Joint Tenancy

In an earlier post, we discussed why your beneficiaries would think Avoiding Probate is an excellent idea.

We also discussed how certain Assets Not Subject to Probate can avoid the Probate process, including those assets that qualify for the California Small Estate Affidavit procedure, or Assets that Pass by Operation of Contract.

Now, we will examine the concept of Joint Tenancy, and whether it makes sense to use Joint Tenancy as a means to Avoid Probate.

Joint Tenancy, or Joint Tenancy with Right of Survivorship, is a legal designation that allows certain assets to go to the surviving Joint Tenant without being subject to Probate.

People use Joint Tenancy because it is easy to use, the financial account or real property deed will need to reflect that there is joint ownership with right of survivorship.

However, there are several key Disadvantages of Joint Tenancy:

  • Both Joint Tenants are co-equal Owners, there can be no disproportional ownership (i.e. 1/3 owned by Person A, and 2/3 by Person B)
  • Because all Joint Tenants legally own all of the property, the entire property is subject to the Creditors of any Joint Tenant
  • Assets owned in Joint Tenancy do not get a full Step-up-in-Basis (for capital gains tax purposes) at the death of a Joint Tenant
  • Joint Tenants may only leave their interest in the Property to the surviving Joint Tenant – they may not leave it to their children, their Trust or Estate or any non-Joint Tenant
  • Joint Tenancy ends after the first transfer of the property.  If the other Joint Tenant has died, or dies without naming a new Joint Tenant, the property may be subject to Probate
  • If all Joint Tenants die at the same time, the asset may be subject to Probate

We believe the Living Trust remains the best option for helping your family avoid Probate.

For many families, the Disadvantages of Joint Tenancy outweigh the benefits, especially when a Living Trust can accomplish the same objectives without the downside.

We invite you to Contact Our Firm to discuss your family’s Estate Planning needs.

Assets Passing by Operation of Contract

In an earlier post, we discussed why Avoiding Probate is an excellent idea.

We also discussed how certain Assets Not Subject to Probate can avoid the Probate process, in certain circumstances.

For those Estates that meet the requirements of the California Small Estate Affidavit procedure, they may be able to Avoid Probate for those qualifying assets.

The next category of Assets Not Subject to Probate are those Assets that Pass by Operation of Contract.

Generally speaking, if an asset has a Beneficiary Designation Form, it is likely that it will pass by Operation of Contract, instead of through Probate.

Here are some assets that may pass by Operation of Contract:

  • Life Insurance
  • Annuities
  • IRA’s
  • 401(k)’s
  • Other Retirement Plans
  • Any Financial Account with a Beneficiary Designation Form

For each of these assets, there exists a Contract between the issuing Company and the Owner or Beneficiary of the account.

The Beneficiary Designation Form is part of this Contract, which means the issuing Company agrees to pay the death benefit amount to the designated Beneficiary.

Since this contract exists to handle who gets the money when the original owner dies, the asset will ordinarily pass by Operation of Contract, and generally are not subject to Probate.

And Now for the Catch

Unfortunately, there is some misleading information out there that assets with Beneficiary Designation Forms are never subject to Probate.

Due to our extensive experience with Probate and Probate Litigation, we can tell you this is not always the case.

When might such an asset be subject to Probate?

  • If the Account Owner does not complete the designated beneficiary form
  • If the Designated Beneficiary predeceases the Account Owner, and no Contingent Beneficiary has been named
  • If the Designated Beneficiary survives the Account Owner, but there is still money in the account when the Designated Beneficiary dies [and no Contingent Beneficiary has been named]

In addition, if you want these assets to follow a distribution pattern that is more complicated than what is allowed on the form, you would be better off using a Living Trust to control the distribution, rather than relying on the form.

We invite you to Contact Our Firm to discuss your family’s estate planning needs.

California Small Estate Affidavit

In our prior posts, we discussed why Avoiding Probate is an excellent idea.

We also discussed how certain Assets Not Subject to Probate can avoid the Probate process, in certain circumstances.

One of the easiest ways to Avoid Probate, if your Estate qualifies, is to use the California Small Estate Affidavit procedure.  Assets are not subject to probate if they qualify.

California Probate Code Section 13100 et seq. sets forth the basic requirements to use this process:

  • The gross value of the Estate for which you are trying to use this Affidavit procedure is less than $150,000.
  • The Decedent has been deceased for at least forty (40) days
  • The successor to the Decedent may take possession of certain property without Probate, if he or she completes an Affidavit pursuant to California Probate Code Section 13101, in which they make certain declarations as required by law

Generally, the California Small Estate Affidavit procedure is not used in place of a Living Trust.

