How to probate when a husband and wife die a year a part

I had a really interesting fact pattern today that I wanted to share. I got the perspective client’s permission to share but, of course, names are changed for privacy. Sadly Gina’s mom, Molly, died in December of 2015 and her dad, Donald, died in December of 2016. A crappy 12 months for Gina we can all agree. They owned a house in Sacramento county.

A very common scenario we see is where the decedent’s home ends up in one spouse’s name alone. This is often done for financing purposes where one spouse has great credit, one spouse has bad credit, one spouse is employed, one spouse is self employed, etc…. Several of those factors were present here. So there is a house in Molly’s name as her “sole and separate property.” That is, Donald actually deeded his interest in the house to Molly as her sole and separate property.

Our goal is to get the house into Gina’s name in the most efficient and cost effective manner possible. Oh ya, I forgot to mention, Gina is an only child.  For simple math let’s say the house is worth $500k with a $250k mortgage.  Let’s assume no other assets of significance to keep this simple.  Gina has options. Let’s discuss them.

OPTION A:

Gina could treat the house as her mom’s separate property. That is what the deed says so that is a very reasonable approach. By doing that there would be a probate for a $500,000 house. At the conclusion of probate, due to the laws of intestacy, Gina would get 1/2 of the property and the other 1/2 would go to dad’s estate. The cost would be roughly $13,000 in attorney fees and roughly $2,000 in court costs for a total of $15,000.

That’s not all though. Then dad’s 1/2 has to be probated.  Let’s assume $250k value so about $8,000 in attorney fees and just under $2,000 in court costs.

Yikes up to $25,000 in probate fees and costs… but that’s not all.  Let’s assume the house appreciated $50,000 from Molly’s death until Donald’s death. Based on the Sacramento real estate market in recent years that is a reasonable guess. That would slightly reduce the cost of the probate by $1,000 (that is the cost of probating a $450,000 house rather than a $500,000 house) but still all in at $24,000.

However, that’s not all… bigger still is 1/2 of that $50,000 gain would not step-up in basis at Donald’s death thus leaving Gina with a tax basis in 1/2 of the property $25,000 less than current value. If we assume 25% between federal and state capital gains tax that’s about $5,000 or $6,000 more.

In summation I think option A would cost Gina about $30,000.

OPTION B:

My preferred plan is option B. Let me explain.  Yes, the deed says “sole and separate property” but does it always mean that?  We have, many times, successfully used a spousal property petition even when the title says that it is separate property. Again, remember, this deed is only in Molly’s name alone due to financing reasons. The reality is it was community property.  Title is just a presumption and that presumption would be easily knocked down.

So we would prepare a spousal property petition (SPP) to transfer the property, 100%, from mom to dad.  Different attorneys charge different amounts for preparing an SPP but let’s just call it $5,000 between attorney fees and court costs as an estimate.

The SPP would move the property 100% to dad’s estate.  We would then probate dad’s $500,000 house. The cost would be about $15,000 for that probate

The total of attorney fees and court costs with option B is thus $20,000.

PLUS Gina gets a FULL STEP UP IN TAX BASIS so will not have a gain on sale and thus avoids about $5,000 or $6,000 in capital gains tax. Gina is the big winner here!

There are always other facts to consider. In this case I asked about creditors and confirmed that Donald was not on Medi-Cal. That is, I don’t want to create a large estate for dad and then have dad’s estate go to creditors.

Please remember that each case can have other unique factors so talk to an attorney before trying this on your own.

-John

 

Husband and wife NOT as joint tenants and some options

INTRODUCTION

I was presented a really interesting hypothetical recently. I thought it would make for a good blog post as there are a lot of intricate turns. It gets into issues of how to hold title, how to distribute assets between husbands and wives, and how small estate options work after death.

HYPOTHETICAL

In this case Harold and Wendy owned a property worth $125,000. More interestingly they actually owned 10% of a property worth about $1.25m.  Why is this more interesting? The loan on the property is about the same. H and W are now deceased and the rest of the owners on the property want to sell it to get out from under it. H committed suicide after committing fraud on a number of real estate deals.  W, was innocent in the transactions, and died a short time later penny-less. The title is held “Harold Doe and Wendy Doe husband and wife.”  It does not specify joint tenants or rights of survivorship. The rest of the owners need to clear title that is held in H and W’s names.

