A huge tsunami wave towers over a small sailboat -- Ruh Roh

Debts to now live on after death ?

Author:  Frank P. Murphy, Attorney-CPA

There is a move afoot in Florida to cause debts to live on after someone dies.  The authors of the recent proposal would make debts into guided missiles that would have a life of their own, and act sort of like a guided missile to chase after family members or loved ones if the debt wasn’t paid off in probate.  You can tell by my comments that I strongly oppose the proposal.

Actually, the proposal does address a growing problem where property can pass outside probate and sometimes in Florida avoid the decedent’s creditors.  If the proposal were to be altered to more narrowly define what is a testamentary disposition, and most importantly to involve such assets in the estate, then the proposal might be to some degree sensible.  However, the proposal as drafted would only apply to creditors, and then only in estates without enough assets to pay all creditors.  The current proposal ought to be called the “Windfall to Capital One,” because only creditors are involved, not beneficiaries who are harmed.  Further, it is surely a windfall, not just a protection to Capitol One (and other credit card companies), see the next paragraph.

A credit card company has a credit ap that lists whether assets are joint are not.  The credit card company prices credit based upon the credit ap, so Capital One would charge higher credit rates for someone who has accounts in a joint format, for if that person dies the joint assets aren’t in the estate to pay for the debt.  That is current law.  So Capitol One charges more for the credit, and then lo and behold in the estate Capitol One can use the new guided missile to chase family members on the joint account, despite the pricing having been made based upon such joint assets not being available at death.

Another problem with the legislation is that it may drive some clients to use banks outside Florida.  There is not doubt that jurisdiction over out of state persons over such assets is dubious, and even were that not true, it is hard to collect out of state.  Florida beneficiaries and Florida joint account holders are going to bear the brunt of the new law.  AND elderly persons contemplating this new terrible law will likely want to consider opening their bank accounts outside Florida.  There are many snow birds in Florida that do indeed have the flexibility to do that; although some retirees based solely in Florida may find it harder to do.  The Florida banks are just plain dumb to not lobby against this proposal; it is going to in the long run hurt their business.

It is possible that this proposal may jeopardize our green card service (this is a technical legal term, and probate practitioners know what I am talking about).  Probate is currently in rem, and the Capital One Windfall very certainly reaches out of state assets that aren’t in rem.  There is the very great potential that the proposal has many negative consequences that are not even imagined as of yet.  The authors of the proposal falsely claim that they “aren’t even changing the law, they are just clarifying it.”  As a result, they just haven’t looked at or appreciated the problems that would be created.  For example the probate statutes have a clear provision that probate is in rem; but they don’t amend that statute.  So the new proposal conflicts with statutes already on the books.  Ditto with respect to banking statutes.  Banking statutes say that accounts go free from all claims to the joint owner (such joint accounts can be challenged on undue influence and a number of other grounds); the new proposal would conflict with that.  By not seeing the conflict and not recommending changes to conflicting statutes the authors of the proposal are hiding the full impact of what they are doing.  If banks realized that their banking statutes would be amended to say that such accounts to not go free of all claims, it would give the banks something to think about when some other states do have similar banking statutes to the current Florida version.  It is wrong to hide the full impact of the proposed change in the hope that nobody realizes what you really are doing.

In addition, the legislation would destroy the family allowance and harm families.  There are many further negative consequences from this legislation that there isn’t time to cover here, I have only been able to mention the tip of the iceberg.  Hopefully, the legislation either won’t pass, or will be converted to something more sensible before it passes.


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