What is Probate and Why do I need a Lawyer?
Probate is a strange word and does not given a modern-day reader much in the way of clues as to what it means. It is helpful to know that the word is derived from the Latin word “probatum,” which means “a thing proved.”
Probate originally meant the judicial process of proving that a decedent’s Last Will & Testament was real. Today, it still means that, but it encompasses much more than merely proving a Will is valid. Probate is an “in rem” judicial process, which means the court has jurisdiction over the property. Accordingly, probate is conducted in the state and county in which the decedent died (for residents of the State of Florida) or in the county in which the decedent owned real property (for non-residents of the State of Florida).
Probate is the court-supervised process of identifying and gathering the assets of a decedent, paying the decedent’s debts and distributing the balance to the decedent’s beneficiaries. In Florida, there are two primary forms of probate: formal administration and summary administration.
Chapter 733 of the Florida Statutes is titled “Administration of Estates” and it governs probate administration. In general, “formal administration” is required when the decedent has been dead for two years or less and when the value of the probate estate exceeds $75,000. Remember that the value of the probate estate is not the same as the value of the gross estate. A decedent’s gross estate consists of everything in which the decedent had an ownership interest, regardless of the form of property and regardless of where it is located. It is a term borrowed from the Internal Revenue Code.
The probate estate consists of those assets that were owned by the decedent and the decedent alone. For example, a sole-named bank account, a retirement account with no named beneficiary, a house in the decedent’s name with another person as tenants in common. Jointly-owned property does not pass through probate and neither does property with a named beneficiary. Assets held in a revocable or living trust do not pass through probate. So, a person could have a $5,000,000 gross estate and have no probate estate, a small probate estate or a probate estate of the same size as the gross estate. It simply depends on how the decedent’s assets were owned at the time of his/her death.
The formal probate process involves the application by a qualified fiduciary to be appointed personal representative (some states use the term “executor”). That person may have to post a bond or the court may require a restricted depository in lieu of a bond. A restricted depository is a bank account from which no withdrawals can be made without court order. Both the bond and the restricted depository are intended to protect beneficiaries from maladministration, whether intentional or accidental. The duties and powers of the personal representative are set forth in great detail in the statutes, as are formulas for compensation for the personal representative and his/her attorney. Creditors must be notified and given an opportunity to present their claims to the personal representative. Once the assets have been marshaled and the creditors have been satisfied, then the personal representative must account to the beneficiaries for the period of administration and distribute the assets to them. Upon successful completion of administration, the personal representative is discharged from any further duties and liabilities.
The formal probate process can take anywhere from 4-6 months to many years, depending on the nature and complexity of the case and whether litigation is involved.
Chapter 735 of the Florida Statutes is titled “Small Estates” and it governs two abbreviated forms of probate: summary administration and disposition of personal property without administration.
According to Fla. Stat. §735.201, summary administration may be had in the administration of either a resident or non-resident decedent’s estate, when it appears:
in a testate estate (one where the decedent had a will), the will does not direct administration;
the value of the entire probate estate in Florida, less the value of exempt property, does not exceed $75,000 OR the decedent has been dead for more than 2 years.
If a decedent dies with $35,000 in assets subject to probate, then summary administration can be utilized because the size of the estate is small.
If a decedent dies with $100,000 in assets subject to probate and has been dead for 4 years, then summary administration can be used because of the length of time that has passed since the decedent’s death.
The reason for the 2-year rule is that there is a statute that limits claims against an estate to two years. Fla. Stat. §733.710 states that: “notwithstanding any other provision of the code, 2 years after the death of a person, neither the decedent’s estate, the personal representative, if any, nor the beneficiary shall be liable for any claim or cause of action against the decedent, whether or not letters of administration have been issued, except as provided in this section.” (The exceptions are for creditors who timely filed claims under Fla. Stat. §733.705 and purchase money security interests, e.g. mortgage). This “limitation on claims against estates” statute is called a statute of repose. It provides a date upon which (2 years after date of death) the creditor’s action no longer exists, whether it has accrued by that date or not, so it entirely cuts off a creditor’s right of action. It is a stricter deadline than a statute of limitations because it may not be tolled by fraud, discovery of claim, etc.
The other abbreviated form of probate administration is called “disposition of personal property without administration.” This type of probate is technically not administration at all. It involves the filing of one pleading (this may be done by information affidavit of letter) on which the court will issue an order. It is available only if the decedent had only exempt personal property (for example, a personal use automobile) and non-exempt property that does not exceed in value the sum of preferred funeral expenses ($6,000 max) and reasonable and necessary medical and hospital expenses of the last 60 days of illness.
The Florida Probate Code is found in Florida Statutes Chapters 731 through 735.
DO ALL ESTATES REQUIRE PROBATE?
