Category Archives: Financial Advice

What are the successor trustee’s responsibilities to beneficiaries?

By Attorney Truman Scarborough

 

In last month’s article we looked at how a trust can avoid the cost and delays of probate. When

someone dies, assets held just in the decedent’s name without beneficiaries are frozen. A

Will by itself cannot transfer property to the heirs. The person named in the Will to administer

the estate needs “Letters of Administration” from the Probate Court to access accounts.

Before distribution can be made to beneficiaries the Probate Court must be shown that all the

requirements of the Florida Statutes and Probate Rules have been met. By creating a trust and

transferring assets to the trust, probate can be avoided. When the creator of the trust dies, the

successor trustee has immediate control of the assets without going through the probate court.

In this article I would like to review some of the legal responsibilities the successor trustee

has to the beneficiaries of the trust. When someone must rely on the honesty and diligence of

someone else to protect his/her interest it creates a fiduciary relationship. Fiduciaries are held

to the very highest legal standards. Under the law, there are different levels of proof to show

misconduct. At one end of the spectrum is the proof needed to show “beyond a reasonable

doubt” that someone is guilty of a crime. At the other is the responsibility of a fiduciary to

affirmatively show he is protecting the beneficiaries’ interests.

 

If a fiduciary intentionally misused the property for personal gain, it could result in criminal

penalties. But even an unintended breach of fiduciary responsibilities may result in personal

liability for damages. A fiduciary can innocently breach his duty by not understanding the full

extent of these responsibilities.

 

A fiduciary duty exists in many relationships, including powers of attorney, probate estates, and

trusts. While the underlying fiduciary principles are similar, the dynamics can vary. In this article,

our discussion will be limited to several basic fiduciary responsibilities the successor trustee has

after the creator of the trust has died.

 

The Florida Trust Code has rules to prevent a successor trustee from neglecting his/her

responsibilities to the beneficiaries which include following the terms of the trust and protecting

trust assets. Without information beneficiaries have no way of knowing if the trustee is properly

administering the trust. Therefore, the Trust Code provides that beneficiaries have a right to

information about the trust administration. The Trustee must keep accurate records and provide

the beneficiaries with annual and final accountings. Merely failing to provide complete and

accurate information is a violation of the Trust Code.

 

The Florida Trust Code states that “a trustee shall administer the trust solely in the interests

of the beneficiaries”. The trustee must avoid conflicts of interest. He must not comingle trust

funds with his own funds. Nor should a trustee acquire assets from the trust (even at full value)

without court approval or consent of all the beneficiaries.

 

The Trustee cannot favor one beneficiary over other beneficiaries. This can be a particular

problem when the Trustee is also one of the beneficiaries. If the Trustee places his interests as

a beneficiary above the other beneficiaries, he breaches this fiduciary responsibility.

In next month’s article, we will look at what recourse beneficiaries have if the successor trustee

fails to properly administer the trust.

 

For further information on estate planning you may be interested in Attorney Truman

Scarborough’s Booklet on Estate Planning in Florida. It is available without charge

or obligation by calling (321) 267 – 4770. His office is located at 239 Harrison Street,

Titusville, Florida.

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How does a trust avoid probate?

By Attorney Truman Scarborough

 

When someone dies, assets held just in the decedent’s name without beneficiaries are frozen.

A Power of Attorney ends at death. Like an employer – employee relationship, when an

employer goes out of business there are no longer employees. A Will by itself cannot transfer

property to the heirs. The person named in the Will to administer the estate needs “Letters of

Administration” from the Probate Court to access accounts. Before distribution can be made to

beneficiaries the Probate Court must be shown that all the requirements of the Florida Statutes

and Probate Rules have been met. When everything runs smoothly, this process takes around

nine months.

 

In last month’s article we looked at how trusts evolved as means to avoid probate. The trust

used to avoid probate is a Living Trust or an Inter Vivos Revocable Trust. Inter Vivos means

during life as opposed to a Testamentary Trust in a will, which comes into being in probate.

Revocable means the trust can be amended or abolished.

A trust is a separate legal entity. At eighteen (18) years of age in Florida, individuals acquire

certain rights as natural legal entities, including the right to hold title to property, enter into

contracts, and bring law suits. As artificial legal entities, corporations and trusts enjoy these

same rights.

