Real property held in Joint Tenancy

When real property is held in joint tenancy, an interest in the real property generally passes to the surviving joint tenant automatically when a joint tenant passes away. Due to the nature of joint tenancy, it has been called a "poor man's will." Estate of Propst (1990) 50 C3d 448, 464. However, just like a will, the creation of a joint tenancy can be challenged under various legal theories. A recent unpublished appellate opinion involved such a scenario. The daughter of a deceased joint tenant objected to the joint tenancy's creation mere days before the deceased joint tenant passed away. A picture of the deed that created the joint tenancy is to the right.

"Five days before her death in 2015, Joanne Magdaleno transferred title to certain real property (the property) from herself to her ex-husband James Handelin and herself as joint tenants. In 2020, Magdaleno's daughter Andrea Wood, in her capacity as administrator of the estate, filed a petition under Probate Code section 850 for an order declaring the property an asset of the estate and for damages against Handelin, asserting among other things that Magdaleno had lacked the mental capacity to sign the deed and that Handelin had engaged in fraud and undue influence. The probate court ultimately sustained Handelin's demurrer to a first amended petition without leave to amend, concluding that Wood's claims were time-barred."

"The first amended petition alleged the following: Magdaleno divorced Handelin in 2014. Handelin signed a quitclaim deed as to the property the same year. In 2015, Magdaleno was hospitalized for three weeks with pneumonia. She was under heavy medication. Five days before she died, on April 13, 2015, she signed a deed granting to Handelin and herself title to the property as joint tenants. Magdaleno did not have mental capacity to understand what she was doing when she signed the deed. Handelin had the deed prepared, and he unduly influenced Magdaleno to sign it. He made false representations to Magdaleno to induce her to sign the deed. Magdaleno's signature on the deed was partial and the name on the deed was not the name restored to her upon her divorce. Wood did not discover the existence of the deed until after March 31, 2017."

On appeal, the appellate court held that Ms. Wood should have had the opportunity to amend her petition and reversed the trial court's ruling.

Wood v. Handelin, Shasta County Superior Court case # 30146

Revocable Transfer upon Death Deed

Back on June 21, 2011, I penned a post about proposed bill AB-699 which would have authorized a homeowner to designate a beneficiary for their property upon their death. The bill ultimately failed in the Senate Judiciary committee and thus the revocable transfer on death deed  never came into fruition.

Now a similar bill has been introduced as AB-139 which is modeled after AB-699. 

According to the Legislative Counsel's Digest:

"This bill would, until January 1, 2021, create the revocable transfer on death deed (revocable TOD deed), as defined, which would transfer real property on the death of its owner without a probate proceeding. The bill would require that a person have testamentary capacity to make or revoke the deed and would require that the deed be in a statutory form provided for this purpose. The revocable TOD deed must be signed, dated, acknowledged, and recorded, as specified, to be effective. The bill would provide, among other things, that the deed, during the owner’s life, does not affect his or her ownership rights and, specifically, is part of the owner’s estate for the purpose of Medi-Cal eligibility and reimbursement. The bill would void a revocable TOD deed if, at the time of the owner’s death, the property is titled in joint tenancy or as community property with right of survivorship. The bill would establish priorities for creditor claims against the owner and the beneficiary of the deed in connection with the property transferred and limits on the liability of the beneficiary. The bill would establish a process for contesting the transfer of real property by a revocable TOD deed. The bill would also make conforming and technical changes. The bill would require the California Law Revision Commission to study and make recommendations regarding the revocable TOD deed to the Legislature by January 1, 2020."

Currently, the common methods in which a person can transfer real property on their death include (1) a trust, (2) a will, (3) intestate succession and (4) joint tenancy. This proposed bill would provide a 5th method in which to transfer property on death.

To be clear, this is a proposed bill. It is not yet California law. Any attempt to transfer property this way is a nullity as of this writing.

The bill can be tracked here:
http://leginfo.legislature.ca.gov/faces/billSearchClient.xhtml

For the time being, a trust is generally the recommended method of transfer for California real property upon one's death. The reason being is that a trust avoids probate, a costly and lengthy court proceeding.

Apprasing an Estate

When somebody passes away, the decedent, they leave their possessions behind. For as the common refrain goes "you cannot take it with you."  In legal speak, these possessions are known as the decedent's "estate."

One of the first steps that an executor or trustee must do when administering a decedent's estate is to value the items in the estate. The principal reason why an executor or trustee needs to do this is for estate tax purposes. That is, it must be determined if the value of the decedent's estate eclipsed the estate tax exclusion amount. If the decedent's estate is under the threshold amount, no estate tax is due. Conversely, if the decedent's estate is above the threshold amount, an estate tax will be due albeit the amount will be dependent upon the amount over the threshold amount. 

Another primary reason to value the decedent's estate is because many estates are distributed in percentages. For instance, a trust might call for a 50% distribution to the daughter and a 50% distribution to the son. The trustee would be breaching their fiduciary duty to the beneficiaries if they just "guessed" as to the estate's value and distributed off of that valuation. Rather, the trustee must reasonably value each item in the estate and then distribute the estate. The following are items typically found in a decedent's estate and how to value them.

