Why Are Trusts Important? The True Costs of Probate

In general, an estate planning attorney when speaking to a client will recommend that they should create a revocable trust. The most common reason given is that, when properly done, a revocable trust completely avoids probate. This begs the question, why is avoiding probate important? The answer is simple time and money.

Despite what you may have heard, probate is expensive. First, fees are set by California law and the fees are based on the value of the estate, which includes the gross value of real property. Thus, a mortgage, while needing to be paid off by the estate, does not reduce the fees paid. Also,  not only paid to the attorney but also the executor or administrator of the estate is entitled to the same statutory fee.

For example, an estate of $1,000,000 pays $23,000 in attorney’s fees. Unless the executor or administrator waives their fees an additional $23,000 is owed to them. So, the hypothetical $1,000,000 estate would pay $46,000 in fees. Even if this hypothetical estate had a mortgage on real property of $500,000, thus cutting the net value in half, the estate would still owe the $46,000 in fees.

Additionally, probate takes a very long time. Even before the coronavirus, a probate in Alameda County would take a minimum of 8 months to complete from the initial filing until final distribution. That was a best-case scenario and rarely happened as most probates would drag out longer than a year.

As the coronavirus shut down the probate division for close to 2 months, it will likely take longer than before to get a hearing date. This has already happened in Santa Cruz County, where a probate filed in June was given a court date in October. Finally, because probate require two hearings at a minimum, even just adding an additional month to getting a hearing date really adds two months to the proceeding. Thus, avoiding probate is in the client’s family’s best interest because it will save the client’s family time and money during a stressful time.