 

Although a separate legal entity, the IRS defines most Living Trusts as Grantor Trusts as long

as the creator of the Trust is still living. This means the creator of the trust continues to use

his/her social security number for income received by the trust and reports the income on a

regular 1040 tax return. After the creator dies, the Trust becomes a Non-Grantor Trust and a

tax identification number (EIN) will be required, for income can no longer be reported under the

decedent’s social security number. Instead of the 1040 Tax Return, a 1041 Fiduciary Return is

used. A Probate Estate must also have its own tax identification number and is required to file a

1041 Fiduciary Tax Return.

 

Like a corporation, a trust has a division of rights and responsibilities. Both have a creator(s);

with the corporation it is the incorporator(s), with the trust it is the Settlor(s), or Grantor(s). Each

has a person(s) with legal authority to act on behalf of the entity; with a corporation it is the

officers and directors, with a trust it is the trustee. Lastly there are those who have the beneficial

rights; with a corporation it is the shareholder(s), with a trust it is the beneficiaries. However,

the same person could be the incorporator, sole shareholder and president of a corporation.

With the Living Trust, the same person could be: (1) Settlor – creator of the Trust with the

right to cancel and change; (2) Beneficiary – person with the right to enjoy and use; and (3)

Trustee – business manager. Generally a trust provides for a special trustee to take over in

the event that the creator(s) no longer have the capacity to manage their affairs, avoiding the

need for guardianship. At the demise of the settlor(s), the successor trustee takes over and has

immediate control of the trust assets. Without seeking court approval, he/she has the authority

to pay bills and make distribution to the beneficiaries as set forth in the trust.

 

For further information on estate planning you may be interested in Attorney Truman

Scarborough’s Booklet on Estate Planning in Florida. It is available without charge

or obligation by calling (321) 267 – 4770. His office is located at 239 Harrison Street,

Titusville, Florida.

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To avoid probate should you have a trust?

By Attorney Truman Scarborough

 

In last month’s Senior Scene we looked at some of the problems that can be encountered when

a child’s name is added to property to avoid probate. Another way to avoid probate is with a

revocable living trust.

 

Why do we need probate? When someone dies, assets just in the decedent’s name are frozen.

No one is empowered to sign the deceased person’s name on checks, deeds, etc. Nor does a

Will by itself transfer property to the heirs. The person named in the Will to administer the estate

(Personal Representative) will need “Letters of Administration” from the Probate Court to access

accounts. A Power of Attorney does not help. It is effective only while the creator is living. It

is similar to the employer – employee relationship where if the employer goes out of business

there are no employees.

 

In probate the court creates a legal entity (like a corporation) called the “Probate Estate” to

take control of the decedent’s assets. Through the probate process the decedent’s assets are

collected, the decedent’s bills are paid, and finally the assets are transferred to the rightful

beneficiaries. Step-by-step the Probate Court must be shown that everything is proceeding

as required by Florida Statutes and the rules of probate procedure. The word ‘Probate’

essentially means “to prove.” Is the Will valid? Is the Personal Representative qualified? Who

are the rightful heirs? Have debts, taxes, and estate expenses been paid? Has the Personal

Representative accounted for the property correctly? Finally, have the heirs received their

rightful share of the estate? You may know that there are not any problems with contesting

heirs, bills, or taxes to be paid, but the court does not.

 

Probate process takes time (eight to nine months if all runs well) and does incur expenses.

There are court filing fees, cost of publishing notice in the newspaper, and attorney’s fees.

Florida Probate Rules require that every Personal Representative be represented by an

attorney unless he/she is the sole interested person. Fee schedules are set forth in the Florida

Statutes. With an estate between $100,000 and $1 million, the suggested fees for the attorney

as well as the Personal Representative are 3% of the gross assets.

 

Trusts go back to the Middle Ages, but their widespread use to avoid probate for the average

person is a fairly recent development. Approximately fifty (50) years ago, Norman F. Dacey (a

non-lawyer) in his book, How to Avoid Probate, argued that probate could be avoided with a

revocable trust. There are various kinds of trusts that are used for different purposes. The one

suggested by Mr. Dacey is called an Inter Vivos Revocable Trust. “Inter Vivos” means that you

create and place your assets in it while you are living, unlike a “testamentary trust” which come

into being after you are gone through the probate process. It is ‘revocable’ meaning that you can

revoke and amend the trust if and when you please.

