What is Probate? | Mission Viejo: Probate is the supervised court process that allows for a decedent to transfer the legal title of their property to their beneficiaries. This process occurs whenever an individual passes away with assets titled in their name (and do not have a beneficiary designation). During this process, an individual will be appointed to administer the estate and distribute the remaining assets of the estate to the beneficiaries (or heirs) after all fees and debts have been paid.
That doesn't sound so bad.
Why would I want to avoid Probate?
Well, at first glance it isn't so bad, but when you look deeper you realize that it's not very good either. Specifically, within Rancho Mission Viejo, Ladera Ranch, and every other city within Orange County, there are a few notable problems with probate.
The first is that it is often expensive.
The cost of probate is set by state law. When all the costs are added up – these may include appraisal costs, executor's fees, court filing fees and certified copies, costs for a type of insurance policy known as a "surety bond," plus legal and accounting fees – probate can cost from 4% to 7% of the total estate value, sometimes more. If someone contests the Will, there could be thousands of dollars of litigation costs. - Superior Court of California County of Orange
For a further explanation, you can read more here.
First off, this is only an estimate made by the Court to simplify the fairly complex calculation for statutory probate fees as well as an account for a myriad of others. However, since the Court ultimately has to approve all fees I'd say it is probably pretty accurate.
Notice that it says "4% to 7% of the total estate value." This is also known as the gross value of the estate. This is distinctly different from the "Net Value" of the estate as the Total or Gross value does not take into consideration the amount of debt that you may have. I think an example would be helpful to illustrate this . . .
The median home in Rancho Mission Viejo, CA (a city within Orange County) is roughly $720,000. If this were your only asset (which is not normally the case) the total fees would be approximately $28,800 (4%) to 50,400 (7%). In all likelihood, the fees would be toward the latter end of that range because of "Extraordinary Fees" that are incurred anytime real property is included within a probate estate, but that is a topic for a separate discussion. Now, most people have a mortgage or other forms of debt on their homes. When the calculation of fees and costs takes place they do not consider that debt. So if you own a $720,000 home and have a mortgage on the property of a conservative estimate of $470,000 (which is roughly 65% of the value of the home) then the net equity in the property (how much you would get in the event that you sold it) would be $250,000. So you can begin to see really how expensive those probate fees can be because you will have to pay roughly $30,000 to $50,000 in fees out of your $250,000 in equity. That amounts to ranges from 12 to 20 perfect of the net value of your estate, which is a lot!
The next big issue is how long probate takes.
Probate in Orange County takes approximately 18 months to complete. Yes . . . 18 months. That is a long time that your executor or personal representative will have to walk through an official court process. And during that time your family may only have a limited ability (or no ability) to use that money for their benefit.
This really stems from the fact that probate wasn't designed to be quick. It was designed to make sure that all of your debts are paid before releasing the money to your beneficiaries.
To oversimplify a complex process, probate can be broken down into roughly 8 steps with the first one being opening probate and the last step, step number 8, is closing probate. It isn't until Step number 7, which happens about 12 - 18 months after step number 1, that your family will be able to receive their financial legacy.
Now for the good news . . .
Probate is entirely avoidable!
You can avoid all of these issues and a variety of others by creating an estate plan. Estate plans not only addresses what happens when you die, but also what happens if you're become incapacitated, who makes your medical decisions, who make your financial decisions, and who takes care of your children. It is important that you understand how Probate affects your family specifically and if there are any changes you need to make in order to sure that your family is protected.
I hope this helped and provided a bit of context for what probate is and why it isn't a very good option for this locale.