Monday, January 28, 2008

What's So Bad About Probate, Anyway?

As I've posted previously here, living trusts are very popular these days mainly because they avoid probate. Probate is a court-supervised process where the assets and heirs of a deceased person are determined and distributed. The two most common reasons people want to avoid probate are: (1) its public nature, and (2) its cost. But depending on your estate, these two issues may not be a problem at all, and in fact, court supervision may be just what your estate needs.

Public Nature of Probate

There are two main ways that your estate could be subject to probate: (1) you have distributed your estate using a will, or (2) you don't have a will or estate plan of any kind (known in the legal world as dying intestate.) If you die with a valid will, the person whom you have named as your executor or personal representative will file a petition with the court to begin the probate process. If have no will or estate plan, the petition can be filed a family member. The administrator then goes through the process of filing a list of the estate assets with the court, and notifying creditors. After the creditors are satisfied, the estate is then distributed among the heirs. This often involves selling the estate assets, which takes time.

This all involves filing papers, including the will itself, with the court. When the papers are filed with the court, they become public record. What that means is that anyone can go down to the court house and request to view the file, and get copies of documents. This might be a big issue for you, Or, it might not. You might not care if a stranger finds out what was in your will, or what your assets were. In my post on wills, I identified some very famous and wealthy people who had wills that went through probate and are now public record. Chances are, unless you are rich and/or famous, the likelihood that a stranger is going to come down to the courthouse (if they even knew which court house to go to) to look at your probate file is probably pretty low.

If you have an estate that is subject to probate, you may want to consider whether its public nature is an issue for you. If not, then you may not need to avoid it, assuming the costs aren't too high.

Costs of Probate

Costs of probate can be a big problem if your estate is large enough. I previously posted the fee schedule involved in a probate proceeding:

4% of the first $100,000
3% of the next $100,000
2% of the next $800,000
1% of the next $9,000,000 (we've probably lost most of you by now)
0.5% of the next $15,000,000 (for the lucky few)
for estates above $25,000,000 (the luckier fewer), the fee is a reasonable amount to be determined by the court.

There is also a statutory attorneys' fees schedule which is the same, and is in addition to the probate court fees. So the total probate fees (not including the initial filing fee), would be the amount from the above schedule times two.

Let's say you have an estate of $1 million. That sounds like a lot of money, but if you bought your house in California 30 years ago, you might be in this category. The probate fees would be $23,000, and the attorneys fees would be another $23,000, for a total of $46,000, or an effective rate of 4.6%. Nothing to sneeze at.

Having a living trust, though, doesn't get you out of the post-death estate administration game. A living trust works like a will in that it gives instructions about what to do with the trust assets when you die. The estate still has to be administered, and the assets have to be ascertained (and probably sold) with the proceeds going to the beneficiaries (the equivalent of heirs in a will). Instead of an executor, this is done by a trustee, who charges a fee for his or her work. Will it cost $46,000? Probably not, but it will cost something. Will it take as long as a probate? Maybe, but administering a trust usually takes less time than going through probate.

The big difference is that there is no court supervision in the administration of a living trust. That is usually touted as a good thing, but it might not necessarily be. In a probate, the court is looking over the shoulder of the executor/personal administrator to make sure the estate is being administered per the terms of the will (or the the laws of intestacy if there is no will). The court doesn't do that where there is a living trust. If a beneficiary of a living trust thinks the trustee is not doing what they're supposed to be doing, they may have to bring a lawsuit, which costs court fees and attorneys fees and takes time. If that happens, the advantages of a living trust over a will start to fade.

Anybody thinking about setting up or updating their estate plan should consider all of the options, and discuss them thoroughly with their estate planning attorney. A good attorney will explain the ins and outs of these tools, and will tailor the plan to your needs and desires.

