Many people who visit me in my office are under the misimpression that all Wills avoid probate. False. Some people believe that if their estate is less than whatever the federal estate tax exemption is, then there won’t be a probate. That’s false too.
Almost any asset that is subject to disposition by your loved one’s Will is actually distributed by the probate process. Understanding what probate means is therefore crucial to understanding these issues.
Probate is a legal process under which the deceased’s assets are transferred to their beneficiaries. The Last Will is filed with the probate court in the state and county in which the decedent resided at the time of his or her passing. This is known as the “domiciliary estate.” The personal representative (executor) in the Will petitions the court for “Letters of Administration” which gives the personal representative the authority to transact business on the estate’s individually held accounts.
It does not matter whether bank and brokerage accounts are held in the same state in which the probate is opened. A bank account in New York, for example, is governed by the probate court in Florida.
If, however, the decedent owned real property in his or her individual name in another state, then an “ancillary probate administration” must usually be opened in that state. If the real estate is held in a trust, corporation, partnership, LLC, or in joint name, then the ancillary administration is usually not necessary.
Why is probate necessary? It’s not just for attorneys to make fees, as many might expect. The probate process actually “protects” both the beneficiaries of your estate, as well as any potential creditors and of course, the taxing authorities.
Imagine that there was no probate process. Suppose in a codicil to his Will your Uncle Ed left you his entire estate. But what if Uncle Ed dies and your cousin brings a copy of his old Will into the bank and asks that his accounts be distributed to him pursuant to the Will. How does the bank know that this is really Uncle Ed’s Last Will? What if your cousin beat you to the bank and you didn’t realize it? What recourse would you have once the bank distributed to your cousin? The probate process protects against just this scenario and many others.
If you submit a Will as the Last Will of Uncle Ed to the court and someone else submits a codicil to the Will to the same court we now have a centralized system that can ensure Uncle Ed’s wishes are carried out. The personal representative marshals all of the assets of the deceased and files an inventory with the court so all interested parties can determine in full light what the estate is worth. They can also question if the inventory is complete or may be missing assets.
Florida law provides that creditors have three months from the date of “notice of publication” of the probate administration to file a valid claim against the estate. There are laws that deal with creditors, how they are to make claims, and how the personal representative may object to any such claim. The personal representative actually has a duty to notify reasonably known creditors of the administration. I discuss this in more detail in Chapter Three below.
Once all of the creditor claims have either been dealt with and all tax clearances have been obtained, the personal representative submits an accounting of the estate to the court. All of the income and expenses are listed, as are items of capital gain and loss. The personal representative presents a schedule of proposed distributions pursuant to the terms of the Will.
The distributions may be to beneficiaries, to trustees of testamentary (after death or continuing) trusts established under the terms of the will (Chapters Eleven & Twelve) or, in the case of a pour-over will (Chapter Four), distribute the probate assets to the decedent’s trust.
All of the beneficiaries have the chance to object to any item listed in these petitions, and can appear before the court. A judge decides if any objection has merit.
Once all of the distributions have been made, the personal representative petitions to close the estate and be discharged from further obligations as a fiduciary for the estate. Receipts of distributions are filed with the court at this time.
So as you can see, probate is actually a strictly supervised court (public) process. It is very hard for any “monkey business” to get by a judge. I’ll compare this process to a trust administration in Chapter Four.