Anyone that has been through Florida probate before has probably asked the question posed for this discussion. In fact, it has been asked so much, there are plenty of resources out there telling you how to avoid probate. I hope to be an entertaining and straightforward resource about avoiding Florida probate.
First I will explain why people generally do not like probate. Then I will go through the advantages and disadvantages of two methods to avoid probate in Florida. I will also explain how each probate avoidance technique works.
The answer is get an inter vivos trust/revocable living trust – two names for the same thing.
Why do I Want to Avoid Florida Probate?
1) Probate takes time. It could be as short as a week after death (depending on the amount and type of assets), or it could go on for generations like in Charles Dickens’ Bleak House.
2) Probate can be a hassle. I written about the hassles before. You have to sign stuff and communicate with an attorney. Enough said?
3) Beneficiaries get paid at the end of probate. Beneficiaries usually think they get their payday on the day you die, not so if you have to go through probate. Creditors get paid first, then beneficiaries. In probate, you have to give creditors a chance to find you, that is why it takes so many months to get a beneficiary distribution.
How do I avoid probate in Florida?
1) Joint Ownership of Assets, Pay-on-Death Accounts, and Beneficiary Designations
It is common for people to hold their assets jointly with a spouse. Joint marital assets such as real estate and bank accounts pass automatically without the need for probate or a trust. You show the banker the death certificate, you are the sole owner of the money. You file a continuous marriage affidavit, you can insure title when you sell your marital home after your spouse dies. Basic. Painless.
The problems with joint ownership and beneficiary designations are lack of estate tax avoidance, inflexibility of distribution to beneficiaries, and exposure to creditors. Unless you are married and have joint ownership, your share of the joint asset is exposed to creditors. Additionally, a joint owner might be able to mortgage your share of the asset. I would not recommend joint ownership with certain children for this reason alone. Joint ownership of a house will cause the occupant to lose their homestead tax exemption. Also, you will not be able to utilize estate tax avoidance techniques such as creating a credit shelter trust. Last, it is much more difficult to distribute an equal amount of assets to your beneficiaries through joint ownership and beneficiary designations.
2) The Revocable Living Trust
The inter vivos trust or revocable living trust is the best way to alleviate probate and problems avoiding probate with joint ownership and beneficiary designations.
“But you’ve said a trust doesn’t always avoid probate in Florida.” True, a creditor can open a probate estate in Florida – it just does not happen that often. You are paying your bills right? If you are looking at a Florida trust for creditor or asset protection, then a trust is step one in seeking asset protection – you need more layers from business entities and other techniques to get creditor protection.
Trust will allow you to do pretty much whatever you want with your money after you pass away. You have maximum flexibility regarding when your trust distributes money to your beneficiaries and how much money your trust distributes to them. You are also able to create special trusts if you have beneficiaries with substance abuse or mental issues.
Trusts are great when you have non-liquid assets such as commercial property or closely held business interests (think LLC or s-corporation). In probate, the personal representative will have the sell your business interests, which will usually be at a loss because it will be a “fire sale.” After probate, your beneficiaries might become joint owners of commercial property. Usually, one beneficiary will foot the bill for expenses and the other beneficiaries only want the benefit of the property. Trusts are a great idea for non-liquid assets.
Next, I will explain the mechanics of how a trusts allows you to avoid probate. Think of the trust as a separate person from you. A trust is a written document that is an asset management tool. You then transfer your assets into a trust much like you transfer your assets in a regular sale with a third-party – you will sign a document such as a deed or wire transfer that transfers the asset, on paper, into the trust. The trust now owns the property and the trustee is considered the legal owner of the trust property or corpus. The trustee owns the property to the benefit of the beneficiaries. In a revocable living trust, you will be the initial trustee and beneficiary, and then you can name future trustees on your incapacity or death, and you can name future beneficiaries upon your death. When you pass away, the new trustee takes over and distributes property to your beneficiaries according to your directions. That’s it. That is how a trust avoids probate.
“Avoid probate! That all sounds great. What’s the catch?” One problem with a trust will be the cost and complication. A well written trust under Florida law that includes tax avoidance provisions will probably be quadruple the length of a normal will. When you use a will, it is easy. You just going handling your assets like you normally do. With a trust you have to make sure you are titling your assets the correct way and you have a lot to read to understand the document. If you do not put your assets into the trust, then you will not avoid probate. You will generally need to consult your estate planning attorney after any asset transaction (you should be doing this anyways). The trust administration costs are more than having just a will. If it is too hard for you to have you assets in a trust, then you can always revoke the trust.
The negatives of a trust can be boiled down this way: do you want to deal with the costs and hassles of managing your own assets through a trust or do you want your beneficiaries to deal with your assets during probate?
Not many people come out of the probate experience wanting to do it again. I mostly hear it is a pain in the rear. If you have bank accounts and an IRA with one adult child, then you can probably get away with estate planning through beneficiary designations and joint accounts. If you have some net worth, non-liquid assets, or creative ideas on how your assets will be distributed, then a trust will work for you.
Good luck, happy planning, and call me if you need assistance with estate planning in Jacksonville, Florida. If you found this article to be helpful, please share it using the buttons below.