PART 2  ·  Probate Is a Lawsuit Against Yourself at Your Families' Expense

Probate effectively forces your family into court to litigate against your own estate.  The phrase comes from estate-planning lawyers who watch families go through it. Probate is, mechanically, exactly what the name suggests: a court process in which your assets are collected, your creditors are notified and paid, and the remainder is distributed under court supervision. The proceeding is filed in your name. Your home and your accounts become the defendant. The plaintiffs are anyone who claims you owe them money. Your family pays for the privilege.

For practice owners, three things about California probate matter most: the cost, the time, and the publicity.

The cost

California is one of the few states that sets statutory fees for the executor and the attorney by a percentage of the gross value of the estate.

Two important words in that sentence: gross, and statutory.

These percentages apply twice — once to the executor (often a family member, who can waive the fee) and once to the attorney representing the estate. They are calculated on the gross value of estate assets, before mortgages or other debts are subtracted. A $2 million home with a $1 million mortgage is a $2 million asset for fee purposes.

A representative example. A California physician who passes away owning a $2 million home (with a $1 million mortgage), a $1 million practice, and $750,000 in non-retirement investments has a gross probate estate of $3.75 million. The statutory attorney fee is approximately $33,500. The statutory executor fee is another $33,500. That is roughly $67,000 in statutory fees alone — before the filing fees, the probate referee's appraisal fee, the publication cost, the bond, and any “extraordinary” fees the court awards for handling business interests, litigation, or sales of real estate. Real-world totals frequently land between 5% and 8% of the gross estate; on smaller or messier estates, the all-in cost can reach 10% or more.

The time

The fastest uncontested California probate takes about nine months. A typical probate runs 12 to 18 months. A contested estate, or one with a business or real estate to sell, often takes two to four years. Meanwhile, the family cannot freely use the assets. The practice keeps accruing expenses but its ownership is frozen. The mortgage on the home still has to be paid. Investment accounts cannot be reallocated without court approval. Imagine telling a surviving spouse who has just lost her physician husband that she needs to wait two years to access his retirement accounts.

The publicity

Probate is a public court proceeding. Anyone who wants to can pull the inventory of your assets, your debts, the names and addresses of your beneficiaries, and the disputes among them. For a healthcare practice owner, that means your personal financial picture and your family's intramural arguments are searchable. Most of our clients are surprised by this.

The “lawsuit against yourself” piece

California Probate Code § 9100 gives creditors a window — typically four months after the personal representative is appointed and notice is given — to file claims against the estate. The estate must publish notice in a newspaper and individually notify reasonably ascertainable creditors. Old medical bills, contractor liens, business obligations, even older arguable claims — all of it can be revived in this window. Your family's lawyer's job, in part, is to defend you against your own creditors.

There is one piece of good news!

Most of this is avoidable. A properly drafted and fully funded revocable living trust passes outside probate — no court, no statutory fees, no public inventory, no four-month creditor window in the same form. The catch, which we return to in Part 5, is that “properly drafted” and “fully funded” are two different things, and only one of them happens automatically. The other requires follow-through.

West Coast Health Law can help you replace California's costly default estate plan.  We can help you avoid probate and keep the assets in your families' hands.  West Coast Health Law offers a FREE consultation which you may schedule by clicking the button on our website.