Probate Administration Pitfalls
Probate administration is the process where a court oversees the administration of a deceased person's estate. Other articles on our website describe the process and what you should expect if you are the Executor or Administrator of an estate. The purpose of this article is to highlight some of the pitfalls that can occur during the probate process.
Some websites and books would lead you to believe that probate is a simple process and that the services of an attorney are not required. There may be some estates where it may be possible to navigate through the probate process on your own, but in other situations the guidance and direction of a probate attorney may not only be advisable, but may be required.The Decedent Died with a Handwritten (Holographic) Will
Handwritten or "holographic" wills are recognized in California. Holographic wills often pose a problem in the probate process, because they often contain ambiguous or conflicting provisions. In the case of one holographic will, an elderly woman named various great-nieces and great-nephews, along with varying dollar amounts, in an attempt to convey a specific gift of cash to the named beneficiaries. She also specified in the will that the remainder of her estate should be distributed to her nephew, who was also named as the Executor of the will. The terms of the will seemed clear enough, but there were a number of problems with the will.
At the time the will was written, the woman's estate was significantly larger than the size of her estate when she died. Years of care in a nursing home had depleted her estate significantly. There simply wasn't enough in her estate to cover all of the specific gifts to her great-nieces and great-nephews, let alone provide any remaining estate to her favorite nephew. Under California law, specific gifts must be satisfied first before the remaining balance (referred to as the "residue" or "remainder" of the estate) is distributed. The probate court ultimately prorated the estate assets, giving the named beneficiaries a percentage or share of the estate relative to the amount of their bequest. For example, a beneficiary with a bequest of $50,000 in the will received a relative share of the estate that was twice that of a beneficiary with a bequest of $25,000; neither beneficiary received the full amount of their bequest, but rather a prorata share of the estate.
Furthermore, many of the beneficiaries named in the will were minors under the age of 18 and were therefore too young to receive an outright distribution from the will. Guardians for the minor beneficiaries were required. In the case of one beneficiary, the great-nephew of the decedent had the same name as his father. It was therefore unclear whether the decedent intended to give a bequest to her nephew, or to his son who bore the same name. The probate court ultimately concluded that since the decedent had named only her great-nieces and great-nephews as recipients of specific gifts in her will, she intended for her great-nephew to receive the bequest.
The decedent's will failed to waive the bond requirement for the Executor. A probate bond is to ensure that the beneficiaries are protected if the Executor mismanages or misappropriates any of the estate assets. Most wills prepared by attorneys waive the bond requirement. In some cases the bond requirement can also be waived if all of the beneficiaries agree in writing to waive the bond requirement. The judge in this case would not accept a waiver of bond by the beneficiaries; the judge, in his discretion, required a bond to protect the minor beneficiaries involved.
In order to issue a probate bond, surety bond companies generally require that the person to be bonded be credit-worthy and have sufficient net worth. If the Executor has previously filed for bankruptcy, has a prior criminal conviction or a civil judgment against them, bond may be denied. In order to qualify for a bond, the Executor was required to complete an application stating that an attorney would be representing the estate throughout the course of the probate administration.Probating an Intestate Estate
When a person dies without a will, they are said to have died "intestate." In an intestate estate, the decedent's estate is distributed to the decedent's "heirs-at-law" as defined by the California Probate Code. The division of property differs depending on whether or not the property is characterized as "community" or "separate" property. Community property is generally considered to be property acquired during a marriage, using funds earned during the marriage, while husband and wife resided in a state that recognizes community property. Separate property is generally considered to be property that is acquired prior to a marriage, or acquired using separate property funds, or property that is acquired through a gift or inheritance.
The characterization of the property as separate or community is sometimes unclear, particularly in second marriage scenarios, or when there has been a commingling of assets. Consult with your attorney about the characterization of the property contained in the probate estate.
Since in an intestate estate there is no will waiving the surety bond requirement, a surety bond is generally required for the administrator of an intestate estate. The surety company will require that the administrator retain the services of an attorney for the entire course of the probate administration as a condition to writing the bond.Probating an Estate with Debt
An unmarried man with no children died intestate, leaving a home in Manhattan Beach, California. The decedent's next-of-kin under California intestate law were the children of two deceased aunts. The decedent had been estranged from his family for years and little was known about his finances. The decedent did not have an accountant or financial advisor. Upon visiting the decedent's home, his cousins were surprised to discover the entire house was under construction; the decedent had been in the process of completely rebuilding his 1950's beachside bungalow, transforming it into a modern 3-story glass front home. Unfortunately, the home in its current condition was completely uninhabitable, and the decedent had been living with a girlfriend for several months prior to his death.
The decedent's heirs were confident that they would be receiving a considerable amount from the sale of the Manhattan Beach home. The property value of the home was estimated to be in excess of $1 million. Their "uncle" was known to be a frugal man who lived primarily off of his pension as a former aerospace engineer, and the mortgage on his home had been paid off years ago. The heirs anticipated a quick sale of the property followed by substantial distributions to each of them.
The heirs were in for a big surprise. It turned out their uncle had taken substantial loans against the property to pay for the cost of the construction. The uncle had planned to build a modern mansion and sell the house at a profit. Unfortunately, their uncle made some very poor decisions regarding the construction. He hired an unlicensed contractor to handle the project, and pulled city permits for the construction under his own name. As soon as word spread that the uncle passed away, the city ordered that all construction cease. The subcontractors and unlicensed general contractor began clamoring for money, claiming they were owed money for materials and work provided. The decedent did not keep written contracts or receipts. Subcontractors and vendors attempted to pull doors, windows and other items from the home, claiming the building materials were not paid for.
To complicate matters further, the girlfriend of the decedent claimed she made substantial (undocumented) loans to the decedent which remained unpaid. It was later discovered that the decedent had not filed income taxes in several years and owed back taxes. There were several credit cards in the decedent's name with high outstanding balances.
This case is an extreme example of how a seemingly straightforward probate administration developed into a challenging probate administration, even for an experienced probate attorney. Our experienced probate attorneys have the ability to find creative solutions to complex problems encountered during the course of the probate administration.Should You Hire a Probate Attorney?
Every estate is unique and the challenges presented by the probate administration can be daunting. If you are named as the Executor of a decedent's will, or if you are serving as the Administrator of a decedent's intestate estate, you should know that you are a fiduciary and have legal responsibilities and obligations. Failure to follow through with your duties in a timely manner can expose you to lawsuits and potential liability for breaching your fiduciary duties.
Hiring an experienced probate attorney to advise you through the probate process will save you substantial time and stress and can protect you from potential legal jeopardy. The probate attorney's fees will be paid for out of the decedent's estate, upon the conclusion of the probate administration.
If you are the Executor of a will or are seeking to be appointed as the Administrator of a decedent's estate, contact us for assistance. Our experienced San Diego probate attorneys will advise you of your responsibilities and help you avoid costly delays and potential litigation.