What Is Estate Administration?
Estate Administration is the management of the decedent’s affairs, including securing of assets, determination of beneficiaries entitled to the assets, filing of appropriate income and estate tax returns, and the discharge of legal debts, funeral expenses, and costs of administration. Estate Administration involves the following division of assets and management:
- PROBATE. Probate is a court-supervised process for identifying and gathering the decedent’s assets, paying taxes, claims and expenses and distributing assets to beneficiaries. The Florida Probate Code is found in Chapters 731 through 735 of the Florida Statutes.
The Court admits the decedent’s Last Will & Testament to probate and appoints a personal representative(s) who is the primary person(s) responsible for marshalling assets in the decedent’s name and paying the decedent’s just debts.
- REVOCABLE TRUST. The decedent may have created a Trust that holds most if not all of the decedent’s financial assets. Usually the Personal Representative is also the Trustee of the Trust. The Trust is generally responsible to the Personal Representative for the payment of the decedent’s debts and costs of administration.
- JOINT ASSETS, LIFE INSURANCE, AND PENSION ACCOUNTS. The Personal Representative assists the legal beneficiaries in the procurement of said assets and obtains that part, if any, that is subject to the decedent’s bills, expenses, and statutory claims; such as securing the spouse’s rights.
- CONSTITUTIONALLY EXEMPT PROPERTY. The Personal Representative provides to the Court evidence establishing Homestead Real Estate Exemption, Exempt Personal Property, and other procedures that exempt special assets from the decedent’s unsecured debts and estate administration.
What Are Probate Assets?
Generally, probate assets are those assets in the decedent’s sole name at death or otherwise owned solely by the decedent and which contain no provision for automatic succession of ownership at death. For example:
- a bank account in the sole name of a decedent is a probate asset, but a bank account held in-trust-for (ITF) another, or held jointly with rights of survivorship (JTWROS) with another, is not a probate asset;
- a life insurance policy, annuity or individual retirement account that is payable to a specific beneficiary is not a probate asset, but a policy payable to the decedent’s estate is a probate asset;
- real estate titled in the sole name of the decedent or as a tenant in common with another person, is a probate asset (unless it is homestead) but real estate held as joint tenants with rights of survivorship or as tenants by the entirety is not a probate asset;
- property owned by husband and wife as tenants by the entirety is not a probate asset on the death of the first spouse to die, but automatically vests in the surviving spouse.
Why Is Probate Necessary?
Probate is necessary to wind up the affairs the decedent leaves behind. It ensures that all of the decedent’s creditors are properly paid. Probate also serves to transfer assets from the decedent’s individual name to the proper beneficiary. Florida has had probate laws in force since becoming a state in 1845. Florida law provides for all aspects of the probate process, but allows the decedent to make certain decisions by leaving a valid will.
What Is a Will?
A will is a writing, signed by the decedent and witnesses, which meets formal requirements set forth by Florida law. A will usually designates a personal representative to administer the estate and names beneficiaries to receive probate assets. A will can also do other things, including establishing a trust and designating a trustee.
To the extent a will properly devises probate assets and designates a personal representative, the will controls over the automatic provisions set forth under Florida law. In the absence of a valid will, or if the will fails in either respect, Florida law designates the beneficiaries and designates the way to select the personal representative.
What Happens to Probate Assets If There is No Will?
- Surviving Spouse and No Lineal Descendants. If there is a surviving spouse and no lineal descendants, the surviving spouse takes all.
- Surviving spouse and lineal descendants. (1) No Surviving Spouse, But Lineal Descendants. If there is no surviving spouse, but there are lineal descendants, the lineal descendants share the estate, which is initially broken into shares at the children’s level, with a deceased child’s share going to the descendants of that deceased child. (2) No Surviving Spouse, No Lineal Descendants. If the decedent left no surviving spouse or lineal descendants, the probate property goes to the decedent’s surviving parents, and if none, then to the decedent’s brothers and sisters and descendants of any deceased brothers or sisters. The law provides for further disposition if the decedent is survived by none of these.