 

With a trust the successor trustee you name has immediate control of your assets after you are

gone. It is like a corporation. If the president dies, his successor immediately takes control. No

court authorization is required. In next month’s Senior Scene we will look at how the Revocable

Living Trust works in more detail.

 

For further information on estate planning you may be interested in Attorney Truman

Scarborough’s Booklet on Estate Planning in Florida. It is available without charge or obligation

by calling (321) 267 – 4770. His office is located at 239 Harrison Street, Titusville, Florida.

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Can adding children’s names to property create problems?

By Attorney Truman Scarborough

 

Last month we looked at issues that should be considered before making outright gifts to

children. Problems can also be encountered when adding children’s names to property, which

will be the subject of this article.

 

One of the primary reasons children’s names are placed on accounts or deeds is to avoid

probate. Property just in the decedent’s name has to be probated for no one can sign the

decedent’s name on a check, deed, etc. A Power of Attorney does not help. It is effective only

while the creator is living. It is similar to the employer – employee relationship where if the

employer goes out of business there will be no employees.

 

Assets titled just in the decedent’s name will sit there until probated. Money in a bank account

just in the decedent’s name cannot be touched by the Personal Representative (executor)

until he/she is appointed by the court. A legal entity (the probate estate) is created by the

probate court to control the decedent’s property. Once probate is opened, the estate must be

administered according to law under court supervision.

 

If everything runs smoothly, probate generally takes eight to nine months from the time

pleadings are first filed with the court. Florida Probate Rules require that every Personal

Representative (executor) be represented by an attorney unless he/she is the sole

interested person. Fee schedules are set forth in the Florida Statutes. With an estate

between $100,000 and $1 million, the suggested fees for the attorney as well as the

Personal Representative are 3% of the gross assets.

 

This may lead to the question: “Can probate be avoided by adding children’s names

to property?” Yes, jointly owned property with survivorship rights goes to the survivor.

Unfortunately, this simple solution can create other problems: First, with joint bank accounts,

the child has the ability to use the funds as he desires. Second, with real estate there is a loss

of control. Any further transfer will require the child’s signature on the deed. For example, a

widow could add one of several children’s names on the deed to her home. But if later the

mother wanted the home go to all of her children the child could refuse to sign, knowing the

home would be just hers on her mother’s demise. Third, the property will be exposed to the

child’s creditors when held jointly with the child. Fourth, only one-half of the property will receive

a “stepped-up basis.” In determining the capital gain on appreciated property, the basis (the

original purchase) is subtracted from the sales price. When property is inherited at death, the

date of death value becomes the basis. This reduces the capital gains tax when the property

is sold. Fifth, adding a child’s name on the title to the home may delay the parent’s receiving

Medicaid benefits. Sixth, with the home the parent may lose some of his/her homestead

property tax exemption. Seventh, if the child dies first, the property will again be part of the

parent’s probate estate.

 

With some types of assets, you can establish a Payment on Death (POD) or Transfer on Death

(TOD) account or name beneficiaries to avoid probate and not encounter these problems.

Another option is the Revocable Living Trust which offers greater flexibility and provides for

incapacity.

 

For further information on your estate planning options you may be interested in Attorney

Truman Scarborough’s Booklet on Estate Planning in Florida. It is available without charge or

obligation by calling (321) 267 – 4770. His office is located at 239 Harrison Street, Titusville,

Florida.

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Are there legal issues to consider before making lifetime gifts to children?

By Attorney Truman Scarborough

 

From time to time there may be a need to financially help adult children. Although the child does

not have to pay income taxes on the gift, there are legal issues that should be considered in

making a gift. In this article I will look at three of these:

STEPPED-UP BASIS FOR CAPITAL GAINS TAX: Gifting of appreciated real estate or

securities can result in your child paying higher capital gains taxes. When the property is sold,

the appreciation in value is reported on the 1040 income tax return as capital gain. The gain

is calculated by subtracting the “basis” from the sales price. The purchase price plus closing

costs and costs of improvements is your basis in the property. With a gift, your child takes your

basis in the property. If the child receives property at your demise, he/she obtains a “stepped-up

basis”, which is the value of the property at time of death.

