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Thursday, March 15, 2018

Nuts and Bolts of Florida Probate

Many Florida residents have heard or experienced horror stories regarding the probate administration process in Florida. Although having to open a probate is not necessarily the worst-case scenario, it can quickly become overwhelming for the beneficiaries and the Personal Representative of the estate. While each probate administration will vary based on the unique facts and circumstances, this article will attempt to demystify the probate process by providing an overview of the steps involved in a formal probate administration in Florida.

  1. Getting Started

    Probate is a court-supervised process in which the Personal Representative (often referred to as an “Executor” in other states) must identify the estate assets, satisfy the decedent’s outstanding debts, file necessary tax returns, and make distributions to the beneficiaries. The Personal Representative is responsible for conducting the administration and is classified in the law as a fiduciary, who has been selected for a position of special faith, trust and reliance.

    One of the first questions asked by a Personal Representative or a beneficiary is often – How long will this process take? The answer, of course, depends on the unique circumstances in each probate. For an estate that is not required to file a federal estate tax return, the typical length of a probate is anywhere from 9 to 12 months. For an estate that is required to file a federal estate tax return, the typical length of a probate is anywhere from 18 to 24 months. A few examples of circumstances which can delay the closing of an estate include: (1) litigation involving the estate; (2) numerous or complicated assets or assets in multiple states; (3) numerous beneficiaries; (4) delays caused by the court; and (5) issues caused by beneficiaries or creditors.       

    The Personal Representative should engage an attorney experienced with the probate process at the outset of the administration. The attorney will guide the Personal Representative through the process and will help to anticipate and mitigate issues before they arise.

  2. Opening the Estate

    An estate will either be “testate,” where the decedent dies with a valid Will, or “intestate,” where the decedent dies without a valid Will. If the estate is testate, the probate administration will begin with the Personal Representative filing the original Will of the decedent with the court in the county where the decedent was a resident at the time of death. The attorney for the Personal Representative will file a Petition for Administration (among other documents) with the court which identifies the decedent, lists the approximate value of each asset, names the beneficiaries, and requests his or her appointment as Personal Representative. If the estate is intestate, the court will look to the Florida statutes to determine who should be appointed as Personal Representative, and waivers will need to be obtained from those persons who will not act.   If there are no objections, the court will admit the Will and issue the “Letters of Administration” to the Personal Representative.

    The Letters of Administration give the Personal Representative the authority to act on behalf of the estate and to take possession of the estate assets, deal with financial institutions, creditors, and other interested persons. Shortly after the probate is opened, the Personal Representative will use the Letters of Administration to open an estate checking account, which will be used for the payment of administration expenses including attorney’s fees, accountant fees, taxes, court costs, and valid creditors.

  3. Providing Notice

    The Personal Representative must also notify the creditors and beneficiaries that an estate has been opened by the court. The attorney for the Personal Representative will publish a notice to creditors in a newspaper in the county in which the estate is opened. This gives all unknown creditors notice that they must file a claim with the court within a certain period of time or they will lose the ability to collect on their debt. The Personal Representative must also directly mail a notice to all known creditors of the decedent. The Personal Representative should review the decedent’s records and should go through the decedent’s mail to determine if there are any outstanding known creditors. Generally, the rule is that the creditor must file a claim within 3 months of the date the notice is published in the newspaper. The attorney and Personal Representative will work together to determine which creditors should be paid, and if any claims should be objected to.

    Lastly, the Personal Representative must provide notice to all estate beneficiaries that the estate has been opened. The attorney for the Personal Representative will determine who legally needs to be served and will help to provide the appropriate notices. 

  4. Identifying, Securing, and Investing the Estate Assets

    Once the estate is opened, the Personal Representative will begin the process of identifying and collecting the estate assets. The Personal Representative will need to work with the decedent’s financial institutions to close out the decedent’s accounts and open new accounts in the name of the estate. Throughout the administration, the Personal Representative will consult with and rely on a team of advisors to guide him or her through the process. One of the team members will almost always be a financial advisor who has experience with fiduciary investing. The Personal Representative should monitor investment statements and meet with the financial advisor at least on a quarterly basis to ensure that the estate assets are invested in a prudent and cautious manner.

    With the assistance of the attorney, the Personal Representative will file an inventory with the court listing the nature and date of death value of each asset. Only assets subject to probate are in control of the Personal Representative and listed on the inventory. As a general rule of thumb, assets which the decedent held in his or her name individually are subject to probate, while assets in held in trust, assets held jointly (with survivorship rights), and assets having proper designations of beneficiaries (e.g. IRAs, 401Ks, pensions, life insurance) are not subject to probate. The Personal Representative and attorney will work together to determine the date of death value of each asset. This may involve contacting financial institutions and/or obtaining appraisals. Assets in the name of the decedent will need to be re-titled in the name of the estate. The Personal Representative and financial advisor will work together to determine how the assets should be invested to best suit the needs of the estate and the beneficiaries. This may involve consolidating or re-investing the assets, depending on the circumstances. The Personal Representative and attorney will work together to determine the expected cost of running the administration, and whether any assets should be sold or liquidated to pay administration costs.

    The Personal Representative must also secure the estate assets. An important part of making certain that assets are secure is arranging for adequate insurance coverage for personal property and real property.  Depending on the terms of the insurance policy, it is possible that insurance coverage ceases upon the death of the decedent. High liability assets (e.g. vehicles, boats, etc.) should be secured immediately after the Letters of Administration are issued.

  5. Paying Taxes of the Estate

    At the outset of the administration, the Personal Representative should also engage a Certified Public Accountant to file any necessary tax returns. The CPA is generally an integral part of the administration team and will be consulted at various times throughout the administration. There may be many required tax returns; however, the most common are the final income tax return for the decedent and annual income tax returns for the estate. The estate may also be required to file a federal or state estate tax return, depending on the size of the estate.

  6. Distributing and Closing the Estate
    After expenses, including taxes, have been paid or reserved, the Personal Representative may make final distribution of the estate assets to the beneficiaries. The attorney for the Personal Representative will review the terms of the Will and calculate the shares to the beneficiaries. Depending on the circumstances, it may be possible for the Personal Representative to make partial distributions to the beneficiaries earlier in the administration, but the attorney should be consulted prior to any distribution.

    Florida law requires that all interested persons be served with a final estate accounting prior to closing the estate with the court. The accounting will reflect all receipts, distributions, and administration expenses. A Personal Representative is entitled to receive compensation under Florida law. The fee is defined by the Florida statutes, and the amount of the fee will be reflected on the final accounting.

    If everyone is in agreement, a waiver of a final accounting may be filed in lieu of a final accounting. If the Personal Representative anticipates that conflicts involving the beneficiaries or creditors will arise, an estate accounting should be prepared at the outset of the administration; starting the accounting early will save substantial time and money. The Personal Representative, attorney, and CPA (or a bookkeeper) will generally work together to complete the accounting. Once all necessary closing documents have been filed with the court, the court will issue an order closing the estate and discharging the Personal Representative.

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