Why you need to keep probate from poisoning your estate (and other fun facts)

If you don’t have a will or a trust set up, you’re not alone—Roughly 70% of Americans die intestate, which means most estates end up in probate. 

So, if it’s that common for estates to end up in probate, why don’t you want to die intestate?

The answer is quite simple, really…Because dying intestate means a probate court gets to decide what happens to all your worldly possessions. 

Put another way, a legally appointed judge (NOT YOU) gets to determine what happens to your money, your vacation house, your car, etc.

Considering how hard you worked while you were alive to accumulate wealth and build your small fortune, it’d be pretty deflating to look down (hopefully not look up!) and see a judge deciding who gets what. 

So, with that introduction, let’s dig into probate—why it’s more expensive than forming a trust, what a probate sale is really like, the difference between a “court confirmation” and a “non-court confirmation”, and how often estates must be resolved using probate versus a trust. 

Why is probate so expensive?

Perhaps the biggest reason probate is so expensive is due to its complexity. The process involves the court (fees!), lawyers (fees!), and a TON of paperwork (time + fees!). 

There are a bunch of cumbersome steps to overcome:

• Inventorying and appraising the assets of the deceased (you!).
• Assessing (and paying or disputing) the claims of any and all creditors.
• Securing, portioning, and distributing all assets to the appropriate beneficiaries. 

It can get even more complicated if there are multiple heirs…or heirs who live in different states or countries…or heirs who want to dispute which assets should go where during the probate proceedings. 

Killer legal fees

The legal fees for probate are particularly egregious in California. Here’s a nice little summary from Nolo…

“In most states, lawyers charge by the hour or collect a flat fee for probate work. Not so in California. It’s one of only a few states that let lawyers charge a “statutory fee”—an amount that is a percentage of the value of the assets that go through probate. The percentages are set out in state statutes. 

Here are the current rates:

• 4% of the first $100,000 of the gross value of the probate estate
• 3% of the next $100,000
• 2% of the next $800,000
• 1% of the next $9 million
• .5% of the next $15 million
• A reasonable amount (determined by the court) for any amounts higher than $25 million

In practice, this means that probate lawyers’ fees can be very high in relation to the amount of actual work done [which is basic paperwork].”

So, while setting up a trust will cost you money while you’re alive, that cost—even if it’s $10,000—pales in comparison to the cost of settling an estate in probate court.

What is a probate sale like?

Do not let the name confuse you, a “probate sale” is just the more formal naming convention for the process that occurs when a probate court oversees the sale of your real estate. 

During a probate sale, the court appoints a real estate agent of their choosing to list your property for sale at a price that is (you guessed it!) set by the court. Potential buyers then bid on your property as they would any other property and the court gets to decide which offer it will accept. 

Of course, the court has no interest in getting your beneficiaries the best deal possible (there’s no incentive for a judge to solicit an over-asking offer) so the first offer sheet that comes into the court that matches the listing price is usually the offer that will be accepted. 

As if that last little tidbit of information wasn’t deflating enough, you should also know that in California, probate sales come with extra fees and paperwork that your estate will be responsible for paying (for example, $250ish dollars in filing fees for an Application for Sale of Real Property with the court). Additionally, all proceeds from the sale of the property must go towards any outstanding debts and tax liabilities before said proceeds can go to beneficiaries. 

Tricky timelines

By far, the biggest and most annoying part of a probate sale is the timeline. 

Generally speaking, your normal property sale takes between 30 and 90 days complete, from contract acceptance to close of escrow. Not as fast as buying a slurpee from 7-Eleven, I’ll give you that, but not too bad all things considered. 

A probate sale, however, can take more than six months to close because the sale must go back through the courts for approval before it can proceed. Unless they’re paying all cash, this longer-than-normal timeline means the buyer must obtain extended financing which can mean paying higher mortgage rates or origination fees—additional expenses that shrink the pool of potential buyers. 

(Fun fact, the typical probate case in Los Angeles County takes between 18 and 22 months to complete.)

But that’s not all…a probate sale is likely to involve lots more parties with a vested interest in the proceeds of the sale (i.e., beneficiaries) than a traditional property sale. Those parties rarely agree on all the terms associated with the sale, which means additional delays on the completion of the transaction until the court (or attorneys/mediators) can resolve the dispute. 

(The bottom line?—Probate sales in California are pretty complex and lengthy. They also come with court and attorney fees which no one is ever excited about paying. If you ever find yourself dealing with a probate sale and you want to avoid making any critical mistakes, make sure you hire a reputable estate attorney experienced with those kinds of transactions.)

How are “court confirmation” and “non-court confirmation” different?

In a probate, these (“court confirmation” and “non-court confirmation”) are the two ways in which property can be transferred to beneficiaries. 

Court confirmation (i.e., supervised administration) means the executor of your estate must get the court to not only approve the offer, but they must also get the court to approve the transfer of title. Before granting approval of that title transfer, the court will thoroughly examine the estate to ensure all debts are paid, all taxes are paid, and any other necessary requirements are met. 

As the name suggests, with non-court confirmation the executor does not require court approval to transfer title. All the executor needs to do is show the county recorder proof of their court appointment to manage the estate—an appointment that grants them the authority to transfer property title.

(I always tell my clients to get a trust so they can avoid probate. However, if you find yourself in a probate hearing some day, I recommend pursuing a non-court confirmation as it cuts out the court’s involvement in the sale, saving you time and money.)

So what’s the big take away?

Do not—I repeat—do NOT die intestate.

Work with an attorney to get a will drafted at a minimum.

For those willing to take it a step further, move your assets into a living trust and get everything you want written down on a legally binding document:

• What assets you want to use to fund the trust
• Who you want to name as your trustee or trustees
• When the trust will “start” and when the trust will “end” (i.e., duration)
• Any and all provisions you want to include regarding the dissolution of the trust, etc. 
• How you want said assets to be distributed to beneficiaries—especially if your trust will involve minors

Don’t waste any more time—connect with a reputable estate attorney, accountant, or financial advisor and start the conversation.

A trust (or will) won’t come to life overnight, so the sooner you start the conversations, the sooner you can get your hands on a legally binding document that protects your assets, your wishes, and your beneficiaries. 

If you’re worried about dying intestate, if you’re unsure about what it takes to create a trust, or if you just have general questions—reach out to me at ShannonShue@KW.com or 310-853-0335. If I can’t get you the answers you’re looking for, I can point you in the direction of reputable estate-planning professionals who can.

Always At Your Service, 

-Shannon