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What is a Formal Administration?
A formal probate administration is a standard process that is used here in Florida to settle a deceased individual’s estate. A formal probate administration is typically used when the estate value exceeds $75,000. It is also commonly used when there are estate creditors or when important estate information is missing (e.g., unknown assets, bank account information missing, etc). Formal administrations can be used when the deceased died with a Last Will and Testament (testate), or when the deceased died without a Last Will and Testament (intestate). This Article will cover how a formal administration works in Florida from start to finish.
Differences Between a Formal Administration and Summary Administration in Florida
A formal probate administration differs significantly from a summary administration. One of the most significant differences is that a personal representative is appointed in a formal administration, not a summary administration. Formal administrations also take an average of six to twelve months (sometimes longer) and are significantly more expensive than summary administrations.
Example: Jorge passes away in Florida with a homestead valued at $300,000, a bank account worth $50,000, and an IRA worth $30,000. The family is unsure whether to open a formal or summary administration.
Result: Jorge’s homestead will have a value of $0 for probate purposes since it is considered an exempt asset. However, the value of the bank account and IRA total $80,000, so Jorge’s family will have to open a formal administration since the estate is larger than $75,000.
As a rule of thumb, a formal administration will cost at least two times more than a summary administration. A formal administration will also take anywhere from six to ten (or more) longer than a summary administration. A summary administration is almost always preferable if the estate assets allow you to open a summary administration.
Formal administrations are much longer and more involved than summary administrations due to various statutes and court requirements. For example, Formal administrations have a mandatory creditor notice period that lasts three to four months. Formal administrations often last more than seven to eight months. Sometimes, they can last beyond a year. There are also many more notices and other filing requirements that the personal representative must meet in a formal administration.
Formal administrations have a personal representative appointed on behalf of the estate. The probate process will involve validating the Last Will and Testament, paying debts and taxes, gathering estate assets, and distributing the assets to the beneficiaries. This is different than a summary administration since there is no personal representative appointed in a summary administration.
In some situations, a formal administration is preferable to a summary administration when the estate value is less than $75,000. One situation is when there are significant creditor claims. The summary administration process makes it very difficult to effectively deal with creditor claims since no personal representative is appointed on behalf of the estate.
Another situation is when some of the decedent’s assets are unknown, or you are missing some critical asset information, such as account numbers and asset amounts. If no personal representative is appointed, then there will be no way for you to reach out to financial institutions to see if there are other assets or obtain essential information. Financial institutions often provide no information to any beneficiaries without someone being appointed as the personal representative.
Example: Alice died in Florida with a $60,000 bank account and a homestead. Since the homestead has a value of $0 and the bank account is less than $75,000, her daughter opens a summary administration probate. She obtains an order of summary administration, transferring Alice’s assets to her. Her daughter then receives a letter from a life insurance company notifying her that Alice also had a whole life insurance policy. Still, the letter does not include details about the whole life insurance policy amount.
Result: for Alice’s daughter to obtain information about the whole life insurance policy, she must re-open the probate and then convert summary administration to a formal administration to be appointed personal representative. Once she is the personal representative, she can obtain the life insurance policy.
Tip: The decedent’s homestead has a value of $0, so consider that when calculating whether a formal administration is necessary. Many people mistakenly use the homestead’s actual value when determining whether a summary or formal administration is appropriate. A homestead could be worth $5,000,000, but if it is homestead, it has a value of $0 for probate purposes.
Critical Steps in a Florida Formal Administration
A formal administration begins when a petition for administration is filed. The petition for administration is typically filed where the deceased individual resided at the time of death. The petition can be filed by the named personal representative in the decedent’s Last Will and Testament, or an interested party can file it.
An interested party is anyone who can reasonably be expected to be affected by the outcome of the probate. The interested party can be the personal representative, a potential beneficiary or heir, or a creditor. It is common for an interested party to file the probate when the named personal representative does not act to handle the estate.
Example: John died without a Last Will in Manatee County, Florida. John did not have any children or a surviving spouse. He had three surviving siblings. John’s three surviving siblings would be interested parties, and any of his three siblings could open up John’s probate in Manatee County by filing a petition for administration.
Appointing a Personal Representative
Once the petition for administration is submitted, the court will appoint a personal representative. However, just because someone is named as a personal representative in someone’s Last Will doesn’t mean an individual will be allowed to serve as a personal representative. The Florida probate statutes prevent the following individuals from serving as personal representative:
(1) Nonresidents;
(2) Individuals who are mentally or physically incapable of serving as personal representative;
(3) Convicted felons; and
(4) Anyone who is under the age of 18.
