When it comes to asset transfers after receiving an inheritance, you may have heard about the probate process, a formal legal procedure supervised by the court.
While probate is necessary in some cases, there are certain types of transfers that are not subject to probate. In this post, we will delve into the different scenarios and provide an explanation to help you understand the probate process and non-probate transfers.
Summary Administration Proceeding
In Florida, there is a simplified estate administration process called summary administration for estates valued at $75,000 or less. It can also be available when a minimum of two years has passed since the decedent’s passing.
Will Administration and Intestacy
In other cases, if you use a will to direct asset transfers after your passing, the executor named in the document would be required to admit the will to probate. The probate court would oversee the process not only for will administration but also for intestacy matters. Intestacy refers to the condition of passing away without a will or trust in place.
The Probate Process
During probate, the court examines the validity of the will. If anyone wishes to contest the will, they can present their case while the estate is being probated.
Executor’s Duties
The executor’s responsibilities include posting a notice for creditors to come forward and seek payment for any outstanding debts. To handle the estate’s finances, the executor must open an estate bank account and obtain an Employer Identification Number from the IRS.
The assets of the estate are identified, inventoried, and prepared for distribution to the beneficiaries named in the will. In many cases, appraisals and liquidation of property may be necessary.
Ultimately, after expenses have been paid, the executor will distribute the assets that are left to the beneficiaries.
Probate Drawbacks
While probate provides a legal framework for asset distribution, there are certain drawbacks to consider. It can be time-consuming, with complex cases dragging on for years. As an example, the probate process for the estate of Prince, the late musician, took six years to complete.
Probate expenses also reduce the overall value of the estate, and since it is a public proceeding, anyone with an interest can access the records, resulting in a loss of privacy.
Transfers Not Subject to Probate
There are specific types of transfers that bypass the probate process. For example, joint tenancy with the right of survivorship allows for the seamless transfer of property.
By adding someone as a joint tenant, they become a co-owner of your property. When one joint tenant passes away, the surviving joint tenant automatically inherits the deceased tenant’s interest in the property, without involving the probate court.
Another non-probate transfer option is a payable-on-death (POD) account, typically a bank or brokerage account with a designated beneficiary. While the primary account holder is alive, the beneficiary does not have access to the assets. However, upon the account holder’s death, the beneficiary inherits the account without the need for probate.
Individual retirement accounts (IRAs) and life insurance policies are also non-probate transfers. If you are named as a beneficiary of an IRA, you assume ownership of the account outside of probate. Similarly, life insurance proceeds are directly transferred to the beneficiary without the involvement of probate.
Proactive Probate Avoidance Strategy
For most individuals, a revocable living trust serves as an ideal tool for avoiding probate. By transferring assets into the trust, you maintain control as the trustee and retain the right to make changes or revoke the trust.
After your passing, the successor trustee named in the trust document will distribute the assets to the beneficiaries, bypassing the probate process. Living trusts also offer the ability to include spendthrift protections, ensuring responsible management of assets and preventing poor investment decisions.
We Are Here to Help!
If you are ready to create a targeted estate plan that aligns with your needs and priorities, we can help. You can send us a message to request a consultation appointment, and our Coral Gables, FL estate planning office can be reached at 305-456-3255.
Justin serves as a member of the American Academy of Estate Planning Attorneys (AAEPA), a national organization comprised of legal professionals concentrating on estate planning. As a member of the Academy, he receives ongoing, comprehensive training on modern estate planning techniques.
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