Vehicles Providing Avoidance of Formal Probate
Contracts - Many assets passing at death are in the form of contractual obligations such as life insurance, employee benefit or pension plans, Individual Retirement Accounts, annuities, and Payable On Death accounts, etc. Such contracts provide for designating a beneficiary or beneficiaries. While assets passing by contract to a named beneficiary are not directly liable for a decedent’s debts they do form a part of a decedent’s taxable estate for death tax purposes. However, problems can arise if a beneficiary pre-deceases a decedent and no alternate or substitute beneficiary has been named. Because these assets pass directly to the named beneficiary this may place an unforeseen burden on the beneficiaries of assets which are liable for debts and/or taxes. Assets passing to a named beneficiary are generally not subject to disposition by will and as a result are not subject to probate administration. These contracts can be made distributable to a Revocable Living Trust under certain conditions.
Joint Tenancy Survivorship - On the death of a joint tenant the interest of the decedent dissolves by operation of law and legal title to the asset remains in the surviving joint tenant(s). While assets passing to a surviving joint tenant are not directly liable for a decedent’s debts theydo form a part of a decedent’s taxable estate for death tax purposes. Because these assets pass by operation of law to the surviving joint tenant(s) this may place an unforeseen burden on the beneficiaries of assets which are liable for debts and/or taxes. Assets passing by operation of law to a surviving joint tenant are generally not subject to disposition by will or trust and as a result are not subject to probate or trust administration.
Note: Placing assets in joint tenancy as an estate planning technique to avoid probate can have adverse lifetime consequences. Once title to an asset is placed in joint tenancy it cannot be removed from joint tenancy ownership or sold without the other joint tenant’s consent. Creating a joint tenancy in order to avoid probate can also result in gift tax and real property tax issues.
Community Property By Right of Survivorship - Similar to joint tenancy this form of title can only exist between spouses. It allows transfer to a surviving spouse by a simple declaration signed under oath by the survivor. It retains certain estate tax advantages which might otherwise be lost through joint tenancy ownership while retaining many of joint tenancy’s advantages.
Spousal Set-Aside - In California, assets held in a decedent’s name alone but passing to a surviving spouse by will or by operation of law can pass free of formal probate by a petition to the probate court. Community property and the decedent’s separate property passing to the surviving spouse remain liable for the decedent’s debts.
Small Estate Set-Aside- There are a small number of specific provisions of California law which provide for the settlement of estates having small value without resort to a formal probate. The most noteworthy of which is the distribution of estates owning no real property and having total personal property assets having a value of less than $150,000 (exclusive of the value of motor vehicles and other exempt assets) by affidavit. The recipients of such property remain liable for the decedent’s debts. There are also provisions for the transfer of real property having a value of less than $50,000 as well as provisions for payment of unpaid wages and benefits to family members.
Revocable Living Trust - A Revocable Living Trust operates much like the contracts referred to above except that the beneficiaries remain liable for the decedent’s debts. However, the successor trustee may elect to administer a trust on the settlor’s (the person creating the trust) death subject to a limitations period for the filing of claims against the trust.
Irrevocable Living Trust - A trust which operates much like an Revocable Living Trust but contributions to which constitute a gift to the beneficiary of the trust which may be subject to Gift Tax.
Formal Probate Administration
Testate or Non-Testate - Whether or not a decedent leaves a will a decedent’s assets not subject to any of the probate avoidance techniques outlined above (or if for debt purposes the beneficiary elects to subject the assets to formal probate) are subject to formal probate administration. A person who dies with a will is said to have died “testate.” A person who dies without a will is said to have died “intestate.”
The ordinary services rendered by an attorney to the personal representative of a probate estate include, but are not limited to; obtaining the appointment of the personal representative and admission of decedent's will (if any) to probate, preparation and filing of the estate inventory from information supplied by the client, advising the personal representative regarding the necessary procedures to complete the administration of decedent's estate, the preparation and filing of a petition for final distribution, and any necessary court appearances in connection with such matters.
The ordinary services of a personal representative include, but are not limited to; collecting a decedent's assets and providing the attorney with a description of these assets, conserving these assets during the period of probate, determining and paying a decedent's valid debts, preparing a formal accounting of his or her administration, and making distribution of a decedent's assets.
The foregoing proceedings generally require a minimum of nine to twelve months.
The compensation for the "ordinary services" of a "personal representative" (Executor or Administrator) of a formal probate estate is set by statute. The personal representative of a decedent's estate, is entitled to such compensation, unless they choose to waive it. The statutory compensation for the "ordinary services" of an attorney in representing the personal representative is the same amount as the statutory personal representatives’ compensation. This compensation is computed based upon a percentage of a fee base consisting of the appraised value of the assets included in a decedent's formal probate estate, plus income received during administration, plus gains on sales during administration, less losses on sales during administration.
The compensation set by statute is currently computed as follows:
For estates with a fee base totaling $100,000.00 or less, 4% of the total fair market value of the estate assets.
For estates with a fee base totaling more than $100,000.00 but less than $200,000.01, 3% of the total value plus $1,000.00.
For estates with a fee base totaling more than $200,000.00 but less than $1,000,000.01, 2% of the total value plus $3,000.00.
For estates with a fee base totaling more than $1,000,000.01, 1% of the total value plus $13,000.00.
In addition to compensation for "ordinary services" a personal representative, or his or her attorney, is also entitled to payment for "extraordinary services." The following are some examples of attorney services which are subject to the payment of extraordinary compensation; however, please note that the list is not intended to be exhaustive and some of the items may not apply to your particular matter:
a. Attorneys' services rendered in connection with the sale of real property.
b. Representing the personal representative in litigation in which the personal representative is named as defendant.
c. Representing the personal representative in litigation concerning entitlement to estate assets, obtaining estate assets from others who have asserted a claim to those assets, and/or litigation to recover debts owing to a decedent.
d. Preparation and filing of petition for letters of special administration, and obtaining issuance of order and letters.
There is no statutory formula for determining the amount of compensation payable for extraordinary services. Usually, at the time for filing the Petition for Final Distribution of a decedent's formal probate estate, we will include an itemized statement of extraordinary services performed by the attorney and the personal representative, if any, including a statement of the time expended in performing both ordinary and extraordinary services and requesting that the court award extraordinary compensation based upon an hourly rate then charged for comparable services. Fees for such services are awarded in the Court's absolute discretion