Profaci Law Notes

ProfaciLaw Primer: Probate in Florida—Living Trusts

A living trust is often the best way to avoid probate.

In previous articles in this series we discussed types of probate and probate avoidance tools.  In this article we discuss the use of a living trust in more depth.  Some of the benefits of a well-drafted living trust over other forms of probate avoidance are that it better controls what happens if a beneficiary predeceases the trustor, it controls when the beneficiaries receive the assets (thereby avoiding guardianship in the case of minor beneficiaries), and better protects those assets from the creditors of those beneficiaries.

Basically, a living trust avoids probate by retitling assets out of the name of a living person into the name of the trust.  As the main purpose for probate is to transfer assets from a deceased person to that person’s beneficiaries, the living trust avoids probate because the assets are no longer titled to that person but to the trust.

A trust has three “positions”:  The “trustor” (also known as a grantor or settlor), who is the person who creates the trust; the “trustee”, who is the person who manages the trust on behalf of the beneficiaries; and the “beneficiaries”, who are the people who get to enjoy or receive the assets in the trust.

In the case of a revocable living trust (which is usually what is referred to by the term “living trust”, in contrast to an “irrevocable” trust), the trustor is normally also the trustee and beneficiary during that person’s lifetime.  That gives the trustor total control over the assets he or she places into the trust, so that he or she enjoys the same dominion and control over the assets as if they were still titled to him or her.

The trust should also list the person or persons who will take over management of the trust as “successor trustee” upon the trustor’s death or disability.  In the event of disability the successor trustee will manage the trust for the benefit of the trustor, thereby eliminating the need for a guardianship of the property.  In the event of the trustor’s death, the successor trustee will basically pay the trustor’s debts and then distribute the assets to the beneficiaries set forth in the trust.  Therefore upon the trustor’s death the living trust becomes very much like a last will, except that no probate is required.

However, it is important to note that the living trust will work only as to those assets titled to it.  Therefore it is essential that the trust be properly “funded” upon creation.  Many trusts fail to avoid probate because they were never funded, some assets were missed in the initial funding, or the trustor forgets to title after-acquired assets to the trust.  In that case a “pour over” last will, which is a necessary component to any living trust, will direct the assets into the trust, but only after probate or other estate administration.

Copyright 2012, The Law Office of Vincent J. Profaci, P.A., serving Altamonte Springs, Kissimmee, Lake Mary, Longwood (including Lake Brantley and Sweetwater), Maitland, Orlando, Sanford, and all of Central Florida in the areas of Wills and Living Trusts, Estate Planning, Asset Protection, Elder Law, Medicaid Planning, Probate, Real Estate, and Business Law and Litigation.

ProfaciLaw Primer: Probate in Florida—Probate Avoidance Pitfalls

Some methods of probate avoidance have pitfalls themselves to be avoided.

In our first primer we discussed assets that will not be subject to probate because they were no longer titled to the deceased person, or were automatically retitled upon the person’s death.  Basically, then, probate avoidance requires the titling assets in one of those manners.  However, some of these methods have their own pitfalls:

• Assets with a TOD (Transfer on Death) or POD (Pay on Death) beneficiary designation.  The drawback of using this method is that if the death beneficiary predeceases the owner and no further beneficiary designation is made, for example by oversight or because the owner is incapacitated, the asset goes to the owner’s estate, resulting in a probate or estate administration.

• Assets titled as tenants by the entireties (husband and wife).  Same as above.

• Other assets with an individual beneficiary designation, such as retirement accounts or life insurance policies.  Same as above.

• Assets titled as joint tenants with right of survivorship.  Same as above, plus the asset could be subject to the claims of creditors of the joint owner.

• Homestead, where the property is left to natural heirs.  The drawback of relying on homestead status to avoid probate is that a determination of homestead must be made by a court, requiring legal proceedings.

• Life estate deeds.  Perhaps the most dangerous method of probate avoidance, this creates an irrevocable interest in the remainder beneficiary or his or her estate.  Thus, to convey the property during lifetime will require the signature of the remainder beneficiary, which might not be forthcoming.  And if the reminder beneficiary dies before the owner, then the reminder interest goes through the beneficiary’s estate to his or her own beneficiaries, perhaps producing consequences unanticipated to the owner.

• Assets titled to a living trust.  This method suffers from none of the above drawbacks.  A living trust merits its own discussion and will be discussed in a future primer. 

 

Copyright 2012, The Law Office of Vincent J. Profaci, P.A., serving Altamonte Springs, Kissimmee, Lake Mary (including Heathrow), Longwood (including Lake Brantley and Sweetwater), Maitland, Orlando, Sanford, and all of Central Florida in the areas of Wills and Living Trusts, Estate Planning, Asset Protection, Elder Law, Medicaid Planning, Probate, Real Estate, and Business Law and Litigation.

ProfaciLaw Primer: Probate in Florida—Types of Estate Administration

There are three types of legal proceedings to transfer a decedent's assets in Florida:  Disposition of personal property without administration; summary administration; and formal probate.

