Question & Answer - Estate Planning


Question: When is Probate Necessary?


Answer: A frequent question that real estate agents and heirs ask me: “Is probate really necessary?” The reason they ask the probate attorney this question is because they have heard that a probate is very expensive and time consuming. How expensive and time consuming is it? If a house gross value is $500,000, then the total cost of probate will be approximately $29,000 and it takes about one year to complete the probate court process.

No heirs really want to go through a probate. This article will give a brief summary elucidating when a probate is necessary in California. Probate is a title clearing process. If you own a house in California and you die without a living trust, your heirs or beneficiaries will have to engage the probate court to transfer the title out of your name into theirs. The magical threshold amount is $150,000. In general, if you die and your estate gross value is more than $150,000 then a probate is necessary. However, if a house is titled under joint tenancy or community property with right of survivorship, then a probate is only necessary upon the death of the surviving joint tenant or the surviving spouse. If you have cash that is more than $150,000 held in a pay on death account then a probate is not necessary because you have a contractual agreement with the bank to give that money to the designated “beneficiary” upon your death. If your children are to receive one million dollars in life insurance proceeds, then no probate is necessary because there is a designated beneficiary in place.


If you own real property with value that is less than $150,000 and you don’t have a living trust then no probate is necessary but some court involvement is necessary. If the real property value is $50,000 or less then you have to file a form called “Affidavit RE Real Property of Small Value” (Probate Code 13200). However, if the real property value is more than $50,000 but less than $150,000 then you have to file a form called “Petition to Determine Succession to Real Property”. With both of these forms, you must get a probate referee to value the real property.


If the value of the house is more than $150,000 and you do not have a living trust then a probate is needed. However, from time to time, a married person or a domestic partner may have his or her name on the grant deed alone. The surviving spouse name is not on the grant deed. Is a probate necessary when that spouse or domestic partner whose sole name is on the grant deed dies? I have many surviving spouses and domestic partners tell me that they have been married for many years and for one reason or another the house is titled only under that deceased spouse’s name. The answer as to whether a probate is needed or not hinges on the concept of community property and California Probate Code Section 13500-13660. California is a community property state and a house that is bought using community money is considered community property. Thus, if a married person bought a house after he or she got married using community funds, there is a presumption that the house is a community house. California Probate Codes 13500- 13660 allow property of any value passing to a surviving spouse without a probate. Therefore, if a married person bought a house after marriage using community funds under his or her sole name on the grant deed then a probate is not necessary but instead the probate attorney will file a formcalled “Spousal Property Petition.” This form is very useful because California law allows the house to pass to the surviving spouse or domestic partner without a need for a formal, expensive and lengthy probate.

 

 

Question: Probate Creditors - How Are They Handled?


 Answer: One of the primary reasons why beneficiaries open a probate is to collect the assets that are rightfully theirs. However, California Probate Code §7001 also requires that the decedent’s debt be paid. I am a California probate attorney, I will summarize what the personal representatives and the creditors must do in order to protect their interests in the probate process. Below is a general checklist of what a probate attorney must do on behalf of the personal representative in handling creditors’ claims in probate, after the probate petition is filed:


1) The “Notice of Petition to Administer Estate” must be published in the newspaper,


2) File the “Proof of Publication” with the probate court,


3) The personal representative must take steps to determine “reasonable ascertainable creditors”,


4) Send “Notice of Administration to Creditor” within four months after issuance of “Letters” to known or reasonably ascertainable creditors or 30 days after the personal representative first has knowledge of the creditors, whichever is later and


5) Notify the State Director of Health Services,
Director of Victim Compensation and Franchise Tax Board within 90 days of the issuance of Letters.


Once a creditor files a claim, the personal representative must either allow or reject the claim, serve a copy of the allowance or rejection on the creditor and the creditor’s attorney; and file a copy of the allowance or rejection with the proof of service with the probate court. If the personal representative allows a claim then that debt must be paid during the course of the probate administration.


 

 Question: How does the son or daughter identify the deceased parent’s creditors?


