You may have heard that it’s best to avoid probate because it's expensive and time-consuming. If you don’t have a proper estate plan in place, such as having a living trust, your estate may end up in probate. Probate in California is a court supervised process that is used to wind up a person's legal and financial affairs after death and is usually overseen by probate lawyers. In general, the greater the value of your probate assets, the higher probate will cost.
You want to make sure your loved ones are provided for and not have to worry about their inheritance being tied up in court and having to pay a big chunk of the inheritance to attorneys' fees, court costs, etc. But how much does it cost to go through the probate process?
First of all, both the attorney and the personal representative (executor or administrator) are entitled to fees from your estate. The fees are determined by state law and based on a percentage of the gross estate value. (There are no deductions on loans or set-offs). Then, there are other fees such as court costs, publication costs, accounting, appraisal fees, bond fees and other expenses. A typical estate may incur $1,000 to $3,000 in court costs alone and other mandated fees. After adding all the fees and costs, probate can cost anywhere from 3% to 8% of your assets that could have been included in your distribution to your beneficiaries.
How much are the fees paid to the attorney and personal representative?
In California, the statutory fees for the attorneys and personal representative are broken down as follows:
For example, if your only asset in your estate is a $500,000 house, the statutory fee would be $13,000 based on the full $500,000:
Sometimes, the personal representative may waive his or her fees if it's usually a family member, but he or she may change their mind after they realize how much work and time is involved. And the fees are based on the gross value of the estate. So if there is a mortgage and the heir wishes to sell the property, the inheritance would be even less.
On the other hand, a properly created and maintained living trust avoids probate. Your successor trustee winds up your financial matters, pay your last bills, and distributes your property according to your trust provisions without going to court and having to pay a significant amount in fees to the attorney and personal representative.
Choosing your health care power of attorney can be a difficult and emotional task. It’s crucial that you have a health care power of attorney because when you need medical attention, the doctors are required to get your permission before beginning any treatment. This could be impossible if you are incapacitated.
Here are some considerations to think about and open the lines of communication with your family about this very important decision.
1. Who do you trust with your life?
2. Who can be easily reached when needed?
3. Who will follow your wishes?
4. What would your family say about this person? Will they agree or will this decision have potential conflicts?
5. Do you want to appoint multiple people or just one person to act on your behalf? If you plan to appoint multiple people to act jointly, make sure that they are in agreement to avoid any conflict. You might want to appoint 3 for a majority vote or to require a unanimous decision.
6. Make the hard decisions yourself. Family members may be more willing to act as your health care agent if you can ease their decision-making burden by already indicating your end-of-life decisions in a living will.
One of the toughest decisions that I find people have is choosing who to be a guardian for their children. And because they can’t decide who to be the guardian for their kids, they put off naming someone or even put off doing their whole estate plan.
A guardian is the person or people (if you name a couple) responsible for your kids’ physical, emotional and spiritual well-being. If you name a couple and one of the spouses pass away, ask yourself whether the surviving guardian spouse can care for your child alone or would you want to go to your next choice for a guardian.
When nominating a guardian for your child, consider:
If this is still difficult for you, keep in mind that the other alternative is a Judge making the decision for you and who doesn't know you and your circumstances.
Choosing a Trustee
One of the most important and often difficult decisions you will make in estate planning is choosing a trustee to manage your affairs and provide for your loved ones when you become disabled or after your passing. Typically, if you have a revocable living trust, you may be your own trustee. And if you are married, you and your spouse may be co-trustees of your revocable living trust.
But when you and your spouse pass away, the question as to who will be the successor trustee can be daunting. People usually would choose an adult child, relative or a close friend. But would they be up to the task? The ones closest to us may not always be the best qualified to be your trustee.
When choosing a trustee, here are some factors to think about.
Locality: It would be ideal if your trustee lives nearby to perform his or her trustee duties efficiently, especially if real property is involved. For example, if the trustee has to sell your house, it would be better if your trustee was in the area to meet with the local real estate agent, appraiser, home inspector, etc.
Work Ethic: Being the trustee of someone’s estate can be overwhelming with the numerous tasks. Is your trustee responsible to manage your bank accounts, pay bills, maintain insurance, etc.? The person should also be honest, fair, detail-oriented, organized, dependable and a good communicator.
Ability to Use Good Judgment: Your trustee does not have to be a professional or have an MBA degree, but he or she should be business savvy and be able to use good judgment and common sense when managing the affairs of your estate. Also, this person should not be afraid to ask for help and should be sensitive to your desires and the needs of the beneficiaries.
Number of Co-Trustees: Choosing more than one trustee may be a good idea so they can help each other and not have one person bear the burden of handling the affairs alone. But you would have to consider whether the co-trustees would get along. Oftentimes, people would designate their children as co-trustees and have them serve equally. However, if you choose to go this route, consider if the children can get along and be able to make decisions without any conflict.
Availability: Is the person too busy to handle your estate or are there other aspects of his or her life that would distract him or her from managing your affairs?
Professional Corporate Trustee: Of course, you can always choose a professional who may charge more than a relative or close friend. Corporate trustees would be banks or financial service firms. If you can’t name someone qualified to serve or you foresee potential family conflict, you can avoid these problems by hiring a professional to handle the affairs.
About the Author
Christine Chung, Esq.