Dealing with the Claims of Creditors

In today's economic environment, dealing with the claims of estate creditors can be challenging.  What do you do if you have a piece of property that is worth less than the mortgage owed?  What if you don't have enough money in the estate to pay all of the creditors?  What if you only have creditors and no assets in the estate?

Florida Statutes sets forth the procedures for identifying and paying the claims of creditors.  All known creditors must be given actual notice of their right to file a claim.  All unknown creditors are given notice by publication.  A creditor will have ninety (90) days from the date notice is given to file their legitimate claim in the estate.  They must follow the proper procedure or run the risk their claim may be improperly filed and therefore, invalid. 

If a claim is filed that the Personal Representative believes is an invalid claim, then the Personal Representative has the right to object to the claim.  The claimant then has thirty (30) days to bring an independent lawsuit for the purpose of enforcing their claim.  If they fail to file the lawsuit in a timely manner, their claim may be barred.  Many times, the parties will agree to an extension of time to file the independent suit to give time to truly ascertain the validity of a claim.  It would not be uncommon for a hospital to file a claim before all payments from insurance companies had been received.  They must file their claim in order to preserve their rights. 

Sometimes an estate will have more claims than it has assets.  If this is the case, Florida law establishes a scheme for determining the priority of claims.  Class 1 claims include costs, expenses of administration, and compensation of personal representatives and their attorneys fees and attorneys fees awarded under s. 733.106(3). Class 2 claims are the reasonable funeral, interment, and grave marker expenses, whether paid by a guardian, the Personal Representative, or any other person, not to exceed the aggregate of $6,000. Class 3.claims are debts and taxes with preference under federal law, claims pursuant to ss. 409.9101 and 414.28, and claims in favor of the state for unpaid court costs, fees, or fines. Class 4 claims are the reasonable and necessary medical and hospital expenses of the last 60 days of the last illness of the decedent, including compensation of persons attending the decedent. Class 5. claims are the family allowance. Class 6 claims are any arrearage from court-ordered child support. Class 7 claims are debts acquired after death by the continuation of the decedent’s business, in accordance with s. 733.612(22), but only to the extent of the assets of that business. Class 8 claims are all other claims, including those founded on judgments or decrees rendered against the decedent during the decedent’s lifetime, and any excess over the sums allowed in the Class 2 and Class 4 claims. 

Ultimately all claims are barred two (2) years after the death of the decedent except for those that arose because of a duly recorded mortgage or security interest or the lien of any person in possession of personal property or the right to foreclose and enforce the mortgage or lien.  

Estate claims can ultimately affect what assets are available for distribution to the beneficiaries.  As a result, sometimes a strategic decision may be made to postpone estate administration until after the non-claim statue has run.  

Consult with a qualified legal professional if you have questions about an estate administration. 

New Law Changes How Divorce Affects Beneficiary Designations

In 1951, Florida enacted a statute automatically cutting divorced spouses out of each other's wills (F.S.732.507(2)). In 1989, Florida enacted a similar statute for revocable trusts (F.S. 736.1105). But these laws did nothing to automatically eliminate a former spouse as a beneficiary on an asset like life insurance.  So, if you got divorced but did not remove your former spouse as the beneficiary and then you passed away, your former spouse would receive the proceeds from the life insurance regardless of your marital status.  This was also true for other non-probate assets such as annuities, pay-on-death accounts, and retirement accounts. Due to the inconsistency of the laws, many families experienced unexpected results during estate administration.

Consequently, the Florida Legislature acted, and on July 1, 2012, new F.S. 732.703 came into effect.  The new statute generally nullifies, upon divorce or annulment, the designation of a former spouse as a beneficiary of non-probate assets. There are a few exceptions including state-administered retirement plans.  If the provisions of the new statute apply, and a former spouse is listed as the beneficiary of one of the above-mentioned assets at the time it is administered, the asset will pass as if the former spouse predeceased the decedent. It will not pass to the former spouse.  F.S. 732.703 voids the designation of a former spouse as a beneficiary of an interest in an asset that will be transferred or paid upon the death of the decedent if, first, the decedent’s marriage was judicially dissolved or declared invalid before the decedent’s death; and the designation was made before the dissolution or order invalidating the marriage.