 

For example, let’s say your basis in the property is $50,000, but it is worth $80,000 when you

die. If you gave it to your children during your life, they would have your basis of $50,000. But if

it went to your children at your death, they would receive a new (stepped-up) basis of $80,000.

That is a difference of $30,000 subject to capital gains tax.

 

LOOK-BACK PERIOD FOR MEDICAID: Long term nursing home expenses are covered by

Medicaid. Unlike Medicare, Medicaid is only available to those persons who meet an income

and asset test. Gifts within a “look-back period” can disqualify you for Medicaid benefits for a

period of time. Florida is moving from a three year (36 months) to a five year (60 months) “look-
back period”. Beginning in January 2013, every month the look back period has been extended

by one additional month.

 

GIFT TAX RETURN: Currently you can pass $5,340,000 free of both gift and estate taxes. For

a couple that is $10,680,000. To the extent you use a portion of this exemption with gifts during

your life, it is not available at your demise. In addition, you may give $14,000 each year (“annual

gift tax exclusion”) to any number of people and that does not count against the $5,340,000.

Although no estate taxes are due until total gifts exceed $5,340,000, a 709 gift tax return is

required in any year you exceed the $14,000 annual exclusion per person. The gift can be

anything, including real estate. Forbes Magazine reported IRS believes that sixty to ninety

percent of taxpayers fail to file the required 709 gift tax return and is increasing its investigations

of unreported gifts.

 

You and your spouse can each give $14,000 to a child, for a total of $28,000 year. Nonetheless,

you are required to file a 709 gift tax return when you and your spouse’s combined gifts to one

individual exceed $14,000 in any given year.

 

Sometimes, these issues can get confused. We are asked: Can I give each of my children

$14,000 to qualify for Medicaid? No, the $14,000 applies to estate taxes; Medicaid has a totally

different set of rules.

 

In this article we have only considered outright gifts to children; there are many other issues

to be considered when adding their names to your property. This will be the subject of our

discussion in next month’s Senior Scene.

 

Attorney Truman Scarborough’s Booklet on Estate Planning in Florida is available

without charge or obligation by calling (321) 267-4770. Truman Scarborough’s office is

located at 239 Harrison Street, in Titusville.

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Will owning out of state property create problems in settling an estate?

By: Attorney Truman Scarborough

 

In my articles for Senior Scene, I have tried to address problems we encounter in estate

planning. For this discussion, I will look at owning property in another state. Whether or not we

have problems can depend on several factors including: the type of asset; how title to the asset

is held; the laws of the state where the asset is located; and if that state has its own estate or

inheritance tax: The two problems we most commonly encounter with out of state property are:

1] Multiple probates and 2] State Inheritance and Estate Taxes.

 

Multiple Probates: Probate can be a lengthy expensive process. If there is property in another

state titled just in the decedent’s name, it probably will require a domiciliary probate in Florida

and an ancillary probate in the state where the property is located. Each state has exclusive

control over real property within its borders, and the Florida Probate Court does not have the

authority to transfer title to property in another state. Ancillary probate procedure varies from

state to state and entails hiring an attorney in that state to handle the ancillary administration.

Assets other than real estate may or may not require ancillary administration depending on the

laws of the state.

 

The problem of having to probate in two states can be eliminated by completely avoiding

probate. This can be accomplished by holding title to the property in two or more names with

the right of survivorship. A payment on death, transfer on death or beneficiary designation

can accomplish this with some types of property. There are various risks with these methods

including: 1] if the joint owner experiences financial or marital problems, it can affect the

property and 2] if the other person dies first, the property will again be part of the probate estate.

A preferred way to avoid probate is to have property titled in a revocable trust.

 

State Inheritance and Estate Taxes: Even if we avoid ancillary probate, there can be estate

and inheritance tax issues in the state where the property is located. Florida does not have an

estate or an inheritance tax, so these concepts may not be familiar to Floridians. But property

owned by a Floridian in some states will be subject to these taxes. Currently eighteen states

and the District of Columbia have estate taxes that are in addition to the Federal Estate Tax.

