What happens if I do not have everything in the name of my trust at the time of my death?

Boilers on steam engines have safety valves that prevent explosions if things get out of control. There is a similar “safety valve” built into the probate laws that permit simple transfers of modest amounts of property after a death, without a full probate.

First, I assume the reader knows more or less what probate is. It is a court procedure that must be followed before valuable assets owned by a deceased person can be transferred to the person’s heirs. The theory behind probate is that since the deceased person can no longer sign a check, withdrawal slip or bill of sale, then no one can, unless the court is involved. What will happen in probate is that the judge will issue a court order permitting an executor or administrator to take charge of assets of the decedent and, after additional red tape and passage of time, the judge will then issue an order permitting distribution of the estate to beneficiaries.

Probate actually works pretty well, in the sense that the end result is usually that the most of decedent’s assets (after payment of taxes, expenses, attorney’s fees, etc.) are eventually distributed to the beneficiaries. The reason we try to avoid probate with such things as living trusts, etc., is that probate can be expensive (for a $500,000 estate, the combined attorney’s and executor’s fee would be $26,000 based on the fee schedule set out in the Probate Code) and time-consuming (it is often more than a year and never less than 8 months, from the initial court filing until final distribution). People with even medium-sized estates and beneficiaries they care about should consider an alternate to probate, probably a living trust.

But what about small estates, particularly in situations where the person didn’t quite get around to doing any formal estate planning. For example, let’s say that Grandma Moses dies unexpectedly, with one adult child, Charlton Moses, a $45,000 bank account in her name alone, and a 1993 Buick, also only in her name. Is Charlton going to have to open up a court probate case just to obtain possession of her bank account and car? Probably not, as long as Grandma was a California resident at her death.

California Probate Code Sections 13100 - 13115 say that if a decedent dies owning only personal property (as opposed to real property), the total value of which is not more than $100,000, then the person legally entitled to the property (in our example, Grandma Moses’ only son, Charlton) can obtain it by using what is sometimes called a “small estate affidavit.” This is an affidavit or declaration in which the signer makes certain required statements regarding the identity of the decedent, the nature and value of the property in question and the signer’s identity and relationship to the decedent. This form is then presented to the holder of the property (or the party in control of the title), for example, the branch manager of the bank, or the clerk at the Department of Motor Vehicles, who is then supposed to turn over to the person signing the declaration the property or legal title to the property in question. If the form is completed properly, this procedure usually works pretty well. Nothing is filed in court. There is no major delay (although there is a 40-day waiting period before this procedure can be used.) There should be no significant attorney’s fees.

Some banks and financial institutions have their own fill-in-the-blanks forms for this purpose. Others require that you prepare your own form, perhaps with the assistance of a kindly attorney. You will usually need a certified death certificate for each small estate declaration you use.

Although these small estate forms usually work pretty well in California, it may be a bit more problematic getting them to work in other states. Technically, even an out-of-state party, for example, a New York bank, is supposed to honor small estate declarations with respect to California residents, but you sometimes have to work your way up the chain of command a bit before you find a helpful employee who knows about this procedure.

Small estate declarations are not only useful for ordinary bank or investment accounts, but can be used for life insurance policies or IRA accounts if there is no designated beneficiary.

If the decedent had final expenses or debts, the person receiving property under this procedure still has to use the property received to pay these obligations, and in fact, becomes personally liable for the debts of the decedent to the extent of the amount received. Administration of the estate and payment of debts can be completed informally, however, and there is no need to file complicated reports with the court.

While it is always a good idea to actively plan one’s own estate even if it is small, in circumstances where no planning has been done, it may be possible for an heir to take advantage of this safety valve in the Probate Code and use a small estate declaration to simplify the process of obtaining control of a decedent’s property.