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Small Estate Hypothetical

With the updated California probate code 13100 a person can now pass up to $150,000 after death without entering into a full probate.  Today’s blog post is a hypothetical case to give you an example of how this code section works and what may be the benefits between a full probate and a small estate.

Let’s say you have assets of $120,000 at death and are debating between clearing title by full probate or utilizing the small estate measures of probate code 13100, et seq.  Let’s say there are bank, or financial accounts (including life insurance), at 6 different institutions.  Let’s say there is a car.  Let’s say there is a will.  Let’s say there is a named executor in the will and 5 beneficiaries named in the will.  Let’s say the decedent owned no real estate at death.

A full probate would cost you about $4,600 in attorney fees and $1,500 in Court costs.  Avoiding a full probate should mean avoiding all the Court costs so that $1,500 is saved. Attorney fees will vary but let’s say $2,000 as an estimate for a competent California probate attorney to handle this.  At first blush it must be better to avoid probate, right!?  Nobody wants to go through probate, right!?  It’s always better to not pay an attorney if you can help it, right!?  Well, MAYBE. Let’s explore….

If we avoid a formal probate (let’s call that a “mini” probate) we would do California small estate affidavits and other documents as necessary. Some financial institutions require affidavits of domicile to be signed by everybody receiving assets.  Some assets, like life insurance or annuities, may require completing beneficiary claim forms.  Items like cars and mobile homes usually have forms through the regulatory agency to complete.  In California all of this can be done 40 days after death.  All the people entitled to received assets would need to sign the documents. Then the attorney would send the small estate affidavits in to try and get the money distributed. Based on past experience out of 6 financial institutions odds are that two will require an affidavit of domicile to be signed and notarized. In some cases we just do that form ahead of time to head that requirement off. Others may have their own form they want completed which they will mail to the attorney’s office typically.

All told, at a reasonable hourly rate, you might expect to spend about $2,000 in attorney fees. In addition there will be several hundred in notary fees to get all the small estate affidavits and other documents notarized by all the beneficiaries.

If all goes according to plan all the monies should be received within 4-6 weeks after submitting the forms to the financial institutions.  Again, that can not be started until 40 days after death.  Thus, with any luck you are totally done within 3 months of death.

However, what if you are owed money?  That is, what if the decedent owed you money or you paid for the funeral?  Or what if you paid some of the decedent’s bills after death? You are entitled to reimbursement in a normal probate but this is a mini probate which has no structure and no supervision. In that case the other beneficiaries will need to agree to give you money to reimburse you.

What if the decedent had creditors? That becomes more complicated. Pursuant to the California probate code you are liable for the decedent’s debts and expenses up to the extent you receive assets. So you could end up being proportionally liable for debts and expenses if you are an easier target than the other beneficiaries.

Also, you are not entitled to an Executor’s fee when doing  a mini probate even though you will spend a lot of time on the case.  As with other claims it could be that the other people inheriting will choose to pay you an Executor’s fee but that’s between you and them!

Ok, ok, what if you go for it and do the dreaded… full probate!?  Again, at first blush people say avoiding probate is always best. Avoiding attorney fees is always best. Avoiding Court costs is always best. However, it truly is not always best.

When there is real estate to sell a full probate is generally better as then you have a centralized person to sell the real estate without needing the consent of others. In this hypothetical case there is no real estate so that’s not an issue. However, it can be simpler in a full probate. Let me explain why.

In a full probate you will get “Letters Testamentary” issued to you.  Most every financial institution knows what they are, will honor them, and will distribute the asset to the estate. Once at the estate level you, as the Executor, will have control.  When doing mini probates all small estate affidavits are different and with the recent change in California law, from $100,000 to $150,000, there could be even more confusion possible.  However, Letters are Letters and they are honored everywhere!  Thus, a full probate will likely make it easier to gain control of all assets.

Reimbursing you for funeral, cremation, expenses you paid and the Executor’s fee happens at the estate level. It’s very clear cut. There is a procedure in place, forms to fill out, and the money is reimbursed.  In particular that Executor’s fee, in a small probate like this, would be $4,600. That’s $4,600 you likely wouldn’t get in the mini probate so it’s a nice benefit for you.

Dealing with creditors can be easier at the probate level.  If you do a mini probate all you can really do is tell a creditor there is no probate.  Some creditors will accept this answer and go away. Others will push the issue and may even try to open probate to get paid the money they are owed. With a full probate there are standard forms to fill out to put creditors on notice, for creditors to file claims, for claims to be accepted or rejected, and are dealt with in the probate.  Again, as above, these claims would be paid off the top with all beneficiaries sharing equally.  There is much more finality here as the creditors claim period will expire and be done when the probate ends.  With the mini probate there is potential for liability up to one year after death and maybe even longer in some limited cases.

A full probate code take 7 months and does cost more money. However, it is a more concrete process and offers more finality than a mini probate does.

If you want to run the numbers for you mini probate let me know and we can talk about it.

Go to ‘Who needs a Full Probate” to know more about Probate Code 13100. To contact the Probate Attorney, click here

-John