There are also seven states with an inheritance tax. The difference is that an estate tax is paid

by the estate, while an inheritance tax is paid by the person who inherits the property.

State inheritance and estate tax laws can contain unpleasant surprises. Unlike the Federal

Estate Tax where the first $5,340,000 passes free of taxes, these state taxes are sometimes

imposed on the very first dollar of the property value. For example, Pennsylvania’s Inheritance

Tax is applied to the full value of any real or tangible property in the state. The rate is dependent

upon who receives the property. With a sibling the rate is 12%. If a Floridian leaves his brother

property in Pennsylvania worth $10,000, the inheritance tax would be $1,200. Your Florida

attorney can work with an attorney in the state where the assets are located to determine

whether these taxes can be avoided.

 

Attorney Truman Scarborough’s Booklet on Estate Planning in Florida is available

without charge or obligation by calling (321) 267-4770. Truman Scarborough’s office is

located at 239 Harrison Street, in Titusville.

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How long does it take to settle an Estate?

By Attorney Truman Scarborough

 

The length of time it takes to settle an estate will depend on: 1] the overall complexity of the

estate; 2] the competency and resolve of the administrator; 3] whether the decedent’s records

are organized and accessible; 4] whether the estate has to be probated; 5] the nature and

extent of creditors’ claims against the decedent; 6] any difficulties with the decedent’s taxes 7]

the type of assets (real estate having the potential of presenting more problems); 8] whether

the heirs have their own financial, marital, or substance abuse problems 9] whether there is

underlying family hostility; and 10] whether someone decides to challenge provisions in the Will

or Trust.

 

There are many reasons to bring the administration of an estate to a conclusion as soon as

possible. The obvious reasons are to let the beneficiaries enjoy their inheritances and limit

expenses, which tend to go up proportionally with the time involved.

 

Keeping an estate open also allows unforeseen events to come into play that can further

complicate and delay the settlement of an estate. For example, if a beneficiary dies before

receiving his/her share, a probate estate must be opened to receive the deceased beneficiary’s

share. If the beneficiary had died before the decedent whose estate is being administered,

the inheritance would go to the next in line under terms of the Will or Trust. However, when a

beneficiary survives the decedent, his/her interest is vested (locked in) and must be distributed

to that individual. But the law does not allow a deceased individual to inherit property. A probate

estate must be opened for the deceased beneficiary to receive the gift. This will not only delay

the closing of the estate, but can needlessly require the opening of a probate estate for the

deceased beneficiary.

 

One way to shorten the time to settle an estate is with a Revocable Trust. When a person dies

no one is empowered to sign his/her name and property just in his/her name is frozen. A Will by

itself does not transfer property but works through the probate process. Nothing can happen

until the Personal Representative (executor) is appointed by the court, which may take several

months. Beneficiaries generally do not receive their inheritance until the end of the probate

process, approximately eight months from the time pleadings are first filed with the court.

With a Trust, the successor trustee you name has immediate control of your assets after

you have passed away. It is like a corporation, where if the president dies, his successor

immediately takes control. No court authorization is required.

 

While there can always be issues with: the legitimacy of the will or trust; creditors’ claims; taxes;

accountings for the beneficiaries; and distribution of assets, we want the process to occur

as promptly and smoothly as possible. The death of a loved one can be very difficult. During

these hard times, we should not have to encounter difficulties that could have been avoided

with better planning. By giving careful consideration to possible problems and available estate

planning options, the burden of settling an estate can be reduced on those we love. Perhaps

one of the kindest gifts we can leave our heirs is a prompt smooth transition, allowing them to

move on with their lives.

 

For further information on your estate planning options you may be interested in

Attorney Truman Scarborough’s Booklet on Estate Planning in Florida. It is available

without charge or obligation by calling (321) 267 – 4770. His office is located at 239

Harrison Street, Titusville, Florida.

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Who has to pay the bills when someone dies?

By Attorney Truman Scarborough

 

At a person’s death, no one else is required to pay the decedent’s bills. But if you are a

beneficiary of the estate, your share of the inheritance may be used to pay the bills. There are

many laws on creditors’ rights.

