FLORIDA ESTATE LITIGATION AND NOT ENOUGH MONEY? Whose inheritance gets cut? Florida appeals court considers abatement
A Florida estate case was decide literally days ago by a Florida appeals court. The Florida estate case dealt with probate litigation and the payment of estate administration expenses in Florida. If you are involved in a Florida estate dispute over the payment of funeral expenses, expenses of probate administration, or the payment of debts of the deceased Florida citizen, you may want to read this very recent case. For a complete copy of the recent Florida appeals court opinion, which dealt with the Florida probate, email Michelle@pankauskilawfirm.com.
What happens when there is not enough money in the Florida estate to pay the expenses of probate estate administration? The Florida estate beneficiaries have to take a haircut. But who gets shortchanged? This recent Florida probate case discussed this, and a very important Florida probate law, Section 733.805 of the Florida Probate Code.
When administering a Florida estate, the Florida personal representative, or executor of the estate, has a duty to pay expenses of administration. Expenses of administration includes those costs which are incurred to administer the Florida estate , typically during the Florida probate process. A Florida personal representative also has a duty to consider, evaluate, and to pay proper debts and obligations of the deceased Florida resident. In short, the estate of the deceased Florida citizen must pay the Florida citizen’s debts. Part of the job of the Florida personal representative is to, for example , file the Florida citizen’s last federal income tax return and pay his or her federal income taxes, pay off any outstanding credit card debt, pay off any mortgage, pay any outstanding bills, and to pay any expenses which the deceased Florida resident incurred but did not yet pay for.
Who gets paid first from a Florida estate? Well, the first rule for Florida probate in this regards, is that expenses of administration and debts of the deceased Florida resident are paid before inheritances are given out estate beneficiaries. In Florida, there is an order of payment for expenses and obligations of the deceased Florida citizen’s estate. Each type of estate debt or expense or obligation is placed into a “class”. Classes are paid off in a particular order by the Florida personal representative. Funeral expenses in Florida, for example, are considered a class 2 expense. The Florida probate code, which serves as the “law of the land” for Florida estate beneficiaries and Florida personal representatives, “says” to pay funeral expenses ahead of certain medical and hospital expenses, which may be a class 4 expense. What’s the top class, class I, for Florida probate expenses which are paid first? Expenses of administering the Florida estate, compensation for the personal representative, and compensation for the personal representatives attorneys are paid first under the Florida probate process as class I expenses or claims.
What do you do if there is not enough money in the Florida estate to pay all of the expenses and obligations of the Florida estate? In that case, you have an issue of “abatement”. The gifts, or inheritances, of the late Florida citizen, and his or her Florida estate, may have to abate: they may have to be reduced in a certain order, or by a certain percentage according to the Florida probate code. In short, everybody takes a financial haircut according to Florida probate law.
In a very recent Florida appeals court opinion, there was estate litigation over a Florida resident’s estate. The Florida resident passed away in 2008, with a will that he apparently prepared himself while in Massachusetts. The deceased Florida resident had a second wife and also a daughter from his first marriage. This case was a good lesson for why Florida residents should not draft, or write, their own wills. It may make sense to spend a few bucks and have a Florida probate lawyer prepare a simple will.
Because in this recent case, the will drafted by the Florida resident could have been drafted in a better way. As you might guess, when you have a Florida resident pass away with a few bucks, don’t be surprised if his daughter is involved in estate litigation with the daughter’s stepmother, the Florida surviving spouse, or widow.
What were they fighting over? As you might imagine, money. But, as is often the case, family members sometimes spend thousands of dollars paying probate lawyers to litigate about personal property, which may not have value to anyone else. That’s what seems to have happened in this recent case, as the daughter and other family members disputed certain “Wizard of Oz” plates, a marble bust, and a Knights of Columbus sword.
The Florida estate litigation, or, the Florida probate dispute, also revolved around the widow’s, the stepmother’s, claim for funeral and burial expenses which she had incurred: $17,000. Under the Florida probate process, or the Florida probate law, there is a scheme, a framework, for the paying of funeral expenses and also debts. In this recent Florida case, the funeral expenses were later compromised under the supervision of the Florida probate court, which has the express authority, or power, under the Florida probate code, to compromise, pay, or reduce estate claims, or debts, or obligations.
So, how does the Florida widow, the Florida surviving spouse, get reimbursed for the funeral expenses? There were very few liquid assets in the Florida probate. There was an investment account which was left to the daughter. The probate court judge ordered that the widow of the deceased Florida resident be reimbursed for funeral expenses from the investment account, which was left under the will to the daughter.
The Florida appeals court reversed the probate court, which is the lower court, and sent the case, or “remanded” the case, back to the probate court. The probate court was reversed on the probate court’s order to pay the funeral expenses to the Florida surviving spouse from the investment account, which “goes” to the daughter. The Florida appeals court gave an instruction to the Florida probate court to comply with the Florida probate code and determine in which order the estate assets abate, or are lessened, by the payment of estate expenses and obligations. The Florida appeals court also wants the Florida probate court to determine the order of payment of claims.
