Probate is the process for transferring the assets of a deceased person to those persons or entities that are legally entitled to such assets. It is a court supervised process where a judge determines the beneficiaries of the decedent, requires the payment of all lawful debts, and ensures that the proper parties receive the assets of the decedent.

The Florida Probate Code is found in Florida Statutes Chapters 731 through 735 which govern the administration process. Probate is only required when a decedent dies leaving assets solely in his or her own name at the time of death. Usually a personal representative is appointed by the Court to take control of such assets, wind up the decedent’s financial affairs, and distribute the decedent’s assets to the proper beneficiary. The Court monitors the process and requires the personal representative to comply with the decedent’s wishes or applicable law.

Why do I need to do Estate Planning?

In order for the Court to decide who is to receive the assets in the decedent’s estate, the Court must determine if the decedent made written directions on what was to happen to his or her estate. These directions are typically found in a document called a Will. It is a written document that must meet the requirements of Florida Law, where the decedent describes what is to happen to his or her assets. The Court requires the personal representative to comply with the decedent’s wishes as set forth in such Will.

If someone dies without a valid Will, it is referred to as dying “intestate”. In that situation, the beneficiaries of the estate are the heirs of the decedent as outlined by Florida Statute Chapter 732.

A Revocable Trust is commonly used for the management of assets during a person’s lifetime and then requires specified distribution after death. Assets within such trust do not need to go through probate as they are held in a trust and there is no need to move them from the decedent’s name. Trusts also allow for the successor trustee to manage the assets in the trust should the maker of the trust become incompetent or unwilling to continue to manage such assets.

Each person should do “estate planning” to make sure that their assets are passed to those persons or organizations that the decedent desires. It is also wise to make certain health care desires known and appoint individuals to assist when the time comes to help with health issues.

In Florida, the foreclosure of a mortgage involves a lawsuit where the holder of the mortgage and underlying note, called the “mortgagee”, asks the court to determine the amount that is due to the mortgagee/lender and then cause the sale of the mortgaged property on the “courthouse steps” to satisfy such obligation. The reason it is called a “foreclosure” action is because the lawsuit “forecloses” or wipes out any junior liens that may have attached to the property after the recording of the mortgage. All such junior lien holders will be named as defendants in the lawsuit.

If the Court finds a default occurred, it will enter a final judgment against the mortgagor in favor of the mortgagee for the total amount due under the terms of the promissory note, plus interest, court costs (which can exceed $2000), attorney’s fees, past due taxes, past due insurance, and costs of protecting the property paid by the mortgagee. The court also sets a sale date where the property is sold by the clerk of the court to the highest bidder. The mortgagee attends the sale and bids at the sale. The mortgagee gets credit against such bid for all amounts set forth in the final judgment. If the highest bidder, the mortgagee will receive title to the property by way of a certificate of title. If another party is the highest bidder and gets the property, the monies from the sale will be paid to the mortgagee to satisfy the amounts in the final judgment.

If the value of the property is less than the amount found due in the final judgment on the date of the sale, the mortgagee may seek a deficiency judgment against the mortgagor. The mortgagee has five years to obtain such a deficiency judgment.

The foreclosure process is complicated and any person involved in such a lawsuit should obtain competent legal counsel to assist them in protecting their interests.

The primary benefits of a short sale are that the owners have say in the sale of their home and they can often negotiate with the lender on whether any balance will be due and the terms of repayment, if any.

Lenders will consider allowing a short sale when certain conditions exist. Such conditions include: the mortgage is in default or close to default, the homeowner has suffered a recognized hardship (eg. unemployment, medical issue, death, bankruptcy, etc.), the property’s market value has dropped, and the homeowner has little or no assets from which the lender could recover a deficiency judgment. When such conditions are present, the lender will often approve the sale of the home and will release their mortgage encumbrance.

The owners may not receive any proceeds or other benefit from the short sale. Further, the lender is not required to release the owner from any remaining balance due on the loan and will often require the owner to repay a portion of
the remaining debt. If the lender does release the debt, the lender must issue a 1099 for the forgiven debt. However, there are many situations in which such forgiveness is exempt from such tax liability. A short sale will be negatively reported on the owners’ credit report.

