Probate and Trust Administrations
Our Probate and Trust Administration services are provided by our Fiduciary Services Group. Each client is typically assigned a lawyer, certified public accountant, and legal assistant who work as a team in helping executors settle estates. Sometimes clients desire to use an outside accountant, and we are happy to work with them but find it often increases cost. Generally, we seek to represent executors on a fixed fee basis to settle estates, but some clients prefer hourly charges. In either event, we strive to provide complete services at well below the Florida statutory rates.
Under Florida and most state laws, if you pass away with a will, it must be filed with the probate court even if probate is not required. Whether or not there is probate, required legal processes will generally force a reconciliation of assets and liabilities in order to pass the decedent’s property on to intended beneficiaries with clear title. Whether your assets have been properly pre-titled prior to death to avoid probate (commonly using a revocable living trust) will dictate the extent, if any, of probate and court involvement. Often we counsel clients on ways of avoiding or ameliorating the time and cost associated with probate proceedings. Individuals often make errors with self-help and when seeking assistance by others who are not experienced or lawyers who specialize in estate planning. For example, it is not uncommon for brokers and bankers to encourage individuals to use pay-on-death designations. Doing so, however, will often remove the particular assets from the provisions of a will and an overall estate plan, often unknowingly exposing the assets to third party liability risk and further taxation. The following illustration describes a typical time frame for settling a taxable estate, whether or not there is probate: Estate Settlement Illustration.
Probate processes are generally required to clear title to your assets, satisfy any creditor claims, and to assess whether any federal or state death taxes are due. Failure to undergo these processes will generally leave your assets unmarketable, subject to automatic government liens, and may cause members of your family to become responsible for any actual taxes or claims and any penalties and interest associated with a failure to satisfy these liabilities. These problems can and often do occur in the state of your primary residence (your “domicile”) and also in any state where you own real property or from which you receive income. Proper pre-death estate planning is designed to avoid these processes, or if necessary to cause them to be more efficiently conducted at reduced cost.
Only assets held by you in your individual name requires probate. Assets owned jointly as “tenants by the entirety” with a spouse, or “with rights of survivorship” to anyone, will pass to the surviving owner without probate. This is also true for assets with designated beneficiaries, such as life insurance, retirement accounts, annuities, and bank accounts and investments designated as “pay on death” or “in trust for” a named beneficiary. In addition, assets held in common revocable “living” trusts will also avoid probate.
Probate is the court-supervised administration of your estate. It is a process created by state law to transfer assets from your name to your beneficiaries. A personal representative is appointed to handle the estate administration and to distribute your assets pursuant to Florida law and the provisions of your Will. The probate process ensures that creditors, taxes, and expenses are paid before distribution of the estate to the beneficiaries. The personal representative is accountable to both the court and estate beneficiaries for his or her actions during the administration. Formal accountings are required under Florida law unless waived.
Florida law requires that an attorney represent the personal representative in all probate proceedings. Our firm is specifically structured for dealing with the probate process. We have estate administration attorneys and paralegals who are always available to our clients throughout the entire probate process to helpful fulfill their legal obligations. An assigned certified public accountant from the Firm is also often a team member, as clients commonly find it more efficient and less costly to have our staff accountants involved with the interplay between elections on a variety of federal and state income, gift, and estate tax returns. Doing so avoids conflicts between legal documents and tax compliance and in elections that are made in a variety of tax returns.
The personal representative is a fiduciary who has legal and financial responsibilities to administer the Will in conformity with Florida law and the terms of your Will. Therefore, the Personal Representative can be personal liable to the beneficiaries (or interested parties, including estate creditors) for any mismanagement and the resulting damages caused to the Estate, beneficiaries, or other interested parties. The Personal Representative can also become liable for taxes of the decedent or of the decedent’s estate. Through your Will you are able to personally select who you would like to serve as the personal representative of your estate.