1. Home

A decedent's home is typically the most valuable asset in their estate. Hence, it is critical that the executor or trustee accurately value the home's value. The best method to value a home is to retain a licensed California real estate appraiser. While the temptation is their to use an online resource such as Zillow to save time and money, this temptation, much like almost all temptations, is best avoided. The crux is that Zillow's algorithm does not account for physical features inside and around the home. A real estate appraiser can spot a shoddy roof or the noise of rush-hour traffic, whereas Zillow's algorithm cannot. Though personally I use Zillow, I would never advise a client to use it as a basis for a home appraisal.

2. Bank Account

This is probably the easiest asset to value. If you are literate you can figure out how much money the decedent had in their bank account when they died. I trust you. 

3. Car

The bible for valuing a used car is Kelley's Blue Book. Though there are other resources, the KBB is the most popular guide for determining used car values. Personally I have used the KBB a few times when buying and selling a car. I have been very pleased with it.

4. Stocks

The advent of the Internet has made it much easier to gauge the price of a stock on the day the decedent died. Whereas in the past an executor or trustee might have to go to the library to locate an old newspaper to look up the stock price, the Internet has rendered this practice obsolete. Since stock prices can easily be found using Yahoo or Google Finance, an executor or trustee's job has been made much easier in this instance. A stock price is now just a proverbial click away.

However, if the decedent owned stock that was not publicly traded, a business appraiser will be needed.

Severance of a Joint Tenancy

A common method to hold title to real property in California is joint tenancy. For example, if John and Jane Doe purchase a home together, they can hold title as joint tenants simply by adding "as joint tenants" to their names.

One of the key features of joint tenancy is, as mentioned, right of survivorship. This legal term dictates that when one joint tenant dies, the surviving joint tenant automatically inherits the deceased joint tenant's interest in the property. CC §683; Prob C §223. For instance, if John Doe and Jane Smith owned their home in joint tenancy and John passed away after being hit by a bus, Jane would automatically inherit John's 50% interest in the home. To transfer John's interest in the home to Jane, she would simply have to file an affidavit of death of a joint tenant along with some other forms depending on the county in which the realty sits. Hence, there is no probate or trust administration needed to transfer an interest held in joint tenancy. This is particularly important because a few words can amount to thousands or hundred of thousands of dollars. The following example illustrates this point.

John Van Persie and Norm Vermaelen were best friends and decided to purchase a rental home together in Campbell, CA for $600,000 in 2012. They decided to take title as joint tenants because the real estate agent told them it would be easier that way. John wrote a will that devised his entire estate to his brother Arjen. Thereafter John passed away in April 2012 in a tragic skiing accident in Bear Valley, ID. Since title was held in joint tenancy, John's interest automatically passed to Norm, despite John's valid will. Conversely, if John and Norm had taken title as "tenants in common", John's interest would pass to his brother Arjen albeit a probate would be needed. Still, the use of the phrase "as joint tenants" instead of "tenants in common" amounts to a roughly $300,00 difference for Arjen.

In light of this, a few clients have asked to transfer property out of joint tenancy to tenancy in common because of the inflexibility of joint tenancy. The following are the methods in which joint tenancy is severed and a tenancy in common results. CC §683.2(a).

1. Transferring the joint tenant's interest to a third person via a deed; 
2. Executing a written instrument with intent to sever that transfers the joint tenant's interest out of joint tenancy and into tenancy in common via a deed; or
3. Declaring the severance in writing.

For all these methods, the instrument must be recorded in the county where the real property is located. CC §683.2(c).

Estate Planning Checklist

A checklist of questions can be a very useful tool in achieving almost any objective. Writing a trust is no different. The following are some key questions that apply to every situation. Though the questions may be valued differently by some, the end result is that the following questions must be answered eventually.

1. Who will be the trustee?

A trustee is a required element of a trust. Every trust must have a trustee or else it will not be considered a trust. The trustee is the legal owner of trust property. 

Although there is an old legal saying that goes “a trust will not fail for want of a trustee.” This means that if the office of trustee is vacant there are available legal channels to appoint a trustee. For example, California law allows a trust beneficiary the ability to petition the appropriate superior court to confirm the appointment of a trustee when the office of trustee is vacant. Prob C § 172009(b)(10).

The determination of who will be the trustee is a very important question. I always tell clients that trustee selection, along with selecting beneficiaries, comprise the two most important questions they will weigh during the process. The reason being is that trustee will have control over trust property and its administration. The trustee will ultimately be the person cashing checks, depositing money, filing trust tax returns, selling real estate, etc. Thus, whoever is selected is given an enormous amount of responsibility, and the legal liability that comes with it. The importance then of selecting a competent and attentive trustee cannot be understated. The norm is to pick a close family member or friend.

2. Who will be the beneficiary or beneficiaries?

Ah yes, who gets all your property when you pass on eventually. It should be noted that there is no right to inheritance, except for spouses in light of community property law. A child, niece, neighbor, family dog, etc. has no vested inheritance right in your estate. A person is free to leave their estate to anybody essentially, subject to spousal constraints, without any legal recourse. So you could leave your trust estate to a charity, your alma mater, the federal government or even your pet subject to certain qualifications.

