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This is Stewart Albertson with Albertson and Davidson, and I want to talk to you about an issue that we do see from time to time called advances on inheritance. Advances on inheritance are essentially a loan that mom or dad makes to one child. They don’t want to be unfair in giving that loan to one of their children when they have several other children. So they basically tell the person they made the loan to, well that is an advance on your inheritance so that when I die, you’re going to have to take that into account based upon whatever your share of my estate is.

There’s a real problem with advances on inheritance though because the probate code has some technical requirements that must be met to qualify as an advance on inheritance. Otherwise, that payment of money from a parent to a child will be looked at as a gift.  If it’s a gift that makes a big difference because when the estate is distributed after mom and dad have passed away it’ll be distributed equally between all of the children without taking into account the “loan” that was made to one of the children during lifetime.

So how can you tell the difference between an advance on inheritance and a gift? The advance on inheritance can be proven in three primary ways. There’s actually a fourth way, but that gets a little complicated. If you really want to look into this, you can go to Probate Code section 21135, and you can read how you establish an advance on inheritance there.

Generally, the way you prove an advance on inheritance is:

  1. The trust or will terms themselves have in there saying, I’m giving $100,000 loan to my son Johnny, and when I die, this counts as part of his inheritance at the time he receives his ultimate distribution. That’s the first way that an advance on inheritance can be included and be supported by the evidence.
  2. The next way you can establish an advance on inheritance is did your mom or dad have a writing outside the trust or will that simply says: I hereby am making a loan to Johnny and after I die, that should be considered as part of his inheritance for distribution purposes. That would be the second way that you can establish an advance on inheritance.
  3. The third way is you have Johnny acknowledged in a writing that he’s already receiving some of his inheritance by way of a loan prior to mom and dad passing.

If you have any of those three, chances are you can establish an advance on inheritance.

As you can see, this is not always easy to do. If there is money that is given to one child, a lot of money, say several hundreds of thousands of dollars to one child and not to the other, and there’s nothing to establish an advance on inheritance, what is the argument the child makes who received the money during the parents’ lifetime? And that is, it was a gift. If it’s a gift, it won’t be chargeable against their share of the estate. It won’t be an advance on inheritance.

 

When do you need to probate the assets of a decedent?  First of all, let’s make sure we know what “probate” means–it sounds like a medical condition.  But in fact it is simply a court process where a decedent’s assets are taken over by an appointed “personal representative”, the last debts and bills of the decedent are paid, and then the assets are eventually distributed to the heirs (if there is no Will) or to the named beneficiaries under the Will. 

Probate only applies to assets that are owned, or titled, in the indiviudal name of the decedent at the time of his or her death.  Probate does NOT apply to things like joint tenancy with right or survivorship, beneficiary designations, pay-on-death accounts or transfer-on-death account, or any assets held in a Trust.  And since a majority of assets are held in one or more of these types of ownership, it can be rare when a probate is actually required.

Further, in California you can pass up to $150,000 of property (not including real estate) without having to open probate.  Instead, you can use an affidavit of small estate, sometimes referred to as a “13100 Declaration” (see a sample 13100 Declaration).  The “13100” refers to Probate Code Section 13100, which governs the transfer of small estates.  For real property, the limit is $50,000 that can pass without probate.  That is a very small number for California real estate (even after the market crash), so real property almost always must be probated if it is held in an individual’s name (and not in joint tenancy) at time of death.

By the way, we often are asked what are “Letters Testamentary” or “Letters of Administration.”  Oftentimes, when a family member tries to wrap up a decedent’s assets, they are told by a bank or financial institution that they need “Letters Testamentary” or “Letters of Administration.”  Those are not letters drafted by lawyers, they’re not letters at all in the modern usage of that term.  Rather, they are documents issued by the Court AFTER a probate has been opened and the Court has signed the order appointing the personal representative (the term “personal representative” is a catchall phrase that includes both Executors (who are named under Wills) and Administrators (that same thing as an Exeuctor except for estates where there is NO Will)).

The Answer: where a decedent dies owning assets in his or her own, individual name worth more than $150,000 (not included real estate), then you need to open probate to transfer the decedent’s assets to the heirs or beneficiaries under the Will.  If the decedent owned real property worth more than $50,000 in his or her own name, then off to probate you must go.

You can see a few of our aticles about the probate process here

The probate process is probably one of the most archaic procedures we still have in our legal system.  Probate simply means to prove-up a Will—it’s the process where a Will is determined to be valid by the Court, it is then “admitted” to probate (as we say), an Executor is appointed and the administration of the decedent’s assets begins.

Probate also applies where there is no Will, then the Court determines that no valid Will exists, an Administrator is appointed, and the administration of the decedent’s assets begins.

Sounds pretty straightforward, until you run face-first into the procedural wall of probate.  There have been many times when I have been asked by non-lawyers “can I do the probate myself?”  My response is: yes.  This is America, anyone can represent themselves in Court—for the most part.  There are a few exceptions to that rule, but a simple, uncontested probate can be handled by the Executor.  All you need to do is know all the rules, procedures, and arcane terms of probate…well maybe its not so simple after all.

In fact, there are plenty of lawyers who have a hard time navigating the probate process.  The rules that have been established over many centuries (yes, some of our probate laws/rules are that old) are not intuitive to understand.  And if you don’t comply with the process, then your probate dies a slow death in Probate Court.

But still, it’s not impossible.  It just takes a good amount of homework and an extra large dose of patience.  And every probate can be broken down in three main parts (1) Starting the probate process, (2) administering the estate, and (3) closing the estate.

