Do I Need a Will or Living Trust in Florida: Probate Avoidance (Part 1 of 3)
Do I Need a Will or Living Trust?
A Will or Living Trust, that is the question.
And like many things in the law the answer is: it depends.
It depends on you, your goals, and what’s important to you.
Three common reasons for estate planning are: (1) avoiding probate, (2) lowering estate taxes, and (3) avoiding conflict between beneficiaries.
Over the next few weeks, each article will examine one of these common reasons.
Also, since trusts & estates laws are state-specific, meaning each state has its own rules, this article’s answers will be based on Florida law.
Probate in Florida
What is Probate?
Probate is the default procedure for closing a decedent’s (dead person’s) estate.
It is a court proceeding designed to allow a decedent’s creditors a chance to collect what they’re owed.
Someone comes forward on behalf of the decedent (called a personal representative), gives notice to the decedent’s creditors and heirs, creates an inventory of the decedent’s assets, settles the creditors’ claims, distributes what remains to the decedent’s heirs, and closes the estate.
Why Avoid Probate?
Probate tends to get a bad rep. That’s because it’s lengthy, expensive, and public.
Probate is Lengthy
In Florida, there’s two main types of probate, formal administration and summary administration. Formal probate takes around eighteen months on average. Summary administration is quicker, but it’s only available if the decedent’s estate is worth less than $75,000 or the decedent has been dead for at least two years and any creditors have been paid or do not object.
Probate is Expensive
In Florida, the largest costs for most probates come from two sources: paying the personal representative and paying the probate attorney.
Both the personal representative and attorney are allowed to charge for their services. The compensation of the person representative is guaranteed by Florida Statute 733.617. The compensation of the person representative’s attorney is guaranteed by Florida Statute 733.6171.
Both the personal representative and the person representative’s attorney’s attorney fee structure looks a little like this:
3% of the value of the estate up to the first million dollars
2.5% of the value of the estate between one million and three million dollars
2% of the value of the estate between three million and five million dollars
1.5% of the value of the estate between five million and ten million dollars
1% of the value of the estate over ten million dollars
Since it can be hard to conceptualize the costs of percentages in dollar amounts, let’s use and example. Assume that an estate is worth one million dollars. 3% of a million is 30,000.
If you must pay both personal representative fees and probate attorney fees, each is entitled to 3%. That is $60,000. Even if your personal representative waives their right to compensation, which is often the case if you name a family member or loved one to that role, you still have to pay attorney fees, which would be $30,000.00.
And that’s just the fees for the probate. If either the personal representative or their lawyer needs to perform an “extraordinary service”, which covers everything from selling real estate to tax advice, they can charge more.
Probate is Public
As a court record, probate proceedings are subject to Florida’s very broad public records disclosure laws. Anyone can access the court records of your probate proceedings, which includes a list of your assets, your creditors, and your heirs. This leaves your beneficiaries open to scams by fraudsters who know about their inheritance.
It’s also public in the sense that if you appoint a loved one as your personal representative, they’ll may have to do these duties (going to court, dealing with creditors, bank accounts, real estate, life insurance, etc.) while grieving your loss, which they may prefer to do privately.
So that’s a little on probate and why many people find that it’s better to avoid the process if they can.
Wills vs. Living Trusts on Probate Avoidance
Wills
If you only have a Will, your beneficiaries will be going to probate. The way a Will is enforced is through a court order issued by a judge at the end of a probate.
Unless a piece of property is exempted or controlled by some other mechanism, you will need this court order to change its title. Examples include real property, bank accounts, and vehicles.
What a Will allows you to change is the distribution of your assets. The default distribution of your assets is called Intestate Succession. It is found in Florida Statutes Chapter 732 Part I. By writing out where you want your assets to go in your will, you are changing the distribution, but that does not change the need for a court order to enforce a Will.
Living Trusts
A Living Trust avoids probate if done correctly. A Living Trust avoids probate by holding title to your assets while you’re alive. You put your wishes for how your assets should be distributed into the Trust Agreement, which is the document that controls the Living Trust, and when you pass away, your Successor Trustee distributes your assets according to the instructions in the Trust Agreement.
Because the trust assets are not titled in your name, they avoid probate. This is why “funding” or the retitling of assets is incredibly important. If you have a Living Trust but none of the assets have been retitled into the name of the trust, they will be going to probate
Conclusion
If your goal is to avoid probate, having a Living Trust and retitling your assets in the name of the trust is the way to go. Because Wills are enforced through a court order, they must go through probate to be effective. A Living Trust, on the other hand, does not need a court order to be effective, meaning assets titled in the name of the trust do not need a court order to be transferred to your beneficiaries. That process is controlled by the Trust Agreement.
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