Estate Planning Tip: Avoid Probate At All Costs!

This is probably not the most professional way to put this, but probate sucks. It is a lengthy and costly process and I advise everyone that they should take the steps necessary to avoid probate at all costs.

Here are some key characteristics of probate, at least in states such as California:

  • Probate is a very long process—it often lasts two years or more.
  • Your money is frozen and is not immediately accessible for your children.
  • Probate court is open and public, meaning anyone can go down to the court and see exactly what and how much you owned at the time of your death.
  • Someone has to open up probate for your estate. They are stuck cleaning up your mess. Imagine that—you die unexpectedly and your family has to not only deal with your loss but also get thrown into the court system for several years.
  • Probate court is depressing, as are most courtrooms in general. There is usually a “dog pound” of sad, depressed people in the halls who look like they are waiting to go into a torture chamber.
  • Probate court is a platform for your family members to publicly air their grievances and argue over your children.
  • And finally, probate court is very, very, and I mean VERY expensive.

What Probate Costs In California

The cost of probate varies depending on the state you live in and oftentimes the size of your estate.

In California, the probate code sets the cost for probate as a percentage of the total value of your estate. This percentage of your estate pays the attorney and the person administering your estate. On top of that, there are court fees, costs, and potentially additional attorney’s fees. We estimate for our clients that probate will cost them on average approximately 5% of their total estate worth (it could be less or more depending on the size and complexity of your estate).

This is usually when people will say: I don’t own much. The bank basically owns my home and I’ve barely paid down the mortgage. I have a lot of student loans still and my retirement account doesn’t have a lot in it. I have a life insurance policy, but that just goes to my spouse, and then to my kids, right?

Wrong. Wrong. Wrong.

Let me give you a simple scenario to help explain what probate could cost your family. Suppose you and your spouse passed away while your kids are still younger than eighteen. At the time of your death, your financial situation looks like this:

  • Your Home: Your home has a market value of $750,000. You owe $640,000.
  • Your Bank and Savings Accounts: You have about $15,000 in checking and $30,000 in savings.
  • Your Stock: You have $15,000 worth of stock.
  • Your Retirement Accounts: Your 401(k) has about $120,000. Your spouse does not have a 401(k).
  • Your Life Insurance: You have a $1 million policy, and your spouse has a $250,000 policy.
  • Your Debt: You still have about $60,000 in student loans and $15,000 on your Visa that you incurred when your spouse quit work after having a baby and before you got your promotion.

Probate court will base your total estate worth on the market value of your assets, not on your equity, and not on your debt. This means for the couple I described above, their total estate worth would be as follows:

Home $750,000
Checking & Savings $45,000
Stocks $15,000
Retirement Accounts $120,000
Combined Life Insurance $1,250,000
YOUR PROBATE COST (at 5%) $109,000

That’s crazy, right? The probate cost for this couple who passed away is $109,000.

How Life Insurance and Retirement Accounts Are Brought into Probate Court

We talked earlier about what happens when someone is named as the beneficiary on a life insurance policy or retirement account—the money goes to them outright without any restrictions or protections. While many people do name their minor children as beneficiaries, children can not receive any money outright until they are age eighteen. If they are not yet eighteen, the probate court has to step in and set up safeguards and custodians/guardians for their money since you did not.

Probate Lasts Even Longer If You Have Minor Children

If you have minor children, the nightmare of probate continues until your youngest child is eighteen. This is because the court usually will place whatever money is left (after the lawyers, courts, and fees are all paid) into blocked accounts for each minor child. Every year the appointed custodians/guardians of the account have to go back to court to show how the money is being used for the benefit of the children. Once a child turns eighteen, they get whatever is left in their blocked account, outright, without any restrictions. We’ll talk later on about why this is detrimental to your kids and what you can do about it.

What Happens after Probate Is Completed

If probate sounds like a nightmare, well it really is. Even when it comes to an end, it can leave an emotional scar on your family for a lifetime.

I knew a very tight-knit family that had seven adult children. They came together when their mom died, but fell apart when the dad passed two years later. The father had left a will, but it was old, outdated, and boilerplate. In the will he split everything equally among his seven children. It seemed like it would be an easy process, just opening up probate and then splitting everything equally, but that was unfortunately not the case.

One of the adult children and her son had for years lived with the parents. Half of the siblings strongly believed that the father would have wanted that adult daughter and her son to continue to live in the family home, at least until the son was raised. The other half of the siblings felt that it was time for the adult daughter to start paying her own way and be on her own and that the share of money the father left behind for her could help her get her own start. This family battled with each other in court, and when all was said and done, hardly anyone in the family was talking.

What was most devastating is that the probate situation could have been avoided had the father set up a proper estate plan, kept it up-to-date, and explained to the children why he was doing what he was. Maybe the adult children would not have agreed, but it would have avoided a battle over the question of what the dad really wanted. I think one thing they all agreed on, in the end, is that the parents never would have wanted the family to have been torn apart like it was. Even to this day, that family has never fully reconciled.

Estate Planning Can Help You Avoid Probate

Are you leaving your family in a situation like this? By not planning, or by having poor planning, are you subjecting your family to the expense and hassle and heartache of probate?

I get so frustrated when I hear people say they just don’t have time to do their estate planning. I know you truly love your family, so isn’t setting up an estate plan worth your time when it means you can spare them from the grueling process of probate?

Arranging playdates, working out, doing homework, going to work, visiting a friend, cleaning your house, going on a date, looking at Facebook, and all of the other day-to-day things you get bogged down with are important, but not as important as taking the time to plan for the people you love.

A Lawyer Can Help To Avoid Probate

Get Started On Your Estate Plan Today

We know how overwhelming it is to prepare for and navigate difficult life events. Schedule a planning session and together we can determine the best way to set up your estate plan in order to avoid probate and protect what you care about most.

Plan a Session Today To Learn How to Avoid Probate