CALIFORNIA PROBATE PROCESS
THE PROBATE PROCESS
Probate is the court administered process of distributing a deceased persons estate to those entitled to receive the decedent’s assets. Although generally not a pleasant experience, it can not always be avoided if assets exceed $166,250 (formerly $150,000). When I used to do estate planning I would plan most of my client’s estates to avoid the need for a probate at their death. Not everybody, however, came to me for their estate planning needs, and thus many people will have their estate’s probated after they pass away. This process is timely (roughly from date of death to distribution of assets) and costly (a statutory fee of up to 6% is possible), but is required by law in many instances. The purpose of this article is to discuss how the probate process works in California when you select a highly efficient attorney like John B. Palley to be your probate attorney.
THE BEGINNING STEPS
It is a good idea to start the probate process as quickly as possible after the death of the decedent. Obviously, for most people funeral and burial arrangements, and other family matters need to be addressed first. Once these personal matters have been taken care of, it’s important to get the probate process started. The process begins by hiring a competent attorney who can handle the probate for you, leaving you with as little responsibility as possible in regards to the decedent’s estate. I pride myself on meeting with you to determine what needs to be done, efficiently filing all court documents, and moving the probate process along toward the earliest possible conclusion. In many cases we have the initial probate documents ready for signature the day we first talk our new clients and in some cases even filed in Court that same day!
GENERAL PURPOSE OF PROBATE
In general, all steps in the administration of the estate will be directed toward three goals: collection and management of assets, payment of debts and taxes, and distribution of the balance of the assets as provided in the will. While it is the attorney’s job to take care of preparing all legal documents, conducting all legal filings, making all court appearances, and in general move the probate toward a conclusion; it is the Personal Representative’s (or Executor or Administrator) job to make sure all assets are found, a list of creditors is made, and that proper disbursements are eventually made.
If you end up as the Personal Representative, you are limited in the duties you can conduct without court approval. It is thus important to communicate with your attorney before doing anything related to the decedent’s property or creditors. If appropriate we will ask the court to grant you authority to administer the estate under the Independent Administration of Estates Act (IAEA). The authority, if granted, will enable you to take certain actions in administrating the estate without court approval by simply giving notice of your proposed actions to persons having an interest in the estate. We will provide you with further guidance on this “notice of proposed action” as the administration of the estate progresses. We recommend, however, that no actions be taken without conferring with us.
DOCUMENT INTENSIVE PROCESS
The probate process if full of standardized forms and other hand drafted legal pleadings that need to be filed with the court and mailed out to various interested parties. From time to time, throughout the process, documents are submitted to the probate court and reviewed by court representatives or the probate Judge. If all materials are in order as required under the California Probate Code and local court rules, the court order will be prepared and submitted to the judge for signature without the need for a personal appearance by myself as attorney or you as the representative. If any document is missing or requires additional information to support the petition, the court clerk will notify our office before the hearing to enable us to submit in advance the necessary information. In most circumstances, this will eliminate the need for a personal appearance by us or by you, until the final hearing.
At the outset, I should point out that it will be my responsibility as your attorney to see that all the steps in the administration of the estate are taken, including the preparation of all necessary documents. From time to time we communicate with our client about various aspects of administration of the estate, and are always available for telephone calls by the client with questions.
COLLECTION AND MANAGEMENT OF ASSETS
After you have been appointed executor of the estate, you are to take possession of all the decedent’s property. We will help you do this and will advise you on the management of estate assets. Securities, jewelry, deeds to real property, bank statements, and other assets must be managed very carefully by the representative. This is necessary because we will prepare an inventory and appraisal (or I and A) of the estate’s assets, which will require a complete list of all the decedent’s assets.
Some assets do not go through the probate process, but I will still help you administer them. For example, life insurance, joint tenancy property and revocable trusts, generally do not go through the probate process.
You should prepare a list of all the decedent’s life insurance policies. We should also know about any beneficial interest they had in anyone else’s life insurance policies. After we have examined those policies, we will be available to help you or any beneficiary complete and file the forms.