Nonresidents cannot serve as personal representatives here in Florida unless the nonresident is related to the decedent. People will often name a close friend who lives out of state to serve as the personal representative. Unfortunately, a nonresident close friend cannot serve as the personal representative.
Example: Darla passed away in Florida. She named her childhood best friend, Mark, as her representative. Mark is not related to Darla and lives out of state.
Result: Mark cannot serve as a personal representative since he is not a Florida resident nor related to Darla.
The court’s appointment of the personal representative is official when the Judge signs the letters of administration and the order appointing the personal representative. The letters of administration is the official court document the personal representative will use when dealing with any third parties, such as financial institutions, to show that they have the legal authority to act on behalf of the estate.
If the personal representative lives out of state, it is common practice for most Judges to request a bond before officially appointing the personal representative. The purpose of the bond is to ensure that the personal representative will perform their duties according to the law. If the personal representative does not perform their duties properly, then the bond is there to pay whoever suffers a financial loss due to the personal representative’s actions.
Note: Some Last Will and Testaments require the personal representative to obtain a bond even if the Judge does not require it. However, it’s more common that the decedent waived the bond requirement in the Last Will. Make sure to read the Last Will thoroughly to see whether or not the decedent waived the bond requirement.
Duties of the Personal Representative in Florida
The personal representative’s main job is to finalize the decedent’s affairs. The personal representative will typically gather all of the Decedent’s assets, pay any valid debts, pay any estate expenses, pay any taxes, and distribute the Decedent’s assets according to either the Decedent’s Last Will and Testament or the Florida Statutes.
The first step for the personal representative is to locate the Decedent’s financial assets and secure them. Some examples of financial assets include bank accounts, CD accounts, IRA or other retirement accounts, and life insurance. Securing the assets depends entirely on the type of asset. For example, the personal representative can secure a bank account by having the bank freeze the decedent’s bank account until the personal representative can take possession of the bank account. The financial institution will need proof of the Decedent’s death, and then they will freeze the financial account. Proof of death is usually shown using the death certificate.
Once the personal representative has located the estate assets, the next step is for the personal representative to gather the assets. The personal representative in Florida has the full authority under the Florida Statutes to take possession of the deceased’s property, wherever situated.
Tip: If the Decedent owned real property in two different states, the Florida personal representative will not have any authority over the real property outside of Florida. The personal representative must open an ancillary probate in the other state to take possession of the out-of-state property.
The personal representative must keep all estate assets separate from their own personal assets. The easiest way to do this is to open up an estate bank account and place funds into the estate account. Once the estate account is opened, the personal representative will transfer all of the decedent’s financial assets into the estate account. The personal representative will be able to use the money in the estate account to pay taxes, pay creditors, or pay for any valid estate expenses.
Caution: Consult with your probate attorney before liquidating estate assets and depositing them into the estate bank account. Liquidating certain accounts—such as retirement accounts—can cause serious tax consequences. Also, some personal representatives mistake non-estate assets for estate assets and place non-estate assets into the estate account. Placing non-estate assets into an estate account can cause serious creditor issues since non-estate assets are typically unreachable by the Decedent’s creditors.
Locating Decedent’s Creditors
One of the most important duties of the personal representative is to locate any of the decedent’s potential creditors. Creditors can include mortgages, hospital bills, credit cards, loans, insurance, utilities, subscription services, etc. The decedent’s mail is the first place to start when looking for potential creditors. We then recommend looking at bank statements and credit reports. Bank statements will show you regular payments to creditors, and credit reports will show any outstanding debts or creditors.
Caution: if the decedent died with significant creditor debt, it may be best to wait two years to file the probate. Make sure to consult with a probate attorney before opening the probate if there are a lot of creditors.
Once the personal representative has identified the creditors, the personal representative must notify the creditors. There are two main ways to notify creditors: (1) publishing a notice in a local newspaper and (2) mailing a notice to already identified creditors.
Publishing a notice to creditors in a local newspaper is a requirement for Florida probates. The notice is filed with a local newspaper and must be run for two consecutive publications. The purpose of this notice is to give any unknown creditors notice that there is an active probate for the decedent. These unknown creditors are then given 90 days from the first newspaper publication to file a creditor claim with the probate court. If the unknown creditor does not file a notice within 90 days, the creditor’s claim will forever be barred.
Example: Daisy’s neighbor loaned her $20,000 shortly before Daisy passed. Daisy’s personal representative had no idea about the loan, and there were no loan documents or paperwork in any of Daisy’s paperwork. Daisy’s personal representative published a notice to creditors in a local newspaper, and Daisy’s neighbor failed to file a creditor claim within 90 days.
Result: Since Daisy’s neighbor failed to file a creditor claim with the probate court for the $20,000 loan, Daisy’s neighbor will likely be unable to recover the $20,000 from Daisy’s estate.
