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Categorizing Estate Assets

Administering a Florida estate can be a simple and straightforward process, or it can seem like a crazy labyrinth filled with potential pitfalls.  The difference often comes down to how complex the estate is and how well it has been arranged.  A little planning up front can make estate administration in Florida a lot less daunting.  This planning process should ideally consider the ease of categorizing estate assets in Florida and elsewhere, and making this easier to understand is the focus of today’s article.


3 Florida estate planning steps you can take now

If you’re tasked with administering a Florida estate, one of the first steps after securing appointment as the estate’s personal representative is to take an inventory of assets.

An estate inventory should not only determine what assets are in the estate, but also examine how those assets are held and in a nutshell, this the process of categorizing estate assets in Florida.

Not every asset needs to pass through probate.  Indeed, many assets can be arranged to automatically transfer to a named beneficiary or joint owner—making a personal representative’s job a lot easier.

You may or may not know that probate administration in Florida is likely to occur whenever an individual dies with assets titled in his or her individual name. If you have a Florida revocable living trust, you may also know that this tool is designed to avoid the probate process. However, without knowing more categorizing estate assets AND what does and does not constitute a probate asset, your estate may end up in probate despite your best planning intentions. You also need to know that some assets may be deemed “non-probate” assets even if they are not titled in your revocable living trust. All this “stuff” is the subject of this week’s article.

Recognizing Probate VS. Non-Probate [When Categorizing Estate Assets in Florida]

As a bit of review, probate assets are those assets titled in the name of the deceased person alone and which do not list a beneficiary, and assets that are not properly transferred to a revocable living trust may be subject to probate.  By “transferred” I mean that most assets must be re-titled (re-named) so that the trust owns them and not the individual or married couple. This process of re-titling asset assets is called trust funding in Florida.

Probate Assets in Florida

So, the default rule, for categorizing estate assets in Florida, is that any assets owned by a decedent need to go through the Florida probate process.  Probate estates include assets bequeathed by Florida last will and assets owned by intestate decedents (i.e., someone who dies without a will).  Basically, any property rights personally held by a decedent as of his or her death are assumed to become part of the probate estate—unless a specific asset has been planned so as to bypass probate.

A decedent’s probate estate can include just about any type of asset you can think of—real estate, personal property with a title like a vehicle or boat, personal property without a title, cash, bank accounts, business interests, digital assets in Florida and elsewhere, intellectual property, and so on.  It’s the personal representative’s job to identify all assets in the estate and—after the estate is administered and any creditor claims are paid—ensure ownership ends up with the correct beneficiary.

For categorizing real estate assets in Florida, that means recording a deed in the heir’s name.  Personal property with a title is similarly retitled to the beneficiary.  With financial accounts and cash, a Florida personal representative usually opens a new bank account in the name of the estate and transfers or deposits the decedent’s funds into the estate’s account.  Money in the account is typically used for the costs of administration and to pay creditor claims, with any residue ultimately distributed to beneficiaries.

Personal property with no title can be a little messier.  If a specific item is addressed in a will, the representative simply turns over possession to the beneficiary (keeping careful records of all transfers).  Otherwise, personal property can be distributed after consultation with and among the heirs, or it can be sold, with proceeds ultimately paid to the estate’s beneficiaries. For particularly valuable personal property like jewelry or artwork, it’s a good idea to document the chain of title by executing a formal assignment from the estate to the beneficiary.

Estate planners can streamline personal the process of categorizing assets in Florida related to PERSONAL PROPERTY administration by creating a “Memorandum of Personal Property.”  The memorandum, which should be referenced in the official will, is a document that identifies specific items the testator wants to end up with identified heirs.  For the most part, it only addresses items with substantial economic or sentimental value, rather than random “stuff” from around the house.  So, for instance, you might include within a memorandum your grandfather’s gold watch that you intend to leave to your son.  But you can safely omit the half-eaten box of stale Cheerios that’s been taking up space in the cupboard.

Probate is an important process that serves a vital societal need.  However, it can also be cumbersome, time-consuming, and (all-too-often) expensive.  With that in mind, avoiding probate when possible is a priority in many Florida estate plans.  And, fortunately, the Florida courts and legislature have recognized quite a few effective strategies for doing just that.

