The assets we own usually fall into one of three categories.  These categories are 1) assets you own that have a beneficiary designation, 2) assets that you own jointly with a right of survivorship with someone else and 3) assets that you own solely in your own name.

If assets have a beneficiary designation, then they are distributed to the named beneficiary at your death.  It doesn’t matter what your will may say about who gets that asset because the beneficiary designation means that asset never makes it to your will.  So, these assets do not become part of the probate estate.

The assets that you own jointly with a right of survivorship with someone else also are not affected by the instructions in your will.  That is because by operation of law, the surviving joint owner becomes the owner upon your death.  So, these assets also do not become part of the probate estate.

Therefore, usually only the assets that you own solely in your own name become part of the probate estate.

It is very important to get a complete list of all the assets that were owned by the person who died and then verify one by one which category they fall into.  This is because if an asset gets missed in the initial probate process, the probate process may have to be reopened again down the road to deal with that missed asset.

For example, let’s say the person who died owned a life insurance policy and that life insurance policy named his wife as the beneficiary and did not name any contingent or back-up beneficiaries.  His wife died several years before he did, but he never changed the beneficiary designation.  In most cases, if the named beneficiary is not alive, the estate becomes the default beneficiary and then the life insurance proceeds become part of the probate proceedings.

It would be easy to initially think that the life insurance policy, as an asset with a beneficiary, would not be part of the probate proceedings.  That is why it is important to thoroughly review all the assets one by one at the beginning of the probate process to verify which assets should and should not be included in the probate estate.

The Personal Representative is responsible for gathering the assets of the decedent into the probate estate and safeguarding the assets for the benefit of the beneficiaries.  However, before the assets can be distributed to the beneficiaries, the Personal Representative has to determine if there are any creditors of the decedent.

Creditors are identified in two different ways.  The Personal Representative publishes a Notice to Creditors in the newspaper.  This is the public notice that tells anyone who feels they are owed money by the decedent that now is their chance to present a claim for payment.  In addition to publishing the public Notice to Creditors, the Personal Representative has to send an individual Notice to Creditors to any known creditors or creditors that it is reasonable to expect that the Personal Representative would know about by reviewing the records of the decedent.

Once the claims are filed, creditors are paid based upon which priority class they fall into.  The priority classes are set by the Florida statutes.  If there are enough assets in the probate estate, then all the creditors with valid claims are paid.  If there are not enough assets in the probate estate then all the priority class 1 creditors with valid claims are paid and then if there is money left the chance for payment moves to priority class 2 creditors with valid claims etc.

In general, once all the creditors are paid then the remaining assets can be distributed to the beneficiaries.  However, there may be certain assets that are considered exempt from the claims of creditors and the Personal Representative is responsible for working with the probate attorney to identify these assets and follow the procedures necessary to have them deemed exempt assets.

It is very important that the Personal Representative closely follow all the steps in the creditor identification and payment process because the Personal Representative could be personally liable for payments that are paid or denied inappropriately.

Whenever the discussion turns to probate, I have noticed that there seem to be a lot of questions and misunderstandings surrounding what it is, how it works and if it is necessary.  Over the next few weeks, I will try to address some of the more frequent questions and misunderstandings that I encounter.

The first question is “What is probate”?

When someone dies, probate is a way in which we can transfer their assets to their beneficiaries and make sure their creditors are paid.  Think of it like the steps involved in closing and wrapping up a business.  This business just happens to be the business of someone’s life.

Probate is the wrapping up process used when someone dies with a will (testate) or without a will (intestate).  It is not the primary wrapping up process used when someone dies with a trust, but as we will see in later weeks, probate can still play a very important role in wrapping things up when someone dies with a trust.

When I explain how probate works, I use the example of a car.  When someone prepares a will, they are designing a car that they keep in their garage until they pass away.  They decide what the car will look like, who can ride in the car (the beneficiaries) and what they want to put in the trunk of the car (the assets).  They can do everything to make this car ready for driving except buy tires.  So when they pass away, the car can’t leave the garage until it gets tires.  The only way to get tires is to go through probate.  Once the tires are on the car, it can leave the garage and begin the journey that it was designed to take.

When someone does not prepare a will, there is still a car with beneficiaries and assets in the trunk sitting in their garage.  The only difference is that instead of designing the car themselves and deciding who the passengers will be and what will be in the trunk, they have accepted the generic model car and the passengers that the state of Florida designs as the default plan for everyone who dies without a will.  That car still has to go through probate to get tires so it can leave the garage.