(And, sometimes taxes)
Questions and Answers for Laymen
Q: What is probate?
A: Probate is a court proceeding required whenever a deceased
person’s assets pass by will or by the law of intestacy (statutory
distribution where there is no will). In probate, the court determines
who are the legal beneficiaries of an estate, appoints the personal
representative (executor), decides creditors’ claims, and finally
authorizes the distribution of the assets remaining. Probate proceedings
also become a part of the public record, which offends some who prefer
such matters to be private.
Q: When does it occur?
A: When a person dies owning any assets in his or her own name.
Q: Does a will avoid probate?
A: NO. As stated above, assets of all kinds which are to be distributed in accordance with a will must pass through probate.
Q: What does probate cost?
A: Both the complexity of probate proceedings and the applicable
rules of probate require that estates be probated by an attorney, and
therein lies the cost. Attorney fees are by far the major cost of
probate, often representing ninety percent or more of total costs.
Currently, Florida law provides a schedule of attorney’s fees “presumed
reasonable” for “basic probate services” in which such fees are
determined by the gross asset value of the estate, even though gross
value may have nothing to do with the amount of attorney time required.
For an estate valued at less than $40,000.00, the scheduled fee is
$1,500.00 – several times the usual cost of a living trust estate plan.
Q: How long does probate take?
A: A recent study of probate in Florida and several other states
found that the average time to complete probate is sixteen months.
Q: Is it true that there can be more than one probate required?
A: TRUE! The principal (“domiciliary”) probate takes place in the
state of the decedent’s residence, but an additional probate (called
“ancillary probate”) must take place in each state in which the decedent
owned real estate. So, for example, if a person dies owning a home “up
north” and a vacation cottage elsewhere, in addition to a Florida
residence, there would be one probate required in each state for a total
of three. Costs would be substantially increased in such an event.
Q: Can probate be avoided?
A: YES! While there are several methods by which one can avoid
probate, the revocable living trust often is the best choice because it
enables the settlors (the persons who create the trust) to remain in
complete and exclusive control over their assets while avoiding both
probate and guardianship. It thus avoids the substantial cost and the
loss of privacy of both such proceedings.
Q: How do you create a revocable living trust, and how does it work?
A: A revocable living trust is created by having an attorney prepare a
“declaration of trust” if you are to be the initial trustee(s), or a
“trust agreement” if someone else is to be. The trust document reserves
to you the right to change or revoke the trust at any time and
establishes how your assets are to be used at your death. It also names
the present trustees of the trust (who are the persons who manage the
trust and through whom it acts). Most people name themselves as the
initial trustees, thereby avoiding fees for others to manage the trust,
and then name one or more of the beneficiaries of the trust or a
corporate trustee as successor trustee(s) of the trust to take over when
the settlors are unable to serve (such as if they are incompetent or
deceased). Thus created, the trust is a “paper” entity which is treated
legally as if it were a separate person from its creators, but all of
the assets of the trust remain under the exclusive control of the
settlors while they are alive and competent. If the settlors become
incompetent or die, however, the successor they have selected
automatically steps in to manage the settlors’ assets for their care as
the trust directs in the case of incompetency or to distribute the
assets to the beneficiaries named in the trust without the delay, cost
and publicity of the court proceedings which would occur if there were
Q: What assets can I put into a trust?
A: Substantially anything: your house and other real estate, your
investments and bank accounts, even your business or your collection of
Picassos tucked away in the garage.
Q: Can a trust avoid taxes?
A: Most trusts have no income tax effects, and, indeed, there are few
remaining opportunities to save income taxes through trusts under
current law. Florida has no independent estate and inheritance taxes of
its own, and most estates are not liable for federal estate taxes which
now have a threshold of $5 million as of January, 2013. Because of the
threshold, less than two percent of us are exposed to them according to
the IRS. IF one’s estate is so exposed, careful gifting using the annual
gift tax exclusion and the use of a kind of trust called “bypass” or
“credit shelter” or “A-B” trusts can make it possible to leave more than
double the threshold amount to non-spouse beneficiaries (any amount can
be left to a spouse without taxation).
Other options for estate tax or income tax avoidance (or both)
include charitable gifts, charitable trust and irrevocable life
insurance trusts for those with a need or desire for them.
* * * If you wish to learn more about living trusts, please call me: (727) 846-6945