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“Probate” is Not, and Doesn’t Have to be, a Nasty Word

Wed, Jan 18, 2017 at 3:50PM

        Almost everyone has heard a horror story about the disastrous consequences of a probate administration and the exorbitant cost to the estate and its beneficiaries. The story is usually followed by a proclamation from the audience stating “I’ll do anything to keep my assets from going through Probate!”, as if Probate is an evil that should be avoided at all costs.  It’s all too common a response from someone who doesn’t fully understand what Probate truly is designed to accomplish.

       Probate doesn’t have to be a terribly unpleasant procedure that spells disaster for all concerned. It is simply a means of conveying a deceased person’s property from the decedent to his or her heirs, while ensuring that all assets of the estate are accounted for and that taxes due are paid, protecting the rights of creditors (and limiting their right to claim against the estate), ensuring that the deceased’s estate plan is followed (which may eliminate or minimize taxes for the estate and the beneficiaries and create a long-term plan for protection and growth of assets and benefit to beneficiaries, who may not be used to handling assets or not capable of protecting themselves).

        To accomplish these purposes, certain procedures are part of the Probate process that necessarily take time, such as determining the identity and value of estate assets, giving creditors notice and period for them to file claims (which are thereafter barred), filing necessary tax returns and final accounting and distributing specific and general beneficiary gifts. Although these tasks take some time, they can and should overlap in their accomplishment and get resolved in a matter of months – not years, except in rare cases of complex estates. The key to efficiently accomplishing the process is for the professional advisors, Personal Representative and beneficiaries to all understand the process and work together to efficiently complete it. But is it necessary? In many cases, the answer is “yes”. Let’s say Joe Smith dies owning some vacant land, a car and a bank account. He isn’t married, and has a grown son and daughter.  He may not havetaken the time to make a will, so his children would know that he wanted them to have the vacant land, the car and the bank account but Joe isn’t here to sign the deed, the title and the check.  What to do, what to do!?  In such a case, it is Probate that comes to the rescue and accomplishes all of this, while providing tax benefits to Joe’s beneficiaries. Or, Joe’s son, whom he did name in a will as the Personal Representative, petitions the court to admit Joe’s will to Probate.. appoint him as Personal Representative and issue Letters of Administration, giving him the authority to convey the property, car and bank account pursuant to Joe’s wishes as expressed in his will, and deliver the same tax benefits to the beneficiaries.  So you ask…why didn’t Joe change the deed on his property, his car title and his bank account before he died?  We may or may not know the  reasons, which can be  endless, but let me illustrate just one example that will provide the tremendous tax benefits of Probate.

       Joe bought vacant land 1957 for $10,000.00. Throughout the various ups and downs of the real estate market, re-zoning, and various infrastructure improvements adjacent to the land, on the day Joe died the property had gained substantial value.  During the probate administration, the property is appraised as of Joe’s date of death at $1,000,000.00, a gain of $990,000.00.  Joe’s children, his beneficiaries, get the benefit of a “stepped-up” value of the property, and inherit the property with a tax basis of not $10,000.00 (which was Joe’s tax basis). The result is that, if beneficiaries sell the property soon after Joe’s death, they will not have to realize any capital gain on the increased basis value. If Joe had conveyed the property to them during his lifetime, to “avoid Probate”, the beneficiaries would have been taxed on a capital gain of $990,000.00. In this case, the cost of Probate administration would have been a fraction of the capital gains tax they would owe.

       Another all-too-common scenario is this: Joe deeds the property to his daughter to avoid Probate. She knows her dad intends for the property to be sold and the money split between she and her brother, and he trusts her to do the right thing.  But after her dad is buried, her husband tells her she should keep the money because they have kids to put through college and her brother is single and doing well financially.  She struggles with this for a little while, but ultimately concedes and tells her brother “Sorry bro’, the land was mine and I’m keeping the land and money from its sale”. In this case, Joe’s intent is frustrated (his son does not receive his inheritance) and there is a terrible tax burden attached to the property.

       As far as the attorneys making a killing (pardon the pun) on their role in the estate administration (a complaint often heard), Florida Statutes have guidelines dictating the amount of fees that an attorney can charge to represent the Personal Representative of an estate. While there may be some variation in the amount of fees attorneys may charge according to the simplicity or complexity of the estate, they must abide by the statutes, and in some cases, get the approval of the court, in doing so.  Also, the Personal Representative and the beneficiaries have a right to know how those fees are calculated and may object to the payment of fees before the estate is closed. The key here is to use a law firm that is ethical and charges no more than the statutory fee, which is generally less than half of a standard real estate commission, by comparison.

       While the cost of Probate may seem to some to be expensive, in many cases it is far less costly than some of the alternatives employed to avoid it. In addition, during probate, the Personal Representative often receives “post-death” advice that can produce additional asset advice and savings, avoidance of creditor claims, tax benefits, etc. Often, the benefits from this “post death” advice exceed the cost of Probate.

       We invite anyone interested in estate planning or Probate of an estate, to consider our firm. Our estate planning and Probate attorneys have years of experience and can take the mystery and rumors out of the estate planning and Probate process and offer the advice necessary to make it an efficient process. Rest assured, if Probate is really unnecessary in your case, we will be the first to advise you of that fact.

To learn more, call our office at (386) 252-1561 or click here to contact us via email.


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