There are numerous deadlines and time frames that must be complied with during the probate process. The probate process begins when the personal representative or any interested person (which can include creditors) files a Petition for Administration. The Petition is served on all interested parties. Interested parties include the decedent’s surviving spouse, beneficiaries, trustees of any revocable trusts with which the decedent was grantor, and in some instances creditors. The deadline for an individual to object to the validity of a will, qualifications of the personal representative, venue or jurisdiction is twenty (20) days, if they are formally served with the Petition for Administration. After the Petition for Administration is filed and assuming no objections are raised the court will enter an Order admitting the Will and issues Letters of Administration, which empower the personal representative to conduct the estate’s business.
Inventory and Safety Deposit Box
Within sixty (60) days after issuance of the letters of administration, your personal representative is required to file an inventory of all known assets. The inventory is also served on the surviving spouse, heirs at law, residuary beneficiaries and other interested persons who request it in writing. An inventory of any safety deposit box is filed and served upon the individuals listed above, within ten days of the initial opening. Predeath planning can limit or negate the requirements associated with serving inventories and safety deposit box content on such persons.
Most everyone passes away with a debt owed to another person or entity, whether it is an electric bill, unpaid taxes, a last month credit card account, or an outstanding mortgage or loan. In order to make potential creditors aware of your death, your personal representative must promptly publish a notice to creditors in a newspaper published in the county where the estate is administered. Creditors who are known or reasonably ascertainable have greater rights. They are entitled to actual service of notice. The personal representative has an obligation under §733.2121(3)(a) of the Florida Statutes to “make a diligent search to determine the names and addresses of creditors of the decedent who are reasonably ascertainable, even if the claims are unmatured, contingent or unliquidated.” Some of the best ways to ascertain possible creditors are to review the decedent’s incoming mail, bank and credit card statements, brokerage accounts, online records kept by the Clerk of Court wherever the decedent owned real property, online records kept by the Florida Department of State such as corporate and financing records, tax records which may reflect assets and liabilities, and documentation saved by the decedent in their home or safe deposit box.
A copy of the Notice to Creditors is actually delivered to all known or discovered creditors. A copy is required to be served on such creditors within three months of the first newspaper publication of the Notice to Creditors. These creditors have until the later of three months after the date of first publication of the notice or 30 days after the date of service of a copy of the notice on the person to file a statement of claim. However, reasonably ascertainable creditors who do not receive notice to creditors have two years to file a claim against the estate. In the event that a claim is timely filed, the personal representative may file a written objection within 30 days. The claimant will then have 30 days to file an independent action against the estate. Often creditors fail to properly follow all of these steps and their claims are thereby barred. If, however, the creditor(s) are successful in bringing an independent action and the court finds that their claim is valid, the personal representative will be required to pay the balances due. If not formally notified through the probate administration, the time within which creditors may file claims against the estate will not expire until the close of the two (2) year period, which begins, with date of death. If a Probate Administration is opened, a personal representative cannot be compelled to make payment on a creditor’s claims until the expiration of five (5) months from the first publication of the Notice to Creditors. Interest will, however, accrue as provided in the debt instrument or account agreement. In addition, Florida Statutes state the order in which the expenses of the decedent, including but not limited administration expenses and the obligations of the decedent’s estate, are paid. This is particularly important if the liabilities of the estate exceed the total assets (the estate is insolvent). In an insolvent estate, various assets may be exempt from the claims of creditors, and legal counsel should be sought to preserve such assets. Homestead and exempt property are statutorily defined in Florida.
Perfecting Rights of Spouses and Heirs
Heirs and spouses may have rights in a decedent’s estate and its assets that are superior to those of other interested persons. These rights may include the right to homestead property, certain exempt property and, in the case of a surviving spouse, to either claim an “elective share” or to be considered a pretermitted spouse. Children can also be considered pretermitted, if a they are born after the execution of certain wills and trusts. Generally, a pretermitted spouse or child are entitled to their “intestate” share of a decedent’s estate, while a surviving spouse claiming the elective share is entitled to a 30% share or statutory equivalent through various types of trusts. We are happy to represent spouses and heirs evaluates their rights in a decedents estate, which typically involves an evaluation of legal documents and the title of assets.
