Although most people request an estate plan that helps avoid the lengthy probate process, not everyone actually understands what that means. Avoiding California probate court does not mean avoiding estate taxes. If you are looking to avoid California probate court, here are four ways to accomplish that.
First, understand the purpose of probate
Basically, probate is a legal procedure conducted by the California probate court in order to transfer ownership of assets to beneficiaries after someone dies. Put another way, probate is the last resort for distributing an estate when the property has not been transferred by trust, will or some other estate planning tool.
Four devices for avoiding California probate court
In California, there are essentially four ways to transfer ownership of the assets in your estate, without going through probate. They include through operation of law, by contract, with a trust, or through summary probate. When these methods are used correctly, you can usually avoid the lengthy and often expensive process of probate.
Transfer of an estate by operation of law
Under California statute, there is a set of rules referred to as the California Multi-Party Account Laws. These rules establish who owns the funds that remain in a bank account, upon the death of the bank account holder. The decedent’s share of the funds will be distributed according to the terms of the contract with the bank, or by operation of law to certain survivors. Once the death certificate is submitted to the bank, a new account is opened in the name of the survivor and probate is not required. Caution must be exercised before using this method as it may be inappropriate for transfers to certain other beneficiaries, including minors, persons with disabilities, etc.
Transfer of an estate by right of survivorship
In cases where two individuals hold title to property in “joint tenancy,” they designate themselves as the individuals who will have full ownership upon the death of the other. This is known as a “right of survivorship.” Spouses in California are also allowed to own community property with right of survivorship. Unlike joint tenancy though, any community property that does not include the specific designation “by right of survivorship,” does not pass by survivorship. Instead, it is distributed according to the terms of the decedent’s will. The right of survivorship applies to both personal and real property. But, it does not apply to bank accounts, which are governed by the Multi-Party Account Laws instead. Again, caution must be exercised before using this method as it may have certain unintended consequences, e.g., exposing one’s assets to the problems of the co-owner (creditors, divorces, etc.) and loss of certain tax benefits.
Transfer of an estate by designation of beneficiary
The California probate statute also includes the Nonprobate Transfer Rules. This rule authorizes transfers by beneficiary designation. The most common kinds of beneficiary designation transfers are life insurance policies and retirement accounts. When the insured or the employee passes away, the funds in these types of accounts pass on to the person designated as beneficiary. The Nonprobate Transfer Rules also govern Transfer on Death (TOD) and Pay on Death (POD) securities. As with Multi-Party Accounts, caution must be exercised before using this method as it, too, may be inappropriate for transfers to certain other beneficiaries, including minors, persons with disabilities, etc.
Transfer of an estate by trust agreement
Estate assets that are transferred to a trust will avoid the probate process because the property is transferred to the name of the trust, to be later transferred to the named beneficiary upon your death. The trustee is the person who is responsible for managing the property until that time. Although, historically, the trustee was required to be a third-party, the law has changed and now the grantor can also serve as the initial trustee. For many situations, this is the preferred alternative for, among other things, avoiding probate. When properly created, the trust avoids many or all of the problems associated with the other methods discussed above.
California’s summary probate procedure
The Probate Code in California allows for summary probate procedures, which provide an abbreviated process. Basically, the terms of the decedent’s will are followed to distribute the assets, without the need for a full probate proceeding. Summary probate can be a less expensive and less time-consuming. In order for an estate to qualify for this procedure, the estate must fall into one of these categories:
- personal property does not exceed $150,000 in aggregate value
- real estate is valued at less than $50,000
- real estate is valued at less than $150,000
- the asset passes under the will or by intestate succession to the surviving spouse
Requirements for summary probate proceedings
No court filing is required in summary probate and the transfer of property only requires an affidavit signed by the beneficiary and/or an appraisal. Though a California probate court hearing is required, a complete probate process can still be avoided. If the assets will be transferred either by will or intestate succession, to the surviving spouse only, then the transfer can be completed with a simple petition and court hearing.
If you have questions regarding California probate court, or any other estate planning needs, contact the Northern California Center for Estate Planning and Elder Law for a consultation, either online or by calling us at (916) 437-3500.
- Protecting Your Assets in Retirement: Estate Planning Tips - March 27, 2023
- Estate Planning for Small Business Owners - March 25, 2023
- The Consequences of Not Having an Estate Plan - March 23, 2023
