What is Probate and How to Avoid It

By Miguel Torres

Partner, Miles & Torres Associates

Probate is one of those legal processes shrouded in myth. It conjures images of a maze of bureaucratic hurdles and money flying out the window to pay for legal fees.  Well, the myths are not far from the truth.  Probate can take a long time and it is expensive!  Fortunately, there is an easy and affordable way to avoid it – set up your estate plan. 

Let’s start by defining the term “probate”.  It is the court-supervised process to settle all your financial matters after you die.  In California, a probate proceeding is required if you have more than $150,000 in assets passing through a will or if you die intestate (without a will or any estate plan).  During probate, assets are identified, inventoried and appraised.  Debts and taxes are paid, and then the remaining assets are distributed to the beneficiaries. 

Up to this point, it doesn’t sound so bad, right?  The process seems fair and there is a court involved to safeguard the process.  However, the first problem with probate is that it is a lengthy process.  It ties up property for months or even years depending on the size and complexity of the estate.  In California, it usually takes 8 – 12 months to complete a simple probate proceeding. 

The second problem with probate, it is expensive. The attorney and court fees quickly add up.  Probate fees are set by statute and they are based on the gross value of the assets being probated.  For example, if you own a home that is worth 1 million but your equity in the property is only $100,000 – the probate fees are based on the gross value of your home - one million dollars.  The fees are as follows:

4% of the first $100,000 of the gross value of the probate estate;

3% of the next $100,000;

2% of the next $800,000;

1% of the next $9 million.

Moreover, generally you have to multiply these fees by two, because the attorney and executor are each entitled to this percentage, plus you need to add in filing fees, appraisal fees, etc.

For a 1 million dollar estate (common when houses are involved), even with a sizable mortgage, fees can easily hover around $46,000 or more.  This is a lot of transactional costs that can be avoided with a fairly straightforward estate plan. 

Further, if you own property located in a state other than the state where you reside, a separate "ancillary" probate proceeding may need to be initiated in that state. 

There is no doubt that probate is time consuming and expensive so it makes sense to avoid it altogether by simply setting up an estate plan.  A revocable living trust, if funded with your valuable assets, usually allows you to avoid probate.  Beyond a trust, your estate plan may include beneficiary designations on accounts and other useful probate avoidance tools.  The less fees you pay, the more property your heirs will receive. 

Please call our office for a free consultation. We can look at your assets and determine which tools will best protect your estate from an unnecessary probate proceeding.