First Step- Probate or NOT?
- Living Trust
- Joint Tenancy
- Community property with right of survivor ship
- Life insurance, IRA, Annuities — designated beneficiaries (By Operation of Contract–show death certificate)
- Pay on Death Account
- Could be $1 million dollars but no probate needed
No Probate: Small Estate value of less than $150,000 with no real property (Probate Code Section 13100) — Summary Administration Procedures
- Wait 40 days after death of date
- “13100 Declaration” or “Small Estate Affidavit” or “Small Estate Declaration” • Decedent’s name, date and place of death.
- “No proceeding is now being or has been conducted in California for the administration of the decedent’s estate,” or “The Decedent’s personal representative has consented in writing to the payment, transfer, or delivery to the affiant or declarant of the property described in the affidavit or declaration.”
- “The current gross fair market value of the Decedent’s real and personal property in California, excluding the property described in Probate Code §13050. does not exceed $150,000.”
- Description of Decedent’s property that is to be paid, transferred, or delivered to the affiant or declarant.
- Name of Successor of the Decedent.
- “No other person has a superior right to the interest of the Decedent in the described property.”
- Certified Death Certificate
- Use Gross Value
No Probate: Small Estate with real property value less than $50,000 (Affidavit RE Real Property of Small Value–$50,000 or Less–Form DE 305)
- Wait 6 months
- Judicial Council Form DE-305 — Probate Code 13200
- Signed by all beneficiaries
- The affidavit must also attached an inventory and appraisal (Form DE-160) completed by a licensed Probate Referee
- File with the Court — No court hearing
- Return envelope — Probate examiner looks at it first then mail back if approved.
- Use Gross Value
No Probate: Small Estate with real property between $50,000 to$150,000 — (Petition to Determine Succession to Real Property–$150,000 or Less)(Probate Code Section 13151)
- Wait 40 days “Petition to Determine Succession to Real Property” (Form DE- 310)
- Signed by all beneficiaries– with notice given.
- Attached inventory and appraisal Form DE-160 — Value at date of death. (Wait for value to come back — might save money and time)
- One court hearing
- Get Signed order
- Use Gross Value
- Example– Partial Interest: Mom is 1 of 5 Sisters owing a vacation cabin. Mom died, she owns 1/5 interest in a vacation cabin.
- You are now on title with your four aunts
- Proposition 58 — Exclusion from Parent to Child
- Estate value is $150,000 or more
1st Filing the Starts
• Probate Filing Fee $465
• Probate Case Cover Sheet
• Petition for Probate – Form DE-111
o The term “Personal Representative (PR)” includes Executor and Administrator
o Probate of Will and for Letters Testamentary (have a will)
• Executor is the person named in the will to administer the estate; must also be appointed by the court
• Typically the Petitioner is the same person as the Executor if there is a will.
o Administrator with Will Annexed (have a will)
• The person appointed by the court who administered the estate under the provision of the will when no executor is named in the will or all of the executors named in the will cannot or will not perform the duties of executor or waive the right to appointment.
o Letters of Administration (there is no will)
• Administrator is when there is no will, the person appointed by the Court to administer the estate. o Letter of Special Administration
• Special Administrator – Temporary appointment by the Court to carry out specific activities of an immediate nature necessary to avoid wasting of assets of the estate: complete the sale of property, execute a lease.
o Check the box that you will arrange the publication o Full under IAEA vs. Limited Authority IAEA (Independent Administration of Estate Act)
• It is especially important to have “full” power if intend to sell real property. Under full power of the IAEA you just need to use the 15 day Notice of Proposed Action, which will talk about later-except when PR or attorney is the one buying then Court order is needed.
o Bond or not
• If no bond is needed then attached a statement why no bond is needed: the will waived the bond or all heirs waived bond- save some money if no bond but if heirs are contentious then bond may be needed as a compromise.
• If bond is needed do some homework and make sure your personal representative qualify for a bond. PR can run away with money of the estate. No job, no money, no home-might be difficult to get bond.
• Original Will (if there is one-Attach to Petition)
o Self-proofing will has language that we signed under penalty of perjury and with names and addresses. So proper attestation clause under penalty of perjury by two competent witnesses.
o A lot of time, you file the petition and someone will contest the will but they need grounds to say why the will needs to be put set aside like improperly executed, will notarized is not property, or cannot find the witness, not a proper holographic will, may be capacity issue-did not understand; created under undue influence, fraud or duress,
-If you are going to challenge a will, you have 120 days -very expensive to challenge a will-grandma says I can have ‘this … is not going to do it.