Invariably the chosen beneficiary or beneficiaries are spouses and then remainder to children. For example, Harry and Wendy, a married couple, have two children Samuel and Donna. Harry and Wendy write a trust in which the surviving spouse will inherit the deceased spouse’s estate. Then when the surviving spouse passes away, Samuel and Donna will inherit such estate equally. For all but a few trusts I have written, this is the exact method of distribution that has been chosen by clients.

3. Should I even write a trust?

Writing a trust is not necessary, in my opinion, unless you own a home or have children or both. First, one of the key benefits of writing a trust is probate avoidance. Just about every asset can be disposed of through beneficiary designation. A person can list a bank account beneficiary, a stock beneficiary, an IRA beneficiary, a life insurance beneficiary, etc. The one glaring exception is that of real property. California law does not permit a person to name a beneficiary of their home. Thus the default rule for transfer of real property, generally speaking, is probate. However, real property owned in trust is exempt from probate. Yet if a person does not own real property, then this benefit is inapplicable. Second, if a child inherits a large sum of money, namely over $5,000, then a court-supervised guardianship is needed to oversee their estate. I would like to believe, regardless of contemporary economic constraints, that most parents have more than $5,000 to leave to their children. If the inheritance if distributed outside of a trust, a guardianship is likely needed. Still, if a person does not have a child, this benefit is irrelevant.     

Obviously attorneys have a direct financial interest in wanting clients to write a trust. However, I never encourage clients to write a trust if it is unnecessary, namely the client(s) lack a home and children.

4. How much should we spend for a trust?

One of the great trust myths is the fallacy that writing a trust eliminates the need for post-death administration. In reality, the same steps for trust administration are patterned after the probate process essentially. The result is that there will be significant time and expense for both situations. However, trust administration is a non-judicial process whereas probate is a judicial process, which generally shortens the amount of time involved and likewise reduces the amount of cost involved. Whenever I talk about fees with a client, I always bring up that trust administration will almost always be more expensive than writing a trust. So when I quote them a fee of $1,500 hypothetically, I also include that trust administration may easily cost $5,000. The takeaway is that a person should not look at just the initial step, writing a trust, but the entire process, writing a trust and its administration, when gauging how much they are willing to spend.

Palimony - Marvin v. Marvin

The number of unmarried individuals living together, cohabitants, has increased tremendously over the years. In an analysis of the 2010 U.S. Census, Pew Research found that the number of unmarried cohabitants doubled since the 1990s. While the law in general affords cohabitants certain protections, domestic violence protection for example, estate planning law does not look very favorably upon unmarried cohabitants. The principal reason for this is because California's intestate succession laws pertain only to married couples and blood relatives. Prob C §§ 6401-6402. For reference, intestate succession is where a person passes away without a will and their estate is distributed to their next of kin.

The term synonymous with the “inheritance” of an unmarried cohabitant from the another cohabitant is “palimony.” The term palimony is derived from the seminal case on this issue, Marvin v Marvin (1976) 18 C3d 660. 

The phrase "palimony" was coined by the girlfriend’s attorney in the case, Marvin Mitchelson. Yes, everybody in the case had the name “Marvin” apparently. In Marvin, actor Lee Marvin’s former live-in girlfriend, Michelle Marvin, claimed that she and Lee had “entered into an oral agreement that while the parties lived together they would combine their efforts and earnings and would share equally any and all property accumulated as a result of their efforts whether individual or combined.” She essentially asked for her community property rights in Lee’s earnings, namely ½ of the earnings Lee accumulated during their relationship. The California Supreme Court rejected Michelle’s community property claim because the couple was not married. Instead, the California Supreme Court said that Michelle needed to prove the existence of an enforceable contract to assert such a claim against Lee and the term “palimony” was born.

Consequently, palimony actions have been utilized in estate planning cases. Thus, in light of Marvin, unmarried cohabitants may provide for one another upon their death in a number of ways whether by will or trust, and due to Marvin, via contract. However, the key is that the couple take affirmative estate planning steps because the default rule, intestate succession, does not apply to unmarried cohabitants since they are not married. 

The following illustration provides a glimpse of what could happen to the estate of an unmarried cohabitant. Of note, these characters are completely fiction. Each individual was the creation of my imagination which, at best, is very limited.

Cory and Cynthia were an unmarried cohabitating couple who resided in Sonora, CA, the county seat of Tuolumne County. Cory and Cynthia jointly purchased the home they lived in. The couples’ bank accounts were exclusively held in the sole name of each. Cory had a 401(k) retirement account from his former employer, a local lumber mill. Cynthia was a semi-retired florist who also had a 401(k) retirement account. To preoccupy his time, Cory opened a small sandwich shop, C’s Sandwiches. Cynthia worked occasionally at the sandwich shop.

One day, Cory was tragically killed in a hot air balloon accident. When Cory passed away, he did so without ever having written a will or trust. Cory’s heirs were his brother Bob and sister Sally.  Thus, any property that fell under California’s intestate succession laws would not be distributed to Cynthia because she was not Cory’s next of kin. Rather, such property would be distributed equally to Bob and Sally.

