Thursday, March 31, 2011

How Much Will it Cost You to Die Without an Estate Plan?

Occasionally we will meet with a potential client who questions whether the cost of estate planning is really justified. The answer to that question involves consideration of several different factors, including planning for the possibility of future incapacity, tax considerations, and whether probate administration will be required. This blog entry will focus on the cost of probating an estate in California. Generally speaking, if a person dies with assets titled in their name, subject to some exceptions for a very small estate, probate administration will be required.

Probate refers to the process where the court oversees the administration of a deceased person’s estate. The purpose of probate administration is to ensure that any final bills and expenses of the decedent are paid, including any taxes owed, and any claims by creditors settled. Probate is a costly, time consuming process. Probate fees in California are high, and generally fall into three categories:
  • Court costs, including court fees, publication fees, surety bond fees, probate referee fees, certification and recording fees;
  • The personal representative’s fee (the fee paid to the administrator of the estate for his or her services); and the
  • Attorney’s fee for his or her services
The fees paid to the personal representative and the attorney are set by law and computed upon the gross value of the estate as follows:
  • 4% on the first $100,000
  • 3% on the next $100,000
  • 2% on the next $800,000
  • 1% on the next $9,000,000
  • ½% on the next $15,000,000
  • “reasonable” compensation on the excess over $25,000,000
It is important to note that the gross value of the estate is based upon the full value of the assets of the estate, not taking into account any mortgages, debt or other loans or encumbrances on the asset. For example, the deceased may have a home with a value of $1,000,000 and a mortgage of $975,000. The fee to probate the home would be based on the full value of $1,000,000, not the $25,000 net value of the property ($1,000,000-$975,000).

As you can see, failing to create an estate plan can be costly in terms of probate administration fees. Planning in advance will allow your beneficiaries to avoid both the cost and time delay associated with probate. If you have any questions regarding estate planning or probate, contact the Casiano Law Firm for advice and assistance.