Anticipating and planning for the presence of creditors in the probate process can help maximize the inheritances your loved ones receive. Debts can be paid off beforehand to save beneficiaries from facing any unknowns during probate. Further, there are methods you can use to protect certain assets from creditors. A solid understanding of probate and creditors in Florida is essential to create a good estate plan, and Beller Law, P.L. can help you formulate an effective strategy.
What Is Probate?
Probate is a legal process where a court validates a will and oversees the distribution of the decedent’s assets to the named beneficiaries. If the decedent did not have a will, the court will distribute the estate property to the decedent’s heirs as provided for by Florida law. During probate, also called estate administration, the probate court will identify all the assets the decedent owned before death. These assets are known as the estate and include everything from the decedent’s bank accounts and stocks to their property and possessions. Once everything is accounted for, the court oversees the distribution of the estate to creditors and beneficiaries or heirs.
In Florida, an estate must go through probate even if the decedent has a valid will. However, not all assets have to go through probate court. For example, a life insurance policy with a named beneficiary might avoid the probate process.
Duty to Notify Creditors
One of the primary purposes of probate proceedings is to ensure that all the decedent’s debts are paid off before the property is distributed to the beneficiaries. Personal representatives of the decedent’s estate must publish a notice to creditors upon the decedent’s death. This requirement is typically met by posting the notice in a newspaper within the county where the estate will be administered for two consecutive weeks. In Florida, creditors have three months to file a claim against the estate after this notice period is complete.
The decedent’s representative must also perform a diligent search and provide notice directly to known creditors. After receiving direct notice in Florida, creditors will have 30 days to file a claim against the estate.
How to Handle Claims Made Against the Estate
Once creditors have made a claim against the estate, the estate’s personal representative will have the decision to make. The estate’s personal representative must review every debt carefully. Upon review, the representative must decide whether the debt is valid.
The representative must direct the estate to pay the debt if the debt is valid. This may seem like an easy decision, but beneficiaries can hold a representative personally liable for directing the estate to pay invalid debts.
If the debt is invalid, the representative will object to the claim. However, the creditor will then have the option to contest the decision during a probate court hearing. The representative will provide a counterargument. After arguments are presented, a judge will make a final, binding decision. Beneficiaries can not hold the estate’s representative liable for the ruling made by the judge.
Priority of Claims in Florida
When considering creditor claims, the estate’s representative must determine whether the estate is solvent. An estate is not solvent if it does not have enough money to pay all legitimate creditor claims. If the estate is solvent, all valid creditor claims must be paid. Beneficiaries only receive their inheritance afterward.
If an estate is not solvent, different creditors have different priority levels. Creditors with higher priority will be paid first. Claims with low priority risk not being paid off at all.
Florida separates creditor claims into eight different classes. Class one claims have first priority, while class 8 claims get paid last.
Class one includes court fees, attorney fees, and compensation for the estate’s representative.
Class two includes reasonable funeral costs of up to $6,000.
Class three claims are for taxes and debts that have preference under federal law. Unpaid court expenses and debts that arise through public assistance are also class three claims.
Class four claims include any medical expenses incurred within the decedent’s last 60 days. If a family member cared for the decedent, they would be reimbursed as part of class four.
Class five is for a family allowance to provide for the decedent’s surviving spouse and children.
Class six includes any claim for unpaid child support.
Class seven includes all debts accrued by the decedent’s business after their death. These claims are only paid from the business’s assets.
Finally, class eight claims include all other legitimate claims for debts not contained in the other classes.
If any assets are left over, the estate is solvent, and those assets must be distributed to the beneficiaries.
Property That Is Exempt From Creditor Claims
Certain property is exempt from creditor claims. This property must be passed down to the decedent’s surviving spouse and children. Exempt property includes household furniture up to a value of $20,000, two personal motor vehicles, all qualified tuition programs, and death benefits for teachers and school administrators.
Some assets are not considered probate assets. Probate creditors have no claims against these assets. For example, a property owned jointly with a right of survivorship is not a probate asset. Family households often fall under this category. Additionally, homestead property is protected from creditors in Florida. In most cases, homestead property is the decedent’s permanent residence immediately before death. There are certain exceptions, including limiting the size of the property that can be protected.
Beller Law, P.L. Can Help
If you are planning your estate and need to know more about creditors in probate and trusts, Beller Law, P.L. can answer all of your questions. Our firm focuses on educating clients about what to expect to help them craft an effective estate plan. We care deeply about every client and work diligently to help them accomplish their estate planning goals. Schedule a consultation with Beller Law, P.L. today.