Learning how to avoid probate in California is essential. Take the right steps by reducing the estate, joint ownership and leveraging trusts.
The probate process can be lengthy, costly, and stressful. The larger and more complicated the estate, the more these adjectives apply. Yet, there are ways to circumvent, expedite, or even skip probate in the state of California – provided you played your cards right while still among the living.
What is the Probate Process?
The probate process is the legal process by which a court legitimizes a will and oversees the distribution of a deceased person’s belongings among their heirs and beneficiaries. Probate courts are also a place for inheritance disputes to be settled, a place to address and tackle estate litigation, and a place for creditors to file claims against the estate. So how can you avoid probate in California? Let’s find out.
When we die, we can’t just give what we own to our kids without going through the proper channels. Probate courts exist to ensure that an estate is distributed both as per the law and the decedent’s wishes – and if the decedent did not leave behind a legal record of their wishes (i.e., dying intestate), it ensures that the estate is divided as per local succession laws.
The probate process in California can take anywhere from eight months to well over a year. The reason probate takes so long is that there are many moving parts to consider – especially with larger estates.
Once a petition is filed for probate to begin, the court will ask a personal representative of the estate to start notifying creditors via public announcements (through local print media, usually) or by directly contacting them, alongside the heirs and beneficiaries.
It will also be the representative’s job to manage the properties and assets within the estate, communicate with beneficiaries, hire professional valuation services to get an accurate market value on different assets and properties and coordinate with attorneys to navigate the legal responsibilities of the probate process.
It’s plain to see that probate can be difficult and costly. While there are limits to how much an attorney and personal representative can be financially compensated for their probate services in California, these can be significant amounts. There are also the factors of time and stress.
That being said, while probate is legally necessary, it is only legally necessary for assets and properties that must pass through probate. There are ways to shorten that list. Doing so can be immensely beneficial, as California allows you to opt for a much shorter and expedited form of probate via affidavit for an estate with a total value of less than $166,250 at the time of death.
Reducing the Estate Before Death
No, you don’t have to sell everything you own before you die. Neither should you go on a gifting spree – although you should consider taking advantage of your annual gift tax exemption limit towards the later years in life.
You have the option of giving away at least $15,000 a year to your loved ones without incurring the ire of the federal tax man and without impacting your lifetime exemption limit on federal estate taxes. This annual exemption limit is subject to change, but assuming it remains the same, this would allow you to reduce the heft of your estate over time.
Leveraging Trusts for Probate
Aside from making gifts to your loved ones, another way to reduce the size of your probatable estate before death is to place assets and properties in living trusts.
These are arrangements wherein a legal entity is defined and created by a customized trust document and managed first by you (the grantor) and then by a designated trustee. It will be the trustee’s job to continue managing the contents of the trust as per your wishes until the time comes to distribute it among the trust’s beneficiaries
Unlike wills, which detail how you would like your estate to be divided and distributed after death, trusts can be used to manage income-producing assets for your loved ones for years after your death.
You can even use trusts to gate certain inheritances behind prerequisites for your beneficiaries, such as a college diploma or a certain age, or to create a trust fund for the benefit of a special needs adult.
Of course, the more complex the trust, the more it will cost to maintain. But even lightweight trusts may help you save your family more time and money than an extended probate process.
Why do trusts bypass probate? Because assets within a trust are managed by a trustee and held in the name of the trust. This is crucial to making a trust work. You must fund the trust by actively renaming deeds and amending ownership papers to reflect that the asset in question is held by the trust rather than yourself.
Living trusts do not provide tax avoidance benefits all on their own, however. Only certain irrevocable trusts, which place a much greater distance between you and your assets, even while you are still alive, can let you exempt certain assets from the federal and state estate tax.
Joint Ownership and Beneficiary Designations
Another way to help certain assets bypass probate in California is to take advantage of state community property law and forms of joint ownership to allow property to automatically pass into the hands of a loved one after death.
Because California is a community property state, all property acquired in marriage is jointly owned by both spouses. If one spouse dies, the surviving spouse becomes the sole owner of the community property. There is no need for this property to pass through probate.
Similarly, property owned in joint tenancy with the right of survivorship allows the co-owner to automatically become the sole owner after the other co-owner dies.
When more than two people own property, the share left by the decedent may be split evenly among the remaining parties or may be given to a designated beneficiary (one of the other parties or one of the decedent’s heirs).
Other examples of how designated beneficiaries can help you bypass probate for certain high-value assets and properties.
California allows you to create transfer upon death clauses for specific properties, vehicles, and other assets (such as stocks and bonds), meaning that item will automatically transfer to the designated beneficiary upon the original owner’s death. The same goes for bank accounts via payable upon death designations.
How To Avoid Probate in California: Final Thoughts
Trusts, beneficiary designations, and joint ownership are just a few of the ways you can significantly reduce the size of your estate for probate. Want to learn more on how to avoid probate in California? Give us a call to discuss the ideal estate planning options for your circumstances.