THE PROBLEM

I think the biggest problem here is getting the property transferred from H to W. That is, transferring from W is easy. The total is less than $150,000 so that can easily be accomplished by a probate code 13150 petition to succession of real property. That’s the easy part. Getting the property into W’s name is the hard part. Why was it not held as “joint tenants” or as “community property with the rights of survivorship” I do not know. Maybe the Realtor or title company are at fault. However, it is what it is now.

THE OPTIONS

The options I see for getting the property out of H’s name are as follows:

1) Disclaimer: If this had been done within 9 months of his death a disclaimer would have been a simple and inexpensive way to clear title to H’s 1/2 of the 10%. However, it’s been longer than 9 months so that won’t work here.

2) Spousal Property Petition: This is usually my go-to option if an asset is not held in joint tenancy or with rights of survivorship after one spouse dies. However, in this case they had a will which poured over to a trust. You can not use a SPP when there is a will pouring to a trust. So that option is off the table. If there was not a pour over will I would use this procedure as it avoids the need for an appraisal of H’s interest in the property.

3) Under $50,000 Affidavit: Yes, husband’s 1/2 is worth about $62,500 but maybe we could convince the Probate Referee to accept conventional discount valuation analysis and value his interest at $50,000 or less!? The only problem is we would need to get someone appointed as at least special administrator of W’s estate to carry out this procedure. That adds cost.

4) Under $150,000 Succession: If the Probate Referee doesn’t buy the discount valuation analysis then this would be the next best option. More expensive than the under $50,000 affidavit but this would be necessary if the Probate Referee doesn’t agree that the value of H’s interest is less than $50,000.

THE OTHER HALF OF THE PROBLEM

Once out of H’s name what’s best for W? I believe in the end it may be best to do a full probate for W. This would enable her estate to sign the under $50,000 affidavit or under $150,000 succession. It also will, overall, create the simplest solution.

CONCLUSION

Probate is generally to be avoided when it can. Costs are less and the case is resolved quicker when a full probate is avoided. However, in this case I believe doing a full probate for W, even though it’s not required, may be the more efficient way to transfer the asset and allow the partners to sell the property.

Know thy probate options

I met with a new client today whose husband died recently. She said she went to a local attorney, who was very nice, and told her she would have to do a full probate to get the house out of her husband’s name and into her name.  The grieving widow, luckily, decided to do a little more research before hiring that attorney.

The problem is that this attorney didn’t know all the options or… worse.  Let’s just assume he didn’t know all the options. The problem is a lot of attorneys say they are “probate attorneys” because they have done a probate before. This does not make one a true probate attorney.  Doing one or two or even 20 probates does not make one an expert.

If you are looking to hire an attorney find someone that:

1) is a CERTIFIED SPECIALIST IN ESTATE PLANNING TRUST AND PROBATE LAW;

2) only knows about probate, trust and estate law on their website;

3) has been practicing for many years.

If you find anybody else you are shortchanging yourself.

In this case the client came to me and suggested that from her research a spousal property petition might be a more efficient way to go. In fact, normally that’s our go-to petition when one spouse dies. However, in this case they had a short term marriage and thus the house being in the deceased husband’s name (alone) will make a spousal property petition, or SPP, very difficult.

She told me the house was probably worth about $190,000.   I asked if there was any chance it would appraise for $150,000. She said YES!  So we are going to try to get it appraised for under $150,000 so that we can file a petition to determine succession to real property worth less than $150,000. In this case the decedent’s only child is in full agreement and thus the under $150k probate should work.

The options such as an SPP or an under $150k probate pay the attorney less than a full probate.  Sadly there are starving attorneys out there who make recommendations with their pocket book in mind before your well being.  Make sure you work with a California probate attorney who cares about his clients and wants to do the best thing for THE CLIENT!

I hope to work with you!  -John