Many times, clients come into my office stating that they need to have Last Will and Testaments done and at the same time, they tell me they want to avoid probate of their estate after they die. These clients are usually very adamant that they do not want the government to get their assets, they do not want their families to pay attorney's fees, and they do not want their estate to be tied up for months and months. The problem is that a Last Will and Testament will not avoid probate and clients are usually very surprised to hear that.
Think of a Last Will and Testament like a "love letter" to the Court. When you die, your Will gets filed with the Court. Filing the Will puts the public on notice that you have died and lets the Court know who you want to be the beneficiaries of your estate. The Will also tells the Court who you want to administer your estate – you name who you want to be the "personal representative" or "executor" (these terms are used interchangeably). However, in order for the Will to "do it's job", a probate proceeding needs to be opened. A probate proceeding is opened when someone (an "interested party" - usually one of the beneficiaries of the estate, or the person named as the personal representative in the Will) files a Petition with the Court asking the court to appoint a personal representative to administer the decedent's estate.
In most cases, the person filing the Petition is required to use an attorney to do so. Interestingly, guardianship and probate cases are the only cases in Florida where you are required to have an attorney in order to file an action. The fees and expenses of a probate administration can run from a couple thousand dollars to many thousands of dollars. It really depends on what assets are going through probate and the value of those assets.
So, the big question is - how do we avoid probate? Very simply, the way to avoid probate is to make sure that you do not have assets solely in your name or that you have beneficiaries on everything you own. For instance, a bank account can be owned jointly with another person (spouse, child, an unrelated person) or you can put a "payable on death" or "P.O.D." beneficiary designation on the account and it will transfer at death to whomever you name as the beneficiary. If you have life insurance or brokerage accounts, then you can provide for beneficiaries for those types of accounts or policies (and you should check your beneficiary designations whenever you have major life changes, such as a death or divorce).
Real estate is a tricky asset on which to avoid probate. If you add someone to the deed on your property, you have a few issues to deal with. First, you could affect the homestead tax exemptions that you receive if the joint owner is not also living in the house. Second, if the joint owner has creditor issues, and the house is not their homestead, their creditors can potentially go after their interest in your house. Third, by adding someone as a joint owner on your property, you are affecting the step-up in basis that they can receive at your death. If someone inherits property, they get a tax break from capital gains tax when they go to sell the property. For example, if you buy a house for $100,000 and your adult child inherits it and then sells it, after you die, and the house is now worth $300,000, the child would not have to pay any capital gains tax on the sale. But, if you add the child to the deed of your house, and then you die, when your child goes to sell the property, he or she will have to pay capital gains tax on $200,000 because they lost the step-up in basis when you added him/her to the deed.
Many times, financial planners will tell people that they need a revocable trust to put their house into so that they can avoid probate. While a revocable trust does avoid probate, if you are using the trust to primarily avoid probate of your homestead, your beneficiaries may be surprised that they will still have to open a probate after you die. Why is that? Even if your house is in a trust, if your beneficiaries want to sell the house within two years after your death, most title companies will require you to provide an order from the court stating that the homestead was exempt from creditors before they will write title insurance for the sale of the house. The only way to get that order is to open up a probate (and this will cost you, depending on what part of Florida you are in) a minimum of $1,500 to do.
So how do you avoid probate on the homestead? You can do an enhanced life estate deed. An enhanced life estate deed allows you to reserve a life estate in your property while giving the remainder interest to a beneficiary at your death. This type of deed allows you to reserve the right to sell, convey, mortgage, lease or otherwise dispose of your property during your lifetime without the joinder and consent of the remainder person(s). Only if you still own the house upon your death, will the property pass to the named beneficiaries (or the “remainder person(s)”). To learn more about the advantages and disadvantages of the enhanced life estate deeds, click here - http://ohalllaw.com/2016/05/enhanced-life-estate-deed/.
If you have questions about probate or other estate planning matters, please call the Law Office of Laurie E. Ohall to schedule a complimentary phone consultation with one of our knowledgeable attorneys at 813-438-8503.