• Proof of Subscribing Witness – Form DE-131
o Not a self-proofing will
• You need a declaration or affidavit form a witness
• If witnesses are unavailable and the court believes none can be found after a due diligence search, then the court may admit a will if you prove the testator handwriting and proof of handwriting of one of the subscribing witnesses
• Proof Holographic Instrument-Form DE-135
o Handwritten Will -signed by the decedent
o Need to provide a copy of a typewritten copy of the will and fill out the above form DE-135 -get someone to say they know the decedent’s handwriting
Best Way to Hold Title
Owning your own home or a rental property is very different than owning your wardrobe, a computer or a car. The way you own your home or your rental property is the way you hold title to that property. How you choose to hold title is very important because it has many tax and legal consequences during your life time and when the property is transferred to your heirs when you die. Holding title incorrectly could translate into costing you or your heirs hundreds of thousands of dollars in unnecessary income taxes and legal fees. Did you realize that when you bought your home, you were asked how you wanted to hold title? Did you understand the tax and legal ramifications of all your options before deciding what kind of title you wanted to hold on your purchase? These next few pages may not address every imaginable situation, but they will help put you on the path of thinking about whether your current or future ways of holding title are the best to maximize tax savings and avoid expensive legal fees.
These are the common ways to hold title in California:
1) Sole ownership,
2) Joint tenancy
3) Tenancy in common
4) Community property
5) Community property with right of survivorship
• A Single Man/Woman d Example: John Doe, a single man
• A Divorced Man/Woman o A man or woman, having been legally divorced
o Example: Jane Doe, an unmarried woman
• A Married Man/Woman, as His/Her Sole & Separate Property
o This method is used when one spouse is using his/her separate inheritance or cash acquired before getting married and is using those funds to purchase the property.
o When a married man or woman wishes to acquire title in his or her name alone, the title insurance company will require that the other spouse consent, by quitclaim deed or otherwise, to transfer, thereby relinquishing all right, title and interest in the property.
o Example: Jolin Doe, a married man, as /tis sole and separate property
This is generally the way most single people hold title. If you own an asset in your sole name then the asset will need to be probated in court after you die. This is because once you die, no one will have the legal authority – only you had the legal authority. Whoever receives the property will receive the property with a stepped up basis; meaning if the decedent bought the property for $100,000 with no major improvement and at the time of death if the value is $1 million then the decedent’s heirs will receive the $1 million stepped up basis. If the heirs sold the property for $1 million then the taxable proceed is $0 (zero)!
• Joint and equal interest in property owned by two or more individuals created under a single instrument with right of survivorship
o Example: John and Mwy Doe, husband and wffe, asjoint tenants
The main characteristic of holding title as joint tenancy is the right of survivorship. When one joint tenant dies, his/her interest in the property is equally distributed to the remaining joint tenants. The property does not become part of the individual’s estate, so it does not have to go through probate under California law. This means that the transfer of property to the joint tenant is easier, but it also means that a joint tenant cannot include his/her interest in the property in his/her will. If unmarried individuals (such as brother or sister, investor, etc) hold title as joint tenants and one owner dies, the property will automatically transfer to the other surviving joint tenant(s). In a joint tenancy, the decedent’s half interest in the property receives the tax benefit of a basis adjustment. Using the example of a property purchased by a married couple for $100,000 which is now worth $1,000,000, when the first spouse dies, the adjusted basis for the surviving spouse would be $550,000 ($500,000 for the decedent’s half, plus $50,000 for the surviving spouse’s half). If the surviving spouse sold the property for $1,000,000 then the taxable proceed would be $450,000 ($1,000,000 minus cost basis of $550,000 = $450,000).
Tenancy in Common
• Under tenancy in common, the co-owners own undivided interests, but unlike joint tenancy, there is no right of survivorship; each tenant owns an interest, which on his or her death vests in (goes to) his or her heirs
o Example: John Doe. a single man, as to an undivided-% interest and Sally, a single 11,•oman, as to an undivided interest; as tenants in common
Tenancy in common is a form of holding title to property owned by two or more individuals for an undivided fractional interest. Tenancy in common carries no right of survivorship and each party has a right to encumber, transfer, or sell his or her respective interest. For example if brother and sister hold title as tenancy in common in a home, then upon the death of the brother, the brother’s heirs (whoever they are) would get whatever was the brother’s interest in the property. Further, unlike joint tenancy, the fractional interests held by spouses through tenancy in common do not have to be equal and each spouse may sell, lease, will, or dispose of his or her share of the property as he or she wishes. For example, three individuals could hold title as tenancy in common, with one person having a 50% interest and each of the other two having a 25% interest. Each co-owner can sell, convey, or mortgage his or her interest without the consent of the co-owners. The new owner simply becomes a tenant-in-common with the other owners. This method is almost never used by spouses because of the lack of the right of survivorship, no stepped-up tax advantages, the possibility of holding unequal fractional interests, and potential devastating tax consequences.
