Estate Planning

How a Probate Works: Each Step Explained

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How Probate Works

If your loved one has passed away and left behind certain assets, you may or may not have to go to court in order to access or inherit those assets. You can learn more about what a probate is generally and why it occurs by reading our article, What is a Probate? 

Once you have determined that a formal probate is necessary for your loved one’s assets, you will need to officially begin the probate process in the proper county and court. The information below is intended to provide you with an overview of each step of the probate process.

THE FIRST STEPS TO PREPARE FOR PROBATE

While California law requires a minimum of 40 days to elapse before any actions can be taken on a decedent’s estate, there are things you can do in that time to prepare for probate. For example, you should secure the decedent’s home, vehicle, and valuables, cancel services no longer needed (i.e. Netflix, cable, internet), contact social security if the funeral home has not already done so, make a list of assets, creditors, and bills owed, and locate the original Will if the decedent had one.

WHO PAYS THE BILLS BEFORE AND DURING PROBATE?

Unfortunately, this burden may fall on you and/or other heirs. If the decedent left behind unpaid debt such as mortgage payments, hospital bills, credit card bills, etc., you should create a list of every type of debt and bill owed so that you can better understand what is owed and who can help pay for it.  Unfortunately, the decedent’s bank accounts and assets are often frozen soon after their death and cannot be used to make further payments.  In such situations, you and other heirs may want to assume the responsibility for continuing payments of certain liabilities depending on the type of debt or bill owed.

For example, some liabilities may need to be kept current while others may be able to be paid once probate is closed, or in some cases, may not need to be repaid at all.

BILLS THAT YOU SHOULD PAY IN A TIMELY MANNER

Liabilities such as mortgage payments, property taxes, utility bills often need to continue to be paid regardless of whether the probate process has formally started or not. 

For example, if the decedent owned real property with a mortgage on it and you fail to keep the mortgage payment current, the mortgage holder may look to collect the payment through the estate using a forced probate sale of the property. Therefore, if your intention is to keep the property, you should look to keep current with the mortgage payments using your own money until you are formally appointed the personal representative of the estate in probate court. Once you become a personal representative, you can get access to the decedent’s bank accounts, if any, and use those assets to make payments as needed.

BILLS THAT YOU CAN WAIT TO PAY UNTIL YOU HAVE MORE INFORMATION

Other debts, such as hospital bills, credit card payments, cell phone bills, can wait to be paid once probate has started or they may not need to be paid at all.  Such creditors usually need to file a formal creditor’s claim with the probate court to retain a valid claim to the estate’s assets, otherwise they risk losing any right to recovery.  Creditor claims are discussed in further detail below.

THE FORMAL PROBATE PROCESS

The formal probate process is full of forms, documents, and notices that must be properly filed with the appropriate court and mailed to all interested parties. Hiring an attorney who is well-versed with the intricacies of the probate process can help you save time and unnecessary delays in an already lengthy and time-consuming legal battle. Probate matters, when filed correctly, can still take over one year in most cases to resolve. So, any delays from mistakes can add many more months (sometimes years!) to that timeframe. 

Below is a list of various formal probate steps that must be followed in most basic probate cases.  If the decedent left behind numerous assets or there is a dispute among the beneficiaries, then additional filings and hearings, not discussed here, may be required to resolve the disputes.

FILING THE PROBATE PETITION

Probate is initiated by filing the Petition for Probate with the Superior Court in the county where the decedent lived at the time of their death.  In some cases, such as when the decedent owned property in other states, you may also need to open additional probate matters in those states and counties. Probate law varies state by state, so you may need to consult additional attorneys in those states as needed.

Filing the Petition for Probate will allow the court to assign a case number and hearing date to your probate matter. 

NOTICES AND PUBLICATION OF HEARING

One of the biggest drawbacks of probate is that it is a highly public affair.  As such, you are required to publish details about the decedent’s probate matter and hearing date in a court-approved newspaper as well as send a formal notice of hearing to the decedent’s beneficiaries and heirs. This step cannot be ignored since you will need to file proof of the publication and notices with the court.

Our law firm works closely with companies that can help publish probate matter details in the correct court-approved newspaper for the designated period of time. The court wants to see proof that this was done.