- Exceptions to Above. The above provisions are subject to certain exceptions for homestead property, exempt personal property, and a statutory allowance to the surviving spouse and any lineal descendants or ascendants the decedent supported. Regarding homestead, if titled in the decedent’s name alone, the surviving spouse receives a life estate in the homestead, with the lineal descendants of the deceased spouse receiving the homestead property upon the death of the surviving spouse. If there are no lineal descendants, the surviving spouse receives full ownership of the homestead outright.
- If there is a surviving spouse and one or more lineal descendants (with the lineal descendants all being the lineal descendants of the surviving spouse as well as the decedent), the surviving spouse receives the first $60,000 of the probate estate plus one-half of the rest of the probate estate, and the lineal descendants share the remaining half.
- If there is a surviving spouse and one or more lineal descendants (one or more of which lineal descendants are not also lineal descendants of the surviving spouse), the surviving spouse receives one-half of the probate assets and the lineal descendants share the remaining half.
Who is Involved in the Probate Process?
While there may be others, the following is a list of persons or entities often involved in the probate process:
- Clerk of the Circuit Court
- Circuit Court (acting through a Circuit Court Judge)
- Personal Representative
- Attorney for the Personal Representative
- Internal Revenue Service (IRS)
- Florida Department of Revenue
- Surviving Spouse and Children
- Other Beneficiaries
- Trustee of Revocable Trust
Where Are Probate Papers Filed?
Probate papers are filed with the Clerk of the Circuit Court, usually for the county where the decedent lived. A filing fee must be paid to the clerk to commence the probate administration. The clerk assigns a file number and maintains a docket sheet which lists all papers filed with the clerk for that probate administration.
Who Supervises Probate Administration?
A Circuit Court Judge presides over probate proceedings. The judge appoints the personal representative and issues “letters of administration,” also referred to simply as “letters.” This document shows to the world the authority of the personal representative to act. The Judge also holds hearings when necessary and resolves all questions raised during the administration of the estate by entering written directions called “orders.”
What is a Personal Representative & What Does He Do?
The personal representative is the person, bank or trust company appointed by the court to be in charge of the administration of the estate. The generic term “personal representative” has replaced such terms as “executor, executrix, administrator and administratrix.”
The personal representative is directed by the court to administer the estate pursuant to Florida law. The personal representative is obligated to:
- Identify, gather, value and safeguard probate assets.
- Publish a “notice to creditors” in a local newspaper, giving notice to file claims and other papers relating to the estate.
- Serve a “notice of administration” on specific persons, giving information about the estate administration and giving notice of requirements to file any objections relating to the estate.
- Conduct a diligent search to locate “known or reasonably ascertainable” creditors, and notify them of the time by which their claims must be filed.
- Object to improper claims and defend suits brought on such claims.
- Pay valid claims.
- File tax returns.
- Pay taxes.
- Employ necessary professionals to assist.
- Pay administrative expenses.
- Distribute statutory amounts or assets to the surviving spouse or family.
- Distribute assets to beneficiaries.
- Close probate administration.
Who Can Be a PR?
- The personal representative could be an individual, bank, or trust company, subject to certain restrictions.
- An individual who is either a resident of Florida, or is a spouse, sibling, parent, child, or certain other close relatives, can serve as personal representative.
- A trust company incorporated under the laws of Florida, or a bank or savings and loan authorized and qualified to exercise fiduciary powers in Florida, can serve as personal representative.
Who Has Preference To Be PR?
- If the decedent left a valid will, the designated personal representative nominated in the will has preference to serve.
- If the decedent did not leave a valid will, the surviving spouse has preference, with second preference to the person selected by a majority in interest of the heirs.
Why Does the PR Need an Attorney?
In almost all instances the personal representative must be represented by a Florida attorney. Many legal issues arise, even in the simplest estate administration. The attorney for the personal representative advises the personal representative on rights and duties under the law, and represents the personal representative in estate proceedings. The attorney for the personal representative is not the attorney for the beneficiaries.
How Are Estate Creditors Handled?
Prior to commencement of probate proceedings, a creditor can file a caveat with the court. Upon publication of notice to creditors a creditor or other claimant may file a document called a “statement of claim” against the estate with the Clerk of the Circuit Court where the estate is being administered. This claim is generally required to be filed within the first three months of publication of a prescribed notice in a countywide newspaper. This three-month period is often referred to as the “non-claim period.” The personal representative or any other interested person may file an objection to the statement of claim, after which the claimant must file a separate independent lawsuit to pursue the claim.