Non-Probate Assets in Florida –  Automatic Transfers

When categorizing estate assets in Florida, it is important to know that assets that a decedent owned but which bypass probate are generally called “non-probate assets.”  Non-probate assets get to skip probate because they never actually become part of the estate.   Instead, ownership transfers to a new owner automatically upon the decedent’s death or pursuant to the terms of a separate trust.

Automatic transfer can occur if an asset has a valid payable-on-death (“POD”) or transfer-on-death (“TOD”) designation in Florida—or if the asset is of the kind that can include a named beneficiary.   In Florida, PODs are most commonly used with CDs and financial accounts—particularly bank accounts.  If a savings account, for instance, is titled to “Eddard Stark P/O/D Robb Stark,” Eddard will retain all rights in the account until his death, at which point Robb will become the owner automatically, with no need for probate.  TOD designations work more or less the same way and are commonly used with stocks and bonds.

A beneficiary designation involves the same basic concept.  An asset is exclusively owned by one person for life and, upon death, automatically transfers to a beneficiary who had been named in advance.  The most common assets allowing for automatic transfer to a named beneficiary are retirement accounts and life insurance policies.  A life insurance policy with a beneficiary designation in Florida doesn’t become part of an insured decedent’s probate estate if it automatically pays out to a named beneficiary upon the insured’s death.  However, policy proceeds may still be part of the decedent’s taxable estate for federal estate-tax purposes, even though the money bypasses probate.

Estate planning for retirement accounts like IRAs and 401Ks in Florida also allow accountholders to name eventual beneficiaries.  Like with a POD or TOD asset, a retirement account beneficiary automatically takes ownership of the account upon the original owner’s death, thereby bypassing probate.  Naming a beneficiary is especially important for qualified retirement accounts because, if the account balance becomes part of a decedent’s estate, it will lose some of the potential tax advantages that come with inherited retirement accounts.

Unfortunately, not all property is eligible for automatic transfer through a POD, TOD, or beneficiary designation.  Under Florida law, for example, neither vehicle titles nor real estate deeds can be set up for automatic transfer using the customary approaches.  However, Florida does recognize “enhanced life estates” (also called “Ladybird deeds”) for real estate. A Ladybird deed in Florida allows a real estate owner to approximate the results of a TOD designation by reserving a life estate in land while naming a remainderman to take title upon the original owner’s death.  Enhanced life estates differ from conventional life estates in that the owner retains all right to transfer, mortgage, or use the property however he or she pleases, with no risk of liability to the future owner.

Joint Ownership of Assets in Florida

Trust Funding Guidance in Florida

Another type of asset to consider when categorizing estate assets in Florida is jointly owned property.  Transfer outside probate can also be achieved using certain forms of joint ownership.  Two of the three co-ownership models recognized in Florida—joint tenancy and tenancy by the entireties—include a “right of survivorship.”  When either of those two models is in effect, upon the death of the first owner, the other owner automatically takes full, undivided ownership of the jointly held asset.  Probate is therefore unnecessary for an asset owned as joint tenants or tenants by the entireties because the decedent’s interest never becomes part of the estate.

By contrast, an interest in a jointly held asset owned in a co-tenancy (or tenancy in common in Florida) is generally subject to probate.  Co-tenants own a percentage interest in an asset.  Upon an owner’s death, the percentage interest becomes part of the probate estate.  Percentage interests in a co-tenancy can be inherited through intestate succession, devised by will, or distributed through a trust or comparable estate-planning strategy.

For estate-planning purposes, the big difference between using joint ownership to bypass probate compared to a beneficiary, POD, or TOD designation is that a joint owner has concrete rights in the jointly owned asset prior to the original owner’s death.  To illustrate the distinction, let’s say you want to transfer a bank account to your daughter outside of probate.  If you set up the account with a POD, your daughter doesn’t have any right to access the account funds until your death.  On the other hand, if you title the account in both of your names as joint owners, she has the power to make withdrawals as soon as she is added to the account.

A POD designation on a bank account, discussed above, is occasionally called a “poor man’s trust” because it’s a simple, inexpensive way to retain effective control of account funds for life and transfer the balance outside probate at death.  But, of course, if bypassing probate is your objective, you also have the option of using the Real McCoy.

