|
SPOUSAL SET ASIDE
PROCEDURE: SHORT CUTTING PROBATE
Introduction:
While most couples
now utilize intervivos
trusts to avoid the cost and
delay of probate, for various reasons, including “not getting around to
it,” many surviving spouses find themselves required to commence formal
probate for all or much of the assets to be inherited from the spouse.
Luckily, the Probate
Code of California allows a special “short cut” procedure that saves
time and money for transferring property to a surviving spouse and this
article discusses the basics of that procedure.
Spousal Set Aside under Probate Code Section 13650
A spousal set aside
is an optional procedure pursuant to Probate Code section 13650 et seq.
for short cutting the probate administration of community and/or quasi
community property that passes to or already belongs to the surviving
spouse and of separate property that passes to the surviving
spouse. The set aside procedure provides a formal judicial
determination and order regarding the decedent’s property that passes by
will or
intestacy
to the surviving spouse and confirms the community and/or
quasi-community interests that already belonging to the surviving
spouse.
The Procedure
According to Probate
Code section 13650, the spousal set aside procedure applies only
to property or interests “passing to” or “belonging to” the surviving
spouse. Thus, only the surviving spouse’s interest and any part of the
decedent’s interest not willed to another qualifies for the spousal set
aside.
The decedent’s
property interests that are willed to a trust do not qualify for
the spousal set aside procedure. Additionally, the spousal set aside
procedure cannot be used for any property interest of the decedent
bequeathed or devised to someone other than the surviving spouse and the
interest bequeathed to the surviving spouse cannot be a “qualified
ownership” interest as defined by Civil Code section 680. A restriction
based on survivorship is not a disqualifying condition so long as
the specified period of time has expired. Thus, if the Will provides
that the spouse must survive the deceased spouse by ninety days, the set
aside procedure is still available…after ninety days.
Probate Code section
13650(a) provides that only the surviving spouse or his or her personal
representative (if the surviving spouse is also deceased) or his or her
guardian or conservator of the estate (if the surviving spouse is
incompetent) may petition for the set-aside.
The spousal set
aside petition may be used to confirm the surviving spouse’s one half
ownership interest in community or quasi-community property which
already technically belong to the surviving spouse, Note that the
set-aside does not have to be used for all of the decedent’s
property passing to the surviving spouse. Thus the procedure can be used
if some of the assets would otherwise go into probate while others are
already in Trust or subject to some other type of intestate succession.
See our article on
Wills and Trusts.
A Probate Code
section 13650 petition also can also be used to determine that the
decedent’s one half interest in community and/or quasi community
property, and/or the decedent’s full interest in separate property,
passes to the surviving spouse by the terms of the will or the laws of
intestacy. The spousal set aside petition does not have to be used for
all of the decedent’s property passing to the surviving spouse. The
surviving spouse has the option of electing to probate all or a portion
of the decedent’s property passing to the surviving spouse.
A spousal set aside
petition can be used to ask the court to make a determination when the
distinction between community, quasi-community and separate property
passing to the surviving spouse is unclear. In this case, the petition
may be filed alleging that specific assets are community,
quasi-community or separate property passing to the surviving spouse as
long as the decedent did not devise an interest in such property to
another person.
The Downside of the Spousal Set Aside: Continuing Liability.
While the spousal
set aside petition is a faster, less expensive way of clearing
marketable title, clarifying which property is subject to probate
administration, and determining the value of property in order to
establish the extent of the surviving spouse’s liability than a formal
probate, the following liability and estate tax issues should be
considered.
A Section 13650
set-aside leaves the surviving spouse open to a significant financial
risk of exposure to decedent’s creditors because to the extent the
decedent’s and surviving spouse’s interests in community and/or
quasi-community property, and decedent’s separate property interests
that pass to the surviving spouse without administration, are not
probated, the surviving spouse remains personally liable for
decedent’s debts that are chargeable against such property. See Probate
Code sections 13550,13551, 13553; see Dawes v. Rich(1997)
60 CA4th 24, 31, 70CR2d 72,77.
There is some limit
to the liability. Probate Code section13551(a), (b), (c) limits the
personal liability of the surviving spouse to the fair market value at
date of death, net of liens and encumbrances, of the total of the (a)
survivor’s 50 % interest in the community and quasi-community property
that belongs to him or her under Probate Code sections100 and 101 not
exempt from enforcement of a money judgment and not administered in the
deceased spouse’s estate; (b) deceased spouse’s 50% interest in
community and quasi-community property belonging to decedent under
Probate Code sections 100 and 101 that passes to the surviving spouse
without administration; and (c) decedent’s separate property that passes
to the surviving spouse without administration.
The decedent’s last
illness and funeral expenses are payable exclusively from the decedent’s
estate and the surviving spouse is exempted from potential personal
liability for these expenses.
As stated in our
article on
Probate Basics,
there is a time limit for third party creditors to make claim against
the assets in a probate estate, namely four months. The time limit for
filing creditor’s claims is not fixed as in a probate administration to
a four month filing period, but according to CAL. PRAC. GUIDE: PROBATE
at 4:96 “all creditor claims are barred unless prosecuted
within one year after the decedent’s death. [See CCP
section 366.2; Prob.C. section 13554;…]” Thus, an extra eight months of
exposure exists for such claims.
Further, Probate
Code sections 13560-13564 provides that the decedent’s surviving spouse
may be personally liable to the estate or decedent’s testate
beneficiaries for decedent’s property or its value. An action to impose
liability under section 13561 (decedent’s property in possession or
control of surviving spouse at time of decedent’s death) and section
13562 (property no longer in surviving spouse’s possession) has a
three year statute of limitations after the deceased spouse’s death
and is not tolled for any reason.
Finally, spousal
set-asides have limited utility in estates where there are estate tax
concerns involving devises to a trust for the benefit of the surviving
spouse, or a will containing a marital gift determined by a certain
formula which cannot be applied until the estate tax is determined.
Conclusion: A Useful if Limited Tool.
For the cost of a
bit of extra exposure, a spouse can thus avoid much time and expense of
probate and for those assets somehow not placed in an appropriate Trust,
this tool is quite useful.
However, the
numerous and important advantages of a careful creation of a Will and
Trust using the tools developed over a hundred years of drafting is a
much better solution for the usual issues facing a couple and this tool
should be seen as needed at times but certainly not the preferred method
to avoid the costs of probate and to provide for the flexibility and
intelligent decisions that are necessary upon the death of a spouse. Or,
as one writer put it, “It’s better than nothing. But not much…” |
