Contrary to popular misconception, a will does not avoid probate.
Probate is a court supervised legal proceeding that validates a will. The probate court will appoints one person, or executor, to handle the affairs of the deceased person — that personal representative is charged with identifying and inventorying the estate’s property as well as identifying heirs, paying debts and taxes, and finally transferring the estate property from the name of the deceased person to that of the intended beneficiaries.
Going through probate can be a very time-consuming and costly process, and this is something that can be avoided with some estate planning. Below are a few strategies to bestow an inheritance without the inconvenience of a probate:
Various funds can be transferred to a beneficiary through a beneficiary designation. Life insurance, bank accounts, savings bonds and other accounts do not need to go through probate if a beneficiary designation is completed and maintained. Non-probate Transfer Rules in the California Probate Code allow payable-on-death (POD) bank accounts and retirement accounts to be set up for a designated beneficiary who will receive the funds when a person passes away. The process may vary depending on the bank, but it typically it involves the beneficiary completing the financial institution’s beneficiary form.
Small Estate Law
The California Probate Code offers simplified probate procedures for estates that are under certain thresholds. A Small Estate Affidavit can be prepared for estates that are valued at $150,000 or less and don’t include real estate. An affidavit for small real estate holdings can be used for real estate valued at $50,000 or less. No court proceeding is required.
In California, joint ownership may be established through joint tenancy. Joint tenancy is the ownership of real or personal property between two or more people who take ownership of the property at the same time and in equal shares. With joint tenancy, the asset automatically passes to the remaining owner(s) after one owner dies. This is called right of survivorship. If title to the property is held in another form (e.g. tenancy in common), the title will be transferred based on the decedent’s will or trust. Some disadvantages of joint tenancy include liability for the creditors of a joint owner, lack of a double-step up in tax basis for married couples and a lack of ability to plan for incapacity.
Community Property with Right of Survivorship
As a community property state, California gives spouses and registered domestic partners the option to hold real estate as “community property with right of survivorship.” With this designation, the co-owned property is treated in the same way as joint tenancy in that the surviving spouse automatically gains full ownership of the asset after the first spouse’s death — but most importantly, the surviving spouse does get the benefit of the double step-up in tax basis.
Setting up a trust is the most flexible and powerful method of avoiding the probate process and should be considered for any California resident who owns a home or otherwise has more than $150,000 in assets. It functions like a will in that the assets can be distributed according to the grantor’s (or creator’s) wishes upon his or her death. Assets are held in trust and not subject to probate. Unlike a will or joint tenancy, a living trust has provisions to handle the management of property after death or incapacity.
To figure out which of these probate avoidance methods are best for your family, consult an experienced estate-planning attorney. While some of the simple (non-living trust) strategies outlined above may help to avoid probate, they are often only suitable for modest estates, simple family structures (not blended families), or families with beneficiaries who have special needs.
Curtis Kaiser, JD/MBA, a certified specialist in estate planning, operates Kaiser Law Group, a boutique estate and business planning firm focused on helping families and small business owners efficiently plan for their futures.