Answer: Sometimes the personal representatives (sons
or daughters) will not know what debt their parents owe; thus, making it
difficult to give notice to the creditors. Here is a checklist to help the personal
representative identify potential creditors:


1) Look for regular payments going to a particular payee,


2) Review the decedent’s tax return for interest paid,


3) Creditors sending letters demanding payments from the decedent


4) Hospitals or care facilities, doctors, or nursing agencies where the decedent received treatment before decedent’s death,


5) Ambulance companies,


6) Gardener, cook, accountants, housekeeper, etc.


7) Utility company


8) Credit card companies


9) Check the county recorder for any lien recorded against the decedent

 

 

Question: When should a creditor file his or her claim in the probate court?



Answer: Creditors should be aware of the “Drop-Dead”

one year statute of limitation rule. Under CCP § 366.2, creditors have one year to collect their debts from a person who dies. As the “baby boomers”
age, this will become an issue for creditors to deal with because this is a
strict one year after the date of the debtor’s death. Creditors cannot file
their claims unless a probate case is open. The clerk at the court will not
accept the claim because the probate case does not exist. Therefore, in certain circumstances, a creditor may need to open a probate to collect the debt. Creditors are entitled to petition for probate and should do so if the
anniversary of the decedent’s death is approaching and it appears that no
beneficiaries will initiate the probate proceeding.

 


Question: Why does every probate case require an appraisal on the decedent’s house?

Answer:

California Probate Codes §8802 to 8980 dictate that the personal representative must file an “Inventory and Appraisal” form with the court. As a matter of fact, California court has a mandatory judicial form that the
personal representative (PR) must fill out that lists all of the decedent’s
personal property and real property.   This form is normally filled
out by the probate attorney, signed by the  PR, and the probate referee
who valued the decedent’s house.  Every probate case needs a probate
referee to value the decedent’s house. The “Inventory and Appraisal”
form must be filed with the probate court within four months after the PR has received a form called “Letters”.  In Los Angeles county, once
“Letters” is issued, the probate attorney will submit an application
to have the probate court appoint a probate referee to the probate case.

Once the court has appointed a probate referee to the case, the
probate attorney will fill out the “Inventory and Appraisal” form to
submit to the probate referee. The probate referee has 60 days to value the decedent’s house and return the form back to the probate attorney. Once the form is returned and the PR has signed the form, then the probate attorney will file it with the court.


The inventory and value of the decedent’s property are important
for the following reasons: 


1) the beneficiaries will be apprised of what assets they are getting, 


2) the creditors will know what assets are available to satisfy their claims, 


3) if a bond is required, the value will tell the court the amount of bond, 


4) the IRS will use the values listed in the “Inventory and Appraisal” form to aid their review for estate tax purposes, 


5) the basis of the fees for the PR, probate referee and the probate
attorney are based on the value listed on the “Inventory and Appraisal” form, and 


6) if it is a limited authority case then the sale of the house must be at least 90% of the appraised value.


Question: What is the “90% Rule” in selling a house in probate?



Answer: If the personal representative has limited authority, then the sale of the house must be least 90% of the appraised value of the house. This is because all limited authority cases that have a house for sale must pass through the court confirmation process. The probate court will not allow the sale of a house to go through if the sale price is not at least 90% of the appraised value that appears on the “Inventory and Appraisal” form. As a probate attorney, I always try to get my clients full authority to sell the estates’ houses so that they can by-pass the court confirmation process because many buyers like full authority and thus, ultimately yielding a higher sale price for the estate.

 

Question: I am representing a buyer in a probate transaction. What do I need to do to protect my buyer?  


Answer: You need to ask the listing agent for a form called “Letters”. In that form you will see whether the personal representative has full or limited authority.  It is crucial to know what power the court has granted the seller. If it is “full authority” then your buyer’s offer will not be subjected to court confirmation, a big advantage for your client. If the property is subjected to court confirmation your buyer might lose the house to another buyer in court through a process called the over-bidding.  In a limited authority situation, the seller has accepted your buyer’s offer, however, if another buyer shows up in court and is
willing to pay a higher price then your buyer will not get the house.

 

Question: If I have a probate listing, what type of power should my client ask for? 