The other type of notice is done through direct mail. Direct mail notices are used for known creditors. Known creditors are creditors that the personal representative discovered or should have reasonably discovered. The known creditors must be provided with direct mail notice, and then these creditors will have thirty days to file their claim with the probate court. If the creditor does not file their notice within thirty days, their claim will be barred.
Tip: Make sure to send these notices via signature receipt. Florida courts will require proof that the notice was delivered to the creditor and the creditor signed the notice receipt.
Challenging Creditor Claims
Even though a creditor has filed a claim against the decedent’s estate, it does not mean his personal representative will need to pay the creditor claim. The personal representative can always object to the creditor’s claim. When the personal representative formally objects to the creditor’s claim, the creditor has thirty days to file an independent lawsuit against the estate. The claim will be barred if the independent lawsuit is not filed within thirty days.
Example: Julia died in Florida and spent a couple of weeks in the hospital before she died. Julia’s insurance did not cover most of her hospital stay. The hospital filed a claim against Julia’s probate estate for $40,000. Julia’s personal representative decided to challenge the hospital creditor claim since the personal representative believed the hospital was overbilled for its services. After receiving the objection, the hospital failed to file an independent lawsuit against the estate.
Result: The hospital’s creditor claim will be barred entirely. Julia’s estate will not need to pay the creditor claim.
Paying Debts and Expenses
Once all creditors have been identified, the personal representative must pay all valid creditor claims within one year from the first date the notice to creditors was published. One of the biggest mistakes we see is when a personal representative pays creditor claims before knowing whether there are any other potential creditor claims. This is a mistake because Florida provides different classes of creditors that must be paid before other creditors. There can be severe consequences for the estate and personal representative if lower-priority creditor claims are paid before higher-priority creditor claims.
Here’s a breakdown of the different classes of creditor claims:
Class 1. Costs, administration expenses, and compensation of the personal representative and attorney’s fees.
Class 2. Reasonable funeral, internment, and grave marker expenses not to exceed $6,000.
Class 3. Debts and taxes and claims in favor of the state for unpaid court costs, fees, or fines.
Class 4. Reasonable and necessary medical and hospital expenses of the last sixty days of the decedent.
Class 5. Family allowance.
Class 6. Court-ordered child support.
Class 7. Debts acquired after the death by the continuation of the decedent’s business.
Class 8. All other claims.
Creditors of one class must be paid in full before creditors of another class can be paid. Class 1 creditors must be paid before any other class of creditors. If the estate assets are insufficient to pay one class of creditors, they are distributed to the creditors pro rata based on the value of their claims.
As you can see from the different classes, the costs for the administration and the compensation for the personal representative and the attorney must be paid before any other creditors. This is why it is critical not to pay any creditor claims until all expenses and creditors have been identified.
Example: A decedent died with $50,000 in assets. The decedent had $60,000 in valid creditor claims. One claim was for $40,000 in hospital bills for the month before the decedent’s death. The other creditor claims are from three credit card companies totaling $20,000. Since the estate is insolvent, the personal representative must carefully distribute the estate assets.
Result: The hospital creditor claim for $40,000 is a Class 4 creditor. The credit card creditor claims are a Class 8 creditor. The hospital creditor will be paid in full for the $40,000 owed. The remaining $10,000 will be distributed to the credit card creditors in proportion to the amount of their claim.
Preparation and Filing of Taxes
The personal representative will typically hire a competent tax preparer to prepare and file the decedent’s taxes. The personal representative must file the decedent’s final tax return with the IRS. The final tax return will be filed with the IRS through filing a regular tax return, also known as the IRS Form 1040.
The personal representative may also need to file a tax return for the estate if the estate earns income after the decedent’s death. Income could be from rental income, dividends, interest, loan repayments, etc. Since the estate is a separate tax entity, an estate tax return must be filed using the IRS Form 1041, U.S. Income Tax Return for Estates and Trusts.
Note: the personal representative needs to make sure that the decedent filed their tax returns before they passed. The personal representative can contact the IRS and request account transcripts for the previous 3 to 6 years before the decedent’s death to ensure that the decedent filed and paid their taxes. If the decedent didn’t file some tax returns, the personal representative must ensure that the tax preparer prepares all the missing tax returns.
Distribution of Assets
After all estate debts and expenses have been paid, it’s time for the personal representative to distribute the remaining assets to the beneficiaries. The personal representative will prepare and file a final accounting with the court before distributing any assets. The personal representative will then send the final accounting to all beneficiaries via formal notice. If none of the beneficiaries disagree with the final accounting, the personal representative will distribute the assets.