As individuals live longer, there is an increasing potential for litigation to arise while administering trusts and estates. Most attacks on wills and testamentary instruments arise based upon the argument that mental disorders caused an individual to lack capacity or that undue influence interfered with one’s testamentary wishes. The breakdown of family relationships, which can be the result of second marriages and geographic dispersal of siblings, has also contributed to the increase in contested probate proceedings. Personal representatives and trustees can also be accused of breaches of duty while serving their role, where they may be accused of self dealing, improper investment, breach of their duties of loyalty and care, and improper accounting.
Petition for Discharge
An order of Discharge is necessary to release the personal representative from its duties, brings the estate proceeding to a conclusion, and release any surety on any bond. Generally, a petition for discharge and a final accounting (if waivers are not received) shall be filed within in 12 months after the Letters of Administration are issued. The Petition for Discharge must include various items, including but not limited to, how any creditors’ claims were handled, a plan of distribution, the amount of compensation paid to the personal representative, attorneys, accountants, etc. Any objections to the Petition, Final Accounting and/or Plan of Distribution must be filed within 30 days. In addition, within 90 days of filing an objection, the objection party shall serve a notice of hearing or the objection is abandoned. If a federal estate tax return is filed, the deadline to file the petition is 12 months from the date the return is filed.
For probate estates having less than $75,000 of non-exempt assets, Florida law provides a simplified probate procedure, known as summary administration.
Whether as part of an estate administration or otherwise, trusts must be administered properly under both state trust laws and federal tax laws. There are many types of trusts, with the most common being the revocable “living” trust. Upon the death of the grantor of a revocable living trust, it becomes irrevocable and a separate taxpayer, often at higher income tax rates if steps are not taken to reduce applicable rates of tax. Furthermore, they become subject to all applicable state laws concerning how they are administered.
A revocable trust avoids probate by effecting the transfer of assets during your lifetime to the trustee, who is most often you during your life and while you have capacity. Doing so permits your successor trustee to administer the trust after incapacity and eventual death, without the need for court supervised guardianship or probate proceedings. The trustee (your successor, who is often a spouse or one or more children) has immediate authority to manage the trust assets at your death or in the event of your incapacity, without the need for court supervised guardianship or probate process. Avoiding probate may lower the cost of administering your estate and reduce the time delays associated with the probate process. However, the administration of a revocable trust after death is still similar to a probate administration from the standpoint of the need to inventory, value, and transfer assets and has various inherent tax consequences associated with each act. For example, a trustee must collect and value the trust assets, determine creditors and beneficiaries, pay taxes and expenses, and ultimately distribute the trust estate. Tax consequences must be considered at each step. A trustee is entitled to a fee for administration of the trust, as is the personal representative of an estate. To the extent professional services of attorneys, accountants, and estate liquidators are used to complete the process, the savings is generally less than that of incurred in a probate proceeding, and is regulated by Florida statute which infers it should be 25% less than a formal probate process.
Upon your death, a trustee (or your successor if you were the initial trustee) is responsible for paying all claims and taxes, and then distributing the assets to your beneficiaries as described in the trust agreement. Successor trustees often lack the time, resources, or knowledge to personally administer the trust, and therefore may call upon legal, tax, accounting, and investment professionals for assistance. The attorneys, CPAs and staff in our office have the resources and expertise to fulfill the trustee’s legal, tax and accounting responsibilities and investment management is often delegated to one or more professional investment advisors. For example, to reduce the liability exposure associated with investment management, Florida statute permits a trustee (or personal representative) to delegate investment management to a professional money manager and exculpate themselves from liability, if done properly and in accord with the statute.
