To Probate or Not to Probate?

To Probate or Not to Probate?

Ken DeLeon and Kevin ChiaoApril 17, 2014
Palo Alto Daily Post


As agents in real estate, our clients often ask us many questions about estate planning. While many have heard that avoiding probate is wise, the reasons and or the ways to avoid probate may not be as clear. This article will address some common reasons why you should consider avoiding probate along with outlining two probate-free methods.

Why You May Want to Avoid Probate

Death is a difficult topic of discussion, but ultimately, unavoidable. Many of us have family, children, and loved ones we will leave behind upon our passing, and so planning for them, with regard to our estate, is a critical step. Generally speaking, whether you pass away with or without a will, your probate estate can be subject to an expensive, contentious, time-consuming process that may result in your wishes not being honored.

First, probate is expensive because it involves many parties. From an executor, to an attorney, accountant, realtor, and stockbroker, many are needed to help with the probate process, and the more involved, the more the financial expense.  As such, avoiding probate can dramatically decrease these expenses.

Second, the probate process can be contentious. Often times, friends, family, and the administrators disagree over assets, debts, and other aspects of the probate estate, and this can make for an antagonistic process. Because probate is a public affair, the mess of too many parties getting involved adds to the contention, not to mention any private family issues could be publicly aired.

Third, probate is time-consuming. The entire probate process can take from several months to years. From filing the application, to collecting data to calculate assets and debts, filing an inventory with the court, payment of debts, filing the final income tax return, and distributing the remaining assets, the probate process can drag on and on. All the while, your assets are essentially frozen and cannot be transferred.

Fourth, the value of your estate for probate purposes is the gross value of your assets. In other words, you don’t get to subtract the debt you have even if secured by the assets. Given the amount that many people borrow to buy homes in California, this can be very important.

Ways to Avoid Probate

You do not have to go through probate.  There are ways to avoid probate.  Two common methods are titling property as jointly owned property or creating a trust.

More than one person or entity can own a property, and a way to avoid probate altogether is to take title with another person or entity as a joint tenancy, community property, or community property with the right of survivorship. These designations have different meanings in different jurisdictions and can dramatically affect the passing of property. With respect to probate, property that is owned jointly will pass directly to any surviving owners upon the death of another owner, thus, avoiding probate. However, there are forms of co-ownership where this is not the case.

A trust is a legal entity created by property owners to better control and dictate how property will pass upon death. Like a corporation, a trust is its own legal entity. When a trust is formed, terms are drafted and specified that control the trust instrument. These terms are typically private, unlike probate, and only revealed when they need to be followed. Consequently, disposition of property that is held in a trust is largely controlled by the terms of a trust agreement. Property in trusts are not controlled by a will, intestacy laws of the jurisdiction, and does not become a part of a probate estate subject to distribution according to probate, thus saving time and money.

In conclusion, estate planning is a complicated process with many ramifications, and so it is always best to consult an attorney or qualified real estate agent to get more information about the options.