Probate Attorney, David A. Casey

Serving El Cajon and San Diego County

Located at:

365 Broadway, Suite 203.  El Cajon, California

Telephone (619) 447-6780  - E-mail:  Familylaw1@aol.com

PROBATE IN CALIFORNIA      

Most people have heard of the word  "probate" but very few really understand what it means. Over the years Probate has received a lot of bad comments.  Not all estates need a Living Trust.  When the estate is over $100,000 total value you should think about having a trust prepared for you.  Let's fact it, most of us want to avoid the hassle, time, and expense of this process. .

Probate is not designed to be attorneys but the state in which you live in.  Most attorney would rather draft a document that avoid probate whenever possible.  The probate process can be avoided and should be avoided if you estate is over $1000.000,  but most people do not take the time or effort to understand what this process is and how it can be avoided.

Probate is a legal process whereby the Superior Court or Probate Court validates the deceased person's will or determines that he or she died without a will.   When you don't have a will then the laws of  intestacy become into play?    What probate is all about is transferring property, real and personal to someone else.   The probate process is to prove up that you are entitle the to property over someone else or the State of California.  Most of the time this is not that difficult to prove but it is still a lengthy process.
 
When a person dies without having executed (signed) a will, the person is said to have died "intestate." This does not mean the hairs will not received his or her property but there are special rules that apply who get what.  Laws of intestacy are state laws that specify who will inherit the property (i.e. the decedent's probate estate) of a person who dies without a will. If the estate is of any value you should hire an attorney to help you with the legal paperwork.  In many states, the surviving spouse and children inherit the property of a spouse/parent who has died without a will. But again you do need to consult an attorney for legal advice.

 The court after your attorney file the necessary paperwork will appoints someone to handle the decedent's assets, determine the values and pay the bills owed at death or to reimbursed family members for the cost of the furmal.  That someone is referred to as an executor, executrix, administrator, or administrator depending on the circumstances and the state you live in..

Another purpose of probate laws is to see if anyone was owed money at the time of death so the creditor can come forward and make a claim to receive payment based on a valued claim. There is a fixed statutory period of time for creditors to come forward and demand payment.  If they fail to do so then they probably will not get paid. Not all creditors will put in a claim since times came be costly for them. 

TAXES, the probate process is designed to see that taxes are paid. Income taxes and personal income tax return up to the date of death must be paid our of probate. Also if there is any Income such as rentals, IRS, or any other income collected during probate period will requires the filing of a separate estate income tax return and the payment of tax if any is due. If the person that past away  owned over $1,500,000 to $3,500,000 (depending on year of death under the current tax laws) 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.  The federal laws on estate tax is always subject to change.

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 intestate succession, if the decedent past away without a valid will.

While not all assets that the decedent owned are subject to probate, the following assets are subject to the probate process:  Assets in the deceased person's name alone.

One-half of each asset registered as community property in the decedent's name with his or her spouse.

California law 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 these assets. The $100,000 figure does not include vehicles and certain other assets.

As mentioned, not everything is subject to probate. Even though there may be a probate for a portion of assets owned, the following assets are not subject to the probate process:

 - Assets held in a form of a  living trust or one of the other common trust such as a A B trust.

 - Assets in a bank or savings and loan account in the deceased person's name as "trustee" for someone else. (This could be part of a trust.)

 - Assets such as life insurance,  IRA benefits, where a beneficiary is named. (if the decedent has name another person as a beneficiary then that portion is not normally part of the Probate in California)

 - Assets  held in joint tenancy with another person or persons. (Joint tenancy does not have to be with spouse).

 - Assets that 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  a living person.  (These are  not assets that are named in a will.).

 - 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 passed by intestate succession to the surviving spouse, no probate is necessary.

 - Assets registered by husband and wife as "community property with right of survivorship."  (Similar to joint tenancy.)

    In California we have a  legal process referred to as a "spousal confirmation proceeding." Here, a petition is filed with the probate  court, notice is given to certain persons or 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 and where the estate is NOT contested.

For example, Ms. Doe has $200,000 of separate property bonds in her  name alone.  She has a will which leaves everything to her Spouse (Husband). Her Husband can use the spousal confirmation proceedings. The advantage when this method can be used is that there is NO fixed fee as in  probate, furthermore, the process takes approximately 30-60 days instead of 9-12 months as in most probate proceedings.

When someone dies, the first and foremost question is whether there is a need for a  probate proceeding. If all of the assets are in a living trust or joint tenancy, A-B trust then the answer most likely will be no.  However, If the deceased person has more than $100,000 of assets (this can be in form of real property)  in his or her name alone,  and there is no surviving spouse,  or assets were not left to the spouse, then probate is necessary.

