In general, when an estate planning attorney speaks to a new client, the attorney will almost always recommend that they create a revocable trust. The most common reason given is that a properly drafted and funded revocable trust completely avoids a probate proceeding. This begs the question, why is avoiding probate so important? The answer is simple: It saves time and money.
Despite what you may have heard, probating an estate in California is expensive and time consuming. The legal fees are set by law and based on the value of the estate, which includes the gross value of real property. Thus, the balance on the mortgage, including a reverse mortgage, does not reduce the total fees paid. This fee is not only paid to the attorney; the personal representative of the estate is entitled to the same fee.
For example, an estate with a value of $1,000,000 will owe $23,000 to the attorney in fees. Unless the estate’s personal representative waives them, their fees are an additional $23,000. Thus, the hypothetical $1,000,000 estate would pay $46,000 in fees.
Even if this hypothetical estate had a mortgage on real property of $500,000, thus cutting the net value of the estate in half, the estate would still have to pay the $46,000 in fees. The attorney and personal representative fees are not the only fees that the estate will have to pay either.
There are court costs, which will cost a minimum of $1,000, as well as other fees, such as probate referee fees, that need to be paid by the estate before the probate can be closed. These fees and costs are on top of any other valid bills the estate would be liable for, which includes funeral expenses, accounting fees, and preparation of taxes.
If there is a trust in place and all of the assets have correctly been put into the trust, the cost of administration would be significantly less, likely saving the estate more than half of the probate fees and expenses.
Probate also takes a very long time. Probate in California takes a minimum of eight months to complete, beginning from the initial filing until final distribution. That timeline is a best-case scenario and rarely happens. Most probates drag out longer than a year, with the majority taking about 18 months. Some probates take more than two years to distribute assets to the beneficiaries.
As such, in order to get your assets to your beneficiaries as quickly and efficiently as possible while vastly reducing the costs for your estate, estate planning attorneys in California almost always recommend a new client make a plan that includes a revocable trust.