Thursday, January 24, 2008


John F. Kennedy. Jackie Kennedy Onassis. Leona Helmsley. Jerry Garcia. What did they all have in common? They all disposed of their estates with wills. These days, the plain vanilla will has been upstaged by the more popular living trust (see previous post). That doesn't mean that you should ignore a will in your estate plan. Wills are still a vital and important part of any plan, even if you do have a living trust, and for many people with few assets, a will is probably the best way to handle your estate.

A will is essentially a set of instructions on what to do when you die. It only takes effect upon your death. In it, you designate someone to administer your estate (known as the executor or personal representative). You also name your heirs and identify what in your estate you want them to receive. These two aspects of wills can be handled by a living trust via establishing a trustee and contingent beneficiaries. Because of certain advantages of living trusts (e.g., no probate and generally lower administration costs) living trusts have basically replaced wills for these purposes.

But wills shouldn't be forgotten. A will is the only way to establish a guardianship for your minor children. If both parents die before the children turn 18, then the court will establish a guardian for the children unless there is a valid will in place that designates a guardian. A will is also where you leave instructions for your funeral or burial, and where you set up a power of appointment. If you have a living trust, you will still need a will to transfer your assets into that trust that you have accumulated since the creation of the trust (this is known as a "pourover will").

Wills are still sometimes the best method of disposing of an estate. In California, an estate of less than $100,000 qualifies for summary probate proceedings, and may even avoid probate altogether. You can revoke or modify your will at any time (provided you still have the capacity to do so). Wills are also generally much shorter and simpler documents, and so are less expensive to prepare.

So don't give up on the humble, time-honored will as a cornerstone of your estate plan.

Tuesday, January 22, 2008

Living Trusts

S0-called living trusts are in vogue as will substitutes these days. In legal speak, they are known as inter vivos trusts, but they are also known as grantor trusts and revocable trusts. Since the purpose of this blog is to discuss estate planning issues in plain language, we'll just call them living trusts.

So just what is a living trust?

A trust is a set of instructions among three parties related to the use of property for a period of time. The person who places the property into (or "funds") the trust is known as the grantor, or trustor. The person who administers the trust, i.e., who carries out the instructions of the trust, is the trustee. The person who gets the benefit of the trust is the beneficiary.

In a living trust, these three roles are usually played by the same person. By doing this, you could place your assets into the living trust, carry out the instructions of the trust (including selling the assets in the trust or adding new assets, or revoking the trust entirely) and enjoy the use of the assets. In other words, after funding the trust with your assets, life pretty much goes on as it did before.

So why would anyone want a living trust?

What happens to the living trust during your lifetime is only the first half of story. The second half is related to what happens when you die. The living trust document contains instructions for what to do with the property in the trust when you die. This includes naming someone to carry out the instructions (known as the successor trustee) of the living trust, and a new beneficiary (or beneficiaries) who get to use the trust property (known as successor beneficiaries).

If that sounds a little like what a will does, it is. The big difference between a living trust and a will is that a living trust does not go through probate. Probate is a court-supervised proceeding where your estate is gathered and distributed among your heirs. Since it is a court proceeding, it is public, and all documents, including your will, become public record. A living trust, on the other hand, does not go through probate. It is administered by the successor trustee, and the assets in the trust are distributed per your instructions. Since a trust doesn't go through the probate process, it does not incur the fees involved in a probate. Probate fees and attorney's fees are set by statute, and depend on the amount of your estate. In California, probate fees are four percent of the first $100,000; then three percent of the next $100,000; two percent of the next $800,000; one percent of the next $9,000,000; one-half of one percent of the next $15,000,000; and a reasonable amount determined by the court for amounts above $25,000,000. Attorney's fees are based on the same schedule and are in addition to the probate fees.

If you have a large estate, your probate fees could be pretty high. For example, if you had a $400,000 estate, the probate and attorney's fees would be $22,000. In contrast, a relatively simple living trust would still incur costs to administer after your death, but they should be much less than $22,000.

Another issue is time. Probate is subject to the timing of the court, which can take six months to a year or longer depending on the court's backlog and the complexity of administering the estate. The relatively simple $400,000 trust should be administered in six months or less.