The personal representative is required to use diligent efforts to give actual notice of the probate proceeding to “known or reasonably ascertainable” creditors, to afford them an opportunity to file claims. A valid claimant is not viewed as an adversary of the personal representative but rather must be treated fairly as a person interested in the estate until the claim has been satisfied or otherwise disposed of.
How Is the IRS Involved?
For federal income tax purposes, death triggers two things. It ends the decedent’s last tax year for purposes of filing a federal income tax return, and it establishes a new tax entity, the “estate.”
The personal representative may be required to file the following returns, depending on income of the decedent, income of the estate and size of the estate:
- Final Form 1040 income tax return, reporting income for the decedent’s final tax year.
- One or more Form 1041 income tax returns for the estate, reporting income for the estate.
- Form 709 gift tax return(s), reporting certain gifts made by the decedent prior to death.
- Form 706 estate tax return, reporting the gross estate and deductions, depending upon the value of the gross estate.
The personal representative may be required to file other returns. Additionally, the personal representative has the responsibility to deal with issues arising from tax years prior to the decedent’s death (including tax returns that were filed by the decedent or that should have been filed).
The personal representative has the responsibility to pay amounts due to the IRS from the decedent and the estate and may be personally liable for those taxes. If a federal estate tax return is required to be filed, an estate tax closing letter is necessary to clear title to Florida real property, and in some instances in order to close the probate administration with the court.
How Is FDOR Involved?
The personal representative is required to send a copy of the probate inventory to the Florida Department of Revenue. If a federal estate tax return is not required to be filed with the IRS, then the personal representative is required to record in the public records (and file in a formal estate administration) an Affidavit of No Florida Estate Tax Due. If a federal estate tax return is required to be filed with the IRS, then the personal representative is required to file a Florida estate tax return, Form F-706, with the Florida Department of Revenue.”
Regarding Florida’s intangible tax, the Florida Department of Revenue may review the inventory to determine whether the estate, or the decedent while alive, failed to file a required intangible tax return or to pay intangible tax.
For estates required to file a Florida estate tax return, a nontaxable certificate or a tax receipt from the Florida Department of Revenue is required in order to clear title to Florida real property and in order to close a formal probate administration.
What Rights Does the Surviving Family Have in the Probate Estate?
Florida public policy protects the surviving spouse and certain surviving children from total disinheritance. Absent a marital agreement to the contrary, a surviving spouse may have homestead rights, elective share rights, family allowance rights, and exempt property rights. In addition, certain surviving children of the decedent may also have homestead rights, pretermitted child rights, family allowance rights, and exempt property rights. The existence and enforcement of these rights is often best handled by an attorney.
What Rights Do Potential Beneficiaries Have?
Other than the surviving spouse and children under certain circumstances, under Florida law, as with most other states, a decedent may entirely disinherit other potential beneficiaries.
How Long Does Probate Take?
For estates not required to file a federal estate tax return, the final accounting and papers to close the probate administration are due within 12 months of issuance of letters of administration. This period can be extended, after notice to interested persons. Specific periods of administration are as follows:
A. Creditors’ Period
For all deceased grantor trusts and probate estates, the law office opens a formal probate administration in order to commence the creditors’ claim period and thereby protect the estate, and/or trust, trustee and estate and trust beneficiaries from the claims of creditors of the decedent. On behalf of the personal representative of the decedent’s estate the attorney is required to publish Notice to Creditors in a local newspaper and to personally serve all known creditors with said Notice.
To be binding on the estate, a creditor must file a claim within the later of three (3) months after the time of publication of the Notice to Creditors or, as to any known creditor, 30 days after the date of service of actual notice on such known creditors. This three (3) month or 30 day period is known as the “Creditors’ Period.” Any claim filed after the expiration of the creditors’ period is barred. Consequently it is vitally important that all known and suspected creditors be notified as soon as possible.
Publication of the Notice to Creditors is accomplished after the Court’s issuance of Letters of Administration.
