Estate Planning for Low Net-Worth Clients

On April 1, 2025, the threshold for a “small estate” in California dramatically increased with respect to real estate. For the previous three years, the limit to avoid probate was $184,500 for personal property and real estate combined, or $61,500 for real estate alone. Now, it is approximately $200,000 for personal property and a whopping $750,000 for real estate.1 Under those thresholds, no formal probate is required.

At first glance, it may seem that this is a boon to families with fewer or less valuable assets, but that may not be true in many situations. Among other things, while the process to collect personal property has not changed, there are significant changes to the way that real estate is handled. For instance, the Petition to Determine Succession to Real Property is now available only for the decedent’s primary residence, though it used to be available for any real property owned by the decedent.2 The new law states that the primary residence is not necessarily the residence in which the decedent lived at the time of their death3, but does not provide any definition at all to explain what a “primary residence” actually is for this purpose. This lack of a definition raises the likelihood of a dispute over whether a property valued under $750,000 qualifies as the “primary residence” (meaning that it is eligible for transfer through such a Petition) or not (meaning that a formal probate proceeding is necessary).

In addition, successors now must notify all heirs and devisees within five business days of filing such a Petition.4 Previously, notice was required to be given only 15 days prior to the hearing. It is common that a hearing is set for six weeks or more after the filing of any pleading in probate court; as a result, a notice sent within five business days of filing will necessarily be received sooner than one which is sent only fifteen days before the hearing. This new and longer notice period increases the possibility that heirs who were not named to inherit the property will take the time and effort to file a formal objection to the granting of such a petition.

Nonetheless, for families with a lower net worth, it may seem that these higher thresholds obviate the need for a trust. Nothing could be further from the truth. There are many ways in which a revocable living trust provides the best possible protection for families, even those who might qualify for “small estate” treatment under the new law. Here are just a few:

• Minor beneficiaries: A will alone may not need to be probated under normal circumstances, but any assets bequeathed to minors must be managed by someone. In the absence of a revocable living trust, or in the case of a testamentary trust, the court will necessarily oversee any such management, requiring the responsible party to return to court regularly.
• Medi-Cal recipients: When qualifying for Medi-Cal (which is California’s Medicaid program), asset information is no longer requested; rather, eligibility is based solely on monthly income. However, upon the recipient’s death, all assets subject to probate are subject to clawback by Medi-Cal, even when under the threshold amount. The Estate Recovery Program provides an exception for homesteads valued at less than half of the average price of homes in that county, but very few homes qualify for this exemption. As a result, a low-income family could easily lose the family home in order to pay back expenses incurred by Medi-Cal during the decedent’s lifetime. This potential loss of the family home is entirely avoidable; when all assets are contained within a trust, nothing is subject to probate, so nothing is subject to clawback. Without a trust, there is no way to ensure that any assets will actually remain for the beneficiaries of Medi-Cal recipients.
• Digital assets: These days, many people keep all of their financial information digitally. If bank statements are sent via email, there may be no paper trail to be found. When a filing cabinet has become obsolete, family members may have no idea where a decedent’s financial accounts are located, much less how to access them. Furthermore, in the absence of a court order containing specific authorization language, accounts with Google, Apple, and others can be lost.

These may even include actual money in accounts with Apple Pay, PayPal, Venmo, and the like. With a trust, a successor trustee can be given the authority to access all digital assets, from social media accounts to cryptocurrency and everything in between, as well as the ability to collect funds in those accounts.

In short, there are many scenarios in which the lack of a revocable living trust would be detrimental to a family, regardless of the overall value of the decedent’s assets. As estate planning attorneys, it can be tempting to disregard those at the lower end of the economic spectrum. We often focus on tax issues, or wealth management over generations, rather than the everyday concerns of families with average (or below average) means. The truth is, our job is to ensure that all of our clients, not just the wealthy ones, have the opportunity to understand (and to be advised about) the whole picture when deciding on the best course of action for their particular situation.

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