As we get ready for tax time, you have a perfect opportunity to do a check on your assets to see which ones can avoid probate. 

Ideally, you would look at fine tuning your estate planning if anything has changed since you did your last will and testament.  These changes can include your divorce, new or dormant accounts (whether bank, brokerage or retirement) that you haven’t looked at in a while, or simply do not remember how you set them up. This would allow you to correct any errors to ensure an asset will avoid probate.

What is Probate and what is Included/Excluded?

Probate involves the administration of the estate (assets and debts) of a person who has passed away, the deceased. It is a legal process to ensure that the assets of the deceased are distributed to their heirs, and legal debts paid.

When a person dies without a will, or intestate, probate will be conducted according to the instate statute.  In Florida, the intestate laws can be found here (in Part 1 of Chapter 732) of the Florida Statutes.

If the person passed away with a will, probate will be administered according to the person’s will.

Generally speaking, assets that have a designated beneficiary will avoid probate.  This is the case, for example, with retirement plans, life insurance policies, bank accounts, certificates of deposit, investment accounts. 

Real property may also bypass probate, depending on how the property is titled; however, real property issues related to probate are not discussed in this post.

The important thing to remember is that for an asset to bypass probate, it has to have a designated beneficiary.  That is, a beneficiary has to be named with the institution holding the asset as the person who will receive the asset when the owner passes away.

For example, you have a bank account at XYZ Bank; they hold your money in that account.  By designating a beneficiary for payment upon your passing away, the account does not have to go through probate in order for your beneficiary to get the money.  It is similar for investment accounts.

Using Year-End 1099 Forms as a Checklist to Avoid Probate

Anyone who paid you money during the year in excess of $600 is required to provide you a 1099 form regarding the income they paid you.

For bank accounts that paid you interest during the year, the bank may or may not send you a 1099 even if the interest was less than $600.  Even if you do not receive a 1099, you are still responsible for reporting any amount received as interest.  But this would be a good opportunity to check the beneficiary on all your accounts held at any bank.

For brokerage or investment accounts, institutions will send you a 1099 related to dividends received/reinvested during the year.  Here too, you have an opportunity to check for a beneficiary designation.

Retirement plans are different in that they do not send you a 1099; they send a different form later in the year.  You still get to designate your beneficiary in most cases.

2 Important facts about Assets that Avoid Probate

There are two facts you need to remember about these assets.

First, because the asset will pass outside your will, the gift will be immediate, as it does not need to be probated.  This means that you should make sure you have designated the beneficiary you want.

Second, you may want to consider designating a primary beneficiary and a contingent beneficiary.  The primary beneficiary will receive the asset if they are alive at the time of your passing.  If, however, the primary beneficiary is no longer alive when you pass away, then the contingent beneficiary will get the asset.  In this way, you don’t leave the asset without a beneficiary, which would cause it to go through probate as part of your general estate.

Conclusion

Florida law provides you an opportunity to avoid probate for many assets.  Making sure you have designated a beneficiary for them lets you take advantage of that opportunity.

This post is general information and not legal advice. If you have questions about your specific situation, you should consult an attorney to get legal advice for you.