Riders should be issued on policies of insurance on the decedent’s property, adding your name, as executor, as an insured. After the estate assets have been appraised, we will review the policies to be sure that the coverage is adequate. Full insurance protection is extremely important to you, because your personal funds may be at stake.
For your protection, we recommend that you take out a public liability insurance policy, the details of which we will be glad to discuss with you or your agent. It is prudent to call an insurance company to determine the availability of “public liability insurance” for yourself as the estate’s representative for the estate property. You should locate all insurance policies or contact the decedent’s insurance broker, who may have all the necessary information. You should notify all insurance companies of the decedent’s death and of the change of address for future premium notification. The coverage under the policies will continue after the decedent’s death for the benefit of the estate as long as the premiums are paid. The executor has the right to exercise all incidents of ownership over the policies.
It may become necessary to sell some of the estate’s property, either because an item should be disposed of to avoid needless expense or loss through depreciation in value, or to raise cash to pay expenses, taxes, or legacies. Certain assets can be sold only with court authorization. Because probate sales are subject to many technical rules, you should not make any arrangements for the sale of assets without consulting us. We will send you a schedule of the estimated cash requirements of the estate to help you determine what, if any, assets should be sold.
After consultation with us, you may retain auditors, accountants, attorneys, or other tax experts for any action that they may lawfully perform in computation, reporting, or preparing tax returns, in payment of taxes, or in any negotiation or litigation that may be necessary.
Our office can prepare and file the federal estate tax return and the California estate tax return, as well as the federal and state income tax returns. You may prefer, however, to have your or the decedent’s accountant prepare some or all of these returns if the accountant is familiar with the decedent’s assets and the preparation of these somewhat specialized tax returns. In any event, it is critical to assign the responsibility for these returns to assure timely filing.
The decedent’s final individual income tax returns (federal and state) are due at the normal due dates; i.e., the 15th day of the fourth month following the close of the decedent’s tax year. This is usually April 15. This date remains the same as if death had not occurred.
As executor you are required to invest all cash not needed to administer the estate in interest-producing investments. However, there are limitations on the kinds of investments you may make. An executor may deposit estate funds in accounts at banks or insured savings and loan associations in this state or invest in United States obligations maturing in one year or less or in certain common trust funds or mutual funds without court approval. With court approval, other investments may be made.
The law provides considerable leeway for the executor’s independent action unless the will expressly precludes administration of the estate under the Independent Administration of Estates Act. Actions under this law require minimal court supervision in the sale of estate assets, the payment of debts, and the conversion of investment assets to another form.
HANDLING DEBTS AND TAXES
When the petition to admit the will is submitted to the court, a concurrent notice to creditors is published in the manner required by law. The notice must be published even if there are no known creditors.
Creditors must present their claims within four months after the issuance of letters testamentary appointing you to serve as executor. (This issuance of letters occurs after the notice is published, so there is a date certain for this four-month period.) Any claims not presented are forever barred from collection. This includes claims you yourself may have, e.g., any sums you may have advanced to pay last-illness or funeral expenses. Claims should be made on special forms and must be approved by both you and the court before you can make payment. Accordingly, all claims should pass through our hands. For your own protection, you should not pay any claims without consulting us. We will be happy to provide blank forms to you or any creditors who need them.
California has no inheritance tax for any resident who died after June 8, 1982, except for the “pick-up” tax associated with the statutory allowable credit for state death taxes under Internal Revenue Code 2011.
Depending on the gross value of the estate, it may be necessary to file a federal estate tax return. The federal estate tax return and the tax are due nine months after death. The estate has the option to value assets as of the date of death, or under certain circumstances as of six months after death. Before the date on which the tax is due we will make a rough calculation of the federal estate tax to enable us to provide you with an outline of the estate’s cash needs for death taxes. A general outline of cash needs for all administration expenses will be made as soon as possible.
It will be necessary to prepare and file federal and state income tax returns for the decedent for the period ending with the date of death. You may also be required to file income tax returns for the estate for each year until the final distribution. We will give you our recommendations about these matters after we have had an opportunity to study them in detail.