• Property acquired by a married couple or domestic partners, or either spouse during marriage, other than by gift, bequest (inheritance), or as the separate property of either, is presumed community property
o Example: John and Mary Doe, husband and w(le, as community property
o Example: Sally and Mary, registered domestic partners as community property
When the title to property is held by a married couple or domestic partners, as community property, each spouse or partner has equal rights of management and control of the property and the right to include his/her half of the community property in his or her will. If the first spouse or domestic partner dies without a will or leaves the property to the surviving spouse or domestic partner, the property will go to the surviving spouse or domestic partner and no probate is necessary. With community property, on the death of one of the spouses, both spouses’ half interests in the property will get a stepped-up in income tax basis adjustment to fair market value. For example, if the property was purchased for $100,000 and is worth $1,000,000 at the time of the first spouse’s death, the surviving spouse will get a stepped-up basis to $1,000,000 for tax purposes. If the surviving spouse sold the property for $1,000,000 then the taxable proceed would be ZERO ($1,000,000 minus cost basis of $1,000,000 = $0 (zero) gain! Further, because of the unlimited marital deduction, no estate taxes would be levied against the property upon the death of the first spouse creating an additional tax advantage. Each owner has the right to dispose of his/her one half of the community property, by will.
Community Property with Right of Survivorship
• Community property acquired by a married couple or registered domestic partners when expressly declared in the transfer document to be “community property with right of survivorship,” shall pass to the surviving spouse or partner without having to first pass through the administration of the estate.
• Interest must have been created on or after July 1, 2001 o John and Mary Doe, husband and wife, as community property with right of survivorship
Under California law, spouses or registered domestic partners can enjoy the benefits of community property, while simultaneously receiving the benefit of joint tenancy: the automatic right of survivorship by holding title as community property with right of survivorship. Because the property is still under the guise of community property, the surviving spouse is able to obtain the full step-up in basis for income tax purpose. This will likely result in a tremendous tax savings for the surviving spouse if the property has appreciated. The tax analysis here is the same as in community property that was discussed above. To reiterate the example above: if husband and wife bought the property for $100,000, and upon the death of the first spouse, the fair market value of the property is $1,000,000, the surviving spouse cost basis is $1,000,000 resulting in $0 (ZERO) taxable income if the property was sold for $1,000,000. The end result is that the surviving spouse 1) receives the entire property without any burdensome delays, 2) avoids probate and unnecessary legal expenses, but 3) still obtains a significant tax savings. Absent any of the limitations of special circumstances, most couples would benefit most from community property with right of survivorship.
Corporation & LLC
• A Corporation: A corporation is a legal entity; created under state law, consisting of one or more shareholders but regarded under law as having an existence and personality separate from such shareholder(s).
o For many reasons, few investors hold investment real estate in C corporations. A corporation protects the shareholders from personal liability, however the double taxation of dividends and the inability to have “paper losses” from depreciation flow through to owners make a C corporation inappropriate for real estate investments.
• Limited Liability Companies (LLC): This form of ownership is a legal entity and is similar to both the corporation and the partnership. The operating agreement will determine how the LLC functions and is taxed. Like the corporation its existence is separate from its owners.
o The California LLC is probably the least understood entity, but it’s the best entity to hold ownership to real estate investment property (rental property) because of the asset protection it provides and the beneficial tax treatment it offers over the corporation. This is especially applicable to individuals who own investment properties in addition to their primary home.
• A partnership is an association of two or more persons who can carry on business for profit as co-owners, as governed by the Uniform Partnership Act. A partnership may hold title to real property in the name of the partnership. Partnership is included here for the sake of completeness but not it is relevant to the vast majority of homeowners holding title to a home.
• Title to real property in California may be held by a trustee in trust; the trustee of the trust holds title pursuant to the terms of the trust for the benefit of the trustor/beneficiary
o Example: John buyer trustee of the John’s Family Trust
Community property with right of survivorship is an inexpensive and convenient way to avoid probate and to significantly reduce tax liability for spouses. However, community property with right of survivorship, though not entirely devoid of disadvantages, seems to be a far superior choice to joint tenancy. In certain cases holding title in a living trust may offer additional benefits to couples. The primary advantage of a living trust is that assets transferred to the trust are not part of the settlor’s probate estate and are not subject to probate proceedings in California. Avoiding probate will save significant costs and attorney fees. In our example, a $1 million house will cost at least $23,000 in statutory attorney fees in probate. Furthermore, probate proceedings are public records with no privacy and can be lengthy, resulting in delays for a minimum of twelve to eighteen months before the assets are distributed to the heirs. These are some of the reasons why a trust has become the primary transfer device used by professional estate planners in California.
The best manner of holding title to a property is one of the most frequently overlooked items when purchasing a home. The wrong choice in holding title to property will lead to increased tax liability and legal fees. Individual and couples should consider many factors when deciding how to hold title. It is always best to consult an experienced attorney, accountant or estate planner when purchasing a home or any other real property to ensure the best possible tax and legal outcomes down the road.