B. Federal Income Tax and Estate Tax Return, Form 706
It is important that the decedent’s final income tax return be filed, and that all estate and trust 1041 returns are filed. The attorney and accountant for the estate will advise the personal representative and Trustee as to tax elections that can be made so as to save money for the benefit of the beneficiaries.
For all decedents with a gross estate in excess of $1,500,000.00, a Federal Estate Tax Return, Form 706, must be prepared and filed within nine (9) months from the date of death. Any estate tax due must be paid within nine (9) months from the date of death.
If a federal estate tax return is required, the final accounting and papers to close the probate administration are due within 12 months from the date the tax return is due. This date is usually extended by the court because often the IRS’ review and acceptance of the estate tax return are not completed within that period. Generally speaking, the Internal Revenue Service provides final clearance within a year from the filing of the Estate Tax Return.
C. IRS and State of Florida Closing Letters
Along with the Federal Estate Tax Return, Form 706, a request for final determination of tax, release of liability and issuance of the Internal Revenue Service Closing Letter are requested. Based on prior experience, the IRS will issue a Closing Letter in nine (9) to twenty-four (24) months after the filing of the Form 706. The State of Florida typically will issue a closing letter upon receipt of the IRS’ Closing Letter.
The exact time of receipt of the Closing Letters varies greatly and is dependent upon the IRS’ workload and the nature and complexity of the Estate Tax Return.
When May Distribution of Assets to Beneficiaries Be Made?
In those estates where an Estate Tax Return, Form 706, is required, and where there are no unusual or unexpected tax or legal issues, the beneficiaries can expect to receive distribution of their share of the trust as follows:
- Specific Cash Bequests: Thirty (30) days following the expiration of the Creditors’ Period, unless filed claims and estate tax issues dictate otherwise.
- Income Distribution to Residual Beneficiaries: Thirty (30) days following the expiration of the Creditors’ Period, unless tax elections or asset management dictate otherwise.
- Substantial Partial Distribution to Residual Beneficiaries: Thirty to Forty-Five (30 to 45) days following the filing of the Federal Estate Tax Return, Form 706, a substantial distribution of a beneficiary’s share of available assets shall be made.
- Final Distribution to Residual Beneficiaries: Upon closing the probate estate after receipt of Closing Letters from the IRS and State of Florida, and upon the beneficiaries’ approval of the Trust’s Final Accounting.
Estates that are not required to file a federal estate tax return and that do not involve litigation may often close in five or six months.
How Are Fees Determined In Probate?
The personal representative, the attorney and other professionals whose services may be required in administering the estate (such as appraisers and accountants) are entitled by law to reasonable compensation.
Personal Representative Fee
Pursuant to Florida Statutes §733.617, the personal representative fee for services rendered, unless otherwise modified, is determined as follows:
- At the rate of 3 percent for the first $1 million.
- At the rate of 2.5 percent for all above $1 million and not exceeding $5 million.
- At the rate of 2 percent for all above $5 million and not exceeding $10 million.
- At the rate of 1.5 percent for all above $10 million.
In addition to the above commission, a personal representative shall be allowed further compensation as is reasonable for any extraordinary services including, but not limited to, the following:
- The sale of real or personal property.
- The conduct of litigation on behalf of or against the estate.
- Involvement in proceedings for the adjustment or payment of any taxes.
- The carrying on of the decedent’s business.
- Dealing with protected homestead.
- Any other special services which may be necessary for the personal representative to perform.
The fee for the personal representative is often modified by agreement between the personal representative and the beneficiaries of the estate. The probate court has ultimate jurisdiction to preside over disputes in regards to the personal representative fee.
If the probate estate’s compensable value is $100,000.00 or more, and there are two personal representatives, each personal representative is entitled to the full commission allowed to a sole personal representative. If there are more than two personal representatives and the probate estate’s compensable value is $100,000.00 or more, the compensation to which two personal representatives would be entitled must be apportioned among the personal representatives. The basis for apportionment shall be one full commission allowed to the personal representative who has possession of and primary responsibility for administration of the assets and one full commission among the remaining personal representatives according to the services rendered by each of them respectively.
