When Non-Probate Assets End Up In Probate
Estate Planners will often draft Trusts for clients and have in-office signings to ensure proper execution. Often, however, responsibility will fall back on the settlors to then ensure the transfer of title of their assets into the Trust. In the case of real estate, an example of changing title would be a Deed from Jane Doe to Jane Doe as Trustee of the Jane Doe Revocable Trust u/t/d 12/31/19. Clients can also be forming bank accounts in the name of the trusts for trusts to use, so that they can transfer funds into those accounts. Another step is to convert bank accounts into Transfer on Death Accounts with the trust as beneficiary. What becomes problematic is when a person forms a trust, but does not fund the trust. This means they do not take any steps to transfer property into the trust. In these cases, persons form a trust thinking they will be able to avoid probate, but because title to the assets were never transferred into the trust, they are still owned individually. Because the assets are individually owned, they may be probate assets and subject to court supervision and the probate process.
Life Insurance Policies and Retirement Accounts are examples that allow for naming Designated Beneficiaries. If a proper beneficiary is named and survives the policy holder, then such proceeds can pass on to the designated beneficiary outside of the probate process. An issue is presented where the beneficiary and the secondary beneficiary named on such policy or account have either predeceased the decedent or no longer exist. Consider an example where decedent named their spouse as primary beneficiary and named their child as secondary beneficiary. If both the spouse and child predecease the decedent, the benefits of the policy or account are likely default to the estate of the decedent, meaning it is a probate asset and must pass through the probate process. Consider another example where decedent names their own revocable trust as primary beneficiary and charity as secondary beneficiary. If the revocable trust was revoked prior to decedent’s death, and the charity no longer exists then the benefits are likely to default to the estate of the decedent and must pass through the probate process since it would be a probate asset.
In Florida under Florida Statutes §689.15 “in cases of estates by entirety, the tenants, upon dissolution of marriage, shall become tenants in common.” This means that after a divorce, a real property interest that was tenancy by the entirety will convert to a tenancy in common. So instead of passing to the ex-spouse by operation of law, each spouse owns it own percentage interest in the property. That percentage interest would be a probate asset. Another scenario is where a deed is re-done specifically to change from JTRS to Tenancy in Common. In such cases, the percentage interest of the decedent is a probate asset.
Speak to an experienced Florida Probate Attorney to discuss how to avoid probate or solutions when assets intended not to end up in probate do end up having to go through the probate process.
Author: Matthew D. Pineda, J.D., LL.M., LLMLE
Note: The information in this blog post is provided as a service to the internet community, does not constitute legal advice, and should not be construed as legal advice or legal opinion on any specific facts or circumstances.