Florida Revocable Living Trust and Irrevocable Trust Assets

For those of you without an understanding of revocable living trusts, this is essentially a contract to govern your estate plan. This contract empowers the trustee to manage the trust property for the benefit of one or more beneficiaries. It is created by declaring that property is going to be maintained for the benefit of one self or someone else. It may also be for the benefit of a class of persons. A revocable living trust in Florida offers many benefits, like most contracts, is not filed of public record anywhere and uses your social security number for tax purposes. This is a key difference between revocable and irrevocable trusts in Florida. So, property that is titled in a revocable living trust, will ideally avoid the probate process.

A revocable living trust (commonly called “inter vivos trust” or just “living trust”) lets you retain control of assets transferred into the trust and also decide where trust assets end up after you die.  In a nutshell, you create a living trust naming yourself as trustee and beneficiary.  Then, you transfer into the trust whichever assets you are trying to keep out of probate.  Within the trust instrument, you name a successor trustee to assume the role after you die and provide instructions to the successor trustee as to how trust assets should eventually be distributed to the ultimate beneficiaries.

Revocable living trusts are a popular will substitute because they avoid probate, allow for greater flexibility and privacy than traditional wills, and can be relatively simple and inexpensive to create for less complicated estates.  And, if the situation changes in the future, you can always amend or revoke the trust.

Irrevocable trusts in Florida have the same basic structure but with a crucial distinction.  Once assets are transferred into an irrevocable trust, the person creating the trust no longer has the right to revoke or amend the trust.  It’s a fait accompli.  The advantage of irrevocable trusts is that they can accomplish some objectives that revocable trusts can’t—especially relating to more sophisticated planning for estate taxes, Medicaid eligibility, and long-term asset protection.

Trust Administration verses Probate Administration in Florida

A trust administration in Florida or “other administration” that is “non-probate” is a private process, whereas probate is a court supervised process for finalizing the financial affairs of a deceased person. A probate administration may be formal, summary or non-court supervised, depending on the nature of the probate assets. It is the process of proving to a probate court that the will is genuine. It is initiated by filing a petition for probate with the court.

The probate court supervises the disbursement of the probate assets, and is specialized and greatly detailed within state law. If there are probate assets in more than one state, an ancillary administration may be needed in those states.

Recognizing Assets with a Beneficiary Designation

In addition, property that passes by a beneficiary designation, such as an IRA, 401(k) or life insurance policy, is generally also not subject to probate and would be considered a non-probate asset. The assets of the revocable living trust as well as other non-probate assets are still subject to the administration of the estate, which includes the payment of debts and the satisfaction of creditors.  If all the estate assets are in your revocable living trust, then this administration would be a “trust administration in Florida” by definition.

Recognizing Personal Property Assets

Property that has no title (personal property) should be designated in a memorandum that is referenced in a will or trust. Property that has no title may or may not be within the reach of the probate court; however, it may establish and represent the right to receive something of value from the estate. Also, property held by a married couple is generally considered to belong to the marriage rather than to the husband or the wife individually.  How marital property is treated will depend upon the jurisdiction and whether it is a Community Property State (i.e. California) or a Tenancy by the Entirety State (i.e. Florida).

Recognizing Assets in an “LLC or Corporate Entity” 

Business interests—like corporate shares or a membership interest in an Florida LLC—can also descend to heirs through probate.  Sometimes, though, a Florida buy/sell agreement between business partners, an Florida LLC’s operating agreement, or a corporation’s bylaws or shareholder agreement will place restrictions on the transfer of ownership interests.  When that is the case, an estate’s personal representative may have to sell the estate’s ownership interest back to the business or to other partners.  At that point, the sale proceeds become part of the estate and can be deposited in the estate’s bank account for handling along the same lines as other estate funds.

Family LLCs offer another option for transferring assets outside probate.  It’s a somewhat more complicated approach.  But what it boils down to is you set up an LLC to own the assets you want to pass down.  Then, rather than transferring the assets directly, you instead pass down the ownership interest in the LLC.  They’re not nearly as common as living trusts, but, in the right situation, family LLCs can result in substantial estate tax savings.

The “take away” from all of the above, is to understand that nature of your assets now so there are no surprises down the road. All of this is necessary to assist in your Florida estate planning process AND avoid unnecessary confusion upon the passing of a loved one.

Steve Gibbs, Esq.

This is an updated version of an article originally published on April 21, 2016. 







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