No, not all estates require probate. Probate administration only applies to probate assets, which begs the question… what are probate assets? Probate assets are the assets that were owned by the decedent in his sole name at the time of death. If the asset had a joint tenant with a survivorship interest or a designated beneficiary (pay on death account, designated beneficiary on life insurance or retirement account), then the asset is not subject to probate administration.
WHY IS PROBATE NECESSARY FOR CERTAIN ASSETS?
If the decedent is the only person with an ownership interest in an asset, then upon his death there is nobody who can dispose of those assets. For example, let’s assume decedent has a checking account with $50,000 in it and he is the only owner and the account does not pay on death to anybody. Upon decedent’s death, who has the legal authority to sign the checks? The answer is nobody. (Incidentally, a power of attorney immediately ceases to become effective upon the death of the person who gave the power.) The probate process exists to deal with these sole-named assets, whether they are bank accounts, stocks, real estate, etc.
WHAT IF THE DECEDENT DID NOT HAVE ANY PROBATE ASSETS?
If the decedent died with no assets in his sole name, then probate is not necessary and the Will has no effect on the distribution of a decedent’s estate. This is often something that a decedent does not understand. For example, a father might make a will leaving his entire estate in equal shares to his three children but then add the child who lives nearby to the bank accounts “for convenience purposes.” Usually, this means that the account is made “joint” with that child and passes directly to that child outside of probate, thereby inadvertently cutting out the other two children who the father clearly intended to benefit.
WHAT DO “TESTATE” AND “INTESTATE” MEAN?
In Florida, the person who makes a Last Will & Testament is called a “testator” or “testatrix.” The term “testate” means that a decedent died with a valid Last Will & Testament. In Florida, the requirements for execution of a Will are set forth in Florida Statute §732.502. Every Will must be in writing. The testator must sign the Will at the end and the Will must be witnessed by two (2) witnesses who must sign the Will in the presence of the Testator and in the presence of each other. These are the minimum requirements that must be complied with for a Will to be valid in the State of Florida. If these formalities are not strictly followed, then the Will is invalid.
The term “intestate” means that a decedent died without a valid Last Will & Testament, in which case the State of Florida has essentially made a Will for the decedent by determining the rightful beneficiaries. The laws of intestate succession in Florida can be found at Florida Statute §732.102 and §732.103.
WHO IS IN CHARGE OF A PROBATE ESTATE?
In Florida, a circuit court judge presides over probate proceedings. The judge will appoint a Personal Representative (often referred to as “executor” in other states), rule on the validity of a decedent’s Will, determine the rightful beneficiaries (in the event the decedent was intestate), supervise the payment of valid creditor claims and the ultimate distribution to the beneficiaries.
WHAT ARE LETTERS OF ADMINISTRATION?
Once the judge has determined that a person or an institution (bank, trust company) is qualified to serve as Personal Representative of a decedent’s estate, then the judge will sign Letters of Administration, which is a document that gives the court-appointed personal representative the legal authority to administer the decedent’s probate estate. [Remember the example of the sole-named bank account from above? Now the personal representative stands in the shoes of the decedent and can go to the bank and close the account.]
WHO IS QUALIFIED TO SERVE AS PERSONAL REPRESENTATIVE?
Florida law provides that, subject to some limitations, “any person who is sui juris (meaning legally competent) and is a resident of Florida at the time of the death of the person whose estate is to be administered is qualified to act as personal representative in Florida.” Fla. Stat. §733.302 However, even if a person meets those requirements, he may be disqualified if he has been convicted of a felony, is mentally or physically unable to perform duties, or is under 18 years of age. Conversely, a non-resident may be qualified if that person is a legally adopted child or adoptive parent of the decedent, related by lineal consanguinity (blood) to the decedent, or the spouse of one someone who meets one of those two criteria. Fla. Stat. §733.304
DOES THE PERSONAL REPRESENTATIVE NEED AN ATTORNEY?
Yes, the personal representative should be represented by an attorney. Even seemingly simple probates or small estates can have complicated legal issues arise that will be unfamiliar to a non-attorney.
HOW ARE CREDITOR CLAIMS HANDLED?
The personal representative must serve a document called a Notice to Creditors on all known or reasonably ascertainable creditors. Additionally, the personal representative must publish the Notice to Creditors in a newspaper of local circulation for a certain length of time. Creditors have a certain amount of time after being served or the notice being published to file a claim in the probate proceeding. The personal representative then has a duty to handle the claims. If there is a legitimate basis for objecting to the creditor claim, then the personal representative may file an objection and the creditor will have to file an independent law suit in order to bring the claim. The legitimate debts of the decedent must be paid before making distributions to the beneficiaries of the estate. The personal representative must file a report with the court if there are any claims that are not being paid or disposed of properly. A personal representative is free to contact the creditors to negotiate the claims; however, the creditor has little incentive to do this if the estate has ample funds to satisfy the claim. Sometimes estates are insolvent and creditors must accept less than they are owed. Certain creditors take priority over other creditors. For example, funeral expenses take priority over credit card debt. A list of creditor claim priority can be found at Fla.Stat. §733.707.