So, the “take away”, or the lesson learned, from this recent Florida probate dispute, which went up to the appeals court, is the following: when your administering a Florida estate, you need to determine whether there are enough Florida estate assets to pay all expenses of administration and all Florida creditors. You need to categorize all the expenses of administration, claims, and obligations of the deceased Florida resident and the Florida estate. Once you categorize those and place them in the various probate “classes”, if there is not enough money in the Florida estate to pay all of the claims and obligations, you need to consider abatement. You should put forth a plan to satisfy all expenses of administration and obligations by lessening, or decreasing, the amount of gifts and inheritances which the deceased Florida resident left to his or her beneficiaries. You may wish to file a probate petition regarding this issue, and go before the Florida probate court, so that the probate court may issue an order on this, and interested persons in the estate, like the stepmother or the stepdaughter, will have an opportunity to be heard. In this case, clearly the beneficiaries of the estate did a lot more than just be heard—they were engaged in probate litigation.
If you want to read about the order of payment of Florida estate expenses and probate obligations, I am cutting and pasting the Florida probate code statute, section 737.707, below.
733.707 Order of payment of expenses and obligations.-
(1) The personal representative shall pay the expenses of the administration and obligations of the decedent’s estate in the following order:
(a) Class 1.-Costs, expenses of administration, and compensation of personal representatives and their attorneys fees and attorneys fees awarded under s. 733.106(3).
(b) Class 2.-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.
(d) Class 4.-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.
(e) Class 5.-Family allowance.
(f) Class 6.-Arrearage from court-ordered child support.
(g) Class 7.-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.
(h) Class 8.-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 paragraphs (b) and (d).
(2) After paying any preceding class, if the estate is insufficient to pay all of the next succeeding class, the creditors of the latter class shall be paid ratably in proportion to their respective claims.
(3) Any portion of a trust with respect to which a decedent who is the grantor has at the decedent’s death a right of revocation, as defined in paragraph (e), either alone or in conjunction with any other person, is liable for the expenses of the administration and obligations of the decedent’s estate to the extent the decedent’s estate is insufficient to pay them as provided in ss. 733.607(2) and 736.05053.
(a) For purposes of this subsection, any trusts established as part of, and all payments from, either an employee annuity described in s. 403 of the Internal Revenue Code of 1986, as amended, an Individual Retirement Account, as described in s. 408 of the Internal Revenue Code of 1986, as amended, a Keogh (HR-10) Plan, or a retirement or other plan established by a corporation which is qualified under s. 401 of the Internal Revenue Code of 1986, as amended, shall not be considered a trust over which the decedent has a right of revocation.
(b) For purposes of this subsection, any trust described in s. 664 of the Internal Revenue Code of 1986, as amended, shall not be considered a trust over which the decedent has a right of revocation.
(c) This subsection shall not impair any rights an individual has under a qualified domestic relations order as that term is defined in s. 414(p) of the Internal Revenue Code of 1986, as amended.
(d) For purposes of this subsection, property held or received by a trust to the extent that the property would not have been subject to claims against the decedent’s estate if it had been paid directly to a trust created under the decedent’s will or other than to the decedent’s estate, or assets received from any trust other than a trust described in this subsection, shall not be deemed assets of the trust available to the decedent’s estate.
(e) For purposes of this subsection, a “right of revocation” is a power retained by the decedent, held in any capacity, to:
1. Amend or revoke the trust and revest the principal of the trust in the decedent; or
2. Withdraw or appoint the principal of the trust to or for the decedent’s benefit.
You can also view Florida Probate Code Section 733.805 online free of charge by clicking on this link or cutting and pasting it:
I’ve also pasted this Florida Probate law below if you want to read it right now:
733.805 Order in which assets abate.-
(1) Funds or property designated by the will shall be used to pay debts, family allowance, exempt property, elective share charges, expenses of administration, and devises, to the extent the funds or property is sufficient. If no provision is made or the designated fund or property is insufficient, the funds and property of the estate shall be used for these purposes, and to raise the shares of a pretermitted spouse and children, except as otherwise provided in subsections (3) and (4), in the following order:
(a) Property passing by intestacy.
(b) Property devised to the residuary devisee or devisees.
(c) Property not specifically or demonstratively devised.
(d) Property specifically or demonstratively devised.
(2) Demonstrative devises shall be classed as general devises upon the failure or insufficiency of funds or property out of which payment should be made, to the extent of the insufficiency. Devises to the decedent’s surviving spouse, given in satisfaction of, or instead of, the surviving spouse’s statutory rights in the estate, shall not abate until other devises of the same class are exhausted. Devises given for a valuable consideration shall abate with other devises of the same class only to the extent of the excess over the amount of value of the consideration until all others of the same class are exhausted. Except as herein provided, devises shall abate equally and ratably and without preference or priority as between real and personal property. When property that has been specifically devised or charged with a devise is sold or used by the personal representative, other devisees shall contribute according to their respective interests to the devisee whose devise has been sold or used. The amounts of the respective contributions shall be determined by the court and shall be paid or withheld before distribution is made.
(3) Section 733.817 shall be applied before this section is applied.
(4) In determining the contribution required under s. 733.607(2), subsections (1)-(3) of this section and s. 736.05053(2) shall be applied as if the beneficiaries of the estate and the beneficiaries of a trust described in s. 733.707(3), other than the estate or trust itself, were taking under a common instrument.