Probate and trust administration are not the same. There are important differences and similarities between administering a decedent’s probate estate and administering a decedent’s trust estate. Let’s begin with the differences.
Probate is court supervised whereas trust administration is private. To commence probate one publishes notice in a newspaper and appears at a court hearing. To commence trust administration, however, one simply mails a notice letter (stating required information) to the decedent’s heirs and beneficiaries.
In probate, the decedent’s will, if any, and all other documents in the court file are available to the public to see. Probate can also apply in the absence of any written will, i.e., intestacy (the heirs inherit). In trust administration, the decedent’s trust is only available to the decedent’s heirs and beneficiaries.
The expenses involved with a probate and trust administration also differ. A probate requires paying a court filing fee for each petition (there are at least two petitions from commencing to ending a probate) and a newspaper publication fee. Such expenses combined are often almost $1,500. Then there are the attorney’s and personal representative’s fees, which are computed as a sliding scale percentage of the value of the estate under management: each is paid 4% of the first $100,000, 3% of the next $100,000, and 2% of any excess value of the estate under management. Sometimes, at the court’s discretion, they may also be entitled to additional extraordinary fees for extraordinary work.
With a private trust administration there is no newspaper publication and no court petitions; except if such steps become necessary. The trustee and his or her attorney are typically paid on an hourly basis times a pay rate. Often, not always, the expenses associated with a probate significantly exceed those of a trust administration.
Next, there are also similarities between a probate and trust administration. There is a myth that if a person dies with their assets in a trust that nothing needs to be done; this is untrue.
Both probate and trust administration require the following: First, the decedent’s assets be collected, safeguarded, inventoried and appraised for tax and/or distribution purposes; Second, that the decedent’s creditors be notified and all just debts be paid; Third, that the decedent’s taxes obligations be settled; Fourth, that the decedent’s debts and the expenses of administration be paid or guaranteed payment ahead of beneficiaries and heirs; and Fifth, that the decedent’s beneficiaries be informed about the estate and its administration, including an accounting.
In California, there is a clear preference to avoid probate and to use a trust. Presently, if a decedent dies with an estate with a gross value over $166,250 then the estate is required to be probated, unless it is held in a trust or passes to surviving joint tenants or to designated transfer on death beneficiaries. Sometimes, however, a trust is not a viable option. That is, a person must possess greater competency (mental understanding and comprehension) to execute a trust than to execute a will. If someone has borderline competency – such as may be due to dementia or senility — then that mental condition may be reason enough to use a will.
Other factors must also be considered. Such as, did the decedent receive Medi-Cal? Since January 1, 2017, a decedent whose estate is not subject to probate is also not subject to Medi-Cal estate recovery. Thus, holding one’s residence in trust avoids probate and Medi-Cal estate recovery claims.
The foregoing is a generalized discussion only, and is not legal counsel. Anyone confronting these issues should discuss their particular needs and circumstances with a qualified attorney and obtain guidance.
Dennis A. Fordham, Attorney, is a State Bar-Certified Specialist in estate planning, probate and trust law. His office is at 870 S. Main St., Lakeport, Calif. He can be reached at dennis@DennisFordhamLaw.com and 707-263-3235.