California bank accounts for out-of-state residents

Posted in Nonprobate transfers at 4:02 pm

I ran across an interesting question today – is a California probate necessary when someone dies as a resident of another state, but they have an account in a California bank?

If the decedent used a revocable (“living”) trust, and changed the title on the bank account to reflect trust ownership – no problem, no probate is required.

If the decedent used a revocable trust but didn’t change the title on the bank account to reflect trust ownership, then it may be possible to use a petition under California Probate Code Section 850 (a “Heggstad petition”) to get control of the account without the delay and expense of a full probate.

If the decedent didn’t have a revocable trust and the balance in the account is less than $100,000, then the other-state executor or beneficiaries can wait until 40 days after the death, then use a small estate affidavit to collect the funds.

If the decedent didn’t have a revocable trust and the balance in the account is $100,000 or more, then an ancillary California probate will be necessary, including all of the traditional probate procedures and formalities. This is the worst-case scenario; I usually tell people that a probate in Santa Clara County will take approximately a year to complete, and 18 months isn’t surprising. A probate for a single asset like a bank account will be able to move quickly through the inventory & appraisal stage, since there isn’t much work to do, but there’s still a mandatory waiting period for creditor claims, and the delays inherent in scheduling multiple mandatory court hearings.

As a California resident and a California attorney, I’m embarassed that our state does this to people from other states; I don’t think it’s fair or reasonable, but that doesn’t mean it’s not the law. What’s even worse is that this feature of California law isn’t well known, and isn’t likely to be known by residents of other states, or even by attorneys in other states who haven’t run into the issue before. So it’s a problem that will surprise people over and over again.

It’s also a reminder to keep on top of little details with respect to bank accounts and estate planning. In this case, the failure to (a) use a trust, (b) designate beneficiaries on the account, or (c) move the account out of California is likely to cost the beneficiaries a few thousand dollars and months of delay while the probate proceeding occurs. I’m sure that’s not what the decedents intended, but it’s what they got.


First steps towards Ladybird/Beneficiary Deeds in California

Posted in Legislation, Nonprobate transfers at 2:17 pm

Last year, the California Legislature passed – and Governor Schwarzenegger signed – legislation (AB 12) directing the California Law Review Commission to study California’s current methods for transferring property at death, the methods used in other states for transferring property at death, and to consider whether or not California should allow the use of “Ladybird” or “beneficiary deeds”. What is a Ladybird deed, and why should you care?
Read the rest of this entry »