 

Certain assets are exempt from creditors’ claims, including $20,000 in furniture, furnishings,

and appliances, plus two motor vehicles. Life insurance proceeds, retirement plans and IRAs

paid directly to beneficiaries are not subject to the claims of the decedent’s creditors. However,

if there are no living beneficiaries the proceeds will be paid to the probate estate where it

becomes accessible to creditors.

 

If the home is titled just in the decedent’s name and is going to relatives, the probate court can

enter an order determining that it is “protected homestead” passing to the heir(s) free of most

creditors’ claims. It is however subject to: mortgages on the property, IRS liens, liens for work

on the home, and real property taxes.

 

If less than two years have passed since the date of death and the estate assets are over

$75,000 Formal Probate Administration is required. With Formal Administration, potential

creditors’ claims must be addressed before distribution can be made to the beneficiaries. All

known and reasonably ascertainable creditors must be mailed a notice advising that they have

30 days from the receipt of the notice to file a claim with the court. Any other creditor has three

months from the date of publication of the notice in the newspaper to file a claim with the court.

Claims (except by IRS) not filed within these time periods are barred.

 

Summary Probate Administration can be used when the assets are less than $75,000 and

the estate is not indebted. Rather than appointing a Personal Representative (executor) to

administer the estate, the court orders direct distribution to the beneficiaries. Beneficiaries

become individually liable for creditors’ claims to the extent of their distributions. Two years

after the date of death, creditors’ claims are barred and Summary Administration may be used

regardless of the estate’s value.

 

With a trust, the situation is more complex. Trust assets must be used to satisfy creditors’ claims

if there are insufficient funds in the probate estate. However, a creditor cannot pursue his claim

directly against the trust, but must go through the probate process. This is a problem for the

creditor because the trust, by its very nature avoids probate. The creditor’s only recourse may

be to petition the court to open probate and take on the responsibilities of administering the

estate. This can also create a problem for the successor trustee. If the trustee has distributed

all the trust assets and a creditor subsequently initiates probate, the trustee could be personally

responsible if he is unable to get the beneficiaries to return a portion of their distributions to

satisfy the claim.

 

The subject of creditors’ claims has been significantly condensed for this article. There are

also rules on 1] objecting to claims, 2] the order in which different kinds of bequests bear the

burden of paying claims, 3] the order in which different types of claims are paid when there are

insufficient assets to pay all the claims. Look to the attorney who is helping administer the estate

to guide you through the creditor claim process.

 

For further information on your estate planning options you may be interested in

Attorney Truman Scarborough’s Booklet on Estate Planning in Florida. It is available

without charge or obligation by calling (321) 267 – 4770. His office is located at 239

Harrison Street, Titusville, Florida.

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When can probate make settling an estate run smoother?

By Attorney Truman Scarborough

 

By avoiding probate, a trust generally saves time and money. There are a few cases, however,

when probate can make settling an estate move faster and smoother.

When someone dies, no one is empowered to sign the deceased person’s name on a deed,

check, etc. Assets just in the decedent’s name are frozen. To access them we need to petition

the court to open probate.

 

A step-by-step process for the administration of a probate estate is set forth in Florida

Statutes. The court supervises the process to assure compliance with all the rules. Inventories,

accountings, and proposed distributions must be filed with the court and mailed to beneficiaries.

If everything runs smoothly it will take six to nine months. With a trust we can shorten the time

by avoiding the court’s involvement. Nevertheless, sometimes without guidelines and court

supervision, the settling of a trust can flounder. If the trustee is just not up to the task or if his

relationship with the beneficiaries becomes adversarial, it can drag out longer than probate.

An option would be to have a financial institution serve as trustee. However, if the estate is

small, financial institutions may not be interested in serving as trustee. The only options may be

either having an individual serve as trustee or probate. To understand the problem we should

look at the issue from both the beneficiaries’ and the administrator’s perspective.

 

Why probate may be beneficial from the heir’s perspective. With a trust, except for annual

accountings, the trustee is under few time restraints. In probate, Florida Statutes set forth a

number of timelines for administering an estate. For example, the personal representative

(executor) must file an inventory of the assets with the court and mail a copy to the

beneficiaries within 60 days of appointment. If an estate is not closed in one year, the Personal

Representative (executor) must explain the reasons why to the court. This keeps the process

going. Since the court enforces these times requirements, no action is generally required by a

beneficiary.

