Category Archives: Legal

What is Probate?

estate planning

By Attorney Truman Scarborough

This is the second in a series of articles on probate. In the last article, we looked at the initial court procedures for formal probate which is required when the decedent died within the last two years and the value of the assets is over $75,000. This article continues the discussion by looking at the Personal Representative’s (executor’s) responsibilities.

When someone dies, assets titled just in the decedent’s name without beneficiaries are frozen. The legal procedure used to transfer property from the decedent to the beneficiaries is called “Probate”. The court creates a legal entity (like a corporation) called the “Probate Estate” to take the decedent’s place and hold the decedent’s assets. A Personal Representative is appointed by the court to administer the probate estate.

In the process of probating an estate, the Probate Court must be shown that everything is proceeding as required by Florida Statutes. The word “Probate” essentially means “to prove.” Is the Will valid?  Have creditors been notified and paid? Have beneficiaries been provided information and received their allotted share? You may know that there are no problems, but the court does not.

Through the probate process, the court assures that the Personal Representative fulfills the various responsibilities to 1] beneficiaries, 2] decedent’s creditors, 3] IRS, and 4] for expenses in administering the estate.  In this article, we will look at the Personal Representative’s responsibilities to beneficiaries and creditors, and in the next article the responsibilities to the IRS and for administrative expenses.

BENEFICIARIES: When someone must rely on the honesty and diligence of another person to protect his/her property, it creates a fiduciary relationship. 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 end is the responsibility of a fiduciary to clearly show he/she is protecting the beneficiaries’ interests.

The Probate Code requires that beneficiaries be provided with a copy of the Will, Petition for Administration, Notice of Administration, Letters of Administration, the Inventory (showing date of death values), the Accounting (showing what has occurred with estate assets from the Inventory to the time of distribution), and the Petition for Discharge (which shows the proposed distribution).  If not satisfied, beneficiaries have the right to file objections with the court.

CREDITORS: All reasonably ascertainable creditors must be mailed a “Notice to Creditors” advising that they have 30 days from the receipt of the notice to file a claim with the court. Other creditors have three months from the date Notice is published in the newspaper to file a claim with the court. If a questionable claim is filed, the Personal Representative has 30 days in which to file an objection with the court. Once an objection is filed, to pursue the claim the creditor must bring an independent legal action within 30 days.

Not all assets in probate are subject to creditors’ claims, including $20,000 in furniture and appliances, plus two motor vehicles. When the home is going to certain relatives, the court can determine that it is “protected homestead“ free of most creditor claims. However, the home is still subject to mortgages on the property, IRS liens, liens for work performed on the property, and real estate taxes.

 

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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What is Probate?

probate

By Attorney Truman Scarborough

 

This will be the first in a series of articles on the probate process.

 

When someone dies, assets titled just in the decedent’s name without beneficiaries are frozen. No one can sign the deceased person’s name on checks, deeds, etc. A Power of Attorney does not help since it is effective only while the creator is living. It is similar to an employer-employee relationship. If an employer goes out of business there are no employees.

 

The process where the property is transferred from the decedent to the beneficiaries is called “Probate”. There are different kinds of probate depending on the size of the estate and whether there is a Will.

 

When there is a Will it is called “Testate Administration”. The Will by itself does not transfer property to the heirs. The Will has no authority until admitted to probate by the court. If there is no Will, it is called “Intestate Administration”, which will be discussed in a later article.

 

Probate can be further defined as Summary or Formal. “Summary Administration” is available when the assets total less than $75,000 in value and there are no creditors, or when the decedent died more than two years ago.  Summary Administration will be examined further in a subsequent article. When Summary Administration is not available, “Formal Administration” will be required.

 

In Formal Administration, the court creates a legal entity (like a corporation) called the “Probate Estate” to take the decedent’s place and hold the decedent’s assets. The person named in the Will to administer the estate, the Personal Representative (executor), is issued “Letters of Administration” by the Probate Court. This allows the Personal Representative to access and manage the assets.

