Is Your Plan Florida Compliant?

A myth I would like to put to bed right away is that a northern will or trust does not become invalid when you become a Florida resident. If the will or trust document is signed properly under the laws of the state in which you are domiciled at the time, moving to Florida does not invalidate the document. 

With that said, each state’s laws are different. If one doesn’t update one’s estate plan upon becoming a Florida resident, unintended adverse consequences may arise. When we review the descent and devise rules of Florida homestead below, you’ll understand how a plan that was just fine as a resident of a different state could create expensive headaches without updating to Florida law. 

Updating to Florida Law 

So exactly what does it mean to update your estate plan to Florida law? Many recognize that somewhere in their wills and trusts there is a provision that states, “The laws of the State of Pennsylvania shall govern this will,” (or wherever you may come from). 

Linda and Larry arrived in my office wanting only a simple amendment to their Pennsylvania wills. They owned a residence in Pennsylvania that was in Linda’s name and a residence on Sanibel in Larry’s name. Their bank and brokerage accounts were divided between them, with Linda and Larry each owning about half. 

“Our Pennsylvania attorney told us that our documents were fine,” Linda began, “and he also told us he is licensed in Florida. So, all we want you to do is do a simple amendment changing the state law from Pennsylvania to Florida.” 

“It’s not so simple,” I began, “let me show you why we need to do more than that to update your documents to Florida law.” 

One of my pet peeves, by the way, is the attorney who is licensed in Florida but doesn’t practice here – yet speaks with authority about Florida law. While the northern attorney may have passed the Florida Bar, if he rarely practices here, it’s easy to miss significant issues. 

Because your northern attorney may have gained your confidence over the years, you may be predisposed to take her word over mine. After all, you have just briefly met me during our initial consultation where I told you of the various issues that require updating. 

As you will see in my trademarked Family Estate & Legacy Program®, we invite your advisors to take part in your planning, including your long-time attorney if you would feel more comfortable with her as a part of the process. We believe that by including those whom you are most comfortable we will arrive together at the best possible plan. 

Descent and Devise of Florida Homestead 

Returning to the homestead issue as presented in my Linda and Larry illustration – this is the most common problem I see from clients who become new Florida residents. Before I explain what needs to be adjusted in Larry and Linda’s estate plan now that they are Florida residents regarding the disposition of the homestead, first allow me to explain why their Pennsylvania attorney divided up their assets, some in Linda’s name and others in Larry’s. 

CONSIDER THIS

Recall that when Linda and Larry prepared their Pennsylvania estate plan, their attorney divided up their assets between Linda’s name and Larry’s name. The reason their assets are divided between them is because at the time they signed the documents, the estate tax laws required spouses to divide their assets to fully consume their combined exemptions against federal estate tax.  

Under the old federal estate tax laws, attorneys commonly advised married clients to divide their assets between two trusts. These are commonly referred to as a “family,” “credit shelter,” or “bypass trust” (also referred to as an “A/B” trust – these all achieve the same purpose). The trusts would be created separately under a revocable trust or are activated inside of the will upon the decedent’s death. 

It was common for attorneys to suggest to clients to put the Florida residence in one trust (say, husband’s trust) and the other residence in the wife’s trust. 

The attorney had Linda and Larry divide up their assets between them. Here, the Sanibel home went into Larry’s name, and the Pennsylvania residence into Linda’s.  

When Larry died, his trust continued for Linda. Linda would continue to act as the trustee for the trust and was its only beneficiary. So then Linda could continue to live in the Sanibel home as she always had.  

How Florida Residency Affects the Plan 

So, what’s the legal problem when Linda and Larry became Florida residents? 

Nothing changed factually other than the state of residence. Larry’s will conveyed the Sanibel residence in trust for Linda’s benefit when he died first. 

And that’s the problem. 

At Larry’s death recall that his will devised their Florida homestead into the “Family Trust” or “Marital Trust.” Florida law mandates that when you are married, absent a valid nuptial agreement to the contrary, any devise of the home other than to your spouse is invalid. 

While both the Family Trust and Marital Trust inside of Larry’s will both dictate that the assets are held exclusively for Linda’s benefit for the remainder of her life, the devise of the home is not outright to Linda. Because of this invalid devise under Florida law the devise of the homestead would no longer be dictated by Larry’s will no matter what it says. Instead, Florida law provides that Linda either receives a life estate in the homestead or an undivided one-half (½) interest as tenants in common.  

Who gets the remainder interest if Linda elects the life estate? Who receives the other half interest if she elects that choice? In both instances it is Larry’s descendants. 

What does this mean? Linda owns the home with Larry’s children, no matter what is specified in Larry’s will. Larry’s children may be Linda’s children too, or they may not be if theirs is a blended family. 

Larry’s children may be minors, or they may be adults. Linda cannot sell the residence without their consent and must share any sales proceeds with them. If one of Larry’s children has creditor problems or is getting a divorce, then that problem may cloud the title to the residence. These are just a few of the legal and tax problems that exist when you have an invalid devise of your home under Florida law. 

Generally, no surviving spouse wants to have these complications. It’s vitally important to review your homestead issues with us to ensure that this result doesn’t happen to you.  

Wills Subject to Probate 

Here’s another issue with Linda and Larry’s estate plan. Many believe that since Linda and Larry had wills, their estates will avoid probate. This is false. 

