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Save Your Family From Probate
August 2, 2017
Probate is the process of settling the estate of a deceased person who owned assets in their individual name when they died. Probate has the following primary functions:
It verifies the validity of your will.
It inventories and establishes the value of your significant assets.
It provides your creditors with the opportunity to make claims against your estate.
It gives disgruntled family members a forum for challenging your will
When the foregoing steps have been completed, when all these steps have been completed, it transfers the title to your property to your heirs, as you’ve instructed in your will.
There are two types of administering probate in Florida: Summary Administration and Formal Administration. Both types take time, tie up the assets and require an attorney to assist the family. However, if you plan ahead and structure your assets properly, you can help your family avoid the probate process entirely.
There are only a limited number of ways to avoid probate in Florida. The best option for you and your family will depend on your own unique situation and should be discussed with your Florida estate planning attorney. Using the techniques below will create peace of mind for you as well as peace of mind for your loved ones during a difficult time.
Option 1: Use Joint Ownership With Rights of Survivorship or Tenancy by the Entirety
Adding a joint owner to a bank account, an investment account or a deed for real estate will avoid probate in Florida. The account or real estate must be owned as joint tenants with rights of survivorship and not as tenants in common.
For married couples in Florida, you and your spouse can own bank accounts, investment accounts, tangible personal property and real estate with rights of survivorship in a special form called tenancy by the entirety.
There are several downsides to owning property in this fashion:
In many cases adding a joint owner to an account or deed will be a taxable gift that needs to be reported to the IRS on a federal gift tax return (IRS Form 709).
If a joint owner is sued or gets divorced, then a judgment creditor or divorcing spouse may be able to take the assets in the joint account or real estate that is owned jointly.
If a joint owner dies before you do, then 50% or even 100% of the joint account could be included in the deceased owner's estate for estate tax purposes. If you're in a second or later marriage, leaving your property to your spouse by right of survivorship or tenancy by the entirety will mean that your spouse will be free to do whatever he or she wants with your property after your spouse later dies. This may not be what you want - in other words, you may want your spouse to have use of your property after you die, but then after your spouse later dies you may want your property to go to your own children. In this situation, joint ownership with right of survivorship or tenancy by the entirety will not accomplish your final wishes since your spouse may freely choose to leave your property to your spouse's children or even to a new spouse instead of your children.
Option 2: Use Beneficiary Designations or Life Estate Deeds
If you own life insurance or assets held in a retirement account such as an IRA, 401(k) or annuity, then you are already taking advantage of probate avoidance through the use of beneficiary designations.
In Florida you are also allowed to designate beneficiaries for your bank accounts (this is referred to as a "payable on death" or "POD" account), and also for your non-retirement investment accounts (this is referred to as a "transfer on death" or "TOD" account). In addition, in Florida you can use a special type of life estate deed called an enhanced life estate deed, also known as a "Ladybird Deed," to retain ownership of Florida real estate during your lifetime and then pass the property on to the beneficiaries of your choice after you die without the need to probate the real estate in Florida.
Option 3: Use a Revocable Living Trust
A Revocable Living Trust is a powerful estate planning tool that is not reserved for the wealthy. Everyone who owns assets in Florida should consider the benefits of a Revocable Trust. This written agreement will keep your estate plan private since it will keep your final wishes outside of Florida's public probate court records. It also will protect you and your family in the following three phases:
While you're alive and well;
If you become mentally incapacitated; and
After you die.
Please note: the Revocable Living Trust agreement by itself isn't enough to avoid the probate of your property in Florida after you die. Once the trust agreement is signed, you will need to take your assets and title them in the name of your trust - this is referred to as "funding the trust." Only after your Revocable Living Trust has become the record owner of your assets will the assets owned by the trust (instead of you) avoid probate in Florida. If any of your assets sit outside of the trust at the time of your death, then the unfunded assets will need to be probated in Florida unless they have a beneficiary designation or are owned with rights of survivorship with someone who survives you.
There are some other options that involve the use of limited liability companies, life insurance trusts, and IRA trusts. Those options are more complicated. We are happy to consult with you to explain these options. Please send an email to Elan.Kaney@KaneyLaw.com to schedule an appointment.