So Why Would Anyone Not Want a Living Trust?

If you have a small estate, say less than $100,000, then a living trust may not be advantageous. California law allows for summary procedures for estates valued at less than $100,000, and in some cases, probate can be avoided altogether. So if your estate is less than $100,000, the only potential disadvantage to going to through probate is its public nature. If you are OK with that, then there really is no need for a living trust.

Living Trusts are something everyone should consider, particularly if you have a large estate that would result in an expensive, lengthy probate proceeding. If, on the other hand, your estate is $100,000 or less, and you're not concerned about it becoming public record, a living trust is probably unnecessary.

In my next post, I will talk about wills, and why you need one in your estate plan even if you do have a living trust.

Monday, January 21, 2008

Estate Planning

On my website, I give a brief description of why everyone needs an estate plan. Most people believe that if they don't have many assets, or if they're unmarried or don't have children, then they don't really need an estate plan. Others may understand that an estate plan is necessary, but they're young and planning for something that is not going to take effect until after they're dead is just not a very high priority.

The reality is everyone needs an estate plan, and the sooner you put one together, the better off you will be.

So what exactly is an estate plan?

An estate plan is basically a list of instructions for certain people, selected by you, to follow upon the occurrence of certain life events. Notice that I have avoided limiting this to what happens when you die. That is because, in addition to post-death planning, a comprehensive estate plan includes instructions for many things that will happen while you're still alive. These instructions include a "living trust," trusts to protect your assets from creditors and others, trusts you establish for the benefit of charities, trusts for people with special needs, and other trusts. Other pre-death tools in an estate plan include durable power of attorney for financial decisions. If you become incapacitated and are unable to make decisions about your finances (including moving assets into a trust or paying bills), then a durable power of attorney for financial decisions will instruct someone you trust to do these things for you. You can also designate someone to make medical decisions for you if you cannot do so yourself. This is known as an Advance Health Care Directive in California.

There are a lot of other things that you can include in an estate plan, including the traditional will that sets forth who gets your assets when you die, who administers the estate during the probate proceedings, and who will take care of your minor children if both parents die before the children turn 18.

What Happens If I Don't Have an Estate Plan?

Actually, in California, a lot of things happen if you don't have an estate plan. The problem is, you won't have control over of it. When you die without a will or any other estate plan (known as dying intestate), California law determines who inherits your assets (including your spouse, your children, your parents, etc.), who will administer your estate, and who will be the guardians of your children, among other things. This can be a big deal if you are estranged from any family members and you want to make sure that they don't inherit any part of your estate when you die, or on the flip side, if there are specific individuals or charities that you make sure get some or all of your estate when you die.

Even while living, if you are incapacitated, without an estate plan you will not be able to control who makes decisions regarding your medical treatment or financial decisions. Again, the court may step in and appoint a conservator, which can be a long and complex process.

So What Should I Do?

At the very least, you should begin thinking about your estate, and what your plan would look like. The State Bar of California has more information on what to do in estate planning, including information on wills and living trusts.

In my next post. I will talk about living trust, what they can and cannot do, and when you should have one, and when you don't need one.

Hello and Welcome!

My name is David D. Little, and I am a San Francisco Bay-Area estate planning attorney. I specialize in planning for small to mid-sized estates. I also handle probate, guardianships and conservatorships in California.

I have started this blog to discuss general issues related to estate planning in California, including wills, trusts, probate administration, and handling guardianships and conservatorships. My goal is to discuss these issues in a straightforward way without using a lot of jargon or legalese.

You can find out more about me and my law practice at my website: You can also e-mail me at

Over the next few weeks, I will be posting small primers on basic estate planning tools and issues. These are intended to provide individuals with general information on the nuts and bolts of putting an estate plan together in California.

I look forward to getting started on this endeavor. I also look forward to hearing from you! Please feel free to contact me at any time.