Florida Probate Basics
Florida probate is the legal process of administering the property of a decedent according to the instructions in the decedent’s last will and testament. If the decedent did not have a last will and testament, their estate will be distributed according to the “plan” in the Florida statutes.
The primary concerns of the probate court are: (i) determining the rightful heirs to property; (ii) making sure the financial obligations of the decedent are paid; and (iii) transferring legal title of the decedent’s property to the heirs.
In Florida, there are two main probate proceedings: formal probate and summary probate. Determining which to file depends on the amount and nature of property in the decedent’s estate.
A formal probate is generally filed when the total estate value exceeds $75,000 or in a small estate where there are other issues that require the court’s action or intervention (such as estate debts which exceed the value of estate assets).
If the total estate value is $75,000 or less (excluding homestead real property) or the decedent died two or more years prior to filing, a summary probate may be filed. Some families still opt for a formal probate because of the shortened period of time for claims of creditors.
Property not subject to probate in Florida may be subject to a probate administration in another state where the property is located. Likewise, a resident of another state who individually owns real property in Florida may have a primary probate proceeding in the decedent’s home state and an ancillary proceeding in Florida.
Exempted or excluded property from the probate estate include: Homestead, Jointly-Owned Property, Pay-On-Death Accounts, and Life Insurance, Annuities, Retirement Accounts with designations.
The Florida Probate Process
Opening the Probate: The process of Florida probate, or administration of the estate, begins by filing the original will (if any) with the probate court and the preparation and filing of a petition for administration. The petition requests the court to open a probate over the decedent’s assets, accept the last will and testament, and appoint a personal representative. The judge signs letters of administration, which officially appoint the personal representative and evidences the personal representative’s legal authority over the property in the estate. After the Letters are issued, known beneficiaries and creditors receive notice of the filing of the probate action.
Estate Liabilities: A primary function of probate is to give the decedent’s creditors the opportunity to be paid from estate assets. A Notice of Administration or Notice to Creditors is sent to any known party who may have a claim against the decedent and/or the estate, while a legal notice to potential creditors is published in a local newspaper. Typical creditors in a probate proceeding are the mortgages, medical care expenses, credit cards and personal loans.
Any creditor having a claim against the estate is required to file a claim with the Florida probate court. The court will send a copy of all claims to the personal representative’s attorney and at the end of the claim period (30 to 90 days depending on method of notification) the personal representative reviews the claims to determine validity. The personal representative may object to any claim believed to be invalid or incorrect. Objections are either resolved by a mutually agreed upon settlement or by the probate judge. The personal representative must arrange for and make payment of all valid claims provided there are adequate non-exempt assets available in the probate estate.
Estate Assets: Another part of probate administration involves identifying and securing estate assets. A list of all assets in the probate estate and their values must be timely filed with the court in the form of an inventory. The personal representative should compile a list of assets as soon as possible so an estate inventory can be prepared by the attorney and filed with the probate court. Additionally, the personal representative should arrange for adequate insurance coverage of tangible personal property or improved real property of the probate estate.
Tax Requirements: Another part of the estate proceedings is determining which tax returns the estate is required to file. Most personal representatives will have to arrange for the filing of a (final) personal income tax return for the decedent, an income tax return for the estate if the estate has more than $600 in income during the tax year, and an estate tax return required by law to be filed if the total taxable estate exceeds a certain valuation. The personal representative’s attorney or CPA will determine which tax returns, if any, are required to be filed and what tax if any is due.
Asset Management: The personal representative has a fiduciary responsibility to properly manage estate assets throughout the Florida probate proceeding. Asset management includes investment of cash in bank accounts, government bonds, or other prudent forms of investment. The personal representative must also make sure the estate pays ongoing bills including mortgages on any probate real estate. If cash available to the estate is not sufficient, the personal representative is required to sell assets or borrow money on behalf of the estate to meet cash requirements as they arise. These cash requirements include legal and accounting fees and taxes.
Distribution to Beneficiaries: Once the personal representative or the court determines that all costs of administration and valid creditors’ claims have been paid, the next step is distribution of the remaining probate assets to the beneficiaries named in the will. First, the personal representative distributes estate assets to satisfy any specific bequests in the will. A specific bequest is an instruction in the will to distribute a specific asset, such as real estate, a fixed amount of cash, or personal property to one or more persons or a charity. In some cases the personal representative will sell assets with prior court approval to pay expenses or to make specific bequests to the heirs. As a fiduciary, the personal representative may be held personally responsible for early distributions to estate beneficiaries if the money distributed is needed later to pay estate expenses, federal taxes, or required distributions.
