PROBATE IN THE STATE OF CALIFORNIA
INFORMATION ON WHAT IT IS, HOW MUCH IT COSTS AND HOW LONG IT TAKES
“Probate” is one of
those words used by many and understood by few. Put simply, it is the
method by which the State allows for the orderly transfer of assets and
liabilities to the next generation after someone dies. Usually supervised
by the Superior Court, a person is appointed to gather the assets, pay
the legitimate debts (or contest them), and distribute the assets as
provided by law or the Will after payment of relevant taxes.
Sound simple? It is
not, for the interests of the State, of heirs, of creditors and of third
parties all have to be taken into account and the process requires the
person appointed to run the estate to go through various formalized steps
required by law to achieve the close of probate.
The reader is
advised to first read our article on Wills and Trusts, which gives a
general description of the basic estate planning tools and an overview of
probate. This article shall detail the probate procedure in more depth so
that the reader understands the various steps required to achieve a
Note that probate
CAN be avoided by appropriate estate planning and in many instances our
firm recommends taking those steps to save time, money and trouble.
Certain family situations, however, make the use of the probate process
either necessary or advisable.
The Basic Process
Probate is a legal
process whereby a court validates the deceased person's will or
determines that he or she died without a will. The court also appoints
someone to handle the decedent's assets and pay the bills owed at death.
That someone is referred to as an executor, administrator, or
administrator with the will annexed, depending on the circumstances.
purpose of probate is to see if anyone was owed money at the time of
death so that creditor can come forward and make a claim to receive
payment. There is a fixed period of time for creditors to come forward
and demand payment.
Along with the
payment of debts, the probate process is designed to see that taxes are
paid. Income taxes for the personal income tax return up to the date of
death must be paid. Income collected during probate requires the filing
of a separate estate income tax return and the payment of tax. If the
decedent owned over $1,500,000 to $3,500,000 (depending on year of death)
of assets at the date of death a federal estate tax return is required
and the tax due must be paid within nine months of the date of death.
Congress has passed
laws reducing annually the Estate Tax until the year 2011 at which point
it leaps back to the level of taxation of several years ago. Go to our
Newsletter page to review a
detailed article on that strange tax law.
Lastly, after all
assets of the decedent are collected, assets are sold and taxes and debts
are paid, then the executor or administrator must distribute the
remaining assets in accordance with the decedent's will or the rules of
succession, if the decedent died without a will.
Assets Subject to Probate
While not all
assets that the decedent owned are subject to probate, the following
assets are usually subject to the probate process:
1. Assets in the deceased person's name alone.
2. One-half of each asset owned as community
property in the decedent's name with his or her spouse.
3. The deceased
person's portion or share of an asset where the asset is owned as tenants
in common with other people.
4. Personal property assets, which are owned but are not
registered as the personal property of the Decedent, such as furniture,
provides that a probate is not necessary if the total value at the time
of death of the assets, which are subject to probate, does not exceed the
sum of $100,000. There is a simplified procedure for the transfer of
The $100,000 figure
does not include vehicles and certain other assets.
There is also a
simplified community property set aside procedure if all the assets owned
by the Decedent are community property with a surviving spouse.
Assets Not Subject to Probate
Certain Assets are
not required to go through probate to vest in an heir or other person.
Even though there may be a probate for a portion of assets owned, the
following assets are not subject to the probate process:
1. Assets held in joint
tenancy with another person or persons.
2. Assets held in a
3. Assets such as life
insurance and IRA benefits, where a beneficiary is named.
4. Assets in a bank or savings
and loan account in the deceased person's name as "trustee" for someone
5. Assets which can be
registered in a person's name and which are "payable on death"
(P.O.D.) or "transfer on death" (T.O.D.) to someone.
6. Assets passing to the surviving
spouse. If the deceased person owned assets in his or her name alone but
these assets are left by will or pass by intestate succession to the
surviving spouse, no probate is necessary.
7. Assets registered by husband and
wife as "community property with right of survivorship." As mentioned above, California
has a simplified legal process referred to as a "spousal
confirmation proceeding." Here, a petition is filed with the court,
notice is given to certain parties, and if no one objects, the court
approves the assets as going to the spouse.
This procedure can
only be used for husband and wife. For example, Husband X has $400,000 of
separate property stock in his name alone. He has a will, which leaves
everything to his wife. His wife can go through this spousal confirmation
proceeding. The advantage is that there is no fixed fee as there is for
probate, and the process takes approximately 30-60 days instead of 9-12 months.
The Steps Involved in the
When someone dies,
the first question is whether there will be a probate proceeding?
If all of the
assets are in a living trust or joint tenancy, then the answer will be
no. If the deceased person has more than $100,000 of assets in his or her
name alone and there is no surviving spouse or the assets were not left
to the spouse, the answer will be yes.
