The ups and downs of the stock market and the California probate process

If you have the stomach for it the recent ups and downs of the stock market, primarily due to the Coronavirus it seems, are quite amazing to watch.  Up 1,000 one day, down 1,000 the next, up 700, down 600, and on it goes. Heck, yesterday (March 9, 2020) the market was down over 1,000 (or about 5%). Of course, when I say “the market” I am talking about the DOW 30 which almost always is similar to the broader market. That’s not the point of my post though. This post is about who do the changes in the stock market affect the California probate process.

The first one is that if your loved one left assets of around $166,250 (formerly $150,000) you may qualify for a small estate affidavit procedure that you didn’t qualify for before.  Let’s say your loved one died in December with a stock portfolio of $180,000. Clearly that’s more than the small estate affidavit law of California at that time ($150,000) or the small estate affidavit law that took effect January 1, 2020 ($166,250). However, a cool thing about this small estate procedure is it is NOT limited to date of death value. You can value the stock now and if your loved one left $180,000 in stock it’s almost certainly worth less than $166,250 now. You thus might qualify for small estate treatment now!

The second one, and point that many clients are concerned about, is attorney fees. My attorney fees are based on the value of the assets. That valuation, in a full probate, are determined by the date of death value OR the date of sale value if sold. So if they were valued at $180,000 as of the date of death but are now worth $150,000 your probate attorney fees might be reduced by about $900. Not a lot but every bit helps. Then the question is should you sell now and lock in the lower attorney fee or hold in hopes the value goes up!?  I’ll touch on that below.

The third, and final, issue related to the great change in stock market valuations is if you are making family deals in probate.  So let’s say there was $180,000 in stock and a house worth $180,000. Let’s say there are two kids and the kids agreed one kid should get the house and one kid should get the stock. One reason this is a great decision is the kid who gets the house can lock in the property taxes at whatever mom or dad were paying thanks to the parent to child exclusion which often is attached to the old prop 13.  However, what if the house is still worth $180,000 but now the stock is worth $150,000?  Is it fair for one kid to get less?  Are they getting less? Will this mess up the parent-child exclusion?  So many questions and so little time to answer. Those type of questions need to be answered on a case by case basis.

Going back to the question if you should sell the stock during probate even if the values are down. My take is it’s always best to sell stock during probate.  I don’t like my clients, who have a fiduciary responsibility, to be in a position where they could be sued. The reality is you might be sued if the stock market goes down but nobody is likely to applaud you when the market goes up. Thus I am generally in favor of selling stock during probate. Again though each case is unique!

Let me know if you want to discuss how the trials and tribulations of the stock market affect your California probate case or any other California probate case questions.

-John Palley

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