1.         Starting probate.  To start a California probate you have to file a petition with the Court.  A petition is just a way of asking the Court to do something—in this case it’s to open a probate.  There are other forms that go along with the petition too.  Once you prepare the petition, you file it with the Court and the Court will give you an initial hearing date for sometime in the future.  Once you have that date, you have to serve Notice of Hearing on all persons named in the Will AND all heirs at law.  You also have to publish notice of the probate in the newspaper before the hearing date. 

If all goes well and your papers are in order, then the Court will grant the petition, sign the Order opening probate, and issue Letters (either Letters Testamentary for an estate with a Will, or Letter of Administration for intestate estates (that’s estate’s with no Will)). 

See my video on how to prepare a Petition for Probate.  We also have a post with links to all necessary (well most necessary anyway) probate forms.   

2.         Administering the estate.  Once the California probate estate is opened all estate assets must be gathered and inventoried and appraised.  All cash can be appraised by the Executor, but any other assets, such as stocks, bonds, real estate, etc. must be appraised by the Court appointed probate referee.

Creditor’s of the decedent must be noticed, property sold or positioned for distribution, and any estate bills paid.  If someone claims to be a creditor, but the Executor believes the claim to be invalid, then there may be a lawsuit to determine which claims are appropriate to be paid.

Once all creditor’s are paid and assets are either sold or positioned for distribution, its time to close the estate.

3.         Closing the estate.  The final petition that must be filed in a California probate is a report by the Personal Representative, which usually includes an accounting of the estate assets and a request to distribute the estate assets to the appropriate heirs.

The estate accounting is the trickiest part of this equation because it must be prepared in a manner that complies with Probate Code Section 1060 et seq.  And an estate accounting is unlike any other type of accounting.  So you have to find someone who knows how to properly prepare this type of accounting.

The final petition also asks for compensation to be paid to the Executor and the estate’s attorney.  Both the Executor and the attorney are entitled to the same fee, which is a sliding scale percentage of the estate’s value.  The fee equals:

4% of the first $100,000 of value               $4,000

3% of the next $100,000 of value              $3,000

2% of the next $800,000 of value              $16,000

1% of all amounts up to $5 million             $50,000

Most probate estates are not $5 million in value.  However, a typical estate worth $500,000 would result in a fee to the Executor of $13,000.  The estate’s attorney would receive the same amount, $13,000.

Navigating your way through the California probate process is not impossible, its just time-consuming and, at times, frustrating.  But take a deep breath and see what you can do.  If all else fails, you can always hire an attorney to take the probate to the finish line.

In an earlier post we described what probate is and that it only applies to assets titled in the name of the decedent at the time of her death.  Now we want to discuss how to start the probate process (it’s just a court process after all).

Handling a California probate can be summed up in one word–procedure.  It is a procedural monster that requires strict compliance with the rules of probate.  Some of the rules are easy to find and others are not, but complying with the rules is the only way to successfully navigate a probate.

Probate starts with a “Petition for Probate”.  A Petition is just a document that starts the ball rolling by asking the court for relief.  Here, in California, the Petition for Probate (Form DE-111) is meant to ask the Court to accept the decedent’s Will as being a good and valid Will and appoint an executor to act as the decedent’s personal representative (if there is no Will then the personal representative is referred to as the Administrator rather than Executor). 

The good news is that the Petition for Probate is a form document. The bad news is that it’s not as easy to prepare correctly as one might think when first looking it over. But it’s not too difficult either once you understand the process a bit better.  The key to the initial petition is to read each section carefully and mark all sections that apply.

And you will need a few other forms as well: such as the Duties and Liability of the Personal Representative, Letters, Order, Notice of Petition to Administer Estate, and Confidential Supplement.  (See our prior post listing many probate forms.)  There may be a local form or two that each local court of a particular California county requires.  This varies by location and you should check with your local court for any filing instructions—or check the court’s website where they typically list local forms. 

DISCLAIMER: We are not intending to provide you with legal advice in this blog, we are only presenting general information relating to probate procedure.  Every case may vary based on the facts and circumstances of your particular case.  You should always discuss your case with a California lawyer before filing a probate in California.

Every California probate requires a host of forms to start, administer, and complete successfully.  In lawyer talk, these forms are for “decedent’s estates,” which also means probate estates.  Anytime any assets pass through probate, these are some of the forms that are used to navigate the probate process (these are the most commonly used California probate forms, but not an exhaustive list…because that would be exhaustive to prepare). 

Petition for Probate     Form DE-111

Notice of Petition to Administer Estate    Form DE-121

Proof of Subscribing Witness    Form DE-131

Proof of Holographic Instrument     Form DE-135
(this is for handwritten Wills)

Order for Probate     Form DE-140

Duties and Liabilities of Personal Representatives     Form DE-147

Confidential Supplement to Duties and Liabilities    Form DE-147S

Letters (Testamentary or “of Administration”)     Form DE-150

Request for Special Notice     Form DE-154

Notice to Creditors     Form DE-157

Inventory and Appraisal     Form DE-160
    Inventory and Appraisal Attachment     Form DE-161

Creditor’s Claim     Form DE-172

Allowance or Rejection of Creditor’s Claim     Form DE-174

Spousal Property Petition     Form DE-221

Spousal Property Order     Form DE-226

Report of Sale and Petition for Order Confirming Sale of Real Property     Form DE-260

Order Confirming Sale of Real Property     Form DE-265

Affidavit Re: Real Property of Small Value     Form DE-305

Petition to Determine Succession to Real Property (Estates of $100,000 or less)   Form DE-310

Order Determining Succession to Real Property     Form DE-315

These forms are provided for informational purposes only.  We are not intending to provide legal advice by posting them on our blog, but we hope you find them useful all the same.  Also consult with a California attorney with knoweldge of probate before filing any forms with the Court.