Administrator: A person (sometimes a family member) appointed by the court to the administer the estate of a person who died without a will (i.e., a Personal Representative).
Administrator with Will Annexed: a person appointed by the court to administer the estate of a person who died with a will, but this person was not named in the will to act as a personal representative. Also known as Administrator C.T.A. (Cum Testamento Annexo).
Beneficiary: An individual or organization to whom a gift of property is made. Blocked
Accounts: cash or securities that are placed in a bank, trust company, insured savings & loan or insured brokerage account, subject to withdrawal only upon court order or statute.
Codicil: an amendment or supplement to an existing will.
Conservatee: a person determined by the court to be unable to protect and manage their own personal care of financial affairs, or both. And, for whom the court has appointed a conservator.
Conservator: a person or organization appointed by the court to protect and manage the personal care of financial affairs, or both, of a conservatee. (See LPS Conservatorship) Decedent: A person who has died.
Estate: a person’s total possessions (assets), including money, jewelry, securities, land, etc. These assets are managed by a fiduciary subject to a court order. E.g., guardianship estate, conservatorship estate, or decedent’s estate.
Executor: the person named in a will to carry out the directions as set forth in the will. This person is the personal representative of the decedent’s estate.
Fiduciary: a person or organization that manages property for a person, with a legal responsibility involving a high standard of care. E.g., conservators, guardians, personal representatives, agents, or trustees.
Guardian: a person appointed by the court to protect and manage the personal care or financial affairs, or both, of a minor (ward).
Heir: a person who would naturally inherit property through a will, or from another who died without leaving a will.
Holographic Will: generally, a will that is completed handwritten, dated and signed by the person making the will.
Inter Vivos Trust: a trust set up during the lifetime of a person to distribute money or property to another person or organization ( as distinguished from a person who transfers money or property after death).
Intestate: without a will. Opposite of Testate.
Irrevocable Trust: trust wherein the grantor has expressly released the power of revocation.
Letters: the court document that establishes the authority to act as a guardian, conservator, or personal representative (executor or administrator). In decedent’s estate, an executor’s letters are designated “letters testamentary,” and an administrator’s letters are “letters of administration.”
Limited Conservatorship: a type of conservatorship for developmentally disabled adults. LPS
Conservatorship: a specific type of conservatorship, under the Lanternman-Petris-Short Act, which allows for involuntary detention and treatment of a person (the conservatee ). This conservatorship is a result of mental disorder and the conservatee appears to be a danger to himself/herself or others, or is gravely disabled. The Public Guardian must file this matter. (See Conservator and Conservatee ).
Minor: as used in the context of a guardianship, a person under the age of 18 who is placed in the care of a court appointed guardian.
Personal Property: anything owned by a person that can be moved such as money, securities, jewelry, etc. (See Property)
Personal Representative: an administrator or executor appointed by the court to administer a decedent’s estate.
Petition: a written, formal request, property filed with the Court, for a specific action or order. The petition is a pre-printed Court form in some cases, or written in a proper format on pleading paper in others. E.g., petition for Probate, petition for conservatorship, etc.
Probate: The legal process of administering a will. Also, the judiciary supervised process for marshaling a decedent’s assets, paying proper debts, an distributing the remaining assets to the persons or entities entitled to them.
Probate Court: The court that handles matters concerning wills and estates, such as the distribution of property or money to those named in a will. In California, the Probate Court also handles guardianships and conservatorships.
Property: anything that can be owned such as money, securities, land, buildings, etc. (See Personal Property and Real Property).
Real Property: land and immovable objects on the land such as buildings. (See Property).
Revocable Trust: a trust in which the person making the trust retains the power to revoke the trust.
Small Estates: a decedent’s estate may avoid probate and have personal property transferred directly to an heir if the decedent’s estate meets the requirements of California Probate Code Section 13100 et. seq.
Successor Fiduciary: the next person or organization appointed if a vacancy arises in a conservatorship, guardianship, or decedent’s estate because of the fiduciary’s death, removal, or resignation.
Testate: having made a valid will. Opposite of intestate.
Testator: a person who makes a will.
Testamentary Trust: a trust created by a will
Trust: The handing over of property to a person to be held for the benefit of another (i.e., held in trust).
Trustee: a person or organization who has been authorized by a trust to hold and mange property for the benefit of a beneficiary. (See Fiduciary)
Ward: See Minor.
Will: a document that directs the disposition of a person’s property after death. Such a document should be made according to law (see California Probate Code Section 6100 et. seq.) and is filed in a probate court after the person has died.
Disclaimer: What is provided here is not to be taken as legal advice or counsel and is only being provided solely for educational purposes. If you have a legal matter, concern or case we strongly urge you to seek the advise of an attorney, if you have not already done so.