NEW 2022 Small Estate Value Increase in California!
California is a state with a big reputation of taxing and nickeling and diming their residents to the point where many threaten and do actually leave. While yes, we do have to contend with things like having some of the highest gas prices in the country, sometimes we are shocked to find that California has more lenient rules that many other states in other aspects. One of those is the probate threshold for one's estate that is not comprised of real property - a "small estate." That number has gone up again as of April 1, 2022. No, it wasn't an elaborate April Fool's joke on its residents, California is allowing you to have a little more in your estate when you die before your family has to go to a probate court; and here's the kicker, this number is set to increase again in 2025, tied to inflation.
“Small Estates”
As we are an estate planning firm, we always need to be on top of estate planning laws to guide our clients down the best path and allow them to keep the most wealth in their estate to pass on to their family, rather than to Uncle Sam. Yes, the government needs funds from the public to function, but if we're allowed to work within the law to preserve what we can for the family, why not utilize those tools and create generation wealth, no matter how much you may have to pass on?
Regardless, if you've dealt with a probate or an inheritance, then you've likely seen or heard the phrase "small estate" use in such a way as to imply something more than simply saying someone's estate is, well, small. In the estate planning world, "small estates" actually refers to the maximum amount of value one can pass, excluding real estate, without the need for a trust, a will, or even probate. A decedent's heirs sign a form, typically called a Small Estate Affidavit, and present it to the bank so the bank can release the funds to them right then and there. In that affidavit, the heirs are swearing that the estate is one of small value (a "Small Estate") and that they are entitled to the funds. They must have their signatures notarized, present an original death certificate, and wait 40 days from date of death, but otherwise, that's all.
An example of this is let's say we have a single man named Frank, and he has 2 children, Sam and Dawn. Frank was living with Dawn by the end of his life and had sold his house after his wife passed years prior. By the end of Frank's life, he had a pension and two bank accounts, a checking and a savings, which, when added together, equaled $170,000. Upon Franks passing, his pension ends, leaving only his two bank accounts. Frank never made a will or trust. If Frank died on March 31, 2022, Sam and Dawn would be required to go to a probate court to inherit those funds from Frank's two bank accounts since he was over the "small estate" threshold of $166,250 and lose over $8,000 off the top between court and attorney fees.
However, if Frank died just one day later, April 1, 2022, when California raised the small estate value, then Sam and Dawn would only need to wait 40 days, sign the small estate affidavit, and present it, along with an original death certificate, to the bank for the bank to close the accounts and give the money equally to Sam and Dawn. This is because back on April 1st, the threshold for what is considered a "small estate" in California was raised from $166,250 to $184,500. That's an increase of over $18,000 you can have before your family needs to worry about probate.
Real Property of Small Value
There were some other increases that happened on April 1, 2022, as well. First, we have real property of small value. While all real estate in California triggers a probate issue, real property of small value could be passed on with a shortened and less expensive procedure. Still probate court, but a shorter timeframe. This value increased from $55,425 to $61,500.
Compensation Owed to a Deceased Person
Next, if a decedent had unpaid compensation due to them - unpaid salary or unused vacation for example - then that compensation, up to a certain amount, can be excluded from the value of the estate when calculating whether the estate qualifies for a small estate affidavit procedure or not. This went from $16,625 to $18,450.
Small Estate Set-Aside
Finally, we have the small estate set-aside. This is where the net estate, as in after taking out all debts and expenses, excluding the value of a home does not exceed the "set-aside" number, thus allowing the entire estate to be "set aside" for the surviving spouse or domestic partner and minor children, thus avoiding a full-blown probate. This figure was $85,900. As of April 1st, it is now $95,325.
Again, these numbers are scheduled to increase in 2025, although we do not yet know by how much since they are tied to inflation. However, keep in mind, Small Estate Affidavits are essentially for financial and tangible assets only. Real estate is not included and if you have real estate then we have a potential probate issue and if a probate is required, all of your assets, even if you only had $100,000 in the bank, will become a part of that probate, driving up the cost, time, and headache for your family. Avoid the probate on your real estate and set up a living trust.
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