 

Problems that can delay filing a Petition to open probate include 1] The original Will cannot be located. 2] The Will was signed in another state and was not self-proving, requiring the Florida Probate Court to issue a commission for someone in that state to take the oath of the witnesses.  3] An autopsy is required before a death certificate can be issued. 4] A Floridian died in another state and the death certificate incorrectly showed him/her as a resident of that state 5] The person named as Personal Representative in the will is not qualified to serve.

 

Once appointed by the court the Personal Representative’s initial responsibilities include: 1] Sending an Inventory of assets to the court and beneficiaries, 2] Obtaining a Tax Identification Number (EIN) from the IRS, (once a person dies we can no longer use his/her social security number), 3] Opening an estate account using the EIN, 4] Publishing Notice to Creditors in the newspaper and mailing the Notice to known creditors.

 

Throughout the process of collecting assets, paying bills, and finally making the distribution to the beneficiaries, the Probate Court must be shown that everything is proceeding as required by Florida Statutes and Florida Probate Rules. 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?  You may know that there are not any problems, but the court does not.

 

In the next article, we will continue the discussion by further examining a Personal Representative’s responsibilities to the court, the beneficiaries, the decedent’s creditors, and the IRS.

 

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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When should a Beneficiary’s inheritance be held in trust?

nursing home

By Attorney Truman Scarborough

 

When children have problems like substance abuse or just cannot handle money responsibly, it may not be wise to distribute their inheritance directly to them. For their protection, the gift can be distributed to a sub-trust within the revocable living trust or to a testamentary trust in the will. These trusts normally come into being and are funded after the person who is making the gift has passed away.

 

If a child has creditor or marital problems his/her inheritance can be placed in trust to protect it in case there is a lawsuit or divorce. When the child can reach an asset, generally the child’s creditors can as well. The trust can contain provisions preventing a creditor from reaching the trust assets. For maximum protection from creditors, the trustee should be given complete discretion on when and how much is distributed to the beneficiary.

 

If a disabled child is receiving Supplemental Security Income (SSI) and inherits money, the government can claim a right to reimbursement and disqualify the child from future SSI and Medicaid benefits. However, the child’s inheritance can be placed in a “Special Needs Trust” where the child can utilize trust funds without the loss of SSI. Since benefits will be lost if the rules for distribution are violated, care must be taken in selecting the trustee.

Even when a grandchild is not initially named as a beneficiary, the grandchild may become a beneficiary if the grandchild’s parent dies. With a younger beneficiary, there are two reasons why a trust can be helpful. First, in Florida, anyone under eighteen years of age cannot enter into contracts. If not in a trust, funds will need to be managed by a court-appointed guardian or a custodian under the Uniform Transfer to Minors Account. Secondly, even when someone is over eighteen they may not have the maturity to handle the money.

 

Placing a grandchild’s inheritance in a trust does not prevent the grandchild from using the funds; it gives the grandparent the ability to specify how the funds are used. Distributions may be restricted to certain expenses, like education and health. There can be a single trust for all grandchildren under a certain age or separate trusts for each grandchild. With a single trust, one grandchild would be able to receive more funds than the others from the trust based on need.

 

Normally a trust provides that all the funds are distributed outright to a grandchild when he/she reaches a certain age. There are variations on ways the final distribution can be structured. For example, if the trustee believes that the grandchild is responsible, the trustee could be given the option to make complete distribution any time after the grandchild reaches 25 years of age. Once the beneficiary reaches age 30, the trustee could be required to make the complete distribution.

 

Selecting the trustee is very important. If family members are chosen, they should be responsible and caring. When an individual is named as trustee, alternate trustees should be named in case the initial trustee is unable to serve or continue to serve. Another option is to appoint a financial institution. Financial institutions set limitations on the minimal values for the trusts they are willing to administer. Sometimes they require that special provisions regarding their powers and liability be included in the trust.

 

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. Truman Scarborough’s office is located at 239 Harrison Street, in Titusville.

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