ATTENDING THE HEARING

At the hearing, which is often scheduled several months after filing the Petition for Probate, the court will review the petition and name the personal representative for the estate.  

  • Executor vs. Administrator of the Estate – The personal representative can be called either an “executor” or an “administrator” of the estate depending on whether the decedent left a will naming an executor or did not leave a will, in which case the court will appoint an administrator. 

At the same hearing, the probate judge will also determine whether the personal representative will need to post a bond and thereafter may issue a signed “Order” and “Letters Testamentary” to formally appoint you as the personal representative for the estate if no additional documents or details are needed.

BOND REQUIREMENT

The court may ask you to post a bond in order to protect the decedent’s estate in case of misconduct or mismanagement of the estate’s assets. Whether a bond is required is often determined by reading the decedent’s will, if there is one, which may name a specific individual as the executor and state that a bond should be waived for that person. 

In cases where the decedent did not leave a will, the court may look at your relationship with the decedent and potential beneficiaries involved in the estate. 

A bond is usually required if you have a low credit history or live out of state. The amount of a bond is generally based on the net value of the estate. 

Our law firm works closely with bond companies that can help you post a bond in your probate matter if one is required.

PERSONAL REPRESENTATIVE RESPONSIBILITIES

Once the court finds that all requirements have been met, it will sign an “Order” which will summarize the hearing, and also sign a document titled “Letters Testamentary” which will allow you, the personal representative, to take specific actions on behalf of the estate.  Banks, brokerage companies, real estate agents, etc. often require certified copies of the Order and Letters before they allow you to take action on the decedent’s accounts.

As personal representative of the estate, there are several actions that you must complete including but not limited to:

  • Filing the original will, if one exists, with the court;
  • Applying for a Tax Identification Number;
  • Mailing notices to the relevant government agencies such as the Department of Health Care Services and the Franchise Tax Board;
  • Mailing notices to any known creditors; negotiating and settling formal creditor claims, and filing approvals or rejections of said claims;
  • Closing the deceased’s old accounts, opening a new estate bank account, and consolidating all cash assets into that estate bank account;
  • Preparing the Inventory & Appraisal of assets to send to the court-appointed Probate Referee; paying the Probate Referee fees, and filing the completed Inventory & Appraisal with the court;
  • Filing the Change in Ownership Statement with the appropriate County Assessor’s office if assets include real property;
  • Selling the real estate as needed, providing notices of sale to applicable parties, and depositing cash from sale into the estate’s bank account;
  • Filing income and estate tax returns as needed; and
  • Distributing or transferring remaining assets pursuant to a court order.

We discuss some of these tasks below for further clarification:

  • Notifying Creditors and Settling Creditor Claims – The personal representative must ensure that all valid creditors of the estate are paid and must provide proof of payment to the court.  You can notify creditors by sending a “Notice to Creditor” to all known creditors within 4 months after Letters are issued or within 30 days of discovery of a new creditor.  
    • Who is a creditor? Creditors can be individuals or entities that the decedent owed money to such as credit card companies, utility companies, and hospitals or doctors.
    • What is a creditor’s claim? It is an official form filing with the court wherein a creditor makes a monetary claim to some of the estate’s assets. Creditors have 120 days from either the date that the Letters are issued or 60 days from when notice is given to file a formal creditor’s claim with the court to preserve their right to the estate funds. 
    • How do I settle a creditor’s claim? If a formal creditor’s claim is filed, you can contact the appropriate representative and try to negotiate the amount that the estate must pay to them. If you do not want to spend your time negotiating with creditors, our office can do this for you. Another option is to accept the stated amount as-is. You should note that settling creditors’ claim falls under Extraordinary Attorneys Fees and may result in higher attorneys fees for the estate.
  • Inventory and Appraisal and the Probate Referee – An “Inventory and Appraisal” form is a formal documentation of the decedent’s assets.  If the estate consists of only cash amounts, then an appraisal of the assets is not needed.  However, if the estate includes brokerage accounts, real property, bonds, etc., then you will need to include those assets on the form and present the form to a court-appointed “Probate Referee.”  
    • What is a probate referee? A probate referee is a court-approved appraiser who can help appraise the date of death value for non-cash assets such real estate, stocks, and bonds.
    • Probate Referee Fee: The probate referee’s fee is generally 1/10th of 1 percent of the total property appraised by them plus any costs they may have incurred.  For example, if the probate referee appraises a real property only and values it at $500,000, then the Probate Referee fee will be $500 plus any costs incurred by driving to the property and inspecting it.  

