The most advertised benefit of a revocable living trust is probate avoidance. For a detailed definition of probate see the end of this post. In short, probate consists of a ‘proving of the will’ (showing that the will is legal) and will implementation (doing what the will says should be done).
In California, the process may take between 9 and 18 – 24 months. See also: Probate Process Timeline. As you can see, probate may be time consuming and can also be costly, but it often isn’t. For potential costs see an earlier post.
However, the administration of a trust may not be simpler than going through probate. First the assets that go into the trust need to be retitled, and, after death, transferred to the beneficiaries. The trustee has a lot of work doing this and other things, such as staying on top of IRS reporting requirements, and reporting to beneficiaries annually, etc. Consequently, she may charge a fee for her labors. Professional and institutional trustees always will.
Moreover, probate avoidance can be accomplished by other means that cost less to set up and administer. Let’s see how this works: Most people have the bulk of their liquid assets in retirement accounts, such as 401Ks and IRAs and life insurance. These vehicles require a beneficiary designation. The funds are automatically transferred – outside of probate – to the named beneficiary. No will, trust, or court needed.
The biggest asset by far for most people is their family residence. The median home price for a California Single-family home was $ 821,680 in September 2022. This can be taken out of probate by a Revocable Transfer on Death Deed (RTODD). This is like a beneficiary designation for a retirement account, the probate court has no jurisdiction. We have written about this here.
Perhaps, after removing retirement accounts and the home from the probate estate, there are personal possession left over? California has a solution for you, the Simplified Procedures to Transfer an Estate (technically they are still probate procedures, but much abbreviated). There are actually two, and they are sometimes confused:
The first, called Affidavit Procedure for Real Property of Small Value, is governed by CA Probate Code 13200. – 13211. The limits for the property value are adjusted periodically. Currently, for deaths on or after April 1, 2022, the amount is $61,500. This procedure is not of interest in our scenario, because the real estate already passes through the RTODD outside of probate. Furthermore, most real property interests will exceed that amount. See above.
Coming back to personal belongings, the second type of simplified procedure is called Affidavit Procedure for Collection of Personal Property: Let’s assume the house goes to Angela through the Revocable Transfer on Death Deed, but Brian is supposed to get the nice furniture and the 19th century oil paintings as per the will. Assume, all of this is valued at $180,000. Is this going through probate? Technically yes, but Brian can take advantage of the much-streamlined simplified procedure, unless the value of the estate exceeds $184,500 (on or after April 1, 2022, adjusted periodically). For the calculation of this limit amount, real estate subject to probate is taken into consideration. In our case the gross estate contains real estate, but the estate is not subject to probate (the probate estate). In our case, the real estate has already been removed from probate (it goes to Angela by RTODD), so it does not count towards the $184,500 of allowable probate estate.
As you can see, a rather large overall estate can, with proper planning, be a small probate estate. In that case you can collect all property other than real estate with a sworn document called Affidavit for Collection of Personal Property (CA Probate Code Sections 13100 – 13117).
Let’s briefly return to the advantages of a trust. Let’s hear it directly from the American Bar Association: “A living trust, if properly prepared and administered, can be a very effective tool to manage assets in the event of illness, disability or the effects of aging. In light of the aging population, the use of living trusts to minimize the risk of elder financial abuse and address similar issues, should be an important consideration in an estate plan.” The Probate Process (ABA).
In conclusion, for some estates probate avoidance without a trust may be the most cost effective and least burdensome solution. In other instances, a revocable living trust may be better. Talk to an estate planning attorney to see what is right for you. This is what we do as counselors and planners. One size doesn’t fit all.
ABA definition of Probate
“Probate is the formal legal process that gives recognition to a will and appoints the executor or personal representative who will administer the estate and distribute assets to the intended beneficiaries… Probate is the court-supervised process of administering your estate and transferring your property at death pursuant to the terms of your will.” What is Probate?