 

If something is wrong in probate, all a beneficiary has to do is file an objection with the court.

But with a trust, if nothing is happening or something is not right, the beneficiary may have to

initiate a separate legal action. The services of an attorney probably would be needed to file the

law suit and it could become expensive.

 

Why probate may be beneficial from the administrator’s perspective. The law requires that a

trustee act solely in the beneficiaries’ best interest. If he fails to fulfill his fiduciary responsibility,

he is liable for any damages. This liability can extend for decades after final distribution. To

shorten the period, the trustee can send a notice to beneficiaries that they must file a law suit

within six months or their claims will be barred. Alternatively, the trustee could require the

beneficiaries’ approve a final accounting and a release from liability as a condition for making

final distribution. In contrast, closure is simple and direct with probate. Beneficiaries are given

30 days to object to the Petition for Discharge. If no objections are filed, the court enters an

Order of Discharge releasing the Personal Representative (executor) from further liability.

 

For further information on your estate planning options you may be interested in

Attorney Truman Scarborough’s Booklet on Estate Planning in Florida. It is available

without charge or obligation by calling (321) 267 – 4770. His office is located at 239

Harrison Street, Titusville, Florida.

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What Happens if a Beneficiary Dies?

Attorney Truman Scarborough

 

Beneficiaries (the persons property is left to) will die someday. What happens to a beneficiary’s

inheritance when he/she dies? Not planning for this event can lead to unexpected costly results.

These issues come up with life insurance policies, wills, trusts, etc. In this article we will look at

some of the problems that may be encountered when a beneficiary dies 1] before the person

who is making the gift dies, 2] after the person making the gift dies but before receiving the gift,

and 3] after receiving the gift.

 

Beneficiary dies before the person making the gift: The law prohibits us from leaving property

to a deceased person. While documents can be changed to name a different beneficiary after

the first beneficiary dies, we may neglect to name a new beneficiary. It is wise to plan on the

possible death of the primary beneficiary by naming contingent beneficiaries.

 

When there are no living beneficiaries we need to look to the law for answers. With a life

insurance policy, death benefits will be paid to the insured person’s estate, requiring probate.

With a will or trust, the gift will lapse (fail) unless protected under the anti-lapse statutes of

Florida’s Probate and Trust Codes. When a specific gift (e.g. $10,000 or a car) lapses it

becomes part of the residual estate (what is left after paying bills and distributing specific

bequests). If the gift that lapses is part of the residual estate and there are other residual

beneficiaries, it is divided among the other residual beneficiaries. If there are no other residual

beneficiaries, it goes to the heirs at law (as if there were no will) of the person who made the

will.

 

Florida has anti-lapse statutes that prevent the gift from lapsing. With a will, the gift does not

lapse if the deceased beneficiary is a grandparent or a descendant of a grandparent. In that

case, the gift will go to the deceased beneficiary’s children and the grandchildren of deceased

children (called lineal descendants). With a trust the rules are slightly different; the deceased

beneficiary does not have to be related to the creator of the trust for it to go to the deceased

beneficiary’s lineal descendants.

 

Beneficiary dies after the person making the gift but before distribution: If the beneficiary

survives the person creating the will or trust but dies before receiving the gift, probate will be

required to transfer the gift to the deceased beneficiary’s estate. We can try to avoid this by

requiring that the beneficiary survive for a period of time to inherit the gift. But it can take months

to settle an estate and the beneficiary could die before receiving distribution. That is why it is

important to promptly administer an estate and make distribution to the beneficiaries.

Beneficiary dies after receiving distribution: Once a beneficiary receives the property it is his/

hers and there is no further control on where it goes next. That can create some concern.

Perhaps you do not want the property you are giving your son or daughter to go to a daughter-
in-law or son-in-law. You can prevent this from happening by having the property placed in trust

for the son/daughter with instructions on how it may be used during his/her life and directing

who will receive it on their demise.

 

For further information you may be interested in Attorney Truman Scarborough’s Booklet

on Estate Planning in Florida. It is available without charge or obligation by calling (321)

267 – 4770. His office is located at 239 Harrison Street, Titusville, Florida.

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