Wednesday, May 2, 2012

Avoiding Probate - The Non-Resident Problem

           I frequently get phone calls from out-of-state parties that they are having issues selling mom or dad’s property in Florida. These calls come mostly from New York owners but also many come from Canada. As I often have to explain, that in order to sell mom or dad’s condominium they need to probate their parent’s Florida estate. Invariably they tell me that they have already probated their parent’s estate in New York or Canada or some other place where they reside and they do not understand why they need another probate to sell a second home in Florida.

          The process starts when a couple purchases a second home in Florida but resides in the state outside of Florida. The state they reside in is known as their domiciliary estate.  When a person dies, their estate generally has to be probated in the state where they resided at death. If the decedent only owns real property within the state and possesses only personal property within the state (including intangibles like stock and bonds which are deemed to be possessed within the state wherein the holder resides even if the actual stock or bonds is in another jurisdiction or broker outside the state) then only one probate is necessary.

          When a couple buys a home in Florida they usually purchase the property in their capacity as husband and wife. This creates a tenants by the entireties estate.  This special estate is only used in about half of the states in the United States. It does not exist in New York. The tenants by the entireties estate is most similar to joint tenants with right of survivorship estate common throughout the United States.  This estate means that when one of the joint tenants dies, the interest in the property does not pass through the joint tenant’s estate but passes to the other survivor.

          In addition, the tenants by the entireties estate in Florida acts as a creditor’s rights protection.  In joint tenancy estates, a judgment against one of the owners would attach to that owner’s interest in the property, converting the ownership from a joint tenancy to a tenant in common relationship. However, the creditors of one spouse cannot attach to any property owned by both spouses as tenants by the entireties.

          So when out-of-state owners purchase as husband and wife and one of the spouses dies the ownership interest in into the property transfers, by operation of law, to the surviving spouse. In order to clear title the only two requirements are the recording of a death certificate for the deceased spouse, (with the cause of death omitted if it is a Florida death certificate) and the recording of a continuous marriage affidavit from the surviving spouse stating that the marriage remained continuous from prior to the date they acquired the property through the date of the deceased spouse’s demise.

          However, when the surviving spouse dies and that surviving spouse is not a Florida resident a probate of their Florida estate is necessary. In order to probate this estate a copy of authenticated copies from the domiciliary probate must be obtained and filed with the Florida probate court in the county where the property is located. A Florida personal representative must be appointed, and notices to creditors and all beneficiaries must be made.

          Often the beneficiaries are not aware of this issue until they find a buyer to purchase the property. In that case, we have to delay the closing until we can open the estate, and then petition the court for an order authorizing the sale of the property. All net proceeds from this sale must be held in escrow until the creditor’s rights period expires.

          None of this would have happened if proper planning was made before the last surviving spouse died. One option would have been to create a trust to hold title to the property. A trust beneficial interest is an interest in personalty and therefore would be probated as part of the domiciliary estate. The successor trustee would take over from the former owner and could sell the property without a Florida probate.

          Another option would be for the surviving spouse to create a life estate conveying the remainder interest to his or her beneficiaries.  Once the life tenant dies the property transfers to the remaindermen by operation of law and the recording of a death certificate is all of that is needed to clear title to the property. There are multiple types of life estate deeds which can be used to create this interest. The traditional life estate deed gives the property to the life tenant for the remainder of their life regardless of whether they have physical possession of the property and the remainder interest only passes on death.

          Some life estate deeds restrict ownership to the life tenant so long as the life tenant resides at the property and does not commit waste. Another type of life estate deed is the Lady Bird Johnson deed. This life estate deed gives the life tenant the right to mortgage or sell the property without the consent or joinder of the remaindermen, whose interests only arises on death. Named after the former First Lady this deed keeps full control of the property with the current owner but also solves the requirement for a Florida probate.

          Proper planning can help avoid an unnecessary probate but I ask that you keep this a secret as it is a good source of legal work for office. However, if you insist we will also help prepare the appropriate trust or life estate deed to avoid this problem in the future.


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  4. The statement in the third paragraph is incorrect. Tenants by the entireties does exist in New York in regard to real estate.

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  7. I have a question I currently own a home in Palm Beach County my mother resides in it alone full time., I live out of state. We currently do not take advantage of the homestead tax exemption. Is there some way I can grant her some type of life tenancy to qualify for the exemption. If so what form would it take, and must it be recorded. I would like to avoid transferring ownership and especially avoid any recording taxes and future probate or medicaid asset issues.

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