Once the probate referee has completed the appraisal, you must pay their fees and file the signed Inventory and Appraisal with the court.

  • Filing Tax Returns – It’s often said that death and taxes are the two certainties in life. This idiom continues to hold true in your capacity as a personal representative too. You have an obligation to continue to pay all property taxes and file all final tax returns on behalf of the decedent. 
    • This can include personal tax returns for any and all income earned from January 1st of the year of death up until the date of death (Form 1040), as well as any and all income earned from the date of death to the final distribution of assets/close of probate (Form 1041).
    • If the decedent was married and if the surviving spouse is still alive, it may be critical to also timely file a Form 706 to elect portability. Portability allows for the surviving spouse to acquire the deceased spouse’s unused exemption. This is a lesser-known fact but can lead to tremendous savings upon the death of the surviving spouse, especially in a year where the estate tax exemption is low. A Form 706 can also allocate generation-skipping transfer tax, which will otherwise be lost, as GSTT is not portable upon death.
  • Sale of Real Property based on full or limited IAEA Authority – If an estate includes real property only and does not have sufficient cash assets to pay any bills or fees, you may be forced to sell the property to obtain cash funds to pay all creditors, fees, and beneficiaries.  The sale of real property in Probate must follow specific procedures depending on whether you, the personal representative, have full or limited Independent Administration of Estate Act (IAEA) Authority. 

In either scenario, you must usually provide a notice of the sale to all interested parties prior to the sale of the property. If no objections are filed, the sale can move forward, and you can deposit the sale proceeds into the estate bank account.

HOW DO I CLOSE PROBATE?

In order to wind down the estate and close probate, you must ensure that at least 120 days have passed for any creditors to file their claims.  It is highly likely that much more time will have passed by the time you are ready to wind down the estate since sending various notices, negotiating with creditors, selling any property, obtaining a completed Inventory and Appraisal, etc. can take a significant amount of time – often years.

PETITION FOR FINAL DISTRIBUTION

If sufficient time has passed, you must prepare and file a petition for final distribution which will include an accounting of the estate’s assets, attorney’s fees, personal representative fees, if applicable, and a table for how the estate’s assets will be distributed and to whom. 

  • Notice and Hearing – Once you file the petition for final distribution and obtain a hearing date, you must provide a notice of the hearing to all of the decedent’s beneficiaries and heirs.  At the hearing, the court will review the petition and, if it is approved, the judge will sign an “Order” authorizing the distribution or transfer of the estate’s assets accordingly.

DISTRIBUTION OF THE ESTATE’S ASSETS

Once you have a copy of the court’s signed Order, you can begin distributing the estate’s assets.  You can pay the attorney’s fees, personal representative Fees, if applicable, and distribute or transfer assets to beneficiaries or heirs as needed.  You must obtain receipts from everyone you distribute monies or assets to, since these receipts will need to be filed with the court as proof of proper distribution.

WHEN IS PROBATE OFFICIALLY CLOSED?

Probate is officially closed once all of the estate’s monies and assets have been distributed and the court has signed a Petition for Final Discharge Order. 

PETITION FOR FINAL DISCHARGE

The Petition for Final Discharge is a court form that is submitted along with copies of receipts showing that all of the estate’s assets have been distributed according to the court’s order.  Once the court approves the Petition for Final Discharge, Probate is officially closed.

It is highly recommended to work with experienced probate attorneys to assist with the above-mentioned probate process because each filing and step is often accompanied by a time frame or deadline in which it must be completed.  In addition, many courts have specific local rules that must be followed, and your filing can be rejected or delayed if not done correctly from the beginning. 

Kiran Sohal is a partner at Bridge Law LLP who specializes in probate cases.  She patiently walks families through the legal nuances of losing a loved one and provides expert advice based on their specific needs.  In addition to general probate proceedings, Kiran has an intimate understanding of Spousal Property Petitions, Heggstad Petitions, and Trust Administration matters.

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