Probate is the legal process to ensure that all assets owned by an individual (and with no beneficiary designation) are transferred in accordance with a will or by law. Florida law contains detailed instructions for the handling of the probate of an estate. Once the personal representative is appointed then he or she is responsible for gathering all the assets and filing an inventory with the court. Taxes and creditors must be paid, and the remaining assets are distributed in accordance with the will or by law. A full accounting must be rendered to the residuary beneficiaries and the court unless it is waived by all interested parties.
The probate process can be as short as 3 months and as long as several years, depending on the type of assets, litigation issues in the estate, tax matters and other factors. Most often, though, non-litigated smaller probates typically take between 6 months to a year or year and a half.
2. How can I avoid probate?
There are a number of techniques which can be used to avoid the probate process. Some of these techniques may have significant potential problems. Here are a few of the techniques:
Use jointly-owned property with rights of survivorship. The probate process is avoided until there are no more joint owners surviving. The property is then exposed to the probate process. In the situation where your gross estate is in excess of the available unified credit the use of jointly-owned property may cause federal estate tax problems. Because of the “dangers” discussed in Section 3 above use of joint property might be the least advantageous way to avoid probate.
Use a Revocable Trust. Property which is titled in the name of the trustee is not exposed to the probate process. See other questions and answers which discuss revocable trusts in more detail. Note that a revocable trust only avoids probate for those assets titled in the name of the trust. Assets that remain in your individual name may still require a probate proceeding.
Name beneficiaries and provide for contingent beneficiaries for all life insurance policies and retirement plans, including IRAs. Life insurance policies and retirement plans all have provisions for naming beneficiaries when the insured or retirement plan owner dies. If the named beneficiary predeceases the insured or retirement plan owner, then the beneficiary usually becomes the probate estate of the insured or retirement plan owner. It is important to provide for contingent beneficiaries in all such situations.
Use “in trust for” or “pay on death” designations for bank accounts and stocks. Many assets can be titled in your name but with a designated beneficiary at your death. This avoids many of the problems associated with joint ownership but also avoids probate. A typical designation would read “John Jones in trust for Mary Able” or “John Jones I/T/F Mary Able.”
3. What is a Revocable (“Living”) Trust and how does it avoid probate?
A Revocable (“Living”) Trust is a document created by you to provide for management of your assets during your lifetime and you can designate to whom your assets will be distributed at your death. You can amend or revoke this document at any time as long as you are not incapacitated. If you are the initial trustee, then the document will name a successor trustee to administer the trust upon your death or incapacity.
Upon your death the successor trustee is responsible for paying all claims and taxes and then distributing the assets in accordance with your instructions contained in the trust agreement. This avoids the costs, time and necessity of going through the probate procedures.
Ownership of assets must be formally transferred to the trust before your death to get the maximum benefit from the trust. If assets are not properly transferred to the trust, then the assets may be subject to probate. However, certain assets should not be transferred to a trust because income tax problems may result.
4. Who should be the beneficiaries of my retirement plan?
Careful planning in naming the beneficiaries of your plan is important. Estate tax and income tax impact of the designations must be considered. Funds contributed to the plan by an employer have been previously excluded from income taxation. Upon death your vested balance in a plan is included in your taxable estate. Your beneficiary will also be subject to income tax on the benefits. Some death benefits are excluded from the income tax and you may also receive a credit for estate taxes paid on the retirement plan assets. Only a surviving spouse may rollover the distribution to his or her own IRA which allows the surviving spouse to defer paying income tax on the distribution until he or she begins withdrawals from the rollover IRA. Since taxation in this area is very complex proper evaluation is imperative if assets in a plan are significant.