The type of estate proceedings required to transfer estate assets in Florida depends on the nature and value of the estate, and how much time has passed since the decedent’s death.  There are three types of estate proceedings in Florida:

Disposition of personal property without administration.  This is available for the estate of a decedent leaving only exempt personal property, and nonexempt personal property the value of which does not exceed the sum of the amount of preferred funeral expenses and reasonable and necessary medical and hospital expenses of the last 60 days of the last illness. 

An order directing the transfer of the assets can be obtained by any interested party upon informal application by affidavit, letter, or otherwise.  The interested party need not be represented by an attorney.  An order of distribution can usually be obtained within a number of days.

Summary administration.  This is available for all estates in which (1) the last will, if any, does not direct administration, and (2) the value of the entire probate estate less exempt property does not exceed $75,000 or the decedent has been dead for more than 2 years. 

An order directing the transfer of the assets can be obtained by the filing of a petition for summary administration, which must be signed and verified by the surviving spouse, if any, and any beneficiaries (except a beneficiary who will receive a full distributive share).  Formal notice of the petition must be served on any beneficiary not joining in the petition.  The interested party need not be represented by an attorney.  An order of distribution can usually be obtained within a few weeks.

 Formal probate.  This form of estate administration is required in all other cases, i.e., estates in which the last will directs administration or in which the estate value less exempt property exceeds $75,000 and the decedent has been dead less than two years. 

Very basically speaking, the process entails the appointment of a personal representative (executor); notice to beneficiaries; establishment of the last will, if any; notice to known and unknown creditors; payment of creditors’ claims; payment of administrative expenses; and finally, distribution of assets to the proper beneficiaries.

 This is a relatively expensive and time consuming proceeding, which normally can be concluded in no less than about 5 months but which usually takes from nine to twelve months from start to finish.  It can also become very complex if it involves contested proceedings, such as objections to the qualifications of the personal representative, objections to the last will, or objections to creditors’ claims.  The petitioner (usually the proposed personal representative) must be represented by an attorney. 

 

Copyright 2012, The Law Office of Vincent J. Profaci, P.A., serving Altamonte Springs, Kissimmee, Lake Mary (including Heathrow), Longwood (including Lake Brantley and Sweetwater), Maitland, Orlando, Sanford, and all of Central Florida in the areas of Wills and Living Trusts, Estate Planning, Asset Protection, Elder Law, Medicaid Planning, Probate, Real Estate, and Business Law and Litigation.

ProfaciLaw Primer: Probate in Florida—What is Probate and When is it Necessary?

Editor's note:  This is the first in what we hope will be many "primer" articles that we intend to write on the specific areas of Florida law in which our law firm practices.  If you have any specific topic requests, please contact us.

"Probate” is a term commonly used to refer to estate administration, which is the legal procedure that may be required to retitle assets from a deceased person to that person’s beneficiaries.  It is also an optional procedure to clear creditors’ claims where no estate administration is otherwise necessary.

Technically, the term “probate” refers to only one of several available options for the administration of a deceased person’s estate.  However, before we consider the available options, the first step is to determine if an estate administration is necessary. 

Generally, in Florida an estate administration of some sort will be required to transfer any asset titled solely to a deceased Florida resident (or to transfer Florida real property titled to a deceased person regardless of state of residence), which does not have an automatic death beneficiary.  Assets that will not be subject to an estate administration, because they either were no longer titled to the deceased person, or were automatically retitled upon the person’s death, can include but are not limited to the following:

• Assets titled to a living trust
• Assets with a TOD (Transfer on Death) or POD (Pay on Death) beneficiary designation
• Other assets with an individual beneficiary designation, such as retirement accounts or life insurance policies
• Assets titled as joint tenants with right of survivorship
• Assets titled as tenants by the entireties (husband and wife)
• Homestead, where the property is left to natural heirs

Some assets with beneficiary designations must still be transferred in an estate administration, because the beneficiary is actually the decedent’s estate instead of another individual or individuals.  This can occur because the decedent designated his or her estate as the beneficiary specifically (not uncommon for example with older life insurance policies, e.g. “Estate of John Doe”), or unintentionally (for example, by failing to make a beneficiary designation for a retirement account).  In these cases the beneficiary is the estate itself, so in order to transfer the assets to the ultimate beneficiaries an estate administration must be conducted.

Even if all of a decedent’s assets pass automatically upon death to individual beneficiaries, it may still be advisable to “probate” the estate because in a formal probate, creditors’ claims can be cut off after 90 days.  This may be desirable for estates of professionals who may have unknown liabilities, such a physicians with potential medical malpractice claims.  Without a probate, claims can be asserted against an estate or its beneficiaries for up to two years after death.

 

Copyright of The Law Office of Vincent J. Profaci, P.A., serving Altamonte Springs, Kissimmee, Lake Mary, Longwood (includung Lake Brantley and Sweetwater), Maitland, Orlando, Sanford, and all of Central Florida in the areas of Wills and Living Trusts, Estate Planning, Asset Protection, Elder Law, Probate, Real Estate, and Business Law and Litigation.