The next question is, who will act as the executor? If the decedent left a will, he or she named someone in the will as executor. It can be one or more than one person.  That person or persons do not have to live in California or be a United States citizen or resident. A friend or  family member can serve,  including all  the children who would serve jointly, or a California bank or trust company may serve. No one has to serve if named.  Also, the person named does not have to accept the responsibility and duties of an executor.  It is not uncommon that the person name may decide not to serve.

If there is no valid will, then the nearest relative or relatives have the first right to serve or to nominate someone else to serve if they decide not to.  If there is no will, the person appointed by the court is called an "administrator" not an executor.

Occasionally, someone will die with a valid will, but the will does not name an executor, or does not specify an alternate executor and the person named is deceased or will not serve for example health reasons. Or possibly a bank is named but is unwilling to accept it since the estate is  not large enough for the bank to make a profit for the time required.  The court then normally appoints the nearest relative who inherits under the will. That person is referred to as an "administrator" with the will annexed. There are a lot of terms used in probate matters such as "executor" and "administrator".   Your attorney will keep everything in order so don't let all of the legal terms confuse you.

Just remember,  "executors" and "administrators" all have the same duties once they get appointed even though their titles are different.

To start the probate process it is necessary to file a petition with the Superior Court.  This is done in the county where the deceased person lived at the time of death.  This petition also sets a hearing  approximately 30 days after it is filed.

A "Special Administrator" can be appointed within 24 hours to act within the 30 day period if  there is an emergency to do so.  This person handles estate assets until the executor or until an administrator is appointed.  Most of the time, it is due to a business that needs to be kept operational during that time period and the only  signer on a business bank account was the person that passed away. Salary and ongoing expenses  have to be paid immediately, thus a need for  a special administrator. 

After the petition is filed, a notice of the court hearing must be published three times in a local newspaper.  Furthermore, a notice of the court hearing must be mailed at least 15 days prior to the hearing to everyone named in the will, plus all of the deceased person's heirs at law (these are people that would have the right to  inherit if he or she died without a will).  Also the attorney will mail the notice to the any other alternate executors named in the will.

WHAT IS SELF-PROVING?  If the will has the special wording  "self-proving" at the end where the witnesses sign, then it may be considered "self-proving" and no additional statements from the witnesses  are necessary. If the will lacks the required language of  "self-proving", then a statement must be obtained from one of the witnesses to the will.

Hopefully, a witness can be located. If not,  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 under oath  proving the will.

DO I HAVE TO POST A BOND IF I AM A EXECUTOR OR ADMINISTRATOR?      If the will does not waive a surety bond, then the executor or administrator MUST  post a surety bond. The surety bond is similar to an insurance policy which insures the estate if the executor or administrator does something improper,  or steals from the estate.  A premium of approximately $200-800 is paid out of the estate assets.   In a large estate, it can be much higher.

At the first court hearing, if everything has been done and there are no objections, the court will admit the will to probate and appoint the executor or administrator.  Most of the time there are no objections.  But since there are many blended families now, children of former marriages, etc., objections are becoming more common.

After the appointment of the executor or administrator, a legal document called  "letters testamentary" or "letters of administration" will be filed.   This is signed by the person, and he or she agrees to act as executor or administrator.  This is very important later on when taking legal action or transferring assets, other third parties will want a certified copy of these "letters" showing that the person has the legal authority to act on the behalf of the estate being probated . These "letters" cost approximately $7 per copy to be certified.

Since the estate is in probate, there are assets that need to be gathered or collected on.  Thus, after the appointment, the executor or administrator must take possession of all of the decedent's assets subject to the  probate process. All assets in joint tenancy,  living trust or other form of trust, or  assets subject to a beneficiary designation are not part of the probate and are not collected.  Title may need to be changed.

The executor or administrator will need to change title to the assets and to put these assets in his or her name as executor or administrator.  This is to ensure there are clear titles when the properties are sold.  Stocks,  Mutual Funds, Bonds, brokerage accounts, bank accounts, real property, vehicles, ATV's, jet skis, mobile homes,  RV's  and other assets should be changed over also. 

After all of the assets have been ascertained, it is necessary to prepare an inventory listing of these assets.  At the time that the executor or administrator was appointed. The court also appoints 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 VERY SMALL  (1/10 of 1%) fee or $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 $300,000, even though there is a $180,000 mortgage on this home, the referee values it at $300,000 and receives a $300 fee for this.