Pursuant to Florida Statutes §733.6171, the attorney fee for services rendered is determined as follows:
- One thousand five hundred dollars for estates having a value of $40,000 or less.
- An additional $750 for estates having a value of more than $40,000 and not exceeding $70,000.
- An additional $750 for estates having a value of more than $70,000 and not exceeding $100,000.
- For estates having a value in excess of $100,000, at the rate of 3 percent on the next $900,000.
- At the rate of 2.5 percent for all above $1 million and not exceeding $3 million.
- At the rate of 2 percent for all above $3 million and not exceeding $5 million.
- At the rate of 1.5 percent for all above $5 million and not exceeding $10 million.
- At the rate of 1 percent for all above $10 million.
The fee for the attorney is often modified by agreement between the attorney and the personal representative. The probate court has ultimate jurisdiction to preside over disputes in regards to the personal representative fee.
In addition to fees for ordinary services, the attorney for the personal representative shall be allowed further reasonable compensation for any extraordinary service. What is considered an extraordinary service may vary depending on many factors, including the size of the estate. Extraordinary services may include, but are not limited to, the following:
- Involvement in a will contest, will construction, a proceeding for determination of beneficiaries, a contested claim, elective share proceeding, apportionment of estate taxes, or any adversarial proceeding or litigation by or against the estate.
- Representation of the personal representative in audit or any proceeding for adjustment, determination, or collection of any taxes.
- Tax advice on postmortem tax planning, including, but not limited to, disclaimer, renunciation of fiduciary commission, alternate valuation date, allocation of administrative expenses between tax returns, the QTIP or reverse QTIP election, allocation of GST exemption, qualification for Internal Revenue Code ss. 6166 and 303 privileges, deduction of last illness expenses, fiscal year planning, distribution planning, asset basis considerations, handling income or deductions in respect of a decedent, valuation discounts, special use and other valuation, handling employee benefit or retirement proceeds, prompt assessment request, or request for release of personal liability for payment of tax.
- Review of estate tax return and preparation or review of other tax returns required to be filed by the personal representative.
- Preparation of the estate’s federal estate tax return. If this return is prepared by the attorney, a fee of one-half of one percent (1%) up to a value of $10 million and one-fourth of one percent (1%) on the value in excess of $10 million of the gross estate as finally determined for federal estate tax purposes, is presumed to be reasonable compensation for the attorney for this service. These fees shall include services for routine audit of the return, not beyond the examining agent level, if required.
- Purchase, sale, lease, or encumbrance of real property by the personal representative or involvement in zoning, land use, environmental, or other similar matters.
- Legal advice regarding carrying on of the decedent’s business or conducting other commercial activity by the personal representative.
- Legal advice regarding claims for damage to the environment or related procedures.
- Legal advice regarding homestead status of real property or proceedings involving that status and services related to protected homestead.
- Involvement in fiduciary, employee, or attorney compensation disputes.
- Proceedings involving ancillary administration of assets not subject to administration in this state.
What Alternatives Are There to Formal Administration?
Florida law provides for several alternate, abbreviated procedures other than Formal Administration.
Summary Administration is generally available if the value of the estate subject to probate in Florida (less property which is exempt from the claims of creditors) is not more than $75,000.00, or the decedent has been dead for more than two (2) years.
Under Summary Administration, the persons who receive the estate assets remain liable for claims against the decedent for two years after the date of death. This period may be reduced in Summary Administration by publication of notice in a local newspaper.
Another alternative to Formal Administration is “Disposition Without Administration.” This is available if estate assets consist solely of exempt property (as defined by law and the Florida Constitution) and non-exempt personal property, the value of which does not exceed the combined total of up to $6,000 in funeral expenses, plus the amount of all reasonable and necessary medical and hospital expenses incurred in the last 60 days of the last illness.
If the decedent was not a Florida resident at the time of death, an alternate procedure may be used to admit the will to record in Florida. This procedure is used to establish title to Florida real property. When admitted to record in any Florida county where the real estate is located, the “foreign will” serves to pass title to the real estate as if the will had been admitted to probate. This procedure is available only if either two years have passed from the decedent’s death or the domiciliary personal representative has been discharged and there has been no estate administration in Florida.