Though the couple lacked a will or trust, the couple had made estate planning decisions prior to Cory’s passing. For example, the home the couple had purchased was held in joint tenancy. Thereby, Cynthia would be entitled to Cory’s 50% interest in the home regardless of the fact that she was not next of kin. Furthermore, Cory’s 50% interest that would pass to Cynthia would not be the subject of probate administration. Grothe v Cortlandt Corp. (1992) 11 CA4th 1313. Cynthia would merely have to file an affidavit of death of a joint tenant with the Tuolumne County Clerk Recorder in order to claim full ownership of the home. As for Cory’s 401(k) retirement account, Cory designated Cynthia as the beneficiary of this account. This allowed Cynthia to inherit Cory’s account regardless of the fact that she was not next of kin and she could do this transfer outside of probate administration as well. See Prob C § 5000. Next there was Cory’s bank account, which listed Cynthia as the pay-on-death beneficiary. Again, this P.O.D. clause granted Cynthia the ability to inherit Cory’s property regardless of their lack of familial relationship and could be done outside of the probate court. Prob C § 5000.

Finally, as for the sandwich shop, Cynthia claimed that she and Cory were partners in the business and as such, she should be entitled to 50% of the business. Cynthia asserted this claim through a Marvin action in Tuolumne County Superior Court, much to the dismay of Bob and Sally, the intestate heirs to the sandwich shop. Her evidence was that Cory had orally told her that they were partners and they equally shared the sandwich shop’s profits. Bob and Sally argued that Cynthia was merely an employee, rather than a partner and thus C’s Sandwiches was theirs, not Cynthia’s. Their evidence was the fact that no fictitious business name statement had been filed and the conduct of the parties did not indicate a partnership, in that Cory performed all the labor and bookkeeping while Cynthia worked only sporadically. Moreover, Bob and Sally disputed the veracity of Cory’s statement that he and Cynthia were partners in the business. Ultimately, the judge decided that Cynthia had presented a colorable Marvin action claim, but only after Cynthia had expended thousands of dollars in legal fees and spent months litigating this matter. 

Small Estate Affidavit

An interesting bill is currently weaving its way through the California legislature. This bill, AB 1305 (Huber), would alter the valuation limits for a small estate affidavit. According to an Assembly floor analysis this bill:

“1. Increases, from $100,000 to $150,000, the maximum value of a decedent's estate for which an affidavit or declaration to collect decedent's personal property outside the formal probate process may be used.

2. Increases, from $100,000 to $150,000, the maximum value of a decedent's estate, for which a simplified petition to collect an interest in real property outside the formal probate process may be used.

3. Increases, from $20,000 to $50,000, the maximum value of all real property in decedent's estate, for which an affidavit to transfer decedent's interest in real property may be used outside the formal probate process.

4. Increases, from $5,000 to $15,000, the amount of salary or other compensation owed to the deceased spouse by an employer that a surviving spouse can collect outside of the formal probate process, and eliminates the cost-of-living adjustment. Exempts from decedent's estate up to $15,000 of the deceased spouse's salary or compensation owed by the employer.”

For reference, the existing small estate affidavit law, as summarized by an Assembly floor analysis, is as follows: 

“1. Allows for the use of an affidavit or declaration to collect decedent's personal property outside of formal probate, where the gross value of decedent's real and personal property, unless exempt, does not exceed $100,000.

2. Allows for use of a simplified petition to collect decedent's interest in real property, where the gross value of decedent's real and personal property, unless exempt, does not exceed $100,000.

3. Allows for use of an affidavit to collect decedent's interest in real property, where the gross value of all real property owned by the decedent in California, unless exempt, does not exceed $20,000.

4. Excludes certain property from inclusion in the decedent's estate for purposes of determining the value of the estate, including property held in a revocable trust and up to $5,000 of salary or other compensation owed to the deceased spouse by his or her employer.

5. Allows a surviving spouse to collect, outside of formal probate, salary or other compensation owed to the deceased spouse by an employer, in an amount not to exceed $5,000, subject to a cost-of-living adjustment."

The Trusts and Estates Section of the State Bar of California is in favor of this bill since the last time the small estate affidavit valuation threshold was raised was 1996, whereby the law, in the State Bar’s eyes, needs to be amended to reflect the rise in inflation since then. It is likely that this bill will pass the California legislature as it has unanimously passed each vote for passage. If this is ultimately the case, the signature of Governor Brown would be the only remaining hurdle before this bill becomes law.

Revocable Transfer upon Death Deed

If you own a home in California there are a limited number of ways in which you can transfer ownership upon death to a beneficiary. For instance, if you own a home in joint tenancy, your interest in the home automatically transfers to the surviving joint tenant upon death by operation of law. If you own a home through the medium of a trust, then upon your death the successor trustee automatically assumes legal ownership of the home. If you are so charitable, you may gift your home to a very lucky individual although there are wide-ranging tax implications, namely gift and property taxes. Finally, if you exclusively own your home in an individual capacity, then home ownership transfer will be accomplished through probate or an abridged probate type procedure.

A recently proposed law would add another method for transferring ownership of a home upon death, the revocable transfer upon death deed (“RTDD”). This bill, AB 699, introduced by Assemblyman Wagner, would allow owners of real property to record a deed that would allow them to designate a beneficiary of such property upon their death. For example, if Lionel Flanders owned Greenacre and wanted to bequeath the property to his favorite neighbor, Ned Hutz, then Flanders could record a deed naming Hutz as the beneficiary of Greenacre. Upon Flander’s passing, Hutz would just need to record an instrument indicating that Flanders had passed away and affix a certified death certificate to it in order to transfer ownership of Greenacre from Flanders to himself.