WHAT IS A PROBATE INVENTORY?
A probate inventory is a list of the decedent’s probate assets which should reflect their values on the decedent’s date of death. The probate inventory is the starting point for an estate accounting.
Typically, when a person dies, the estate attorney needs documents and information pertaining to the decedent, his assets and his death. The executor needs to begin accumulating as much of the following information that is relevant to start probate:
The original will, codicils, trusts and amendments;
At least two death certificates without the cause of death;
Copies of bank statements for the month of death;
Copies of brokerage statements for the month of death, including any certificates of deposits;
Copies of any stock or bond certificates that the decedent may have held outside the brokerage account;
Copies of any general or limited partnership certificates or agreements;
Copies of mutual fund accounts;
Copies of deeds to real property, wherever situate;
Copies of mortgages, mortgage notes and related amortization schedules;
Copies of IRA, Keogh, pension and/or annuity plans and related account information;
Life insurance policies;
Copies of forms 1040s for the last two years of the decedent’s life;
Copies of Florida Intangible Tax Returns for the last two years of the decedent’s life;
Copies of any gift tax returns (Forms 709) which have been filed, if any;
Copies of any state income tax returns that may have been required to file for the last two years of the decedent’s life;
Copies of certificates of title for any automobiles owned;
List of all personal property owned including the estimated value;
List of collectibles valued in excess of $3,000 and any insurance riders;
Safe deposit box number(s), location and inventory of same;
Name, telephone number and address of decedent’s accountant;
List of all pending lawsuits whether plaintiff or defendant;
WHAT RIGHTS DO FAMILY MEMBERS HAVE IN A DECEDENT’S ESTATE?
Florida law protects the decedent’s surviving spouse from being disinherited. The surviving spouse has a right to receive, at a minimum, an elective share. Additionally, certain surviving children are protected against total disinheritance. This protected group includes minors and dependents. Generally, an adult child of decedent who is without any disability is not guaranteed any inheritance and may be excluded as a beneficiary from a decedent’s estate. Family Allowance, Elective Share and Homestead are all protected property rights that benefit a decedent’s surviving spouse and certain children.
WHAT IS A PRETERMITTED SPOUSE OR A PRETERMITTED CHILD?
If the decedent dies with a Will but made it before getting married or having children, the law in Florida presumes that the decedent would have intended to make a new Will that included the spouse and/or child and gives that individual the share he or she would have received if the decedent had died intestate. Fla. Stat. §732.301 (spouse) and §732.302 (child)
HOW LONG DOES PROBATE TAKE?
There is no easy answer to that question. Depending on the complexity (which has nothing to do with the size of the estate), it can take anywhere from six months to many years. In South Florida, where the courts are backlogged, the average is probably in the 6-18 month range.
WHAT HAPPENS IF THE DECEDENT HAD A REVOCABLE TRUST?
If the decedent had a revocable trust (sometimes referred to as a “living trust”), then the assets owned by that trust are controlled by the trustee. The trustee is to a trust what the personal representative is to a probate estate. They are both fiduciaries who owe a duty to the beneficiaries and who are accountable for their actions.
Ideally, if a decedent has gone to the time and expense of creating a revocable trust, then he should transfer assets to it during his lifetime. For example, a brokerage account with $500,000 in it should be registered to “John Doe, Trustee of the John Doe Trust.” If the decedent did this properly, then that asset is not subject to probate at the time of death and should be administered and distributed according to the terms of the trust.
However, sometimes the decedent creates a trust and never puts any assets into it. If the decedent also had a Will that essentially says “whatever I forgot to put in my trust I now devise to my trust” (commonly referred to as a “pour-over” clause), then the personal representative treats the decedent’s trust as the beneficiary of the probate estate. So the personal representative distributes the estate to the trustee and the trustee then administers or distributes the trust assets pursuant to the terms of the trust. An attorney drafting the revocable trust will almost always create a “pour-over” Will to go with it. Sometimes, however, the decedent will execute a new Will revoking the pour-over Will and not include any language about the trust. In that case, the trust will not receive the probate assets.
DO I HAVE TO REPORT ASSETS TO THE INTERNAL REVENUE SERVICE IF THEY ARE NOT SUBJECT TO PROBATE?
Currently, most people are not required to file a Federal Estate Tax Return because an individual’s gross estate needs to exceed $5,000,000 before one is due. People often mistakenly believe that only probate assets are required to be counted to determine whether a Federal Estate Tax Return is due, but that is incorrect. The term “gross estate” is defined by the Internal Revenue Code and includes all assets in which the decedent had an ownership interest, wherever situate.