If it is necessary
to have probate, the second question is who will act?
If the decedent
left a will, he or she named someone in the will as executor. That person or persons does not have to be a
California or United States citizen or resident. A friend may serve, the
person's three children may serve jointly, or a California bank or trust
company may serve. No one has to serve if named.
The next question
is will the person or persons agree to serve?
If there is no will
or all the persons named refused or are unable to serve, then the nearest
relative or relatives have the first right to serve or to nominate
someone if they do not wish to serve. If there is no will, the person
appointed by the court is called an administrator.
Occasionally, someone will die with a will, but the will does not name an
executor or the person named is deceased or will not serve, or possibly a
bank is named and the bank declines because the estate is not large
enough for the bank. The court then appoints the nearest relative who
inherits under the will. That person is referred to as an administrator with the will annexed.
All of the above
appointed persons have a fiduciary
duty and perform the same duties once they get appointed
even though their title varies depending upon the circumstances.
Appointment by Court
To start the
probate process it is necessary to file a petition with the superior
court in the county where the deceased person lived at the time of death.
This petition is set for hearing approximately 30 days after it is filed
with the court.
If there is an emergency
(a home or asset is in danger or a heir needs help from the assets
immediately, etc.) and it is necessary for someone to act within the
30-day period, it is possible to get someone appointed within 24 hours as
a "special administrator."
This person handles estate assets until the executor or administrator
gets appointed. If the decedent was the only signer on a business bank
account and salary and other bills have to be paid immediately, a special
administrator can be appointed.
After the petition
is filed, a notice of the court hearing must be published three times in
a local newspaper. In addition, a notice of the court hearing must be
mailed at least 15 days prior to the hearing to everyone named in the
will, all of the deceased person's heirs at law (those people who would
inherit if he or she died without a will), and any other alternate
executors named in the will.
If the will had
special wording at the end of it where the witnesses sign, then it may be
"self-proving" and no additional statements are necessary. If
the will is not self-proving then a statement must be obtained from one
of the witnesses to the will.
If a witness cannot
be located, then there are several alternative ways of proving the will.
If the will is handwritten, anyone who is familiar with the decedent's
handwriting can sign a statement proving the will.
If the will does
not waive a surety bond, then the executor or administrator must post a
surety bond. The surety bond is nothing more than an insurance policy
which insures the estate if the executor or administrator does something
improper or steals from the estate. The premium of approximately $200-800
is paid out of the estate assets.
At the court
hearing if everything has been done correctly and there are no
objections, the court will admit the will to probate and appoint the
executor or administrator.
appointment the executor or administrator must file a special form with
the court titled "letters
testamentary" or "letters
of administration." This is signed by the person, and he or she
agrees to act as executor or administrator. Later, when taking legal
action or transferring assets, other parties will want a certified copy
of these "letters" showing that the person has the legal
authority to act.
Assembling the Assets
appointment the executor or administrator must take possession of all of
the decedent's assets subject to the probate process. Assets in joint
tenancy, assets in a living trust or assets subject to a beneficiary
designation are not part of the probate and are not collected. The
executor or administrator needs to change title to the assets and to put
these assets in his or her name as executor or administrator. Mutual
funds, stocks and bonds, brokerage accounts, bank accounts, real property,
vehicles and other assets should be changed over.
all of the assets, it is necessary to prepare an inventory listing these assets. At the time that the executor
or administrator was appointed the court also appointed a "California Probate Referee."
This individual has the responsibility of valuing all of the non-cash
items with the fair market value as of the date of death. The referee
receives a fee of $1 per $1,000 for the value of the assets appraised.
The value is the gross value excluding any loans or liens on the assets.
If the home is
valued at $500,000, even though there is a $250,000 mortgage on this
home, the referee values it at $500,000 and receives a $500 fee for this.
There are legal
procedures for contesting the referee's value if someone does not believe
it to be accurate. The appraisal of all of the assets is supposed to be
filed with the court within four months of the executor or
Payment of Liabilities and
As soon as the
executor or administrator is appointed by the court and obtains money,
bills can be paid. Funeral, utility, credit card and other bills can be
paid without any special legal formality.
Anyone can be
required to submit a creditor's
claim in the estate. This is a special court form that must be
completed by the creditor and approved by the executor or administrator.
If the executor or administrator wants this form submitted by a creditor
then a notice must be sent to the creditor. Claims normally must be
submitted within four months of the executor or administrator's
appointment. There is an exception if the creditor was not aware of the
death. If that occurs, the creditor can petition the court after the
four-month period for submitting a claim. The petition cannot be filed
later than one year after the executor or administrator's appointment.