Just as in other nonprobate transfers, minimal paperwork and expense would be required in order to effect the transfer. Yet currently, the expense of a probate or trust administration for transferring a home, common transfer arrangements, typically cost thousands of dollars in attorney fees and consumes months of time. Hence, the expense of transferring real property from the decedent to the beneficiary would be, ostensibly, greatly reduced.

However, there are drawbacks to this bill as elucidated by opponents of the bill, the California Land Title Association and the California Escrow Association. These groups believe that a RTDD would provide another opportunity to exploit the elderly because a home could be fraudulently conveyed simply through a basic document. The elderly are particularly vulnerable to estate planning scams as they often fall prey to unscrupulous insurance agents who sell them annuities for exorbitant fees. This RTDD could provide another avenue to exploit the elderly, and would focus upon the likely most valuable asset of the elderly, their home.

A similar bill introduced by Assemblyman DeVore passed the California State Assembly in 2007 but did not receive enough votes in the Senate Judiciary Committee. Coincidentally, AB 699 is currently awaiting a committee vote before the Senate Judiciary Committee. DeVore’s bill come on the heels of a California Law Revision Commission study which suggested that California “adopt a revocable transfer on death deed, noting that while the deed has advantages and disadvantages, creation of such a deed would, on the whole, be beneficial in California.”

It should be noted that this is a proposed bill and the earliest effective date for it would be January 1, 2012. This assumes that it passes the Senate Judiciary Committee, a Senate vote and is signed by Governor Brown. 

Small Estate Affidavit

Here are some of the most commonly asked questions in regards to a small estate affidavit:

1. Is there an official small estate affidavit form?

No, there is no official small estate affidavit form.

2. Where can I obtain a small estate affidavit form?

Various websites have sample forms which can be downloaded which satisfy the requisite criteria for a small estate affidavit. There is no need to purchase a form from a stationary store. Save your money.

3. What date do you use for the valuation of the decedent’s estate?

The date of death is the date used for determining the value of the decedent’s estate. Prob C §13052. This does not pose a major concern for assets such as publicly-traded stock or a bank account. Yet for assets such as a LLC or partnership interest or non-publicly traded stock, an appraiser might be required due to the fluid valuation of those peculiar assets.

4. Can I still file for probate even though small estate affidavit is available?

Yes, small estate affidavit is an optional process whereby a person is always free to petition for probate if so desired.

5. What are some reasons why a person would use a small estate affidavit?

Generally speaking, the small estate affidavit process, as opposed to probate, is economical and expedient.

6. What are some reasons why a person would not use small estate affidavit?

It is common today for a decedent to leave behind an estate that is bordering on insolvency. Since a beneficiary is liable for the decedent’s debts, a beneficiary is barred from stripping an estate of its assets while leaving intact the estate’s liabilities. In light of this, a beneficiary might petition for probate in order to sort out the decedent’s liability to avoid future problems.

For example, assume that Danny Decedent left behind an $85,000 estate. The $85,000 was composed of a $40,000 bank account and $45,000 in Southern Company stock, a stock traded on the New York Stock Exchange. Conversely, Danny’s estate had $65,000 in liabilities, namely hospital bills. A beneficiary of Danny’s estate might consider using the probate process to inherit Danny’s estate to ensure that all debts are paid off before the assets of the estate are distributed. This would avoid the possibility of the hospital pursuing the beneficiary in the future to satisfy Decedent’s debts.

7. Do statutory probate fees attach to small estate affidavit?

No, attorney fees are set by private agreement between the attorney and client, not by statute for the small estate affidavit process.

8. What happens if the holder of the decedent’s property does not comply with the small estate affidavit process?

A beneficiary may file a lawsuit against the holder of the decedent’s property to compel the holder to release the property to the beneficiary. Prob C §13105(b). If the court finds that the property holder acted unreasonably, the beneficiary shall be awarded attorney fees. Prob C §13105(b).

9. What type of asset is most commonly the subject of a small estate affidavit?

The asset most commonly obtained via the small estate affidavit is a bank account. Of note, a bank account may be easily transferred outside the small estate affidavit process if the decedent names a pay-on-death beneficiary to the account (“P.O.D.”). 

California Probate

Here are some common questions associated with probate. 

1. What is probate? 

In short, probate is a court-supervised procedure for collecting a deceased person's assets, paying debts and taxes to the appropriate parties, and distributing the remaining property to the person's beneficiaries.

The distribution of the beneficiaries’ property is accomplished through either the instructions the person set forth in their will or as determined by state law if the person died without a will, which is called “intestacy.” Conversely, if you die with a will, you die “testate.” 

2. When does probate occur?

Generally speaking, probate occurs when a person passes away and their estate is comprised of assets totaling more than $100,000 which are not subject to non-probate transfers or held in a revocable trust. Non-probate transfers would include life insurance contracts, assets held in joint tenancy, pay-on-death bank accounts, transfer-on-death stocks, etc.

3. If I write a will can I avoid probate?

No, all wills are probated. Thus, writing a will would not prevent your estate from being probated.

4. Why do people try to avoid probate?

The two main reasons why people would like to avoid probate is due to the time and cost involved. See Questions #5 and #6.