Most of the time they will place the value on the lower side of the fair market value.  If there is any disagreement, there are legal procedures for contesting the referee's value if someone does not believe it to be accurate (either under valued or over valued).

The appraisal of all of the assets is supposed to be filed with the court within four months of the executor's or administrator's appointment.  It is important to get this done as soon as possible.

Payment of bills and debts are very important.  When the executor or administrator is appointed by the court and obtains money, bills can be paid.  Funeral expenses, utilities, credit cards and other bills can be paid without any special legal formality.  However, good records MUST be kept of all expenditures made on behalf of the estate.

Anyone can  submit a creditor's claim in the estate. This is a legal form which must be completed by the creditor and approved by the executor or administrator.  It is important that all creditors be notified so there will not be future problems. Most of the time the executor or administrator wants this form submitted by a creditor then a notice must be sent to the creditor.

Claims must be submitted within four months of the executor's or administrator's appointment unless there is some special reasons for not doing so. . 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. If the Creditors fail to submit the form within the time period and was notified, then most of the time they are out of luck for not filing in a timely manner.  The claim by creditors can not be filed later than one year after the executor's or administrator's appointment.

When a creditor's claim is rejected by the executor or administrator, the creditor must file a lawsuit within three months of the rejection or lose all rights to later sue and prior to the filing of said suit, the creditor must have filed a claim.

If Jane Doe was in an automobile accident and died, and other parties wish to sue her estate, they must file a creditor's claim within the required statutory period before they can file a lawsuit to recover damages for her death.

Most estates do not involve any creditor's claims unless the person has been living far above his or her means. The executor or administrator pays the outstanding bills and no one objects.

Most of the time it is necessary and practical to sell some or all of the estate assets. Assets may have to be sold to pay taxes, pay past due obligations and other debts. Or the home may be vacant and the children do not wish to inherit it, so it is sold during probate so the funds can be divided as per the terms of the the valid will.

There are two methods of selling assets in a probate proceeding, which the executor or administrator may chose. One, is to obtain court approval prior to any asset being sold. When you have stocks, bonds, mutual funds which will be sold, a court order is necessary before selling them.  This is also for the protection of everyone.  If real estate is sold, a court hearing must be held and anyone may offer a higher price for the property.

Second, is where the executor or administrator may sell assets under a provision of California Probate law referred to as the "Independent Administration of Estates Act."  Under this provision  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 there are no objections, then the sale can proceed. If someone objects, then the court must be petitioned for approval the same as above.

Following the appointment, the executor or administrator should make 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. In other words, to ensure there is enough money to pay everyone.  If there is not sufficient cash available, then a decision must be made to determine  what assets need to be sold.   If there is sufficient cash available, then a decision must be made as to whether larger assets such as the home, stocks should be sold.  In a down market, many times holdings will bring much more money later.  

After the decision is made to sell assets and to proceed with the sale it makes little sense to allow the home to remain vacant for another six to nine months and then put it on the market for sale. Most of the time we suggest that if a home is going to be sold, it should be placed on the market within 30 days of the appointment.

The executor or administrator is responsible and liable to see all of the taxes due the federal government and the State of California are paid.  He/she is NOT  usually personally liable for an untimely error, his liability will extend to the assets which are in probate.  In other words, there could be a loss of assets due to his errors.  If the executor or administrator distributes assets and the Internal Revenue Service or California Franchise Tax Board assesses a deficiency, he/she is liable for the value of the assets distributed. So tax liability must be paid first prior to any asset distribution whenever possible or at least the funds are put aside for payment.

One immediate concern of most executors or administrators is who will handle all of the tax work involved? It can be the executor or administrator if they understand the tax laws or  they are willing to take the time to do so.  My office, as the attorney, could handle it for an extra fee.  More likely it will be the tax preparer, enrolled agent or certified public accountant who handled the decedent's tax matters prior to death. This is normally the best option.  Whoever it is, must be skilled enough to prepare and file all of the required tax returns in a timely manner.

If a person dies with over $1,500,000 to $3,500,000, in assets and depending on  year of death, an estate tax return must be filed within nine months of the decedent's death. An extension is possible for another six months when necessary.

Any amounts left to  valid and qualified charities or left to the decedent's spouse (MUST BE A  United States citizen) are exempt. Debts  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 payable. A good reason to have a trust especially in California where real property can put a average person into this level.  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.

Even when someone dies, an income tax return has to be filed for the year of death.   For example:  Mary Doe 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.

Any medical 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 death.

The decedent's 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.

As previously 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. 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 distributed.

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 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 shall 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 court.

As previously 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.

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is not intended to and does NOT constitute legal advice copyright ©2006  

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