When a person dies with excessive amounts of debt or there are lots of expenses related to the administration of his or her estate, certain gifts laid out in the deceased person's Will or Trust may need to be reduced. There's a specific sequence in which the gifts get cut back, and California Probate Code Section 21402 provides the sequence:

(a) Shares of beneficiaries abate in the following order:

(1) Property not disposed of by the instrument.

(2) Residuary gifts.

(3) General gifts to persons other than the transferor’s relatives.

(4) General gifts to the transferor’s relatives.

(5) Specific gifts to persons other than the transferor’s relatives.

(6) Specific gifts to the transferor’s relatives.

(b) For purposes of this section, a “relative” of the transferor is a person to whom property would pass from the transferor under Section 6401 or 6402 (intestate succession) if the transferor died intestate and there were no other person having priority.

For details on specific versus general gifts see this earlier blog post.

The abatement applies to debts, expenses, and the satisfaction of gifts from high to low priority; however, it does not apply by default to how estate taxes get apportioned.

Often a client may have grand ideas about giving gifts to certain family members and friends, without considering the fact that the assets they want to distribute at the time of their death may be insufficient to satisfy all of the gifts.

For example, a client may create his or her Will or Trust at a time when he or she is wealthy, but pass away at a time when much of the estate has been depleted for the client's care. It is therefore, important to consider the sequence in which the client may want gifts fulfilled to ensure that those that are most important to the client have the highest likelihood of being distributed to the chosen recipient.

Under California Probate Code Sections 13500-13053, if some or all of a deceased spouse's estate goes to the surviving spouse, that property may be transferred without probate administration. However, some title companies, banks, or other financial institutions may still require a formal court document allowing the transfer. 

Spousal or Domestic Partner Property Petition

A surviving spouse or registered domestic partner may file a petition known as the Spousal or Domestic Partner Property Petition with the Court to confirm that some or all of a deceased spouse's estate passes to his or her surviving spouse or domestic partner. The relevant law can be found in California Probate Code Section 13650, which provides:

(a) A surviving spouse or the personal representative, guardian of the estate, or conservator of the estate of the surviving spouse may file a petition in the superior court of the county in which the estate of the deceased spouse may be administered requesting an order that administration of all or part of the estate is not necessary for the reason that all or part of the estate is property passing to the surviving spouse. The petition may also request an order confirming the ownership of the surviving spouse of property belonging to the surviving spouse under Section 100 or 101.

(b) To the extent of the election, this section does not apply to property that the petitioner has elected, as provided in Section 13502, to have administered under this code.

(c) A guardian or conservator may file a petition under this section without authorization or approval of the court in which the guardianship or conservatorship proceeding is pending.

If the probate of the deceased spouse's estate is underway, this petition will be filed under the same case number as the main probate and notice must be given to the relevant parties as outlined in California Probate Code Section 13655.

If the Court approves the petition, a Spousal or Domestic Partner Property Order should be prepared and signed by the judge.

The use of the Spousal or Domestic Partner Property Petition can greatly simplify the administration of the deceased spouse's estate and should be an avenue that's considered when working with a prospective client whose spouse or domestic partner passed away.

Occasionally there's a need to analyze the types of gifts that a deceased person describes in his or her Will to figure out which ones should be given priority. This problem usually arises when the estate does not have enough assets to fulfill all of the gifts described in the deceased person's Will. California Probate Code Section 2117 identifies six types of gifts, and it provides as follows:

At-death transfers are classified as follows:

(a) A specific gift is a transfer of specifically identifiable property.

[For example, "I give my car to Sammy."]

(b) A general gift is a transfer from the general assets of the transferor that does not give specific property.

[This one is a bit confusing, but it would be something like, "I give a gift of a new Rolex watch to Linda." This would require the executor to purchase such a watch and give it to Linda. On the other hand, if the Will said, "I give my gold Rolex watch to Linda," this would be considered a specific gift.]

(c) A demonstrative gift is a general gift that specifies the fund or property from which the transfer is primarily to be made.

[For example, "I give $10,000 to Bob from my Wells Fargo Money Market Savings account."]

(d) A general pecuniary gift is a pecuniary gift within the meaning of Section 21118.

[Probate Code Section 21118(b) describes a "pecuniary gift" as a "transfer of property made in an instrument that either is expressly stated as a fixed dollar amount or is a dollar amount determinable by the provisions of the instrument." An example would be, "I give $3,000 to Steve."]

(e) An annuity is a general pecuniary gift that is payable periodically.

[For example, "I give $1,000 per month to Mark for the next 60 months."]

(f) A residuary gift is a transfer of property that remains after all specific and general gifts have been satisfied.

[For example, "I give the residue of my estate to my son, Carl."]

The distinction between residuary, general, and specific gifts is important when a deceased person's estate is inadequate to fulfill all of the contemplated transfers. In general, specific gifts are given the highest priority, general gifts are given the next level of priority, and residuary gifts are given the lowest level of priority. 

The Small Estate Set-Aside was previously discussed in the context of family protection statues, but it is worth mentioning again for purposes of probate avoidance.

California Probate Code Sections 6600-6615 permit a summary set-aside of a deceased person's estate if all of his or her personal property and California real estate has a net value of $20,000 or less. The key here is that we look to the net value of the property rather than the gross value. This means that we reduce the value of the property by any debt, mortgages, liens, and other encumbrances (as well as the value of the probate homestead, if any).

This procedure, however, is only available to the surviving spouse and to the deceased person's minor children.

Although somewhat limited in scope and only allowed to be used by certain family members, it can be an incredibly useful tool when the appropriate context arises. More often than not, the surviving spouse and minor children are the ones who are faced with the need to probate the deceased person's estate any way. In addition, with the rising level of household debt, it's not uncommon for a deceased person's estate to have relatively little equity (especially if he or she is young).