It is normally used when one or more small assets of the Estate are inadvertently left out of the Trust, and a Beneficiary or Heir (a successor to the Decedent) wishes to take possession of the asset without Probate.

However, the California Small Estate Affidavit procedure will not work if there is a Probate case going on simultaneously.

One of the requirements of the Small Estate Affidavit is to affirm that “no proceeding is now being or has been conducted in California for administration of the decedent’s estate.”

We invite you to Contact Our Firm to discuss your family’s estate planning needs.

Assets Not Subject to Probate

In our earlier post series, we discussed why Avoiding Probate is important for your family.

We discussed the Top 5 Reasons to Avoid Probate in California:

  1. The extremely High Cost of Probate
  2. The public nature of the proceedings
  3. The length of time involved in Probating an Estate
  4. The bureaucratic, Court-driven nature of the Probate process
  5. The requirement for Minor Children to be put on a Family Allowance

However, it is important to know which Assets are not ordinarily Subject to Probate.

First, under California Law, there is a provision for handling smaller estates known as the California Small Estate Affidavit procedure.  Assets are not subject to Probate if they qualify for this procedure.

Next, there are certain assets that pass By Operation of Contract – such as IRA’s, 401(k)’s, life insurance, etc. – generally are not subject to Probate.

Finally, Joint Tenancy assets are not subject to Probate, except in certain circumstances.

We will address each of these in separate posts, which you can access by clicking on a link above.

As always, we look forward to serving your family’s Estate Planning needs.

Contact Our Firm to see how we may help you.

Avoiding Probate #5 – Children or Creditors?

Part Five in our series, Reasons to Avoid Probate, deals with the harsh impact that the Probate process has on families with Minor Children.

In each of the first four parts of this series, we dealt with issues that affect all Estates that go through Probate – the High Cost of Probate, the Public Nature of the Probate Process, the Time Consuming nature of Probate, the Bureaucratic Nightmare of Probate.

However, now we will focus on how the Probate process affects Families with Minor Children.

From a practical perspective, once the Parents of a minor child die, the vast majority of all bank accounts, financial accounts and other sources of revenue shut off completely.

Unless these accounts are set up in Joint Tenancy – or there is some other reason a bank or financial institution will keep it open – most accounts terminate when the account holder dies.

In real terms, the person who has been nominated as Guardian for the Minor Children will experience difficulty and delay in accessing the parent’s money for the care and support of the children.

Usually, banks or financial institutions will want to see Letters Testamentary before they allow a Guardian to access the money.

However, Letters don’t issue immediately upon the death of the parents, rather they issue only on the opening of the Estate.

If there is a delay in opening the Estate – for instance if there is a challenge as to who should serve as Personal Representative – it can delay the availability of money for the minor children.

Now, the Probate process has created a procedure for allowing money to be distributed to the Guardian of the Minor Children during the Probate process.

This is called the Family Allowance, and may be available to the Guardian upon petitioning the Probate Court.  The Family Allowance is based upon the needs of the Minor Children, but it is doled out as a monthly stipend.

What this means for Families is that, in the Probate process, the Guardian will almost never have immediate and unrestricted access to all of the Parents funds for the care and support of their children.

Clients often ask us:  Why is the Probate process so difficult on families?

The answer is simple:  Probate is not primarily designed to serve the needs of the Decedent’s children, but rather the needs of their Creditors.

However, we have yet to meet a Parent who puts the needs of their Creditors ahead of the needs of their Children.

And yet, in many cases, this is exactly what the Probate process does.

Reason enough to Avoid Probate.

Avoiding Probate #4 – The Bureaucratic Nightmare

Part Four in our series, Reasons to Avoid Probate, deals with avoiding the Bureaucratic Nature of the Probate Process.

In Part Three, we examined the very slow nature of the Probate process.

Now, we will look at some of the reasons why the process is so cumbersome and slow.

At it’s heart, Probate is a Court-supervised (some would say Judge-controlled) process.

Unlike the informal nature of the Trust Administration process, virtually nothing happens in Probate without the Probate Court’s approval.

There are a host of bureaucratic requirements and opportunities for postponement and delay.

Let’s examine a few common causes of delay:

  • The Personal Representative does not qualify to serve, or is not able to be bonded (if required)
  • The formal Accounting provided to the Court is challenged or contested by one or more  beneficiaries or interested parties
  • There are insufficient or illiquid funds that prevent the timely satisfaction of creditor claims
  • Real property in the Estate is subject to Foreclosure proceedings
  • More than one person files to serve as Personal Representative if none is named in the decedent’s Will
  • Required deadlines and procedures for providing Notice to interested Parties are missed or not followed to the letter

To be sure, these issues can arise in the Trust Administration process as well.