The estate is a separate entity for federal and California income tax purposes. It may elect the calendar year or any fiscal year ending at the end of any calendar month within 12 months after death.
You must also file final federal and California income tax returns for the period from January 1st of the year of death through the date of death of that year. These returns are not due until their normal due date April 15th of the following year. After we have all the necessary information we will give you our recommendations about the selection of the estate’s fiscal year and related income tax matters.
DISTRIBUTING THE ESTATE
At any time two months or more after the first issuance of letters testamentary, it is possible to petition the court for a partial distribution of estate assets. If the interests of the beneficiaries and the creditors are adequately protected, the court will ordinarily grant such a petition. A preliminary distribution can cause adverse estate tax results if a distribution occurs within the first six months after death and we desire to value the assets on the alternate valuation date (discussed above).
Distribution of any portion of the residuary estate (but not specific gifts) will have income tax consequences, because such a distribution shifts taxable income from the estate to the distributees. Before the expiration of the two-month period we should confer about the desirability of making such a distribution.
Final distribution of an estate can probably be made soon after the federal estate tax return is filed (usually nine months after the date of death). When all debts and taxes have been paid and the estate is ready for final distribution, we will prepare for your signature a final account and report based on your record of receipts and disbursements. The account and report will also ask the court to order distribution of the remaining estate assets to the beneficiaries. About two weeks after the account and report are filed, the court will hear the account and report. At that time the court will probably enter a judgment settling the account and report and ordering distribution of the balance of the estate assets. We will then help you distribute the assets and obtain the necessary receipts. Ordinarily, assets should be distributed only on court order. If you feel an exception should be made, please consult us.
COMMISSIONS AND FEES
Compensation for Ordinary Services. Under California Probate Code 901, you may receive commissions on the amount of the estate accounted for by you. You may either accept or waive the commissions for your services as executor. If you accept your commissions, the estate will be entitled to deduct them in computing the taxable estate for death taxes or, alternatively, in determining the taxable income of the estate. You will also be required to report these commissions as income. On the other hand, if you waive your entitlement to commissions, they will neither be paid and taxed to you nor deductible by the estate. Later we will give you an estimate of the amount of your fees and commissions for ordinary services.
Check out our Probate Fee Calculator to help you estimate fees and costs
You are entitled to further allowances as the court may consider just and reasonable for extraordinary services, such as sales or mortgages of real or personal property; contested or litigated claims against the estate; preparation of the estate, income, sales, or other tax returns, or adjustment, litigation, or payment of any of those taxes; litigation relating to property of the estate; carrying on the decedent’s business under court order; and other litigation or special services as necessary. See also our instructions on expenses that you may incur.
Some of our services are covered by the fee for ordinary services and some by an additional fee or fee for extraordinary services. For our ordinary services, we as your attorneys are entitled to compensation at the same rate as your ordinary compensation. For any extraordinary services, the Probate Code provides that the court may set whatever fee it considers proper. You will be interested in knowing which of our services are extraordinary and which are ordinary, and the following information may be of some help.
Services that the court considers extraordinary for the executor are considered extraordinary for the attorney as well. In addition to those items, we frequently find that a decedent owned property in another state, which usually requires extensive correspondence on our part. If there is an ancillary (second) administration in that state, we must render services not contemplated by the fee schedule to assist and coordinate probate proceedings. Examples of extraordinary service include: preparing the estate’s death tax and income tax returns, defending the estate in lawsuits, negotiating valuation of assets for death tax purposes to establish the fair market value, handling unusual sales transactions, and the like.
We hope that this general outline of your duties and the major events that will take place during administration of the estate will be useful. Although matters may arise that we have not mentioned, we want to assure you that we will try to minimize any inconvenience to you. Conversely, many of the matters mentioned above may not arise in your administration.
If you have any questions concerning probate in general or if you wish further details about any of the matters we have mentioned, please do not hesitate to call or email us to set up an appointment to discuss.