If the executor or
administrator rejects a creditor’s claim, the creditor must file a
lawsuit within three months of the rejection or lose all right to later
sue. Before a lawsuit can be filed, the creditor must file a claim. This
claim is true for any type of claim, including ones based on tort
actions. If Mr. X is in an automobile accident and dies and other parties
wish to sue his estate, they must file a creditor's claim within the
required period before they can file a lawsuit.
Most estates do not
involve any contested creditor's claims. The executor or administrator
pays the outstanding bills and no one objects.
Sale of Estate Assets
It may be necessary
or practical to sell some or all of the estate assets. Assets may have to
be sold to pay taxes, fees and debts. Or the home may be vacant and the
children do not wish to inherit it, so it is sold during probate.
There are two
methods of selling assets in a probate proceeding, which the executor or
administrator may chose.
approval may be obtained before any asset is sold. If the stocks or bonds
are sold, a court order is necessary before selling them. If real estate
is sold, a court hearing must be held and anyone may offer a higher price
for the property in court and take it away from the original buyer.
executor or administrator may sell assets under a provision of California
law referred to as the "Independent
Administration of Estates Act." Under this act the executor or administrator may sell
any asset. The only requirement is to give written notice to any
beneficiary who is affected by the sale at least 15 days before the
proposed date of sale. If no one objects, then the sale may proceed. If
someone objects, then the court must be petitioned for approval the same
as alternative number one, above.
the executor or administrator usually prepares a budget with an estimate
of the federal estate tax, fees for the executor and attorney,
administrative costs, cash bequests under the will, and debts or claims.
If there is insufficient cash available, then a decision must be made as
to what assets to sell. If there is sufficient cash available, then a
decision must be made as to whether any assets such as the home should be
sold. Once the decision is made to sell assets, the executor or
administrator should proceed with the sale. It makes little sense to
allow the home to remain vacant for nine months and then put it on the
market for sale. If the home is going to be sold, there seems little
reason why it should not be marketed within 30 days of the appointment.
Payment of Taxes
The executor or
administrator is liable to see all of the taxes due the federal
government and the State of California are paid. While the executor is
not normally personally liable, this liability does extend to the assets
that are in probate.
If the executor or
administrator distributes assets and the Internal Revenue Service or
California Franchise Tax Board assesses a deficiency, the executor is
liable for the value of the assets distributed.
Tax returns must be
filed and prepared and while it can be the executor or administrator who
does so if the person is skilled enough to do so, more commonly it may be
the attorney or the tax preparer, enrolled agent or certified public
accountant who handled the decedent's tax matters prior to death. Whoever
it is must be skilled enough to prepare and file all of the required tax
If a person dies
with over $1,500,000 to $3,500,000, in assets, depending upon the year of
death, an estate tax return must be filed within nine months of the
decedent's death. An extension to file this return may be obtained for up
to an additional six months.
NOTE THE AMOUNT OF EXEMPT ASSETS IN
THE ESTATE AND AMOUNT OF ESTATE TAX IS CHANGING ANNUALLY UNTIL 2011 AND
THEREAFTER AND ADVICE SHOULD BE OBTAINED AS TO THE CURRENT AMOUNT DUE AND
THE LATEST STATE OF THE LAW.
Any amounts left to
qualified charities and any amounts left to the decedent's spouse (if a
United States citizen) are exempt. (See our article on
TRUSTS.) All debts that the decedent owed at the time of
death such as funeral costs, legal fees, debts, etc. are also deducted.
If the net estate is over $1,500,000 to $3,500,000, after deducting the
debts, a tax of 41-50% of the amount over $1,500,000 to $3,500,000 is
If the return is
not filed within the required time limit or if the tax due is not paid
there may be substantial penalties and interest. Because the value of the
assets is the value as of the date of death, the person who is preparing
the tax needs to immediately start gathering information as soon as
possible after the decedent's death.
Prior to Death
Income Tax Returns
Even when someone
dies, an income tax return has to be filed for the year of death. Assume
Mrs. X dies on July 21st. An income tax return will be required from the
first of the year until the date of death-January 1st-July 21st. The
return is due by April 15th of the following year. Only the income
received and any deductions paid through the date of death will be
reported on the return. Income such as dividends and interest received
after the date of death will not be reported on the return but will be
picked up on the estate income tax return, or by the surviving joint
tenant if the asset was in joint tenancy.
deductions on the decedent's part paid within one year of the date of
death may be deducted on the final return. All other deductions must have
been paid before death to be allowable. Estimated income taxes paid for
the year of death should be reviewed. Depending upon the date of death,
it may not be necessary to continue to make estimated payments after
income tax returns for the four years prior to death should be retained,
and the return for the year prior to death should be carefully reviewed
to be sure all items of income and deductions are picked up. If the
decedent died after January 1st but before April 15th or even later, a
return may still be due for the prior year. With extensions, it is
possible to file your income tax return as late as October 15th for the
prior year. If the return has not yet been filed, an extension can be
requested and will usually be granted.