When considering whether a short sale is beneficial and should be considered, the owners should first consult with a real estate attorney and then engage a competent real estate agent who is familiar with the short sale process.

The first option is to seek a modification of the subject loan. You need to contact the lender to see if the lender will agree to modify the terms of the mortgage and note to change their terms. The modification may include an adjustment in the interest rate, the term of the loan, the payment amount, a revision of the principal amount due, or other terms to help you avoid defaulting under the terms of the loan.

Another option is to give a deed in lieu of foreclosure. Here, you offer to convey the property back to the bank in lieu of the bank filing a foreclosure action against you. If the lender agrees to your deeding the property back to it, you need to negotiate with the lender to obtain a release of any amounts due. The lender cannot accept a deed in lieu if there are any subordinate liens or encumbrances on the property. Documentary stamp tax needs to be paid on the remaining balance due on the loan

A third option is for you to try to sell your home and satisfy the outstanding mortgage. Unfortunately, because home values have substantially declined, often the value of the home is less than the amount of the mortgage owed. When this happens, the process of selling the home for less than is actually owed on the mortgage is called a “Short Sale”. The primary benefits of a short sale are that the owners have say in the sale of their home and they can often negotiate with the lender on whether any balance will be due and the terms of repayment, if any. The owners may not receive any proceeds or other benefit from the short sale.

Unfortunately, lenders generally will only consider the above options if certain conditions exist. Such conditions include: the mortgage is in default or close to default, the homeowner has suffered a recognized hardship (eg. unemployment, medical issue, death, bankruptcy, etc.), the property’s market value has dropped, and the homeowner has little or no assets from which the lender could recover a deficiency judgment.

The final option is to allow a foreclosure to occur. In Florida, the foreclosure of a mortgage involves a lawsuit where the holder of the mortgage and underlying note, called the “mortgagee”, asks the court to determine the amount that is due to the mortgagee/lender and then cause the sale of the mortgaged property on the “courthouse steps” to satisfy such obligation. The reason it is called a “foreclosure” action is because the lawsuit “forecloses” or wipes out any junior liens that may have attached to the property after the recording of the mortgage.

Lenders are not required to release the borrowers from any remaining balance due on the loan and may require the borrowers to repay a portion of the remaining debt. If the lender does release the debt, the lender must issue a 1099 for the forgiven debt. However, there are many situations in which such forgiveness is exempt from such tax liability.

Any person considering any of these options should obtain competent legal counsel to assist them in protecting their interests.

Corporations and Limited Liability Companies (“LLCs”) are preferred business structures because they both offer protection to their owners from liability from the company’s debt or obligations. Subject to few exceptions, the personal assets of the owners of corporations and LLCs are usually shielded from the liabilities of such company in which they have ownership.

A corporation may elect certain tax status under the Internal Revenue Code to allow the profits and losses of the corporation to “pass through” to its owners and be reported on the owners’ personal tax returns. However, to qualify for the “S” tax status, such corporations may only be owned by U.S. resident individuals and the corporation must have fewer than 100 shareholders. Also, when distributing profits, the S corporation must make distributions among all shareholders according to the ratio of stock ownership, regardless if the shareholders desire for it to be distributed differently. S corporations are operated the same as a regular corporations – the shareholders elect directors who make policy decisions for the corporation and who elect the officers of the corporation who take care of the day to day operations.

LLCs provide the same tax benefits as S corporations as “pass- through” entities. However, LLCs offer greater flexibility in ownership and ease of operations. There are no restrictions on the ownership of an LLC. An LLC can be managed by the members, or the members may appoint a manager or managers to operate the company. The members can divide profits as they desire, regardless of their ownership percentages. The tax disadvantage of an LLC is that the entire net income of the business is subject to self employment tax. In an S corporation, only the salary paid to the employee-owner is subject to such tax.

One should also consider that LLCs are a relatively new form of entity and the corporate structure is more well known. The cost of creating the entities and Florida’s annual fees are very similar.

Notwithstanding, anyone considering whether to use a corporation or LLC should meet with an attorney who has experience in such matters and with a Certified Public Accountant to fully understand the tax ramifications before deciding.