In estate and contract law, a “beneficiary” is simply someone who has the legal right to receive the benefits of an instrument or contract. A beneficiary of a will, for example, has the right to receive distributions of estate assets through the will. Or a trust’s beneficiary is someone who receives disbursements of trust assets or income—that is, the person the trust is designed to benefit. Similarly, a Florida life insurance policy’s beneficiary holds the right to receive the policy’s payout when it is triggered, and the designated beneficiary of a retirement account automatically accedes to the account upon the owner’s death. Florida beneficiary rights then would concern the right to receive benefits from these kinds of assets in Florida usually distributed from a Florida last will or Florida revocable or irrevocable trust.
Understanding Florida Beneficiary Rights
It’s important to note, though, that the right to receive payments or assets is not the only right enjoyed by beneficiaries. Under Florida law, beneficiaries are afforded numerous other privileges and protections, depending upon the vehicle through which they stand to benefit. If you’re a designated beneficiary under a will, trust, insurance policy, or other instrument, a familiarity with all of your legal and contractual rights allows you to better understand and take advantage of your position as a beneficiary.
Rights of Beneficiaries and Heirs in Florida Probate
Although the two terms are often used interchangeably, there is a distinction between an “heir” and a “beneficiary” in Florida probate law. A “beneficiary” in a Florida probate is someone named in a will and who has a right or potential right to receive wealth transferred through the will. An “heir,” on the other hand, stands to inherit—under state intestate succession laws—wealth from a decedent who did not have a will. Heirs are usually relatives of the decedent, but beneficiaries don’t necessarily have to be.
Although we will primarily use the term “beneficiary,” heirs of intestate estates have most of the same rights as beneficiaries—except when the right specifically relates to a will. Both heirs and beneficiaries have important “information rights,” or rights to be kept informed as estate administration progresses and notified of certain important events. Florida beneficiary rights require that Florida beneficiaries must be provided notice that an estate has been opened and that a personal representative has been appointed to act for the estate. If the estate is involved in any probate or trust litigation in Florida or if any adversary proceedings are commenced, beneficiaries have the right to receive notice and stay informed of the litigation status.
Florida beneficiary rights also require that beneficiaries also have the right to receive an accounting of the estate from the personal representative. The accounting must include an inventory of all estate assets in Florida and perhaps elsewhere, with each asset’s appraised value, and a statement of all transactions involving the estate. Transactions will include claims and expenses paid out and any receivables or income that comes in. If the estate includes a safe deposit box, a beneficiary can also request an accounting of its contents.
A beneficiary has the right to object to certain matters and petition the probate court for clarification of others. Within 90 days of receiving notice of the estate, a beneficiary can contest a will or appointment of the personal representative. If the identities or precise inheritances of an estate’s beneficiaries are not clear, potential beneficiaries can petition the court for a determination of either.
Because beneficiaries stand to gain from an estate, they have rights that help ensure estate assets are properly protected. Beneficiaries can object to claims filed by creditors (though that is usually the personal representative’s duty) and can petition the court for a determination as to whether an asset is exempt, including under Florida’s homestead exemption.
In general, Florida beneficiary rights require that a beneficiary has the right to be treated fairly by the Florida personal representative, who must always act in the best interest of the estate. If a personal representative is acting improperly, a beneficiary can petition the probate court for removal, contest a personal representative’s claim for compensation if it is unreasonable, or contest a transaction if the personal representative has a conflict of interest.
A beneficiary can expect to receive bequests with reasonable promptness, including through an interim distribution or family allowance when appropriate. Both allow estate assets to be disbursed while the estate is still pending. The promptness that a beneficiary can expect varies based on the circumstances of the estate. An estate with substantial assets in Florida, limited creditors, and specific bequests of assets will allow for quicker distributions than an estate that is entangled in litigation, has numerous creditor claims to sort out, and describes inheritances as a percentage of the estate’s value.
In many ways, the duties owed by a personal representative to an estate’s beneficiaries are similar to the duties owed by a trustee to trust beneficiaries. Both a trustee and a personal representative are fiduciaries, charged with putting others’ interests above their own. So, it isn’t surprising that the beneficiaries of a trust have many of the same rights as an estate’s beneficiaries.