5. How long does probate last?

It is difficult to definitively state how long probate will last because the probate timeline is driven by the amount of court filings in each county’s superior court and the probate’s complexity. For instance, in a simple probate in a smaller county such as Modoc or Alpine, probate could be completed in as little as 6-8 months. Conversely, in a larger county such as Los Angeles or Santa Clara with a more complex probate, the process could easily take 12-14 months to complete.

6. How much is the attorney and personal representative compensated?

The amount of compensation is based off of the value of the person’s estate, which is basically everything they own. Prob C §§ 10800, 10810. The attorney and personal representative are, generally speaking, compensated in the same manner as provided for below:

Estate Value               Fee for Attorney and Personal Representative

$100,000                    $4,000

$200,000                    $7,000

$300,000                    $9,000

$400,000                    $11,000

$500,000                    $13,000

$600,000                    $15,000

$700,000                    $17,000

$800,000                    $19,000

$900,000                    $21,000

$1,000,000                 $23,000

Furthermore, the fees for both the attorney and personal representative may go higher for extraordinary services such as selling a house, defending a will contest, or litigating a matter. Prob C § 10811.

What is particularly important about the estate value calculation is that encumbrances, such as a mortgage, are not included in the probate calculation. Prob C § 10810(b). Thus, if the decedent had a house worth $500,000 on the date of death but had a mortgage of $300,000 on the property, the probate estate would be valued at $500,000 not $200,000. This is a significant difference because the fee for $500,000 is $13,000 while the fee for $200,000 is $7,000.

6. What happens if probate is not needed?

There are numerous procedures that are used in lieu of the formal probate process: small-estate affidavit, spousal property petition, non-probate transfers or trust administration.

7. How many steps are needed to complete the probate process?

The answer to this question varies because there are a few probate filings that are not mandatory. Thus, one probate might include the optional filed document whereas another probate will not. If you are really bored, you can call my office and I can pull out my probate checklist from my desk and rattle off the required probate steps to aid your boredom.

8. What is the first step in the probate process?

The first step in the probate process is to lodge the decedent’s will with the local probate court.

9. What is the last step in the probate process?

The last step in the probate process is to transfer the assets from the decedent’s estate to the beneficiaries. This can be done only after numerous steps have been completed however.

10. What is a personal representative?

A personal representative is the individual entrusted with executing the probate process from start to finish.

11. How is a personal representative chosen?

A personal representative is usually chosen through either designation in a will or if the decedent wrote no will, then through a next of kin formula found in Prob C § 8461. This next of kin formula basically says that the closest relative to the decedent has priority to become the personal representative.

12. Can the personal representative be removed?

Yes, just as a trustee of a revocable trust can be removed, so too can a personal representative. For example, per Prob C §8502, the personal representative may be removed in the following situations:

1. The representative has wasted, embezzled, or mismanaged the estate property, or committed a fraud on the estate or is about to do so;
2. The representative is incompetent to act;
3. The representative has wrongfully neglected the estate;
4. The representative has long neglected to perform any acts as representative;
5. Removal is necessary for protection of the estate; or
6. The representative is subject to removal for any other cause provided by statute  

13. Can you make an early distribution of a probate estate?

Yes, a personal representative may petition the probate court to allow an early distribution of the probate estate. Prob C §11620. Although, the aggregate amount of all property that can be distributed is limited to 50 percent of the net value of the estate. Prob C §11623(a)(2). Thus, in the case of a $1,000,000 probate, the personal representative could not distribute more than $500,000 to the beneficiaries.

Otherwise, the distribution of the estate can only occur after probate has been completed.

14. Are there advantages to probate?

Yes, there are advantages to probate. If an attorney ever tells you that there is nothing positive about probate, they are fibbing.

For example, since probate is a court-supervised process, the beneficiaries can be assured that the personal representative will faithfully execute their duties or else suffer monetary punishment. However, given the time and cost involved with probate, the disadvantages of probate outweigh its advantages typically.

15. What role does an attorney serve during probate?

The attorney’s role is to supervise the personal representative during the execution of his or her duties. Consequently, the attorney will make sure that the personal representative is filing the right documents at the appropriate time in the correct fashion.

There is no requirement that an attorney be hired to assist a personal representative in handling a probate. However, it is preferable because the practice of law is what lawyers are trained to do. Or at least that is what I was told in law school. In contrast, the personal representative often has little exposure to the legal realm other than what they have seen on television or in the movies, which is often times a gross exaggeration of reality. Sad but true.

16. How common is probate?

Probate used to be the dominant form of post-death administration for a decedent’s estate. 

However, due to prevalence of revocable trusts (“living trusts”) which are exempt from probate and non-probate transfers such as pay-on-death bank accounts, the frequency of probate is gradually decreasing.

17. When will probate typically occur?

The easiest way for a probate to be required is for an individual to own their home in their individual capacity and die with or without a will. For example, if John Smith was the sole owner of 2176 El Capitan Ave Santa Clara, CA 95050 and died, a formal probate would be required because the home’s value would exceed $100,000 and the home was not held in joint tenancy or transferred to a revocable trust. Thus, John’s personal representative would need to navigate the probate process in order to distribute the house to John’s beneficiaries. 

Divorce and Community Property

When two people divorce, or legally speaking dissolve their marriage, there are serious consequences for their estate plans, assuming they have one.

