I’ve been asked this question more than once. Before I answer it here, let’s go over what probate is and how it works.
Simply put, probate is the process of administering an estate (i.e. a deceased person’s money and “stuff”) under the supervision of the Probate Court. Like many things involving the government, this is not ideal. Getting court approval for everything takes time; in many cases it may be years before anything actually gets distributed. Court fees, executor fees, and lawyer fees also carve a chunk out of the estate (and that’s assuming the estate doesn’t have to pay estate taxes). And then there’s the fact that anything submitted to the Probate Court is public record, which is how we know that Sonny Bono never made his alimony payments to his ex-wife Sher.
While probate may be undesirable in most circumstances, it is still required in California if an estate is worth more than $150,000 (which, if you’re a homeowner, is a given). The only way to avoid probate is to keep the value of the estate under that threshold level. There are a few ways you can do this:
- Spend or give away all your money. I wouldn’t really recommend this option, but it is an option. A more reasonable approach is to spend or give away some portion of your money to improve your potential tax situation. It’s best to discuss this with a CPA to see if this would work for you, and what amount the CPA would recommend.
- Make everything joint tenancy or P.O.D. (Pay On Death). When deciding whether your estate must be probated, the government only looks at assets without a clearly designated beneficiary. IRAs, life insurance policies, Pay On Death accounts…all of these have you state who you want to receive them when you die, so they are not considered when determining the value of the estate for probate. In the same way, property or bank accounts held in joint tenancy automatically pass to the surviving joint tenant on death, so they are not considered part of the estate for probate either. However, the IRS does include these when they decide if the estate needs to pay an estate tax; if you think your estate may be at risk of taxation, consult a CPA or tax attorney.
- Put everything into a trust (or corporation). Trusts and corporations are both considered separate legal entities by the government; if they own something, then you do not. Anything in a trust or corporation is not part of your estate for probate purposes. It may be part of your estate for tax purposes, however, depending on how the trust or corporation is structured. Again, consult with an attorney or CPA if you think your estate may be at risk of taxation.
Arranging everything for the best outcome on your estate administration is a tricky business. An attorney can be a great resource for you. If you would like to speak to me about whether and how the outcome of your estate can be improved, please email me at firstname.lastname@example.org