When we die, the things we owned in life must pass on to the living. Aside from very minute exceptions – like being buried with your car – there is little you can truly take with you “beyond the grave.” To that end, there are special processes in place to facilitate the distribution of your estate after death, especially in the case of a no-will death or dying intestate.
When you pass away, and your loved ones receive your death certificate from the physician who formally announces your death, that certificate can be used to petition the local courts to begin the probate process. This is the process wherein a court determines the legitimacy of a person’s last will (if it exists) and oversees the process of inventorying and distributing their personal property.
While complex, this process is needed to ensure that property is passed on as per the letter of the law. Your input as decedent only matters insofar as it can be proven that you created and signed a will detailing how you would like your estate to be handled and distributed. Otherwise, your property is passed on as per the intestate succession in your respective state of residence.
But not all property is solely transferrable through the probate process. There are forms of non probate transfer in all states, including California.
What is the Probate Process?
The probate process begins when a court answers to the petition to begin probate, as initiated by a decedent’s loved one or personal representative, be it a relative, a close friend, or their former attorney.
In California, probate can last anywhere from six months to well over a year but may be expedited in cases of smaller estates through a special Small Estate Affidavit, which can significantly shorten the process in case of estates where the total value of a decedent’s property (minus a few exempt assets) is $150,000 or less. This affidavit must be filed before the probate process starts.
Once probate begins, the courts will elect a personal representative to act as the executor of the decedent’s estate. This is essentially the person with the authority to manage the logistics of inventorying and distributing the entirety of the decedent’s personal affects.
Their job includes contacting all beneficiaries and creditors, putting out official notices on public channels (such as a local newspaper) to provide creditors with the opportunity to lay a claim on the estate, hiring a valuator to make a total tally of the estate’s value, managing personal property until it can be distributed, managing the decedent’s final affairs (such as the final tax return if the decedent was filing single), and finally, distributing the estate as per their will or intestacy laws.
What Does Non Probate Property Mean?
The probate process can be lengthy – the more complicated the estate, the more complicated probate. There are a few ways to shorten the probate process, or at least prioritize certain items to ensure that they pass on to your loved ones without going through probate and delaying the distribution of your assets.
These non probate transfers can help you minimize the size of your estate before probate, expediting the process entirely – and ensure that certain property with significant upkeep requirements is passed on to the right people upon your death, with minimal delays.
Non probate transfers in California come in several flavors, but the most immediately obvious is a transfer through community property. If you are married before death, then any property owned jointly through marriage will be transferred in full to your surviving spouse without first going through probate.
This wasn’t always the case – before 2001, property owned jointly in marriage would still have to pass through probate before it could be completely owned by the surviving spouse. But since the beginning of the 21st century, most community property is effectively co-owned with right of survivorship, meaning the co-owning party becomes the sole owner if the other owner dies, without any intervening bureaucracy or overly complex paperwork.
This is not the only way in which property can be transferred upon death without probate, however.
How Do You Facilitate a Non Probate Transfer?
Non probate transfers can be facilitated through a number of avenues. Let us go through them one at a time.
Beneficiary designations are a simple yet effective way to bypass probate by naming an immediate beneficiary to any eligible account, property, or item. For example, you can name a beneficiary for your car deed in California, so that your vehicle is automatically transferred into the ownership of your beneficiary upon death.
More practical examples include life insurance policies – their payouts can be immense and are usually used to pay for funerary costs and help provide a windfall for family members in the event of your untimely death. Adding a beneficiary to your life insurance payout ensures that its total is not added to the value of your estate.
If you die before you can fully empty out your retirement savings, you can name an individual or organization (like a charity) as beneficiary of the remainder of your 401(k) or IRA. In some cases, you can make entire bank accounts payable-upon-death (POD) or make certain other property transferable-upon-death (TOD). These designations are sometimes called Totten trusts.
Property co-owned in marriage is transferred to the surviving spouse in California. In this way, the probate process is largely focused on your personal property, i.e., property owned before marriage, or received as a gift or inheritance specifically towards you.
The same rules go for joint property held with right of survivorship. This is another form of beneficiary designation that ultimately bypasses probate administration.
Making Sense of Trusts
Living trusts are another common way to transfer property outside of probate – but because they require continuous management, they are also usually the costliest way to transfer property outside of probate. This means you should consider a living trust after exhausting other methods, or for certain property that requires special management and consideration.
Why Does This Matter?
The probate process can be lengthy, and minimizing it can help ensure the swift and efficient distribution of your assets in death. However, it is important to note that just because some of your property bypasses probate does not mean it is automatically safe from creditors. In California, non probate property may still be held liable if a creditor has a valid claim, meaning your spouse may still be asked to cover for your debt even after receiving your property outside of probate.
If you are at risk of dying with debts, then you may want to consider certain methods of asset protection for property that you do not want any claims laid onto, such as an asset protection trust.