Thanks for the kind words of encouragement I received from many of you regarding the first two Covid-19 newsletters. Today’s newsletter will focus on Estate Planning and Probate Avoidance for your Dental Practice, which I hope you will find useful.
First a CARES act update: The EIDL grant/loan program and the PPP program are evolving daily. Due to immense popularity the grants of up to $10,000 within three days of submission of an application will be distributed without any timeline and with a limitation of $1,000 per employee. As I mentioned previously, whatever amount you receive in a grant would offset against any debt forgiveness you might receive under the PPP loans. Because the money is flowing as quickly as possible, most PPP lenders are requiring a prior relationship to ease their burden of verifying your identity and compliance with Homeland Security. Many large lenders are now closing applications. If you have yet to submit an interest form or an application, you may seek out smaller lenders that have time to verify your identity and process your application.
Topic #3 – Estate Planning
Presently, the media is saturated with stories of a health care system pushed to its brink and anecdotal stories of seemingly healthy individuals and health care providers who are taken too soon by Covid-19. While it may be unpleasant to contemplate, the present work stoppages present an excellent time to re-evaluate your present estate plans to make sure in the event of your incapacity or death you can preserve the value of the assets of your practice, minimize financial losses and avoid probate. This newsletter will contain a basic primer of probate administration and provide suggestions for the effective transfer of your assets.
The Probate Process Explained
“Probate” is the process of transitioning the assets/property (“the estate”) of a deceased person (“decedent”). If a formal proceeding is required under the California Probate Code, a petition for probate must be filed with the Superior Court of the county in which the decedent resided. After provision of required notices and publishing notice in a local newspaper, the matter is set for a hearing regarding the appointment of an executor (if a will exists) or personal representative (if the decedent did not have a will). After court appointment, the executor/personal representative is given letters of administration and can begin taking possession of assets of the decedent’s estate and sending notice to known creditors.
Upon the issuance of the letters of administration, estate assets such as a dental practice may be managed and/or sold. Depending on the level of authority granted, actions taken on behalf of the estate (such as a sale of an asset or preliminary distribution) may require additional court approval. Once assets are identified and collected, an inventory and appraisal is filed with the Court and assets are valued by an appointed probate referee. Creditor claims are assessed and resolved or disputed through additional hearings. Upon resolution of creditor’s claims, the executor/personal representative will report to the court on actions taken and seek approval of a proposed distribution plan. While technically, the probate process could be completed within nine months, due to backlogs in the court’s docketing of matters, an uncontested probate proceeding will take within excess of one year with the final hearing often set seven months after the petition for approval of the distribution plan is filed. If there are creditor disputes or objections as to the distribution plan, the process will take much longer. Delay aside, the associated filing fees, probate referee fees, administrator fees and attorney fees make process can be quite costly and undesirable.
Presently, the California Probate Code has a relatively low threshold before triggering a formal Probate (court proceeding described above) of an estate. If the gross (market) value of assets exceeds a combined value of $150,000.00, a Petition for Probate will need to be filed to transition the assets.
Where does your property go in Probate? If a decedent does not have a will or a trust, then the California Probate Code has a default means for determining succession of assets called intestate succession, which allocates your estate depending on who in your family survives you. If a decedent has a will, the will simply provides a road map for distribution of assets in a formal probate proceeding that can differ from intestate succession.
If you have assets that exceed $150,000 in the aggregate, the only way to avoid a formal probate proceeding is to establish non-probate transfers of your estate. Assets which are transferred through beneficiary designations, transfer on death provisions, survivorship provisions (such as joint tenancy) and estate planning vehicles such as trusts would not be included in the calculation of the gross value of a probate estate for purposes of determining the necessity of formal Probate.
How Dental Practices End Up In Court
In California, a dental practice (with one owner) is owned either as a sole proprietorship or as a California Dental Corporation. If you have a dental corporation, chances are the stock is issued to you personally. If you have a partnership, your partnership interest in the practice will either be held by you personally or by your dental corporation for which you are likely the sole shareholder. Without further estate planning, in the event of incapacity or death, a dental practice or partnership interest in a dental practice having a value in excess of $150,000 would be exposed to a formal probate proceeding before it could legally be transferred.
I periodically learn of solo practitioner dentists who either die without an estate plan or have an estate plan that failed to contemplate the transition of assets of the dental practice. Without the sole shareholder dentist, there is often no remaining officer of the corporation to sell or transfer the assets of the practice, nor is there any language in the corporate bylaws addressing succession upon the death of a shareholder/director. Sometimes, even when a dentist has a living trust, the stock certificates for the dental corporation are issued in the name of the dentist rather than a trust, leaving the assets outside of what might be an otherwise well-crafted estate plan. If this occurs, Judicial intervention is required to gain trust ownership of or legal authority to sell the assets of the dental practice. This is because there is no person with legal authority to sign contracts, hire locum tenens dentists or oversee the continued operation of the dental practice until it can be sold. In the instance of a probate proceeding, it can take 2-3 months before a hearing is held on the appointment of an executor/personal representative. Even if these orders are sought on an ex parte (emergency) basis, there will be delays in the days following the death of the dentist particularly in light of the current court closures. The goodwill of such a practice is quickly lost; leaving the estate with mere dental equipment to dispose with and an ongoing lease obligation for the estate to address.
Planning For The Succession Of Your Practice In Your Estate Plan
In addition to the representation of dentists in practice transitions and transactional matters, I routinely provide estate planning services to my dentist clients. Here are some suggestions on ways you can preserve the value of your practice and minimize financial losses in the event of your incapacity or death:
Remember, each of your respective situations and estate planning needs are unique and may require additional estate planning documents or strategies beyond what I’ve discussed above. As always, I’m happy to be a resource to you regarding these issues. Over the years you’ve placed your trust in me and I am very grateful. We will get through this together.
J. Sean Dumm, Esq.
Law Offices of J. Sean Dumm, APC
(949) 276-5095 Direct
(888) 212-DUMM (3866) Toll Free
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