Many Canadians who own property in Florida are inadvertently bound by Florida probate law. This means that upon the death of a Canadian or nonresident, if real property was owned and located in Florida, ancillary probate is required by Florida State Law despite having a will stating otherwise. The result is often cumbersome, dealing with jurisdiction far away from the decedent’s family who are likely located in Canada, and paying attorney’s fees that can be high in settling the estate.
There are ways around ancillary Florida probate that require careful planning with a professional.
One way of avoiding Florida probate would be to effectively title how the property is held. Different consequences exist depending on the type of ownership elected, and the eligibility and election of title must be carefully planned, with consideration of legal and tax consequences.
The default form of property ownership in Florida for unmarried individuals holding property together is tenancies in common, unless eligible for another title, such as holding title to property in joint tenancy or tenancies in the entirety, and expressly indicated. For tenancies in common, ancillary probate is certain, as there is no right of survivorship by the co-owner of the property and each owner’s interest will pass to their individual probate estate.
To avoid ancillary probate of the property, it may be beneficial to hold the property as a joint tenancy with a right of survivorship. This type of ownership is not presumed and must be expressly stated or elected. With joint tenancy, the property upon the death of one joint tenant will not pass to their probate estate, but instead the surviving owner will automatically receive full interest in the property. The downfall is that this property, held equally by both parties, is available to the creditors of the other joint tenant. What this means is, although a creditor cannot collect from the non-debtor’s share of ownership, they can place a lien or force the sale of the property in order to collect from the debtor’s share of the debt.
To protect against this type of creditor situation, spouses may prefer to hold property as tenancies in the entirety. Florida permits married couples to own assets jointly as tenants by the entirety; in fact for real property, married couples automatically receive this type of ownership designation when the property is conveyed to the husband and wife. If this type of property ownership is not wanted, then different ownership must be elected. There are certain advantages to this type of structure, such as the inability of creditors with a judgment against one spouse to seize or place a lien on the entireties property (assets of the entireties). Also, the concern of tax consequences from a deemed disposition if a partner dies is eliminated; there is no right of survivorship because the property is already owned in the entirety. Probate is completely eliminated.
It is important to note that a tenancy by the entirety provides protection only against certain creditors; for instance, if the creditor is the IRS, tenancy by the entireties will not act as a shield to protect the property from the grips of the IRS.
This type of legal ownership can be advantageous and care must be taken to avoid forfeiting tenancy by the entireties title. Many planning pitfalls could occur if not properly planned. For instance agreements, such as an operating agreement, must coincide with the tenancy by the entireties unities. Contracts, investments, companies, as well as deeds, must be properly titled. Also, the married couple should be weary of selecting any box indicating that there is a right of survivorship on an account agreement; selecting this box has severe legal consequences where the tenancy of entirety status would be forfeited and half of the account would be lost. Accounts or assets must be held in states that protect tenancy by the entireties; for instance many U.S. depositories do not recognize or permit tenancy by the entireties.
Creating business entities are also a means by which property can be held to avoid ancillary probate in Florida. Family LLCs or limited partnerships can also be held primarily as tenancies in the entirety, and can have assets placed in them to provide for creditor protection.
Other ways to plan around Florida ancillary probate is to have the property held, deeded, or transferred to a trust or life estate. Trusts and life estates are outside of the context of this article. Careful consideration must be taken prior to selecting a trust, as various cross-border tax and legal consequences may occur depending on the type of trust elected. Similarly, a deed for a life estate must be carefully drafted and a professional should be consulted.