A final accounting is not always required. Suppose all beneficiaries are on the same page about the distribution of assets. In that case, the personal representative can skip the final accounting if all beneficiaries sign a waiver of accounting.
Caution: distributing assets before beneficiaries agree (or at least don’t contest the final accounting) can cause significant issues for the personal representative. It is challenging to claw back assets from beneficiaries once distributed.
The assets will be distributed according to the beneficiaries listed in the decedent’s Last Will and Testament (testate). If the decedent died without a Last Will and Testament (intestate), the assets will be distributed according to the beneficiaries determined by the Florida Statutes.
Closing the Estate
Closing the estate is the final step in the probate process. Once all debts and expenses have been paid and the final assets have been distributed, the personal representative will file a petition for discharge with the probate court. The petition for discharge signifies the end of the probate process and lets the court know that the personal representative has fulfilled all of its duties as personal representative. The petition asks the court to formally discharge the personal representative of its legal duties as estate administrator. Once signed by the court, the order of discharge releases the personal representative from all legal responsibilities regarding the estate.
Various Personal Representative Questions (FAQ)
When Can the Personal Representative Act?
Personal representatives typically can only act when formally appointed to serve as personal representative by the Probate Court. Until the Probate Court appoints a personal representative, the personal representative cannot serve in their official, legal capacity. This means that any third parties, such as banks and other financial institutions, will not speak to the named personal representative in the Will until the Court officially appoints a personal representative.
The Court officially appoints a personal representative by signing an Order Appointing Personal Representative and by issuing the Letters of Administration (referred to often as just the “letters”). Once the letters are issued, the personal representative will have the legal authority from the court to represent the estate and begin administering it.
Note: If the personal Representative acts before the appointment, the Court may accept the prior acts at the Court’s discretion if the Personal Representative’s actions are proper. However, we highly recommend consulting with a probate attorney before acting as Personal representative before you’re appointed to serve.
Do I Need to Hire an Attorney for a Formal Probate?
In most cases, an attorney must administer a formal probate. An attorney will be required if there are multiple beneficiaries or the personal representative is not the sole beneficiary. The exception would be when the personal representative is the only beneficiary of the estate. If the personal representative is the sole beneficiary, then there is not a requirement for the personal representative to hire an attorney. However, navigating the court system in a formal probate can be daunting. There are many different court filings and requirements that must be strictly followed. Additionally, each county and each Judge will have different requirements. So, even if you don’t need to hire an attorney, it is often in your best interest to hire an attorney to guide you through the process.
Example: John died in Florida, and his wife is his sole beneficiary and named personal representative in his Last Will and Testament. She can choose to represent herself and not hire an attorney if she wants to.
How Long Will a Formal Administration Probate Last in Florida?
Formal probates can take six months to a year for simple formal probates. The process can take anywhere from a year to two years for more complex probates. Formal probates take so long here in Florida because there is a mandatory creditor period for formal probates that will last anywhere from three to four months. Additionally, if there are complex assets like business assets, contested wills or legal disputes, or estate tax issues, then these will all significantly delay the formal administration.
Do I Need to Obtain a Federal Tax ID for the Estate?
Yes, once appointed as a personal representative, you will need a federal tax ID (also known as an EIN) to open an estate bank account. It is easy to obtain an EIN online and completely free if you do it through the IRS website. Here’s a helpful guide we wrote on filing for an EIN:
If I Serve as Personal Representative, Am I Liable for the Decedent’s Debts?
No. You are not liable for the decedent’s debts. If the estate has insufficient funds to pay the debts, some or all of the estate creditors will be out of luck. But you, as a personal representative, will not be personally responsible for any unpaid debts.
How Much Will an Attorney Cost for a Florida Formal Administration?
An attorney will charge hourly or by a percentage of the estate assets. Most attorneys prefer to charge a percentage of the estate assets. We attorneys often make more money when we charge a percentage of the assets. Hiring an attorney hourly to handle the estate is usually better for you, which is what we always recommend to potential clients.
According to the Florida statutes, 3% of the estate assets is deemed reasonable for the attorney’s compensation. However, that can often result in paying an attorney much more than if you hired an attorney hourly.
If you hire an attorney on an hourly basis to handle the probate, ask them for an estimate on how much the probate will cost. While it is just an estimate and the final cost may end up being different in the probate ends up more complicated than usual, the attorney should be able to give you a rough idea of cost once they know the estate assets, information about the beneficiaries, and whether there is anything that may be concerning (e.g., a beneficiary challenging the Last Will).
Is Probate Always Required in Florida?
No. Probate is not always required in Florida. If all of the decedent’s assets were jointly owned, had beneficiaries on them, and/or the assets were in a trust, then a probate would not be required.