The new statute is not all encompassing and only applies to specific beneficiary-designated non-probate assets.  There are some assets to which the new law does not apply where a former spouse could inadvertently end up as the beneficiary.  This only reinforces the importance of periodically reviewing beneficiary designationsto ensure they remain consistent with and reflect your overall estate plan and ultimate goals. 

This recent change is but one of the ways the law is designed to protect people after a divorce and in the absence of updated planning.  There are still pitfalls that can and will happen.  Contact Florida Probate Professionals if you need assistance with estate planning or administration. 

               

The Extraordinary Lawyer - Minding Your Own Business is a Success!

This is a special thanks to all of the people who attended the Sixth Annual Solo and Small Firm Conference - The Extraordinary Lawyer: Minding Your Own Business.  This program was sponsored and hosted by the Florida Bar General Practice Solo and Small Firm Section. 

We had the best speakers - many nationally recognized for their expertise in the areas of technology and  practice management.  The evaluations were great - we can't wait to do this again.  We are already talking to Adriana Linares of LawTech Partners and Debbie Foster of Affinity Consulting about doing a one day tech show in January 2013.  We hope you'll join us.

Thanks to everyone who stopped by the Florida Probate Professional exhibit booth.  The winner of our wine basket was Ernie Sellers - congratulations!

Florida Probate Professionals is dedicated to serving lawyers as they grow their probate and trust administration practice.  We can provide all the support you need to help you be successful.

We're here to help! 

Story of the Week - Homestead Disaster

Here's a good one - and a good reason why families should seek counsel before transferring assets.  Mom and daughter, in their ultimate wisdom, decide mom should transfer her homestead property to daughter so they can "avoid probate" when mom dies.  Mom executes a quit claim deed prepared by daughter conveying the homestead property to daughter.  The deed is never recorded.  (I'm sure the gift was never reported either).

Four years later, mom dies.  Daughter records the deed.  The property appraiser contacts daughter to tell her she owes four years in past real property taxes of more than $20,000 because mom was no longer entitled to her homestead exemption upon the execution and delivery of the deed.  (Remember, it is not the act of recording that completes the transfer, it is the delivery of the deed.)

Here's another tidbit.  Daughter and mom had an agreement that after mom died, the daughter would "share" the property with her five siblings.  

Someone (not sure who) engages an attorney to obtain a Determination of Homestead.  Interesting idea except that mom didn't have an interest in the homestead property at death.  Attorney somehow manages to get this Determination of Homestead and an Order showing the property vesting in the six children.  (Somehow I'm thinking there may be a malpractice claim in here - appears the attorney didn't verify mom actually owned the property at the time of death and now has created a number of additional problems the family didn't have before.)

So now we have a giant mess.  Daughter owns the property and the liability for the back taxes.  The property now has a cloud on the title because of the Determination of Homestead Order.  And, there are five unhappy siblings who haven't received their share of mom's homestead property.  And, daughter lost the step up in basis on mom's home due to the transfer before death and may now also face capital gains consequences upon sale.

Brother wants to know if sister can quit claim her interest in the  property to him? What would you do and how would you advise this client? 

Story of the Week - You can't be serious!

If you've ever heard the saying, "boy if they only knew what was going on, they'd be rolling over in their grave," then you know what I'm talking about.  Someone has died and something has gone wrong.  Could be anything, but this week's story of the week illustrates what planning by design is ALWAYS better than planning by default.

Gentleman dies without a will.  Is that a big deal?  It is if you aren't survived by a spouse or children.  In this case, he was survived by his "heirs at law."  As a result, the state of Florida determines his heirs.  First we look down the bloodline - are there any children, grandchildren or great grandchildren?  If no, then we look up the bloodline - are there any parents or grandparents?  If no, then we look to siblings, then nieces and nephews, then first cousins, second cousins and so on.  

Our story at hand revealed 40 plus distant heirs living in the United States, Canada, Finland and Sweden.  Not a lot of property but it still deserved to be distributed to the proper heirs.  Many of the heirs didn't want the property - not that simple, some died after our gentleman.  Ultimately the property was distributed including a Florida homestead.  Perhaps one of the brave heirs will file a partition action and purchase the property? 

