Written by: Attorney Chuck P. Hoskin
The primary purpose of probate is to create a record transfer or to transfer probate assets. Probate assets are assets that are titled just in the decedent’s name. Titled assets are primarily real estate, motor vehicles, and bank accounts. Occasionally a personal representative will be required in order to settle an insurance claim or to pursue a wrongful death action. But for the purposes of estate planning, assets can be structured to avoid probate and will therefore not be controlled by the will of the deceased.
The simplest and most efficient form of estate planning is joint ownership of property and assets titled in joint name with rights of survivorship. This may be the case for bank accounts, brokerage accounts, certificates of deposits, and real property. On the death of the first joint owner, the property passes to the survivor by operation of law without the necessity of probate or the actual transfer of any asset. These assets are not controlled by the Will and are not subject to probate.
Bank accounts may be established either as joint accounts, in which case generally the survivor becomes the owner of the funds, and the funds are not probate assets controlled by a Will. There has been much litigation in Florida regarding ownership of joint accounts on the death of one of the account owners and whether the account was a “convenience” account, or a gift. Another method to avoid probate with financial accounts is to designate a beneficiary of the account to be paid on death. If a beneficiary is designated, then the funds in the account are paid to the beneficiary and are not part of the probate estate.
Probate can be avoided for real property by executing life estate or an enhanced life estate deeds. On the death of the life tenant, title passes to the remainderman outside of probate by virtue of the deed. A distinction must be made between homestead real property and other real property owned by the decedent.
There are many advantages when the homestead property is owned in joint name by spouses. There is little advantage to place the homestead property into a trust or execute a life estate deed while both are still alive and competent. Typically, I recommend that the homestead property remain titled in joint name until the death or incapacity of one of the owners. At that point, I recommend that the survivor consider transferring the homestead property to a revocable living trust or execute an enhanced life estate deed. The surviving owner is still entitled to claim the property tax homestead exemption for the property in the trust and the property is still exempt from the claims of creditors. Although it may not be possible to avoid probate completely, if the homestead property is titled in the name of the trustee, in many instances the trustee can manage or transfer the property without involving the probate court.
The concept of homestead in the estate context is complicated. Some lifetime transfers and death transfers may be invalid because of provisions of the Florida Constitution. Therefore, before attempting any transfer of homestead property, an experienced real estate or probate attorney should be consulted.
Other assets which will not be controlled by a Will are retirement plans, such as an IRA or a 401k. IRA plan documents permit designation of a primary and an alternate beneficiary or beneficiaries. On the death of the owner of the IRA, the administrator of the plan will transfer the balance to the beneficiaries designated in the plan documents that is on file with the company. This payment is made directly upon notification of death, is not controlled by a Will, and not part of the probate estate. Exceptions are if the estate is designated as the beneficiary of the plan, or if the plan participant does not designate a beneficiary, or if all of the beneficiaries are deceased. In those instances, the plan administrator will pay the proceeds to the estate and the proceeds will be controlled by the Will. Therefore, it is important that beneficiary designations be reviewed periodically and kept up to date.
The same is true for life insurance. The life insurance company will pay the policy proceeds to the beneficiary or beneficiaries designated in the policy documents on file with the company upon the death of the insured. Typically, no probate is necessary to obtain payment of the life insurance proceeds.
The advantage of beneficiary designations is that it avoids probate, payment is made to the beneficiaries promptly, and the proceeds are not subject to the claims of creditors of the estate.
The Will controls what are called probate assets. For a married couple, most of their assets are in joint name or have beneficiary designations and on the death of the first spouse, little needs to be done as far as probate. However, since we do not know which spouse will die first, or whether both might die in a common disaster, each spouse should have a Will designating the other as the beneficiary of their estate with an alternate or contingent beneficiary in the event the primary beneficiary dies first, or they die in a common disaster.
This is a very general and brief overview of how joint ownership, beneficiary designations, life estate deeds, Wills, trusts, and the Florida concept of homestead in the probate and estate context work together. However, specific details of structuring asset ownership and designations, Wills, trusts, and family structure should be carefully considered, planed, and drafted on a case-by-case basis with an experienced estate planning, probate, and real estate attorney.
Please contact us if you would like to meet with one of our estate planning, trust, & probate attorneys to learn about the services we offer to help you and your family navigate the processes of probate, Wills, beneficiaries, and more.