 

Answer:  Always ask for full authority when selling a house in probate. You should ask that the court grants your client full authority under IAEA. If you client is granted full authority, then the sale of the house will not be subject to court confirmation. Because you might get a higher offer for the estate because the buyer knows that his chance of losing the property in court is slimmed once his offer is accepted. In full authority, the selling of real property is not subjected to court confirmation, therefore, there will not be an over-bidder or auction taking place in court. Buyers will pay a higher price for certainty! Some buyers might need to sell their existing homes in order to purchase their next homes. Given all the uncertainties and moving parts in a real estate transaction, it helps to know that once their offer is accepted, and the heirs or beneficiaries do not object to the offer, then the buyer can close escrow in 15 days!

 

 

Question: Why does every probate case require an appraisal on the decedent’s house?

Answer:
California Probate Codes §8802 to 8980 dictate that the personal representative must file an “Inventory and Appraisal” form with the court. As a matter of fact, California court has a mandatory judicial form that the
personal representative (PR) must fill out that lists all of the decedent’s
personal property and real property.   This form is normally filled
out by the probate attorney, signed by the  PR, and the probate referee
who valued the decedent’s house.  Every probate case needs a probate
referee to value the decedent’s house. The “Inventory and Appraisal”
form must be filed with the probate court within four months after the PR has received a form called “Letters”.  In Los Angeles county, once
“Letters” is issued, the probate attorney will submit an application
to have the probate court appoint a probate referee to the probate case.

Once the court has appointed a probate referee to the case, the
probate attorney will fill out the “Inventory and Appraisal” form to
submit to the probate referee. The probate referee has 60 days to value the decedent’s house and return the form back to the probate attorney. Once the form is returned and the PR has signed the form, then the probate attorney will file it with the court.


The inventory and value of the decedent’s property are important
for the following reasons: 


1) the beneficiaries will be apprised of what assets they are getting, 


2) the creditors will know what assets are available to satisfy their claims, 


3) if a bond is required, the value will tell the court the amount of bond, 


4) the IRS will use the values listed in the “Inventory and Appraisal” form to aid their review for estate tax purposes, 


5) the basis of the fees for the PR, probate referee and the probate
attorney are based on the value listed on the “Inventory and Appraisal” form, and 


6) if it is a limited authority case then the sale of the house must be at least 90% of the appraised value.

 

 

Question: What is the “90% Rule” in selling a house in probate?



Answer: If the personal representative has limited authority, then the sale of the house must be least 90% of the appraised value of the house. This is because all limited authority cases that have a house for sale must pass through the court confirmation process. The probate court will not allow the sale of a house to go through if the sale price is not at least 90% of the appraised value that appears on the “Inventory and Appraisal” form. As a probate attorney, I always try to get my clients full authority to sell the estates’ houses so that they can by-pass the court confirmation process because many buyers like full authority and thus, ultimately yielding a higher sale price for the estate.  


Question: I am representing a buyer in a probate transaction. What do I need to do to protect my buyer?  


Answer: You need to ask the listing agent for a form called “Letters”. In that form you will see whether the personal representative has full or limited authority.  It is crucial to know what power the court has granted the seller. If it is “full authority” then your buyer’s offer will not be subjected to court confirmation, a big advantage for your client. If the property is subjected to court confirmation your buyer might lose the house to another buyer in court through a process called the over-bidding.  In a limited authority situation, the seller has
accepted your buyer’s offer, however, if another buyer shows up in court and is willing to pay a higher price then your buyer will not get the house.

 

 

Question: If I have a probate listing, what type of power should my client ask for?   


Answer: Always ask for full authority when selling a house in probate. You should ask that the court grants your client full authority under IAEA. If you client is granted full authority, then the sale of the house will not be subject to court confirmation. Because you might get a higher offer for the estate because the buyer knows that his chance of losing the property in court is slimmed once his offer is accepted. In full authority, the selling of real property is not subjected to court confirmation, therefore, there will not be an over-bidder or auction taking place in court. Buyers will pay a higher price for certainty! Some buyers might need to sell their existing homes in order to purchase their next homes. Given all the uncertainties and moving parts in a real estate transaction, it helps to know that once their offer is accepted, and the heirs or beneficiaries do not object to the offer, then the buyer can close escrow in 15 days!