However, due to the informal, Trustee supervised process of Trust Administration, these issues can usually be handled swiftly and with a minimum of hassle.

Not so when dealing with the bureaucratic nature of the Probate Process.

Reason enough to Avoid Probate.

Avoiding Probate #3 – Speed is the Key

Part Three in our series, Reasons to Avoid Probate, deals with the very slow nature of the Probate Process.

We estimate that the average Probate can take anywhere from 9-18 months to process.

Why so long?  A couple of reasons:

Probate is a Court-supervised process, that has a number of statutory and other deadlines.

The one non-negotiable deadline is the statutory Creditor’s Notification Period.

California Probate Code Section 9050-9054 sets the basic parameters of providing Notice to Creditors.

A Personal Representative has up to four (4) months after Letters Testamentary have been issued to notify all creditors.

Once notice has been given, a Creditor has sixty (60) days to file their claim.

Taken together, the Creditor Notification period can last up to six (6) months!

In the meantime, the Probate can not close, and ultimate distribution to the beneficiaries can not be made until the Creditor Notification period has elapsed.

However, in addition to the statutory time limits on a Probate, you also have to factor in the overcrowded and underfunded nature of the Probate Court itself.

Like all State agencies, Probate Courts are subject to the current financial crisis and budget cuts.  Sometimes this can result in under-staffing, and sometimes it can lead to mandatory closure days, depending on the budget chaos in Sacramento.

All this leads to extra delays in the Probate process, which is reason enough to Avoid Probate.

Avoiding Probate #2 – Privacy Matters

The second part in our series, Reasons to Avoid Probate, deals with the very Public nature of Probate Court proceedings, and why the lack of Privacy can cause harm to your family.

Unlike with a Living Trust, which must only be shared with those named in it after the creator has died, the Probate process is an open, public forum.

All of your bank account numbers and locations, birth dates, social security numbers and other Personally Identifiable Information become a matter of Public Record, which almost anyone can access.

In short, it becomes a one-stop-shop for would-be identity thieves.

Two or three decades ago – before Identity Theft became a household word – the Public Nature of the Probate Process was not ideal, but it didn’t represent the risk it does today.

Today, many Probate Courts in California allow much of the information from a Probate proceeding to be published online.

No longer do you have to go down to the Probate Records department and furnish identification.

Now you can stay at home and access a treasure trove of Personally Identifiable Information over the internet.

Reason enough to Avoid Probate entirely.

Avoiding Probate #1 – The High Cost of Probate

The first part in our series, Reasons to Avoid Probate, deals with the extremely High Cost of Probate.

We estimate that you can spend up to 3-5% of the Gross Value of the Estate in Probate fees and costs.

How is this possible?

California Probate Code Section 10810 sets the Statutory Fee for probating estates in California.  This is the same fee schedule that applies in all 58 counties of California.

Let’s examine the Statutory Fee as it applies to a $1,000,000 Estate.

First $100,000

Four (4%) Percent

$4,000

Next $100,000

Three (4%) Percent

$3,000

Next $800,000

Two (4%) Percent

$16,000

Therefore, the Statutory Fee on a $1 Million Estate is $23,000.

Keep in mind, this is the Fee that is paid to the Attorney for the Personal Representative of the Estate.

The Personal Representative is also entitled to the exact same fee, unless the Will requires them to serve without compensation.

Therefore, a $1 Million estate could cost up to $46,000 (!), and that’s not counting the miscellaneous filing fees, appraisal fees and other costs.

That’s 4.6% of the Gross Value of the Estate that is eaten up in Fees and Costs!

Lastly, bear in mind this Statutory Fee is based on the Gross Value of the Estate, undiminished by mortgages, encumbrances or other obligations of the Estate.

One lady who called our office said her dad had left her a house worth $300,000, but which had a $300,000 reverse mortgage.

For her, the Probate Fee could be $9,000 – even if she receives NOTHING from the Estate.

Reason enough to Avoid Probate.

Why Avoid Probate?

In many states, avoiding probate may not be a compelling reason to have a living trust.  Many states use a simplified probate process, which allows a Probate to be opened and closed with a minimum of hassle and expense.

California is not such a State.

In California, the Probate system is such a complicated mess, it’s almost reason enough to have a Living Trust, just to help your family avoid it.

Let’s examine the Top 5 Reasons to Avoid Probate in California:

  1. The extremely High Cost of Probate
  2. The public nature of the proceedings
  3. The length of time involved in Probating an Estate
  4. The bureaucratic, Court-driven nature of the Probate process
  5. The requirement for Minor Children to be put on a Family Allowance

We will examine each of these reasons in a separate post, which you can access by clicking a link above.