Rights of Trust Beneficiaries in Florida
The rights of a Florida trust beneficiary are largely derived from the duties of the trust’s trustee. Trustees must administer their trusts in good faith, in accordance with the best interests of beneficiaries and the purpose of the trust. Beneficiaries have a right to a properly administered trust, managed in accordance with Florida trust law and the trust’s purpose. If there are any failings, beneficiaries can hold the trustee accountable.
A trustee’s duty to act in good faith and in beneficiaries’ best interests includes a duty to avoid conflicts of interest and self-dealing, and to reasonably limit trust expenses. If a trust has more than one beneficiary, the trustee must act impartially toward the beneficiaries. In the event of any improper dealing or expenses, beneficiaries can petition a court to void inappropriate transactions or to hold the trustee liable for losses incurred by the trust.
As with beneficiaries in probate, Florida trust law provides trust beneficiaries with substantial information rights. A beneficiary generally has the right to be kept “reasonably informed of the trust and its administration.” This includes the right to receive an annual accounting from the trustee, which must provide a record of all transactions involving the trust and a statement of all gains, losses, distributions, and fees. The required disclosure of fees includes all fees paid by the trust to the trustee and any professionals hired by the trustee on the trust’s behalf.
Florida beneficiary rights require that beneficiaries have the right to insist that the trustee protect trust assets—through appropriate legal action when necessary—and invest prudently. If the trustee has special skills, a beneficiary can expect that those skills will be used to benefit the trust. A trustee who fails to meet these standards potentially breaches the fiduciary duty owed to beneficiaries, in which case a beneficiary has the right to hold the trustee personally liable for any resulting losses and to petition a court for appointment of a different trustee.
Other Types of Beneficiaries: P/O/D, T/O/D, Retirement Accounts, and Life Insurance
“Payment on Death” (POD) and “Transfer on Death” (TOD) in Florida are similar designations allowing an asset’s title to automatically pass to a named beneficiary upon the current owner’s death. In Florida, POD designations are commonly used for bank and money-market accounts and CD’s. TOD designations are typically associated with stocks, bonds, and brokerage accounts. The big advantage of either designation is that, after the owner dies, the asset vests in the beneficiary with no need for probate.
A POD or TOD designee has the right to receive the subject asset in the future, at the time of the owner’s death, but doesn’t acquire a present interest when the designation is made, like with a life interest in real estate. So, where a remainderman of a life estate has a right to insist that the real estate be maintained and preserved to protect the value of the remainder interest, a TOD or POD beneficiary has no such right.
Retirement accounts, such as 401k’s and IRAs in Florida, allow the account owner to designate a beneficiary to accede to the account upon the owner’s death. As with a POD beneficiary, a retirement account beneficiary does not need to go through probate—the account passes automatically.
When the account transfers, the beneficiary has three basic options for accepting it (or four if the beneficiary is a spouse): withdraw the money and pay the income taxes now; leave the account in place and accept required minimum distributions over the beneficiary’s life expectancy; or roll over the account into an “inherited IRA,” which allows for continued tax deferral but no additional contributions. A beneficiary spouse can do any of the above or roll over the account into an IRA in the name of the surviving spouse, which is then treated as if it had always belonged to the surviving spouse.
Life insurance beneficiaries have the right to receive a policy’s payout upon the death of the insured. With most policies, the beneficiary has numerous settlement options to choose from, ranging from a single, lump-sum payment to an annuitized “life income” payout that provides regular guaranteed distributions for the rest of the beneficiary’s life. Under Florida’s exemption laws, life insurance proceeds are protected from attachment by the beneficiary’s creditors in most cases. And beneficiaries can usually claim life insurance proceeds as an exempt asset in bankruptcy as well.
Being a beneficiary is generally a good thing. After all, by definition you get to be the one who stands to benefit. However, there are times when beneficiaries need to take action to ensure they receive the full benefits of the position. If you have questions or need legal representation relating to rights you hold as a beneficiary under Florida law, an attorney experienced with Florida’s trusts and estates laws can help you to better understand and protect your interests.
Steve Gibbs, Esq.