I’ve written about this topic previously (see my post from March, 2012 – Top 5 Reasons to Avoid Probate) but I feel it needs to be addressed more in-depth because I have many clients that come to me with the same questions.
Most people tell me they are interested in avoiding probate, but do they really understand what a probate actually is? The probate process is a court process that happens when an individual dies with assets solely in their name. [pullquote_right] The probate process is a court process that happens when an individual dies with assets solely in their name. [/pullquote_right] Either their name is the only name on a bank account, or the only name on a piece of real estate – you get the picture.
If that happens, the only way for the person’s beneficiaries or heirs to inherit the property is for a probate to be opened in the county where the person died. A petition must be filed with the court identifying all the assets which are subject to the probate, and someone is usually appointed as the personal representative or executor of the estate.
That person identifies all the assets, identifies and notifies the creditors of the estate, and once all the creditors are notified and paid, the personal representative transfers the assets to the beneficiaries or heirs of the decedent. This process can take anywhere from 3 months to one year, depending on the complexity. And it can be an expensive process since attorneys can charge statutory fees of 3% of the value of the estate, plus costs. Thus, an estate valued at $100,000 can cost a minimum of $3,000 to probate (with additional costs between $500 to $1,000).
So how does one avoid probate?
Remember, only assets titled in an individual’s name are subject to probate. So, if you own assets jointly with someone (like a bank account), probate will usually be avoided on the death of the first joint owner, but not on the death of the second owner. Many times, clients come to me wanting to put their children on their bank accounts, or wanting to add their children to the deed to their home because they want to avoid probate.
[pullquote_left] One way to avoid probate: make bank accounts “Payable on death” – banks will not automatically do this for you. [/pullquote_left]This is not always a good idea for a couple of reasons. First, if your child has creditor issues or is goes through a divorce, their creditors/ex-spouse may try to come after their interest in the asset, and could very likely be successful. Second, if you are in a situation where you might need Medicaid benefits or VA benefits in the next three to five years, adding a child on title to your real estate will be considered a gift which could cause you to be penalized for a period of time.
Here are some other ways to avoid probate:
- Make bank accounts or other financial accounts “payable on death” or “P.O.D.” Banks will not automatically do this for you. You must go to the bank and tell them you want to make the account P.O.D. and they will have a form for you to sign. You will need the beneficiary’s name, address and social security number (and, depending on the bank, they may want additional information such as a date of birth).
- Make sure that your beneficiary designations on your life insurance, IRA’s, 401k’s or other retirement accounts are up-to-date (and do not list your “estate” as the beneficiary – otherwise, these accounts will be subject to probate).
- If you own real estate, consider doing an enhanced life estate deed. With an enhanced life estate deed, the property owner gives themselves a life estate in the property, but retains the right to sell, mortgage, rent or do whatever they want with the property. If they still own the property at their death, then the deed lists a remainder person (or someone who will inherit the property at the death of the life owner). At death, the remainder person records the death certificate of the original owner, and the property is re-titled in the name of the remainder person. One of the downsides to doing an enhanced life estate deed is that title companies will often require the signatures of the remainder persons if you later desire to change the remainder person to someone new, or you want to sell the property (even though there is language in the deed stating that is not required).
- Another way to avoid probate is to create a revocable living trust and fund it with your assets (i.e., change the title to the property from your name to the name of the trust). However, a revocable trust is not for everyone. It works best for those people who have minor children, or are in a second marriage and want their spouse to have use of the income with the remainder going to children from a first marriage after the surviving spouse’s death. A revocable trust is also useful if you have a disabled child or a beneficiary that cannot handle money and you wish to
control how the assets are distributed after your death.
For more information about Florida Probate, please contact the Estate Planning Offices of Law Ohall today