How to Settle an Estate in California | When is Probate Required?

Have you found yourself in the position of wrapping up the estate of a loved one but have no idea what that entails? Wrapping up an estate is cumbersome and can be arduous and stressful, especially since you are likely dealing with the emotional stress of the loss of a loved one. Below, we’ll help demystify the process by providing you an overview of what needs to be done when wrapping up someone’s estate.

Collect Information & Documents

The first step is probably something you would expect, information and documentation gathering in order to ascertain what exactly is included in the estate to begin with. The difficulty of this step is based on how organized the deceased person was. Did they keep diligent records of bank statements, regular bills, or have accessible passwords?

From experience, this step usually involves rummaging through someone’s mail to see what billing or bank statements are coming in. However, as people and companies move to paperless statements, this method is becoming less reliable. That means you are likely going to have to sift through their bank activity to see what bills they paid regularly and whether they were transferring money elsewhere – like a brokerage or retirement account.

Verifying Assets & Values

Next, you will need to verify the assets. This involves listing them, determining their date of death, and determining whether they were held jointly with another person or whether they had a beneficiary or pay-on-death designation on the account. These are all important for a couple reasons. First of all, having a list of all the assets in an estate is useful for organization, but is also required to be submitted to a probate court if court is required, and provided to beneficiaries when the accounting of the estate is done.

The date of death value is also relevant when it comes to an accounting and taxes. The decedent will need to have a final tax return filed, and the ending date of that return is the date of death. All activity thereafter is activity of the estate and may have taxes to be owed either by the estate, or the beneficiaries on their inherited portion. However, if an account or assets has a beneficiary on it, then that asset becomes the property of that beneficiary at the date of death and thus is not included in the decedent’s estate. That beneficiary will simply need a death certificate and to coordinate the collection of the asset with the holder directly.

File an Estate Tax Return

Estate taxes is a topic we’ve discussed at length previously, so we won’t go into too much detail here. There are two reasons to file an estate tax return (IRS Form 706). The first is where the gross value of the estate exceeds the estate tax exclusion amount, which for 2023 is going to be a hair shy of $13 million. That means if the gross value of all the assets is going to be more than $13 million, then an estate tax return is required and taxes on the overage will be owed. Keep in mind, California does not have an estate tax, so we only worry about the federal amount here, but some states do have a state estate tax so keep that in mind if the decedent wasn’t a California resident.

The other reason to file a federal estate tax return is if the decedent was married and the surviving spouse wants to claim the deceased spouse’s unused exclusion amount for estate taxes. This means if a deceased spouse’s estate is below $13 million, the surviving spouse can claim the unused portion for their own estate tax calculation if need be. This is called portability and something we’ve discussed before as well.

Transfer Non-Probate Assets

This brings us to actually transferring or distributing assets to beneficiaries where it can be done without court involvement. These are assets that can be distributed due to factors such as how title is held or where there is a pay-on-death designation on them. These include:

· Assets with a beneficiary or pay-on-death designation on them such as a bank account, retirement account, or life insurance.

· Assets held in joint tenancy with another where the surviving tenant obtains the deceased tenant’s holding.

· Assets held as community property with a spouse with a right of survivorship, which in practice acts as if the property were held in joint tenancy.

· Assets held within a living trust, meaning they are to be distributed according to the terms of the trust, not probate court. And,

· Assets passing to a surviving spouse by either Will or intestate succession.

Determine Whether Probate is Required

After doing these transfers, we are left with the remaining assets in the deceased person’s estate. Once we’re here, we do another tallying of the remaining assets to determine what the gross value is again, which will then tell us whether the remaining estate will need to go through probate or not. This is where your state’s probate threshold comes into play. Here in California, the probate threshold is a gross estate of $184,500, which is where it will remain until 2025. That means so long as the gross total remaining assets are below this amount, the estate will not have to go through probate court and can be administered through shortened procedures like a Small Estate Affidavit – which you can read more about here.

However, if the gross estate value is over that threshold, then the estate will need court approval to be passed on either by Will or intestate succession, and thus court involvement and a full probate case. Keep in mind, another automatic trigger for probate in California is any real estate, regardless of the value. If it was in a deceased person’s name alone, or held as a tenant in common, then a court needs to approve the transfer. Every state has their own threshold, but it is likely their probate threshold is lower than California’s meaning court involvement for smaller estates, and real estate is usually an automatic trigger, regardless of the value.

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