Serving as trustee is not a simple task. While very important, the prudent investment of trust assets is not a trustee’s only responsibility. A trustee’s powers and duties will depend on the instructions in the trust instrument or as a result of duties and responsibilities imposed by state law. In general, a trustee will:
- File a Notice of Trust within the court in the County of Settlor’s Domicile
- Provide Notice to Qualified Beneficiaries within 60 days after acceptance of the position as trustee
- Assemble all assets of the trust and preserve them
- Use reasonable judgment in investing assets and preventing loss of value from lack of due care.
- Distribute trust income and/or principal to the beneficiaries, as directed in the trust instrument
- Make tax decisions concerning the trust
- Keep records of all trust transactions
- Issue statements of account and tax reports to the trust beneficiaries
- Answer any questions the beneficiaries may have concerning the trust
Tax Planning and Compliance
Your trustee or personal representative will be responsible for making sure that all necessary tax returns are completed and filed with the IRS. The following is a list of tax returns that are often required:
- Final Form 1040 of a decedent. This may involve a final joint return with a spouse and planning often involves basis issues and avoiding the lapse of loss carryovers, that may go wasted if not used.
- Form 1041 for the estate and each trust for each year they exist. Often decisions must be made on whether to take deductions and credits on one or more returns, to avoid waste of them and in order to reduce applicable taxes.
- Form 706, Federal Estate Tax Return- an inherently legal return in nature and scope, this return is essentially a final reconciliation of a lifetime of asset accumulation and potential liabilities and the last chance for the IRS to assess taxes on a decedent.
- Form 8971, Information Regarding Beneficiary Acquiring Property from a Decedent. A result of recent regulation and legislation, this new and involved form must be submitted and delivered to beneficiaries in specified ways or serious consequences can occur. For example, if improperly handled beneficiaries may receive a zero cost basis in assets they inherit, substantially increasing their capital gains taxes on future sale. Form 8971 must be filed and served on each beneficiary, providing the cost basis for each inherited asset. Subsequent transfers of the assets necessitates additional reporting.
As can be seen from the above, there is significant interplay between state estate and trust laws and federal tax laws. Florida does not have a state income tax, but states where beneficiaries reside or a decedent may own real property often due and planning can often reduce the impact of these taxes. To confront this interplay, we have developed trained teams of attorneys and certified public accountants to cope and confront the applicable issues. Doing so benefit our clients and their heirs by serving their needs in a more efficient manner than often exists where two or more professional service firms are required.
Trustees are subject to heightened duty- a fiduciary duty to serve the trust and its beneficiaries. Below is a list of duties imposed by Florida law, which a trustee is obligated to follow and in which are staff are trained to assist:
- Duty to Administer the Trust- A trustee must administer the trust in good faith, in accordance with its terms and purposes and the interest of the beneficiaries, and in accordance with the Florida Trust Code.
- Prudent Administration- A trustee must administer the trust as a prudent person would. Consideration must be given to the purposes, terms, distribution requirements, and other circumstances of the trust. A trustee may delegate duties and powers that a prudent trustee of comparable skills could properly delegate under the circumstances.
- Expenses of Administration- The trustee should only incur expenses that are reasonable in relation to the trust property, the purposes of the trust, and the skills of the trustee. If a trustee has special skills or expertise, the trustee should use those skills or expertise.
- Duty of Loyalty- A trustee must administer the trust solely in the interest of the beneficiaries. Any transaction entered into by a trustee which is affected by a conflict between the trustee’s fiduciary and personal interests is voidable by a beneficiary affected by the transaction, unless the transaction was authorized by the terms of the trust, approved by the court, or authorized by a creator of the trust while it was revocable. It should be noted that there is a presumption of a conflict of interest where a trustee enters into a sale, encumbrance, or other transaction with the trustee’s family members, employees, agents, attorneys, or a corporation in which the trustee has an interest that might affect the trustee’s best judgment. There is also a conflict where the trustee, in the trustee’s individual capacity, engages in a transaction if the opportunity to engage in the transaction properly belonged to the trust.
