Should I have a Will?

You already have a Will. Surprised? Either you have written your own Will or the legislature of the state where you reside has written one for you. If you want to depend on the politicians of your state to decide who will settle your affairs and who will receive all of your assets, then you do not need to do anything further. If that thought makes you even a little uncomfortable, you may want to consult an attorney to be sure you, and not your state legislators, make these crucial decisions.

What does a Will do?

A Will names the person(s) you select to administer your estate at your death- your "Executor"- and it names the persons or organizations whom you select to receive your assets- your "Beneficiaries". If you have minor children, it also names the person(s) you select to be the guardians of your children after your death.

A Will does not, however, give your Executor the power needed to gather up your assets or to make legal decisions on sales or distribution of assets. The power to make the Will work only comes from the Superior Court in a legal process commonly known as "Probate".

What is "Probate"?

"Probate" is the mandatory court proceeding which winds up all the legal and financial affairs of a decedent.

If you have executed a Will, the Probate Court reviews it and rules on its validity. It oversees the actions of the Executor, who pays off all creditors and inventories all the assets. Finally, the Court approves the change of ownership of your assets to the beneficiaries named in your Will.

If there is no legal Will, the Court appoints an Administrator (much the same as an Executor), who is usually your legal next of kin, oversees the actions outlined above, and distributes the assets to your legal next of kin, who may not be the person(s) to whom you would have wanted them to go.

Are There Advantages to Probate?

Because the process is conducted under the jurisdiction of the Superior Court, there is supervision of the court over the distribution of the assets. The Executor must account to the Court for all expenses and distributions, and must obtain neutral appraisals of all property. If you are concerned that there is no one you know who would settle your estate honestly, fairly, and efficiently without Court supervision, then the Probate provides you with the assurance that your Executor will be watched over by the Court.

Are There Disadvantages to Probate?

For the benefits of Court supervision in Probate, your heirs will pay a heavy price:

  • Excessive Fees: Attorney's fees, Executor's fees, appraisal fees. Court filing fees, and bond premiums. These can total from 4% to 10% of the gross estate. It is not required that your Executor use the services of an attorney in settling your estate, but, if the Executor is required to go to Court to settle the estate, it is highly unlikely that your Executor will know how to go to Court. Most people have no knowledge of the forms and procedures required, and have no alternative but to hire an attorney.

  • Excessive Delays: Probate in California often takes between nine months and two years to complete depending upon the complexity of the estate. This is not because it normally takes this long to settle someone's financial affairs, but because the court's schedule often determines when each step may proceed, creating a lot of delay. In addition, the Court is required to follow a pre-determined set of steps, even if some of them are not absolutely necessary in a given case.

  • Public Record: Every detail of the decedent's financial life is available for public scrutiny at the County Courthouse, including the name, address, and amount of bequest of each of the beneficiaries. There are a number of individuals and companies, selling a number of different products, who delight in learning who has just come into a large sum of money.

  • Psychological Impact: Inflexible Court proceedings are a constant reminder of the death of a family member or close friend. The grieving process is not helped when the process of settling the estate drags out over many months or years.

  • Possibility of Will Contest: Opening a Probate Court proceeding provides a forum for disgruntled relatives to challenge the validity or provisions of the Will. In many cases, these persons will file dubious claims, knowing that the estate will be tied up until their claims are decided, adding more delay and expense, and hoping that they will be offered a settlement in exchange for dropping their claims.

  • Out-of-State Property: A separate Probate must occur in every state where the decedent had any interest in real property. In our modern world, we don't consider it unusual to own our primary residence in one state and maybe a vacation home, time share, or rental property in another state. If you have inherited any real property from your parents or other relatives, this may also be in some other state. In these instances, your Executor would have to open an additional Probate case in each state, assisted by an attorney in that state, and subject to the laws of that state.

How are Probate Fees Calculated?

In California, state law allows the attorney who handles a Probate case to charge a percentage of the estate as his or her fee. The percentage is set by law, and is based on the gross estate. If there are mortgages or other bills that must be paid, these will reduce the estate, but will not reduce the attorney's fees. Therefore, it is not unusual for the attorney's fees to comprise a significant portion of the net estate.

The statutory fee only covers the basic process of Probate. If the attorney performs any additional services, such as assisting in the sale of real property or a business, defending the estate against any will contests, providing estate tax assistance, or other activities not included in the basic process, the attorney can charge additional fees for these services.

In addition, the Executor is also allowed by statute to claim a fee equal to the attorney's fee. Many Executors are also the beneficiaries of the estate and waive their fees, but they are under no obligation to do so.

California Probate Code allows the following fees for attorneys and Executors:

4 % of the first $100,000 of gross value of the probate estate;
3 % of the next $100,000;
2 % of the next $800,000;
1 % of the next $9,000,000;
1/2 % of the next $15,000,000;
and a "reasonable amount" (determined by the court) for everything above $25,000,000.

Example: An estimate of $400,000, consisting of one piece of real estate valued at $200,000, and bank accounts and stock valued at another $200,000, would generate an attorney's fee of $11,000 and an Executor's fee of $11,000, for a total of $22,000 in fees. If there were a mortgage of $160,000 on the real estate, and bills of $50,000 for medical bills, funeral expenses, credit card balances of the decedent, etc., the net estate would be $190,000, and the fees would represent almost 12% of the total amount that could have gone to the Beneficiaries.

Can I hold my property in joint tenancy to avoid probate?

Property, whether real estate, stocks, bank accounts, or other items, held in joint tenancy does not need to be supervised by the Probate Court when one of the joint tenants dies. Most married couples hold their real estate in joint tenancy. This may be no problem when the first spouse dies, but if the surviving spouse then adds one or more children onto the real estate as joint tenants with the surviving parent, there are a multitude of problems that can ensue.

First, the child becomes a co-owner with the parent, meaning the parent cannot sell or mortgage the real property without the concurrence of the child.

Second, if the child dies before the parent, the parent just has the property back in their own name again, still subject to Probate.

Third, because the child is now an owner of the property, it is subject to the claims of any creditors the child may have.

Fourth, if the parent has more than one child, but puts only one child's name on the property, only that child will own the entire piece of property at the Parent's death. If the child attempts to share the ownership with the other children, the child will be subject to potentially high gift taxes when he or she gives part ownership to the other.

Finally, and often most importantly, most real property has appreciated in value while the parent owned it, and therefore is subject to capital gains tax if the parent sells it during his or her lifetime. If the parent passes on the real property to the children at death, this appreciation will disappear and the children will receive a stepped-up basis in the value of the property for capital gains tax purposes. If the parent transfers any interest in the property to children before his or her death, the original basis is also transferred, potentially subjecting the children to many thousands of dollars in extra tax if the house is sold after the parent dies.

Can I create My own Trust?

Sure, if you know how. There are many books on the market on Revocable Living Trusts and there are many blank forms and computer programs for sale. The real question is: should I create my own Trust? Probably not; it's much more complicated than most of these do-it-yourself books would lead you to believe.

I see it as much the same as buying a book to fix my car. If I can read the book and follow the step-by-step instructions, I can overhaul my engine. Do I actually do this? Of course not. Primarily, because it would take a detailed study of auto mechanics to fully understand everything the book is telling me and to feel completely confident in my ability to complete the job thoroughly and safely.

I occasionally have clients come to me to create their Trust after spending many hours trying to create one themselves, but never feeling completely sure that they had included all the necessary information. If they spend as little as 60 hours on study and drafting and value their time at only $20 per hour, they have already passed my fee, and still don't have a document they have confidence in.

Back To Main | Firm Profile | Living Trusts | Contact Form