Some people believe that if their estate value is less than whatever the federal estate tax exemption is (at $11.58 million as I write this book), then there won’t be a probate. That’s false too. 

Almost any asset subject to disposition by your loved one’s will is distributed by the probate process. Understanding what probate means is crucial to understanding these issues. 

The Probate Process 

CONSIDER THIS

Probate is a legal process under which the deceased’s assets are transferred to their beneficiaries. Larry’s assets would be probated and then transferred to the testamentary trusts (the Family Trust and Marital Trust). The Last Will is filed with the probate court in the state and county in which the decedent lived at the time of his or her passing. This is known as the “domiciliary estate.” 

The personal representative (executor) in the will petitions the court for “Letters of Administration” which gives the personal representative the authority to transact business on the decedent’s accounts. 

It does not matter whether bank and brokerage accounts are held in the same state in which the probate is opened. A bank account in Pennsylvania, for example, is governed by the probate court in Florida. 

If, however, the decedent owned real property in his or her individual name in another state, then an “ancillary probate administration” usually must be opened in that state. On Linda’s death, for example, since she owns real property in Pennsylvania, her estate would require both a domiciliary administration (since she is a Florida resident) and an ancillary administration in Pennsylvania. 

Why is probate necessary? It’s not just for attorneys to make fees, as you might be thinking right about now. The probate process “protects” both the beneficiaries of the estate, any potential creditors and of course, the taxing authorities. 

Imagine that there was no probate process. Suppose in a codicil to his will your Uncle Ed left you his entire estate. Then again, what if Uncle Ed dies and your cousin brings a copy of his old will into the bank and ask that his accounts be distributed to him pursuant to that older will. How does the bank really know that this is Uncle Ed’s Last Will? What if your cousin beat you to the bank, and you didn’t realize it? What recourse would you have once the bank distributed to your cousin? The probate process protects against just this scenario and many others. 

If you submit a will as the Last Will of Uncle Ed to the court, and someone else submits a codicil to the will to the same court, now we have a centralized system that can ensure Uncle Ed’s final wishes are carried out. The personal representative of the will organizes all the assets of the deceased and files an inventory with the court so all interested parties can determine in full light what the estate is worth. They can also question if the inventory is complete or is missing assets. 

Florida law provides that creditors have three months from the “notice of publication” date of probate administration to file a valid claim against the estate. There are laws that deal with creditors, how they are to make claims, and how the personal representative may object to a claim. The personal representative has a duty to notify reasonably ascertainable creditors of the administration. 

Once all the creditor claims are dispensed with and all tax clearances are obtained, the personal representative submits an accounting statement of the estate to the court. All the income and expenses are listed as well as items of capital gain and loss. The personal representative then presents a schedule of proposed distributions pursuant to the terms of the will. 

The distributions may be to beneficiaries or to trustees of testamentary (after death or continuing) trusts established under the terms of the will as in the case of Larry’s will noted above. All the beneficiaries have the chance to object to any item listed in these petitions and can appear before the court. A judge decides if any objection has merit. 

Once all the distributions are made, the personal representative petitions to close the estate and be discharged from further obligations as a fiduciary for the estate. Receipts of distributions are filed with the court. So, as you can see, probate is a strictly supervised court (public) process. It is very hard for any “monkey business” to get by a judge. 

Cost and Complexity of Probate 

So why didn’t Linda and Larry’s Pennsylvania lawyer use Revocable Living Trusts as opposed to wills? In many northeastern states, the probate process is not as onerous as it is in Florida, and one can accomplish it without hiring an attorney. I’ve had several Pennsylvania attorneys tell me that probate is not a significant issue for Pennsylvania residents. 

Not so in Florida. 

While probate is nothing to be feared, if you can minimize a public court process over your assets at the time of your death, the more private and less cumbersome will your administration be. It should also be less expensive. The Florida statutes calculate a reasonable attorney’s fee for the ordinary services related to a probate administration. That same fee is reduced by 25% for those same services in a trust administration. A revocable trust therefore can be expected to save significant attorney’s fees. 

The fact that Larry’s will contains an invalid devise and is subject to probate are two important reasons they should update their Pennsylvania estate plan to Florida law. There are many others. 

KEY TAKEAWAYS

  • Northern wills and trusts are valid if properly signed in your former state of residence;
  • Even though your northern will and/or trust may be valid does not mean it won’t have unintended and adverse consequences once you become a Florida resident;
  • Assurances by your northern attorney that your northern documents need only a minor update to accommodate Florida law should not be taken as the gospel until a qualified Florida attorney agrees;
  • Florida homestead descent and devise statutes may invalidate your current document’s disposition and leave your surviving spouse with some significant legal issues; and
  • Probate is a much lengthier, time consuming, public and expensive process in Florida then it is in many other states.

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Selecting Your Trustee

Selecting Your Trustee: Ensure You Have the Right People Serving in Your Plan

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Asset Alignment and Your Estate Plan: Even the Best Estate Plan Can Fail

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Selecting Your Trustee

Selecting Your Trustee: Ensure You Have the Right People Serving in Your Plan

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Asset Alignment and Your Estate Plan

Asset Alignment and Your Estate Plan: Even the Best Estate Plan Can Fail

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Common Cents Estate Planning II: Tales from Your Estate Planning Attorney

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