- Duty of Impartiality- If a trust has more than one beneficiary, the trustee must act impartially in administering the trust property, giving due regard to the interests of all beneficiaries.
- Duty to Collect, Control, and Protect- A trustee must take reasonable steps to take control of and protect the trust property. A trustee must take reasonable steps to compel a former trustee or other person to deliver trust property to the trustee and to redress any breach of trust known to the trustee.
- Duty to Keep Records- A trustee must keep clear, accurate, and distinct records of the administration of the trust. The property should be kept separate from the trustee’s own property. Trust property should be designated so that the interest of the trust is identifiable in records maintained by other parties.
- Duty to Inform and Account– A trustee must keep the qualified beneficiaries of the trust reasonably informed of the trust and its administration. A qualified beneficiary is any beneficiary to whom income or principal must or may be distributed. It also includes a beneficiary to whom income or principal must or may be distributed in the event that current distributees die or in the event that the trust terminates. A qualified beneficiary should be informed of the following:
(a) The acceptance of the trust by the trustee (within 60 days):
- Inform the beneficiary of the full name of the trustee; and
- Inform the beneficiary of the address of the trustee.
(b) The creation of an irrevocable trust or the transition of a formerly revocable trust to an irrevocable trust (within 60 days of the trustee acquiring such knowledge):
- Give notice of the settlor’s name;
- Give notice of the beneficiary’s right to request a copy of the trust instrument; and
- Give notice of the beneficiary’s right to annual accountings.
(c) A qualified beneficiary is also entitled to request the following:
- A complete copy of the trust instrument;
- Trust Accountings on an annual basis and at termination of the trust (if it is an irrevocable trust); and
- Relevant information about the assets and liabilities of the trust and the particulars relating to administration.
- Duty of Good Faith- Where a trustee is given a discretionary power, the trustee must exercise that power in good faith and in accordance with the terms and purposes of the trust and the interests of the beneficiaries.
- Duty to Distribute Income and/or Principal- Generally, unless the terms of the trust expressly indicate otherwise, a person who is both trustee and beneficiary may not make discretionary distributions of either principal or income:
(a) To or for the benefit of that trustee except to provide for that trustee’s health, education, maintenance, or support; or
(b) To satisfy any of the trustee’s legal support obligations.
Further, consent must be obtained from the remainder beneficiaries of the Trust when a person who is both a trustee and beneficiary wants to make discretionary distributions of principal to or for the benefit of that trustee. Other specific provisions in the Trust regarding discretionary or mandatory distributions of trust income or principal must be followed by the Trustee.
- Prudent Investor Rule- A trustee has a duty to invest and manage investment assets as a prudent investor would considering the purposes, terms, distribution requirements and other circumstances of the trust. This requires the trustee to exercise reasonable care and caution.
- Duty to Diversify – The trustee has a duty to diversify the investments unless, under the circumstances, the trustee believes reasonably it is in the interests of the beneficiary and furthers the purposes of the trust not to diversify.
- Investment Decisions – Trustees have a duty to pursue an investment strategy that considers both the reasonable production of income and safety of capital. Trustees must also review the investment portfolio of a trust within a reasonable time after acceptance of the trust and make decisions concerning the retention and disposition of preexisting investments.
- Delegation of Investment Functions – A trustee may delegate any part or all of the trustee’s investment functions to an investment agent if the fiduciary exercises reasonable care, judgment and caution in selecting the agent, and in establishing the scope and terms of the delegation. The trustee should periodically review the agent’s actions in order to monitor overall performance and compliance with the scope and terms of the delegation. If a trustee intends to delegate investment functions, the trustee must give written notice to all beneficiaries eligible to receive distributions from the trust. The notice should be sent within 30 days of the delegation, and can be sent by any form of mail or commercial delivery service requiring a signed receipt. The trustee should keep the signed receipt or other proof of notice for the trustee’s permanent records.