For illustrative purposes, assume that Harry and Wendy married in 1985 and divorced in 2010. During their marriage, the couple had two children, Samuel, born in 1988, and Donna, born in 1990. During the course of their marriage, Harry and Wendy executed various estate planning documents. 

For example in 1995, Harry executed a will in which he bequeathed his Monet oil painting to Wendy as the primary beneficiary and his brother Bob as the alternate beneficiary. Furthermore, Harry inherited some money from a distant heir and deposited the money into a bank account in his name alone and made Wendy the pay-on-death primary beneficiary and Samuel the pay-on-death secondary beneficiary. Moreover, Harry and Wendy owned their home as joint tenants and never changed the title even after the divorce. In 2010 Harry and Wendy sadly divorced, and then in 2011 Harry passed away.

Will

Generally speaking, California law says that upon divorce, all provisions in a will that benefit a former spouse are revoked and the will is interpreted as though the former spouse had predeceased the testator and hence are not entitled to inherit from their former spouse. Prob C § 6122. 

Here, since Harry had divorced Wendy, California law says that Wendy died before Harry (just ignore reality and embrace the legal system for a moment) and thereby Harry’s brother Bob would be entitled to the Monet because Bob survived Harry.

Bank Account

Generally speaking, California law invalidates a nonprobate transfer (which is what a P.O.D. account is) to a former spouse. Prob C §5600(a). Here Harry named Wendy as the P.O.D. beneficiary but later divorced her and thus Prob C §5600(a) would apply, whereby Wendy would not receive any proceeds from the bank account and instead Samuel would.

Home (Joint Tenancy)

Generally speaking, California law says that a joint tenancy between the decedent (the person who died) and a former spouse is severed if the former spouse is not the decedent’s surviving spouse at the time of death. Prob C § 5601. 

This is particularly important because many couples own their homes as joint tenants. For instance, roughly 3 out of every 4 deeds I see from clients who are couples are titled as joint tenants. Regardless, upon the death of one joint tenant, the surviving joint tenant automatically inherits the deceased joint tenant’s interest regardless of what a will or revocable trust dictates. Yet here, because Wendy was not Harry’s spouse at the time of his death, Wendy would not be entitled to inherit Harry’s interest in the property as the surviving owner, since their divorce severed the joint tenancy between the two and made them tenants in common. Consequently, unlike joint tenancy, a tenant in common does not automatically inherit the interest of a deceased tenant in common. So Harry’s heirs would need to go through probate in order to inherit Harry’s half of the property. 

Pourover Will

When a person writes a revocable trust, one of the requirements is to fund the trust because a trust cannot exist unless there is trust property. Prob C § 15202. 

This is typically accomplished immediately after the trust is created. The attorney will often draft a deed transferring the home into the trust and provide written directions to the client as to how they can transfer their other assets, bank, stock and bond accounts for example, into the trust. 

The problem is that over time a person will most likely
accumulate more possessions and they often fail to transfer these possessions into the trust. For example, a person might buy a stock and fail to transfer it into the trust or they open up a bank account but do not title it in the name of the trust. Consequently, property not held in trust can be subject to probate, a result most people would rather avoid. Prob C § 13050(a)(1). 

In light of this, the antidote is to create a "pourover will." 

In a pourover will, the will writer (the testator), transfers the remainder of their estate to the trust they created previously. Prob C §§6300-6303. The pourover will is written so that any item acquired in the future by the testator, will be transferred to the trust. By doing this, the testator can avoid the necessity of probate if the amount in question is less than $100,000. Prob C § 13100.

Trust Funding

In order for a trust to be valid in California, the trust must own property.

The legal term for trust property is "res" if you want to impress your dinner party guests with Latin. The trust must identify some piece of property that is owned by the trust whether it is intangible personal property, a patent, personal property, a piece of jewelry, or real property, a house. 

The way in which you transfer ownership of property to a trust is to name the trustee of the trust as the owner of the property. The reason for this is because the trustee of a trust is considered the legal owner of the property. For example, if I transferred a condo I own into a trust but named Thomas Thucydides as the trustee of the trust, then if somebody was checking ownership records of that condo they would discover that Thomas Thucydides, not Shahram Miri, was the legal owner of the property.

It is relatively easy for a client to transfer many types of property to their trust. If a client has a bank account they would go to the bank and ask the bank that the account holder's name be changed from, for example, John Smith to John Smith, trustee of the Smith 2010 revocable trust. If a client owns stock, the stock transfer agent will have forms available in order to effect a transfer of ownership. 

However, the one piece of property that is most likely too difficult for the lay person to transfer into their trust is their home.

Transferring one's home into a trust is especially important because a home will generally wind up in probate if it is not held in trust. The reason why transferring a home into a trust is cumbersome for clients is because deeds require that certain information be included on it such as names of seller/transferor, buyer/transferee, the cost of documentary transfer tax, the legal description of the property, etc. Since lay people infrequently write their own legal documents, often times people will pass along the burden of writing and recording a deed to an attorney.  Otherwise, the consequences of not  transferring one's home into a trust are steep due to the likelihood of probate with its associated cost and time.

Avoid Probate

Formal probate is essentially the process in which a person's assets are collected, debts paid off and the remaining balance of the decedent's assets are distributed to the decedent's heirs. 

