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Canadians Purchasing Palm Springs Area Real Estate- What is the Best Ownership Form to Avoid Costly California Probate Fees?

We’re going to start a new series on our Canadian blog, aimed specifically at those Canadians purchasing Coachella Valley real estate, and the best way to own their new Palm Springs areas home (i.e., how to take title). The first issue we’re going to discuss is how to best to take title to avoid (or minimize) the expensive cost of California probate. Keep in mind as we discuss the issue of probate, the analysis is the same whether we’re talking about somebody from Canada, or France, or Brazil, or even Washington or Oregon (i.e., people who own a home in California, but who live either in another state in the US or in another country outside the US).

Let’s First Identify the Common Methods of Real Property Ownership

Owning as an Individual- self explanatory.

Owning as Joint Tenants- Each party of a couple (or more) is a co-owner. When one dies, the property automatically goes to the survivor(s).

Owning as Tenants in Common- Each party of a couple (or more) is an owner of part of the property. When one dies, that portion of the property goes to whomever the deceased tenant in common leaves it to.

Owning via a Partnership- The individuals form a partnership (could be a US partnership or a Canadian partnership), which owns the property.

Owning via a Corporation- The individuals form a corporation (could be a US corporation (including the US LLC) or a Canadian corporation), which owns the property.

Owning via a Trust- The individuals form a trust (could be a US trust (typically a US recovable trust) or a Canadian trust), which owns the property.

What is Probate?

Probate is the legal process (a court proceeding) an estate goes through when one dies. In the US, probate occurs on a state by state basis. So if you are from Canada or Oregon, and you own an Indian Wells house and pass away, as a general matter your estate must go through a California probate. So even all your other assets in the world are in Calgary (where your estate would undoubtedly have its own probate for all your other assets), if you own California real estate your estate will have to go through a California probate. That is, unless you plan ahead to avoid California probate!

What are Normal Probate Fees?

As a general matter, probate fees will be around 2% of the value of the estate being probated (it’s a sliding scale: 3% at the lower levels down to 1% the higher the value of the property). So if we’re only talking about a second house owned in California, we’re talking about one major asset in probate: the house. However, the 2% (avg) are the “ordinary fees”, assuming no major complications. That may be a fair assumption when we’re speaking of someone from another US state, but when we’re speaking of a Canadian or someone from another country outside the US, probate fees may rise significantly well above the ordinary 2% fees. And remember, these are only the attorney’s fees we’re speaking of to this point. There will be separate fees for those going through probate as well (e.g., property appraisal fees, court filing fees, possibly an executor fee). And again, when dealing with property owners who are citizens of foreign countries, the attorney’s fees can jump well above the normal 2%. For Canadians, avoiding (or minimizing) probate with respect to their US real estate should be a high priority.

So What is the Best Form of Ownership to Avoid Costly Probate Fees?

The answer is the US trust (typically the US revocable trust). We’ll discuss why, and compare the US trust to the other forms of common property ownership with respect to probate costs, in our next post.