The number one concern of most clients that I meet with for estate planning is how they can avoid probate. Either they or someone they know had to go through the probate process when a loved one died, and it was a complete nightmare. It cost too much. It took too much time. Now everyone in the family is fighting with everyone else. Any number of things can, and sometimes do, go wrong, and there are many ways to avoid the need for a probate to minimize those risks. But there also some situations where a probate proceeding can be a good thing.
The most common way for a married couple to avoid probate is to own everything jointly. At the first spouse’s death all the assets automatically pass to the survivor without the need for probate. Some filings are still needed to remove the deceased spouse’s name from the homestead or other real estate assets, but those are minimal. Of course, joint ownership only works for avoiding probate at the first death. Probate may still be necessary at the survivor’s death unless further steps are taken.
Avoiding probate in many cases depends on the assets in the estate. Personal property, including cars, can pass without probate if there is a will disposing of such assets. Other assets, like a savings or checking account, can pass without probate if there is a ‘pay on death’ designation for the account. Investment accounts, like stock brokerage accounts, can similarly pass with a ‘transfer on death’ designation. Still other assets, like life insurance or retirement accounts, allow for a beneficiary or series of beneficiaries to be named. Without a beneficiary designation named for these kinds of financial assets a probate proceeding will be necessary to determine who the new owner is.
The ultimate weapon in avoiding probate, of course, is a trust; in estate planning the most common trust is a revocable or living trust. Assets placed in a trust during the grantor’s lifetime are not subject to probate at the grantor’s death, but instead pass according to the terms of the trust, either outright to the beneficiaries or in further trust for their benefit. If the trust is not funded during the grantor’s lifetime, or if other funding arrangements are not made, then probate will be needed to move assets to the trust when the grantor passes.
Trusts are most useful when other probate-avoidance strategies will not suffice, such as when the estate consists of a business or multiple real estate investments. Trusts are especially useful if the client owns real property outside of Florida. Without the trust, probate both in Florida and the other state may well be needed.
All this begs the question: when, if ever, should the client not avoid probate?
One of the key benefits of probate is that it settles who the creditors of the estate are and makes arrangements for paying them so that the beneficiaries of the estate don’t have to worry about them. In most cases, known or potential creditors have 90 days to file a claim against the estate once they’ve been notified of the probate. Without a probate proceeding, creditors have up to 2 years to file a lawsuit to recover debts owed by a decedent.
On a related note, probate may be necessary to get a ‘homestead order.’ This order determines that the decedent’s residence was his or her Florida homestead which means it is exempt from any and all creditors except a mortgage or lien holder, or the IRS. This includes Medicaid, so if the decedent spent significant time in a long-term care facility that Medicaid paid for, the agency cannot then force the decedent’s qualified heirs to sell the property to repay those benefits.
An experienced estate planning and estate administration attorney can help you determine whether and how to set up your estate to avoid probate and, when the time comes, can help your family navigate the necessary procedures to settle the estate when you pass. As always, talk to your professional advisors to determine your specific needs.