If given the choice, people would rather avoid formal probate. The reason for this is the cost of probate, thousands of dollars typically, and the time it takes to complete probate, 7 months at a minimum. In light of this, a common question in estate planning is "how can I avoid going through probate when my relatives pass away." The good news is that the following situations do not require formal probate:

1. Non-probate transfers

Real and personal property passing outright to a named beneficiary without the need for formal probate administration is explained in detail here.

2. Transfer to surviving spouse or domestic partner

A surviving spouse or domestic partner is entitled to use an expedited probate procedure, a court-submitted petition, to transfer the deceased spouse's property to the survivor. Prob C §§13500-13660. However, spousal probate is purely optional as all or any part of decedent's estate can be transferred via formal probate as well. Prob C §§13502-13503. The form that is filed with the appropriate Superior Court is DE-221.

3. Transfer of Small Estates

There are 3 types of small estate transfers: (1) personal property assets passing under small estate declaration, (2) transfer of real property via a  court order determining succession and (3) transfer of real property via affidavit. Options (2) and (3) are seldom invoked because the limit to transfer real property for those options is very low and the price of California real property is quite high. In the case of option (2), the value of the real property must not be greater than $20,000. In the case of option (3), the gross value of the decedent's real and personal property in California must not exceed $100,000. Hence, option 1 is the most commonly used amongst small estate transfers.

Nonprobate Transfers

Certain types of property are not governed by a will. This is particularly important because many people mistakenly believe that property mentioned in a will automatically goes to the named beneficiary in the will. However, this is not the case in the following instances because on death, the property will pass outside of the will and thus probate regardless of what the will dictates.

1. Property held in joint tenancy

Joint tenancy is a form of co-ownership in which two or more persons own property in equal undivided interests. CC §683. For example, a deed which indicates joint tenancy would state, hypothetically, “John Smith and Mary Smith as joint tenants, with right of survivorship." Consequently, a deceased joint tenant's interest vests in the surviving joint tenant or tenants at the moment of death without requiring probate administration. CC §683.2(c). Thus, upon John Smith’s death, his interest would vest with Mary Smith regardless of what John Smith’s will states. 

2. Property held as community property with right of survivorship

This is another method of holding a house jointly between spouses or partners. CC 682.1. The rules that govern joint tenancy also govern community property with right of survivorship. Thus, either method of titling your house would produce the same result in terms of falling outside the scope of a will, namely the survivor would receive the other share of the house.

3. Payable on death bank account (POD)

A POD bank account is an account in which the holder designates a beneficiary as the recipient of the holder’s account upon the holder’s death. Prob C §5140. For example, if John Smith had a bank account and designated his wife as the POD beneficiary, it would typically goes as follows “this account or certificate is owned by John Smith. On the death of John Smith, ownership passes to the named pay-on-death payee, Mary Smith.” Prob C §5203(a)(2) Upon a showing of the holder’s death certificate, the bank will issue a check to the named beneficiary.

4. Totten trusts

A Totten trust bank account is an account in the name of one or more parties as trustee for one or more beneficiaries. Prob C §80. For example, a bank account titled “John Smith, Trustee for Mary Smith” is usually sufficient to create a Totten trust account. The assets in the account belong to the beneficiary, Mary Smith, on the death of the trustee John Smith. Prob C §5302(c). Once again, upon a showing of the trustor’s death certificate, the bank will issue a check to the named trustee. The name Totten trust gets its name from the case in which it was created, In Re Totten, 179 NY 112 (1904).

5. Joint tenancy bank account

Similar to a house held in joint tenancy, in that sums remaining on deposit in a joint account at the death of a joint account holder, belong to the surviving holder and not the estate unless there is clear and convincing evidence of a different intent. Prob C §5600. For example, if the bank account was held as “John Smith and Mary Smith” and John Smith dies, Mary Smith would be recipient of the remaining amount in the account upon a showing of John Smith’s death certificate.

6. Transfer on death securities

Akin to POD bank accounts, a stockholder may designate a beneficiary as the recipient of the stockholder’s stock upon the death of the stockholder. Prob C §§5501-5512. For example, if John Smith held General Electric stock and wanted to transfer it on death to Mary Smith, it would read “John Smith, owner of 1,000 shares of General Electric common stock, transfer on death to Mary Smith.” Prob C §5505. Again, the death certificate would need to be provided before a transfer is made.

7. Life insurance

The named beneficiary of a life insurance policy is entitled to the proceeds of such policy by virtue of the beneficiary designation on the life insurance policy and not by virtue of the decedent's will. Prob C §5000(a). For example, if Mary Smith took out a life insurance policy on John Smith’s life, she would receive the proceeds of such upon John Smith’s death, provided she showed the life insurance company John Smith’s death certificate.

8. Revocable trusts

Property titled in the name of the trustee of the drafter's revocable trust is not subject to probate provided the trust property is left to a beneficiary other than the trust's drafter. Prob C §13050(a)(1). For example, John and Mary Smith create the Smith 2009 Revocable Trust and transfer their home into the trust. The surviving spouse inherits everything and the Smith's close friend Peter is the remainder beneficiary. Upon the surviving spouse's death, Peter would inherit the property free of probate administration but not trust administration.