It is possible to avoid probate in California!
There are many ways to avoid probate in California. Plus, some estate planning tools are so simple that you can implement them without having to hire an attorney! From transferring property into a living trust to designating a payment on death beneficiary, A People’s Choice can help you prepare your estate planning documents so your surviving beneficiaries will not have to file probate.
Below are the top five most popular ways people in California avoid probate, and how A People’s Choice can help.
1. Living Trust
In California, you can create a living trust to avoid probate because a living trust can serve as an alternative to a last will and testament. A living trust places your real property and assets “in trust” which an appointed trustee manages for the beneficiaries.
Furthermore, you can create a living trust for almost any asset you own, including real estate, bank accounts, vehicles, and jewelry. Once you create a trust, you must transfer property into it and designate a trustee (you can appoint yourself while alive). Then, upon your death, the successor trustee will transfer the trust assets to the beneficiaries without having to go through the probate process.
2. Payment on Death Designation
You can use a payable on death (POD) designation to appoint a beneficiary of your bank accounts or certificates of deposits upon your death without probate. However, with a POD, the beneficiary will not have access to your assets while you are alive.
Note that we do not recommend naming a minor as a POD beneficiary, as this can be problematic when it’s time for the bank to release the funds. In such a case, the guardians may have to go to court and ask to be appointed as the minor’s guardians of the money before the bank will disperse it.
People often name POD beneficiaries for several types of property, including but not limited to:
- Bank accounts;
- Stocks and bonds; and
- U.S. savings bonds
It is important to keep in mind that if the POD beneficiary dies before the account holder, the account holder should immediately update the beneficiary on the account. Otherwise, the account may have to be probated.
3. Transfer on Death Deed
Transfer on death (TOD) deeds, often called beneficiary deeds, transfer real property to a beneficiary upon the owner’s death. However, like POD deeds, the designated beneficiary has no rights until death, and the TOD deed can be revoked prior to death.
For example, a vehicle transfer on death registration can be used to avoid the probate of vehicles in California. If you register your vehicle as a vehicle TOD, the named beneficiary will automatically inherit the vehicle after your death.
Learn more about California’s new transfer on death deed in this article.
4. Joint Tenancy Ownership of Property
There are many ways to hold title to real property in California. Specifically, holding property as joint tenants can be used to avoid probate. When an individual owns property as a joint tenant with right of survivorship, the surviving owner will automatically own the property when the other owner dies. No probate is necessary!
Likewise, community property with right of survivorship is another form of tenancy that can be used to transfer property acquired during marriage to the surviving spouse. Again, no probate is necessary for the property to transfer.
5. California Small Estate Probate Procedures
Depending on the nature of your personal estate, you may be able to use California’s “small estate” probate procedures to have your property distributed amongst your beneficiaries. The gross value of the decedent’s real and personal property cannot exceed $166,250 to use such procedures.
Sometimes, estates are small enough in value or have little enough assets to avoid probate. Furthermore, other estates can avoid probate in California with proper pre-death planning. While an existing estate plan is the best way to avoid probate, what happens if the decedent never created one?
When Can You NOT Avoid Probate?
In addition to distributing an estate to proper beneficiaries, the probate process also clarifies any issues or contradictions within a will. Plus, probate can resolve challenges to the distribution of the estate’s assets.
For the purpose of this article, “probate” refers to a full probate and not one of the alternate small estate proceedings that could be used to settle smaller estates.
You can determine what you need by considering three key components:
- the type of property the decedent owned;
- the value of that property; and
- how the decedent held title to the property.
Below are common reasons for probating an estate:
- When no will exists
If an estate has assets valued over $166,250 requiring probate without a will, probate is necessary. Probating the estate will determine the beneficiaries and the assets they will receive.
- When a valid will exists
An estate will have to be probated if a valid will exists and the estate has assets requiring probate that are valued over $166,250. Probating the estate will validate the will and distribute the assets according to its terms.
- When there are mistakes in a will
The will must go through probate if mistakes are present, such as in a fraudulently executed will.
Additional Reasons for Probate
An estate must also go through a full probate if the decedent owned property as a tenant-in-common and the value of decedent’s interest is over $166,250. Additionally, probate may be necessary when beneficiaries have predeceased the decedent or challenge the distribution of the estate’s assets.
Assets Subject to Probate
Property held as tenants-in-common is subject to probate upon the death of one of the owners.
Holding title in tenants-in-common is different than holding title in joint tenancy or community property with right of survivorship. Therefore, the outcome upon death does not automatically transfer to the surviving owners. Examples of tenants-in-common property include bank and investment accounts, stocks, bonds, vehicles, boats, planes, real estate, and business interest.
If two or more people own these types of assets without designation of the type of ownership, they will automatically split ownership equally. Additionally, when more than one person’s name is on title to an asset, they are assumed to be tenants-in-common unless there is designation to the contrary.
For example, real property held in the name of “Joe Smith, an unmarried man, and Sara Jones, an unmarried woman” would be considered owned 50% by Joe and 50% by Sara as tenants-in-common with no right of survivorship. On the other hand, if title was “Joe Smith, an unmarried man, and Sara Jones, an unmarried woman, as joint tenants,” if either Joe or Sara died, the remaining owner could easily transfer the deceased owner’s share of the property to the surviving owner without probate.
Revocable living trusts, pay-on-death accounts and registrations, and gifts are not subject to probate.
How Can You Avoid California Estate Taxes?
Luckily, many people will not need to worry about estate tax liabilities. In fact, only the wealthiest estates are required to pay estate tax as it is assessed only on the portion of an estate’s total value that exceeds a specified exemption level.
For very large estates, California provides some tax avoidance actions to cut the potential estate tax liability. These actions include maximizing gifting during lifetime or setting up a charitable trust. Consult an attorney to discuss more complex pre-death planning if you expect your estate is valued over 11 million dollars.
Probate can be an arduous task for surviving heirs and beneficiaries. Contact A People’s Choice at 1-800-2747-2780 for more information about how to avoid probate in California. Our experienced staff is available by phone to answer your questions.