Closing the Probate Case: In order to close the estate the law requires the personal representative to prepare, with professional help, a formal accounting. The accounting includes all legally significant activities which have occurred in the estate, evidence that creditors’ claims and taxes have been paid, and a statement that the remaining estate property has been distributed in proper shares to the person(s) entitled to that property. A proposed accounting is made available to all the beneficiaries, who will then have 30 days to object. In most cases, where all creditors’ claims have been paid, a formal accounting can be waived by the unanimous consent of the beneficiaries. Many beneficiaries waive a formal accounting because the accounting is an expensive part of estate administration and reduces the amount available for distribution. The personal representative presents either the formal accounting or waiver(s) to the probate court. The court reviews the file, and if all requirements have been met, the judge will sign an order discharging the personal representative. This order effectively closes the probate case.
Continuing Tax Obligations: In addition to closing court proceedings the personal representative is required to file income tax returns for the year in which final settlement occurs. When the estate is closed, the estate may have had taxable income for that year or otherwise be responsible for the payment of taxes. The personal representative must retain sufficient funds to pay any taxes which may be due. If these taxes are not paid, the law permits the IRS, and in some situations, the State of Florida, to collect the taxes from the personal representative’s personal assets.
Florida Probate Estate
The decedent’s probate estate includes all of the decedent’s personal property, real property other than homestead, and legal rights of action against third parties (existing or potential lawsuits). All of the decedent’s individually-owned property within the above categories is included in the probate estate and is subject to probate administration through the Florida probate court. There are also several types of property which are excluded from the probate estate:
- Homestead: The decedent’s primary residence or homestead is exempt. It may still be necessary to file with the court a Petition to Determine Homestead.
- Life Insurance, Annuities, and Retirement Accounts: Property which is transferred under the terms of contracts between the decedent and third parties is excluded. The contract exemption includes many financial products such as life insurance policies, annuities, and qualified retirement plans, all of which are paid on death to designated beneficiaries outside of probate administration under the terms of the written contracts.
- Jointly-Owned Property: Property owned by the decedent jointly with another person with rights of survivorship is exempt. Property owned by two or more individuals with rights of survivorship passes automatically to the surviving joint owner(s) after the death of one or more joint owner. A common example is real property owned either by husband and wife as tenants by the entireties or unmarried individuals holding as joint tenants with the right of survivorship. Upon the decedent’s death, real property is automatically owned by the surviving joint owner. Another example is joint bank accounts between a decedent and spouse. Upon the decedent’s death, all money in the joint account(s) is automatically owned by the surviving spouse/joint owner.
- Pay-On-Death Accounts: Florida Statute § 655.82 establishes pay-on-death accounts for banking institutions (checking, savings, and certificates of deposit), and Florida Statute § 711 establishes a uniform transfer-on-death security registration for assets held in brokerage accounts or other security accounts. Property held in a pay-on-death account passes outside of probate to the designated beneficiary. A pay-on-death account is owned solely by the account holder during the account holder’s lifetime and upon the account holder’s death, all of the assets in the account pass to the designated beneficiary. During the account holder’s lifetime, the designated beneficiary has no rights to the assets in the account.
Probate Estate vs. Taxable Estate
The probate estate is sometimes confused with the concept of the decedent’s gross estate or taxable estate. A person’s taxable estate includes those assets subject to estate taxation. The taxable estate encompasses more property than the probate estate including all property in which the decedent had an interest or over which he had control. For example, unlike the probate estate, the taxable estate includes the decedent’s interests in property owned jointly, financial products involving contracts with third parties (life insurance, etc.), IRAs or 401K plans, and all other property over which the decedent exercised any control or power.
Probate Avoidance and Trust Administration
Because Florida probate can be a lengthy, costly and public process, many people choose to avoid it. There are a number of legal strategies that will allow you to pass property to another person after death, without going through probate, including joint tenancy and beneficiary designations, mentioned above.
A Revocable Living Trust (RLT) is another method to avoid or minimize the impact of probate. An RLT is a legal document that allows you to establish a separate entity (the trust) to “hold” legal title to your assets while you are alive, and to name trustees to manage those assets according to the trust terms. Typically, you serve as the trustee while you are alive, managing your assets for your own benefit. Upon your disability or death, the trust terms appoint your successor trustee who then continues to manage — or distribute — the assets held in trust. A properly drafted trust can accomplish many goals, including guardianship and probate avoidance for your estate and marital and creditor protection for your children.
A properly drafted and funded trust will generally avoid Florida probate. The trust need not be filed with the probate court. Nonetheless, there are still steps necessary to administer the trust: beneficiaries must be contacted; assets must be gathered, valued and managed; potential creditors must be notified; debts, taxes and final expenses must be paid; and, ultimately, any remaining income and assets must be distributed in compliance with the trust terms. Successor trustees often lack the time, resources or knowledge to personally administer the trust, and therefore may call upon legal, accounting and investment professionals for assistance. Oftentimes, a corporate fiduciary (e.g., a trust company) is an excellent alternative to relying solely on busy family members or friends to serve as trustee. Linda can help your successor trustee(s) deal with the complexities of administering your trust. Please call our office to schedule a consultation, whether or not Linda drafted the original trust.