Introduction to California Probate - Part 4(a)
In Part 3 of this series, we covered the successful appointment of a "Personal Representative" of the Estate, be it an Executor or an Administrator. The next steps in the Probate Process are really where the rubber meets the road in terms of administering the Estate. In this part we cover Marshalling Assets, Collecting Debts Owed to the Estate, and paying Debts and Taxes.
"Marshalling" Estate Assets
According to Probate Code §9650, the Personal Representative has a right to, and shall take possession or control of, all the property of a deceased person's estate. As well, the Personal Representative has a right to collect all debts that are due to the deceased person (or the deceased person's estate).
The term "Marshalling" is a technical one- it means to collect, to organize and to inventory all assets. Really this is one of the most important jobs in the Probate process.
As you can imagine, this job can be big or small depending on the type of property someone owned. Unfortunately, most people don't often have a clear and up-to-date estate plan with a neat and ordered list of their assets. Some have no estate plan at all and are poor record keepers themselves. It's therefore necessary to identify all property that is subject to Probate.
Real Estate. Searching for real estate can be a simple task. Most real estate ownership is documented in the County records, and most Estate and Probate Attorneys can speed-up the search process using computer software. For example, BPE Law Attorneys have access to an online database hosted by First American Title which includes billions of land-records and we can search every County and State in the Country for ownership records in a matter of seconds.
Bank Accounts and Safe Deposit Boxes. These are identified by searching mail and e-mail accounts. After obtaining a Death Certificate and using the Letters Testamentary or Letters of Administration issued by a Probate Court, a Personal Representative can usually receive unrestricted access to all Bank Accounts, Safe Deposit Boxes, and Securities. A licensed Attorney can also use his or her subpoena power to obtain transaction histories on those accounts. A thorough review can identify issues of Financial Elder Abuse and is always advised when the deceased person suffered from dementia or relied on another to carry-out banking activities.
Unclaimed Property. In California, many people have Unclaimed Property. It's held by the State Controller's office for a statutory period before it "Escheats" to the State. This property can be identified by searching the State Controller's website using a deceased person's name, and City of residence. Once identified it can be re-claimed by an heir, or a Personal Representative.
In one Sacramento Probate, I identified approximately $10,000 of unclaimed property which otherwise would have been forfeited to the State. Using the Controller's collection procedures, we re-claimed the $10,000 for my client which she then used to save her mother's home from a foreclosure.
Business Interests, such as LLCs and Corporations. We search for these using the California Secretary of State's website. Statements of Information can be reviewed, which sometimes reveal a deceased person as an owner or as an agent for service of process. Reviewing a deceased person's income tax returns can also reveal business interests, and royalties received from mineral rights or long-term land leases.
When a business or a partnership interest is located, the Personal Representative needs to contact a co-owner or a general partner to learn if there's any obligation to sell the deceased person's business interest upon death. Also, that person may be the only accurate source for valuing the decedent's partnership interest.
Inventory and Appraisal of Estate Property
Once the Estate Property has been Marshalled, it needs to be inventoried and reported back to the Court. According to Probate Code §8800, the Personal Representative has to file an Inventory and Appraisal within four months after the Letters Testamentary or Letters of Administration are issued. If an inventory and appraisal is not filed, then grounds for removal of the Personal Representative can be asserted by any interested party- even a creditor!
Property Included. The Inventory and Appraisal includes all assets subject to probate- Note: property excluded is real property held in Joint Tenancy, and Bank Accounts, Retirement Accounts, and Life Insurance Policies with designated beneficiaries. (See a list of assets not subject to Probate in Part 1). Assets passing outside of the Probate should not be collected by the Personal Representative.
Real property assets (real estate) are appraised by a "Probate Referee" who is appointed by the Court. Using a fair market value on date of death, the Probate Referee will appraise the property and assign a value. Other assets such as Moneys, Currency, Bank Accounts, Retirement Accounts, and Life Insurance Policies without designated beneficiaries, as well as tangible personal property are valued by the Personal Representative also using fair market value on date of death.
An experienced Probate and Estate Attorney will advise their client to file the inventory and appraisal within the four-month deadline, even if all assets have not yet been identified. A supplemental inventory and appraisal can then be filed prior to the Probate being closed.
In Part 4(b) we'll examine the process and obligations of the Personal Representative in collecting debts owed to the estate, and in Part 4(c) we will look at how to handle paying the debts and taxes of the estate. As always, should you be facing a probate situation, you should retain competent counsel to assist you.