Income that comes
in after the date of death is not reported on the decedent's personal
income tax return. If the interest, dividends or other income are paid to
the estate, they must be reported on the fiduciary or estate income tax
return. A separate tax identification number is obtained for the estate
and used in lieu of the decedent's social security number.
A separate income
tax return, called a fiduciary tax
return, is filed annually for the estate. This form lists the taxable
income such as dividends, interest, capital gains and net rents. The
fiduciary return also takes off the allowable deductions such as mortgage
interest, legal and executor's fees, taxes, and a few other deductions.
The tax return does not have to filed on a calendar year basis, as of
December 31st. It can be filed on a fiscal year basis at the end of any
calendar month. Once a fiscal year is picked, the return must be filed
within 3-1/2 months of the end of the tax year.
At the end of the
tax year if the estate has not been closed and distributed, the tax is
then paid on the net income. That income is later distributed to the
beneficiaries of the estate without additional tax. If the estate has
been distributed during the tax year, the tax is not paid on the net
income, but instead each beneficiary must list his or her proportionate share
of the taxable income on his or her personal tax return. Fiduciary tax
returns are required until the estate is closed and distributed. If the
estate is open for more than two tax years, estimated fiduciary taxes
must be paid each year.
Other taxes may
also be due. Real estate taxes are due in California by December 10th and
April 10th. Sales tax may be due if there is a business selling some
product. If the decedent made a gift of over $11,000 to someone during
the year of death (2002 or later), a gift tax return may be due. If there
is real property in another state or country, it may be necessary to file
a separate income tax return for the income in that state or country.
mentioned, the executor is liable for taxes if assets are distributed and
additional taxes are later discovered to be due. Because of this, the
executor or administrator will frequently request to be allowed to hold
back some estate funds for a period of time as a reserve if additional
taxes are due. This reserve may be kept for two to three years and then
distributed without additional court order to the estate beneficiaries.
The period of liability for taxes is normally three years for the federal
government. This period is from the due date of the return or the filing
date if it is later. The period of liability for the State of California
is four years.
Thus, the liability
for a 2004 return filed on or before April 15, 2005, will expire on April
15, 2008 for the Internal Revenue Service, and on April 15, 2009 for the
California Franchise Tax Board. There are longer periods of liability if
the taxes are underpaid by 25% or more. The period of liability never runs out if a tax return is not
filed or if there is fraud involved.
Concluding the Estate
After the estate
assets have been inventoried, the period for filing creditor's claims has
expired and all claims paid or resolved, the necessary assets sold, and
all required tax returns filed and taxes due paid, then the estate can be
To conclude the
estate it is necessary to petition the court and to obtain a court order
to make the distribution. The executor must either file an elaborate final accounting listing all
receipts and disbursements or obtain a waiver of the accounting from all
of the estate beneficiaries. After the accounting is prepared or waived,
a petition is drafted which is a summary of the estate and the actions
taken. This petition lists the assets currently on hand and the proposed
distribution of these assets. The fee that the executor or administrator
and the attorney receive is computed and shown.
If everything is in
order and there are no objections, the court will issue an order
concluding the estate, ordering the fees paid, and the assets distributed.
Once the court order is obtained, checks may be written and assets
reregistered in the names of the estate beneficiaries. After the assets
are distributed a receipt for
these assets is obtained from each estate beneficiary and filed with the
stated, if the estate is relatively simple and no federal estate tax is
due, it can be concluded in 6-9 months. If there is an estate tax due,
the period will likely increase to 12-15 months. The estate should not be
in probate for more than 18 months unless there is litigation or
significant problems that prevent distribution.
The task of the
executor is not minor. Simply preparing the inventory and the accounting
takes tens if not hundreds of hours, not to mention the taxes, possibly
selling assets and dealing with questions and issues presented by heirs.
Fees for both the executor and attorney are set by state law (and are
identical) and if certain events occur, such as selling major assets or
litigation, both or either may petition for extraordinary fees. The Court
must approve all fees paid and interested parties may object.
It has been our
experience that while many executors at first indicate that they will not
charge fees, once they fully understand the significant work required,
not to mention the potential liability, that they ultimately conclude
that the fees are appropriate. Such fees can be waived, of course, and if
the executor is also an heir, it makes sense to waive them to save income
The first step
normally taken by the executor nominated is to seek legal and tax advice
from professionals and normally it is the attorney who ends up handling
almost all the details and drafting required for the Probate.
Nevertheless, the executor retains a full fiduciary duty and must
carefully oversee the work of both the attorney and the accountant hired.
The reader is
advised to review the other articles on this site for various other
aspects of Estate Planning and Trusts.