultimate result of being a penny wise and a pound foolish. In Texas and Oklahoma trusts are not necessary because the probate courts are efficient and there is no statutory probate fees, attorneys can charge by the hour so the fees are a fraction of what they are in California.
In California all probate fees are a statutory fee, an amount that is a percentage of the value of the assets that go through probate (See California Probate Code §10810 and §10811). The executor or personal representative (the personal representative is the same as an executor but that it the name given when the decedent died intestate, which means they died with no will) are entitled to the probate fee and so is the attorney (total of two probate fees). Often times the executor will waive the probate fee if they are the only or one of a few beneficiaries because inheritances come income tax free, while probate fees are taxed as ordinary income.
Here are the current rates:
4% of the first $100,000 of the gross value of the probate estate;
3% of the next $100,000;
2% of the next $800,000;
1% of the next $9,000,000;
.5% of the next $15,000,000 and
A reasonable amount (determined by the court) for any amounts higher than $25 million.
As an example let’s say your probate estate contains the decedent’s home worth $600,000, bank and brokerage accounts and a car. The total value is $900,000. The attorney’s statutory fee would be $21,000. If there is a $200,000 mortgage, reducing the equity in the home to $400,000, the attorney’s fee would still be $21,000. The fee is based on the gross amount of the probate assets, not what is actually owned. When dealing with selling real estate and other non-probate related items attorneys also charge extraordinary probate fees.
Selling Real Estate
If the executor has full powers under the Independent Administration of Estates Act (“IAEA”), then they can list real property for sale in almost the same manner as a normal sale. Once they are ready to accept an offer they have to file a Notice of Proposed Action with the court to give everyone notice of the proposed sale. The potential buyer needs to be made aware that a quick escrow may not be possible especially if someone objects to the proposed sales terms.
If the Will does not waive the bond requirement, if the person dies intestate (without a will) or is required to post a bond for some other reason, the executor or personal representative will have limited IAEA and selling real estate will require a much more complicated court overbid process where no sale will be approved that is less than 90% of the appraised value of the real estate.
Creditors and Unwanted Heirs
Probate is all about creditors. The laws were created in many respects to protect those to whom the decedent owes money. Creditors generally have difficultly collecting money from trusts, not so in probate.
Often time the biggest creditor is the California Department of Health Care Services, Medi-Cal. Many people have the misconception that Medi-Cal benefits are a type of government benefit or hand out. While this I true if you are indigent, for everyone else it is simply a government loan program. And the government used to always get paid. In 2017 Jerry Brown approved a new law that prohibited the Department of Health Care Services from recovering funds from trusts. Now all they can do is go after probate estates and they aggressively do so. It is not uncommon for the Department of Health Care Services to recover the entire probate estate. What makes this process particularly unfair is the amount of fraud in Medi-Care from doctors and facilities that over charge the Medi-Cal patients because there is no way to audit or question the amounts owed.
The Franchise Tax Board, Internal Revenue Service, the California Attorney General’s Office, the Director of the California Victim’s Recovery Fund (when a beneficiary is incarcerated), along with all known creditors like the County Tax Assessor/ Collector, banks, credit card companies and medical vendors are all required to receive notice. If they file a claim in the probate estate they will get paid as long as there is money and it is a legitimate claim.
The most fun you can have in a probate is when you have unknown beneficiaries and heirs come out of the wood work. It is not uncommon to have a long lost cousin claim that they were promised money or an unknown child of a decedent claim a share of the estate. Unknown children are particularly problematic because then everything is delayed for genetic testing.
The bottom line is to make sure you pass away with a valid revocable trust funded with each and every asset you own. If someone you knew died with only a will or intestate, the executor or personal representative is going to have to step up for a long and stressful probate. The only thing you can do is hire a competent attorney to guide you through the process and wait it out.
The information in this article is intended to be a general description of tax laws and is not advice as to any transactions, nor is this article advice to any person or to any client and should not be relied upon as such. If you or your client desire to receive specific legal or tax advice on a specific transaction, then please call Caldwell Law at (818) 651-6246.