While most couples now utilize intervivos trusts to avoid the cost and delay of probate, for various reasons, including “not getting around to it,” many surviving spouses find themselves required to commence formal probate for all or much of the assets to be inherited from the spouse.
Luckily, the Probate Code of California allows a special “short cut” procedure that saves time and money for transferring property to a surviving spouse and this article discusses the basics of that procedure.
Spousal Set Aside under Probate Code Section 13650
A spousal set aside is an optional procedure pursuant to Probate Code section 13650 et seq. for short cutting the probate administration of community and/or quasi community property that passes to or already belongs to the surviving spouse and of separate property that passes to the surviving spouse. The set aside procedure provides a formal judicial determination and order regarding the decedent’s property that passes by will or intestacy to the surviving spouse and confirms the community and/or quasi-community interests that already belonging to the surviving spouse.
The Procedure
According to Probate Code section 13650, the spousal set aside procedure applies only to property or interests “passing to” or “belonging to” the surviving spouse. Thus, only the surviving spouse’s interest and any part of the decedent’s interest not willed to another qualifies for the spousal set aside.
The decedent’s property interests that are willed to a trust do not qualify for the spousal set aside procedure. Additionally, the spousal set aside procedure cannot be used for any property interest of the decedent bequeathed or devised to someone other than the surviving spouse and the interest bequeathed to the surviving spouse cannot be a “qualified ownership” interest as defined by Civil Code section 680. A restriction based on survivorship is not a disqualifying condition so long as the specified period of time has expired. Thus, if the Will provides that the spouse must survive the deceased spouse by ninety days, the set aside procedure is still available…after ninety days.
Probate Code section 13650(a) provides that only the surviving spouse or his or her personal representative (if the surviving spouse is also deceased) or his or her guardian or conservator of the estate (if the surviving spouse is incompetent) may petition for the set-aside.
The spousal set aside petition may be used to confirm the surviving spouse’s one half ownership interest in community or quasi-community property which already technically belong to the surviving spouse, Note that the set-aside does not have to be used for all of the decedent’s property passing to the surviving spouse. Thus the procedure can be used if some of the assets would otherwise go into probate while others are already in Trust or subject to some other type of intestate succession. See our article on Wills and Trusts.
A Probate Code section 13650 petition also can also be used to determine that the decedent’s one half interest in community and/or quasi community property, and/or the decedent’s full interest in separate property, passes to the surviving spouse by the terms of the will or the laws of intestacy. The spousal set aside petition does not have to be used for all of the decedent’s property passing to the surviving spouse. The surviving spouse has the option of electing to probate all or a portion of the decedent’s property passing to the surviving spouse.
A spousal set aside petition can be used to ask the court to make a determination when the distinction between community, quasi-community and separate property passing to the surviving spouse is unclear. In this case, the petition may be filed alleging that specific assets are community, quasi-community or separate property passing to the surviving spouse as long as the decedent did not devise an interest in such property to another person.
The Downside of the Spousal Set Aside: Continuing Liability.
While the spousal set aside petition is a faster, less expensive way of clearing marketable title, clarifying which property is subject to probate administration, and determining the value of property in order to establish the extent of the surviving spouse’s liability than a formal probate, the following liability and estate tax issues should be considered.
A Section 13650 set-aside leaves the surviving spouse open to a significant financial risk of exposure to decedent’s creditors because to the extent the decedent’s and surviving spouse’s interests in community and/or quasi-community property, and decedent’s separate property interests that pass to the surviving spouse without administration, are not probated, the surviving spouse remains personally liable for decedent’s debts that are chargeable against such property. See Probate Code sections 13550,13551, 13553; see Dawes v. Rich(1997) 60 CA4th 24, 31, 70CR2d 72,77.
There is some limit to the liability. Probate Code section13551(a), (b), (c) limits the personal liability of the surviving spouse to the fair market value at date of death, net of liens and encumbrances, of the total of the (a) survivor’s 50 % interest in the community and quasi-community property that belongs to him or her under Probate Code sections100 and 101 not exempt from enforcement of a money judgment and not administered in the deceased spouse’s estate; (b) deceased spouse’s 50% interest in community and quasi-community property belonging to decedent under Probate Code sections 100 and 101 that passes to the surviving spouse without administration; and (c) decedent’s separate property that passes to the surviving spouse without administration.
The decedent’s last illness and funeral expenses are payable exclusively from the decedent’s estate and the surviving spouse is exempted from potential personal liability for these expenses.
As stated in our article on Probate Basics, there is a time limit for third party creditors to make claim against the assets in a probate estate, namely four months. The time limit for filing creditor’s claims is not fixed as in a probate administration to a four month filing period, but according to CAL. PRAC. GUIDE: PROBATE at 4:96 “all creditor claims are barred unless prosecuted within one yearafter the decedent’s death. [See CCP section 366.2; Prob.C. section 13554;…]” Thus, an extra eight months of exposure exists for such claims.
Further, Probate Code sections 13560-13564 provides that the decedent’s surviving spouse may be personally liable to the estate or decedent’s testate beneficiaries for decedent’s property or its value. An action to impose liability under section 13561 (decedent’s property in possession or control of surviving spouse at time of decedent’s death) and section 13562 (property no longer in surviving spouse’s possession) has a three year statute of limitations after the deceased spouse’s death and is not tolled for any reason.
Finally, spousal set-asides have limited utility in estates where there are estate tax concerns involving devises to a trust for the benefit of the surviving spouse, or a will containing a marital gift determined by a certain formula which cannot be applied until the estate tax is determined.
Conclusion: A Useful if Limited Tool.
For the cost of a bit of extra exposure, a spouse can thus avoid much time and expense of probate and for those assets somehow not placed in an appropriate Trust, this tool is quite useful.
However, the numerous and important advantages of a careful creation of a Will and Trust using the tools developed over a hundred years of drafting is a much better solution for the usual issues facing a couple and this tool should be seen as needed at times but certainly not the preferred method to avoid the costs of probate and to provide for the flexibility and intelligent decisions that are necessary upon the death of a spouse. Or, as one writer put it, “It’s better than nothing. But not much…”