What is probate and how do I avoid it?
What is probate?
Probate is a court-supervised process that takes place after you die. Probate involves naming a personal representative, paying your debts, and transferring assets to your beneficiaries in accordance with your last will and testament.
After you die, every asset that you own solely in your name is now a part of your estate. An estate is just a legal way of referring to the sum of all your assets. But it can be helpful to imagine the estate as a company, and the purpose of this company is to hold all your assets temporarily while your assets are tallied, your documents examined, your taxes handled, your creditors dealt with, and your expenses paid. After your affairs are settled, the assets are distributed from the estate into the hands of your beneficiaries (the people who inherit from you). This process of settling your affairs and distributing assets is called “probate.”
Why do I want to avoid probate?
Each asset that avoids probate reduces the size of your probate estate, which tends to reduce probate fees and save money.
Estate planners often talk about avoiding probate, but this is a little bit of a misleading term. When we say “avoid probate,” what really mean is that a specific asset is not included in the probate estate. For example, imagine that you had a bank account with $10,000 in it. If you can keep that bank account out of your estate, then the account has avoided probate. This is because only estate assets are probated.
But why should you care about probate at all? The reason is that probate is not free. And the biggest probate costs are typically charged as a percentage of the estate. Thus, if you reduce the size of the probate estate, then you reduce the probate fees. And those fees can sometimes be tens of thousands of dollars (occasionally even hundreds of thousands). That’s why estate planning attorneys are so worried about probate; we want to reduce the probate fees charged to your estate.
However, you should not think about this in terms of getting rid of probate entirely. You will almost certainly have some sort of probate estate; it is just a matter of how large that estate will be. In fact, opening a small probate can be useful, as it reduces the amount of time your creditors have to make a claim against your assets. Simply put, you will almost certainly have some sort of probate opened up, but by reducing this size of your estate, you can get all the probate benefits without being charged an arm and a leg for it.
What assets avoid probate in Florida?
A good general rule of thumb is that if an asset is in your name and your name alone, then the asset will be included in your probate estate. This means that part of the estate planning process is changing how your assets are titled on paper. But we want to do this in such a way that you keep complete control over those assets when possible.
Assets that avoid probate include:
Assets in revocable living trusts
Real estate titled with a lady bird deed
Corporate/LLC assets with bylaws/operating agreement drafted to avoid probate
Money in joint bank accounts
Assets held as tenants by the entireties
Assets in an account with a designated beneficiary (assuming the estate is not the beneficiary)
How do I title my assets to use those probate-avoidance tools?
Each tool is different, and there are pitfalls to look out for along the way with each one. For example, one court ruled that moving a homestead into a living trust resulted in that property losing its homestead protection. When it comes to retitling your assets, you should speak with an estate planning attorney. Often there are advantages and disadvantages to weight before an action is taken. A good attorney will think through the ramifications of moving each asset and seek to do so in a way that meets your unique needs.