Ways to Avoid Probate in Florida

One of the greatest concerns regarding estate planning is avoiding probate court. While most believe such process to be complicated and virtually unattainable, be assured that it doesn’t need to be all that complicated. Florida law provides several effective ways in which to avoid its probate courts, including the use of trusts and other beneficiary designations. The following provides a comprehensive look at each of these methods.

An image of a modern Florida House representing the Homestead Laws in Florida.

An introduction to Probate in Florida

The cost, time and public availability of the Florida probate process and information has many of our clients seeking more advantageous alternatives. Florida rules offer a range of options to avoid the probate process.

Among them, and perhaps the most commonly asked about is the use of a Revocable Living Trust. Additionally, individuals may use Joint Ownership, Beneficiary Designations, Transfer on Death (“TOD”) accounts, Life Estate Deeds or other investment vehicles such as Annuities, IRAs and Life Insurances.

While each of these alternatives poses its own advantages and disadvantages, the Trust generally provides the most flexible and efficient option for most of our clients.

Revocable Living Trust

In Florida, a trust is defined as an instrument created by an individual, known as a grantor or settlor, that contains that grantor/settlor’s intent regarding certain provisions contained in such document. See Fla. Stat. 736.0103.

A Revocable Living Trust, however, is one that can be changed at any time by the grantor/settlor without the permission of the trustee or any other person holding an adverse interest. It may be amended, added to or revoked and canceled entirely. (For a more in-depth examination of the benefits and disadvantages on revocable versus irrevocable trusts, explore our recent article: Revocable versus Irrevocable Trusts in Florida.)

A Revocable Living Trust serves to protect the settlor/grantor during the various stages of life, including during their lifetime, during mental incapacity and after death. This powerful tool is used with regularity to help individuals keep their financial profiles and final wishes private and outside the public Florida probate courts.

It also allows for the control and distribution of various assets throughout their lives with minimal administration – well, after the trust has been funded, that it! Unlike a Will, for example, in order for a Revocable Living Trust agreement to be effective, it must be “funded”.

In other words, assets must be transferred to the name of the trust rather than remain in the individual grantor/settlor’s name. It is this step of utilizing a Revocable Living Trust that proves most daunting to the average person as it can be both costly and time-consuming.

Aside from attorney’s fees to effectuate such transfer, the grantor/settlor may also incur documentary stamp fees or possible penalties from financial institutions when transferring property to a trust. Despite this, most professionals are still of the opinion that transferring property and assets to a properly drafted trust is far more efficient and effective than proceeding through the probate process.

In Florida, if any asset is not listed or accounted for in a grantor/settlor’s Revocable Living Trust, then such asset will likely not avoid the probate process unless it some other manner of probate avoidance applies, such as the asset having a beneficiary designation or if it’s owned with a form of right of survivorship with another individual who survives the grantor/settlor.

Joint Ownership with Rights of Survivorship or Tenancy by the Entirety Ownership

  • An alternative to creating a Revocable Living Trust would be to own an asset or real property with the individual or individuals whom you would like the property to pass to upon your death as Joint Owners with Rights of Survivorship (JTWRS) or, if a married couple, as Tenants by the Entirety. These types of ownerships come with a long list of benefits, the most common of which is the ability to know the subject asset or real property will pass to the named co-owner of the property with little need for formal administration.  This form of ownership is commonly used between spouses and close family members regarding financial accounts, tangible personal property, and real property. And while convenient, it comes with a well-established list of drawbacks:
    • First, adding a child’s name to an asset, for example, is considered a transfer of at least half the property by gift and, therefore, may be subject to a gift tax (if significant enough). This could result in a greater realization of capital gain as a result of the gift and, as a result, higher capital gains taxes than the child would have otherwise realized had she inherited the property after the parent’s death. This is due to the gift not providing the “stepped-up basis” in that receiving the gift at the time of a parent’s death rather than a gift during his/her lifetime would mean the child’s basis in the property would have been that at the time the parent died (i.e. the value at the time the parent acquired the property plus any capital improvement made to the property).
      • For illustrative purposes, if an individual purchased an investment property for $100,000 in 2000 and now decides to add their child to the deed to avoid probate but dies the next day, then that child would realize a taxable capital gain if sold thereafter for difference between the sale price and the original price due to the transfer being considered a gift. However, if the property was placed in a Revocable Living Trust with the child being named as the beneficiary of that property, then the child would not only receive the property without probate, but the child’s basis would have been the value at the time of the parent’s death and there would be no taxable capital gains.
    • Second, when an intended beneficiary’s name is added to an asset, then the asset is exposed to that beneficiary’s liabilities allowing creditors to attach to the asset to satisfy debts and may be included in that beneficiary’s estate if they happen to predecease the original owner.
    • With respect to real property, joint tenants must provide consent for the property to be sold or mortgaged. Furthermore, financial accounts that are held jointly may be subject to be liquidated by the added beneficiary without the consent or knowledge of the original holder.
    • In Florida, as it pertains to homestead property, adding a beneficiary’s name to the deed may result in part or all of the homestead exemptions being lost.

    It should be noted, however, that this list only applies to transfers to persons other than a spouse since property owned as Tenant by the Entirety have its own list of protection regarding homestead exemptions and creditors.

Beneficiary Designations or Transfer on Death Assets

Certain assets may allow for the listing or designation of a beneficiary to whom the asset with automatically pass when the original owner dies. For example, Transfer on Death or “TOD”, as it is commonly referred to, is a type of securities registration that allows for the naming of such beneficiary.

As a result, Transfer on Death assets are not administered through probate court while allowing for complete control of the original owner during her or his lifetime since the beneficiaries have no control at that time. In fact, the original owner may even change the named beneficiary at any time prior to death.

On the other hand, assets held outside this Transfer on Death account do not benefit from this arrangement and will have to pass through probate unless accounted for otherwise. Further, similarly to a Will, a Transfer on Death asset does not take effect until death and, consequently, does not account for the mental incapacity of the original owner.

Similar to Transfer on Death assets, individuals may name beneficiaries of life insurances or retirement accounts such as 401(k), IRA or annuity accounts.

Additionally, in Florida beneficiaries may be named on a bank account, referred to Payable on Death (POD) accounts.

Finally, individuals may also use enhanced life estate or “Ladybird” deeds to maintain ownership during their lifetime while allowing the property to pass to named beneficiaries upon death.

While these are all valid examples of ways in which an individual may avoid assets having to endure the probate process, none of these methods provide comparable protections as a Revocable Living Trust during the lifetime of the grantor.

Conclusion

Essentially, short of ridding themselves of all Florida property, individuals are limited in the number of ways in which they can avoid probate in Florida.

However, the available methods all prove beneficial in one way or another depending on that individual’s intention and their family’s unique circumstance.

They all provide the peace of mind knowing that upon passing, those assets will be owned or transferred by the individual(s) they intended without incurring the cost, time spent and headache of going through the probate process.

If you or your family would like to learn more about how we at ASR Law Firm are qualified to assist you with avoiding probate, contact us here.

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