Story of the Week - What Can Go Wrong, Will

We thought we'd bring you a Story of the Week - What Can Go Wrong, Will.  Here we plan to illustrate real life examples of what can happen in the fun and interesting world of probate and trust administration.  Feel free to send us stories of your own.

This week's story is related to multiple beneficiaries.  We frequently hear from single clients that they have a simple estate because they don't have a spouse or children.  The reality is the exact opposite is true.  A single person with no children doesn't generally have a true object of their affection - thus, they end up naming multiple friends, distant family members or charities as their primary beneficiaries.  This gets especially interesting when these people are spread out all over the United States and even more interesting when they reside in foreign countries.  Complicate that by the fact that we rarely have addresses and contact information for these individuals, so the missing person's hunt begins.

Rick was a single guy - never married, never had any children.  He was predeceased by both his mother and father.  He was somewhat of a loner, but a genuinely nice person.  He was a pretty good client too.  He did his estate planning, he kept it updated and he stayed in touch with our firm on a regular basis.  Unfortunately, Rick passed away, alone in his home and wasn't discovered for a significant period of time (but we'll hold that story for another day).  His named beneficiaries were primarily distant cousins he never had a relationship with.

After locating his seven cousins, most of whom didn't know each other, we proceeded with the estate administration. His personal property was all distributed to a friend and his personal representative/successor trustee so that didn't pose any particular problems (at least none that will make this particular blog post).

Cash is easy to split and distribute.  What isn't easy is real property.  Rick had several pieces of real estate.  A condo, a house and a piece of agricultural property under a long term lease agreement.  The house and condo were both sold and the property distributed to the beneficiaries.  The property with the lease will now be owned by these seven distantly related individuals (strangers, if you will).  We discussed creating an LLC for the real property that would hold the fee simple interest, collect the rents and make distributions to the beneficiaries.  Seemed like a logical and cost effective decision.  Nope, none of the beneficiaries felt comfortable with entity ownership and want to take their chances with individual ownership. 

This story is far from over.  This is just the beginning of group ownership - splitting rents, paying taxes, working out disputes.  If one person no longer wants to own their property interest, how do they sell?  Will the others be interested in buying or will there be an action for partition?  Stay tuned...

Most Estate Plans Just Don't Work

Wow!  That's a pretty bold statement for an estate planning attorney to make.  Yet it's true.  Have you ever heard someone say about a person who died, "Boy, if they only knew what was going on they'd be rolling over in their grave?"  Have you ever said that yourself?  I have. 

The truth is - a lot of things can go wrong after a person dies.  It doesn't mean their estate plan wasn't legally or technically correct (that is, if they had one).  But it can mean that events have occurred that were unexpected.  Some of those events might include a probate or trust administration, the payment of estate taxes, the ongoing operation of a business, estate creditors, family feuds - well, you get the idea. There's no such thing as a simple estate administration.

And, what most people don't realize is that when someone dies, there's stuff to do.  Essentially it's three distinct steps:  1.  Gather, inventory and value the estate assets, 2. Identify and pay the estate creditors including the Internal Revenue Service, and 3.  Distribute the remaining estate assets to the beneficiaries (either individuals or ongoing trusts).  It's interesting to note that most people want to start with step 3 - How much do I get and when do I get it? 

If you are a Florida lawyer who wants to provide probate and trust administration services to your clients but you don't want to take the time to learn everything you need to know, build your back office support team along with its processes and procedures, then we are here to help.

Thanks to the suggestion of my good friend and colleague, Debbie Roser, the idea for Florida Probate Professionals was born.  She is a an experienced solo lawyer practicing in Sarasota, Florida.  Her practice is centered around wills, trusts and estates and elder law.  She wants to provide a wide range of legal services to her clients but is only one person.  There just aren't enough hours in the day. One day, she had a request from a client for probate services.  She doesn't want to say no and disappoint her client.  She doesn't want to say yes and make herself crazy.  Instead, she called me and asked whether The Law Offices of Hoyt & Bryan, my law firm with partner Randy Bryan, would be willing to provide the necessary back office support.     

Obviously we said yes - and Florida Probate Professionals became a reality.  We are now pleased to offer the same experience and support to you.  Call us today for more information  407-977-8080.  We're there to help!