Last week an article was making the rounds about extremely long financing agreements for vehicles. These are looking more and more like mortgages. Except, unlike mortgages on real property, motor vehicles generally depreciate rather than appreciate. During a Florida Probate consultation the central issue is often weighing the decedent’s assets vs known or suspected creditors.

I have had several recent consultations where doing probate just doesn’t make sense because if probate is done, we’d be doing it for the benefit of the creditors… and that’s it; there wouldn’t be anything left for the beneficiaries. In cases like that, the creditors can do probate if they like. In Florida any interested person can petition to begin probate.

A Creditor can Petition for Probate in Florida

Most times, the creditors choose not to petition for probate. It’s more complex and expensive for a creditor to probate a decedent’s estate. Florida Courts trust family members and those named as personal representative by the decedent more than they trust creditors. This makes sense if you consider the interests at play. Because beneficiaries only get something if all the creditors are paid and assets remain for distribution, they are motivated to maximize the estate- it benefits everyone.

Creditors on the other hand are prioritized by statute. This means one creditor may not care if there are enough to pay all creditors or even creditors in the same class fairly. Because of this, creditors can only ask the court to begin probate by having a curator appointed to administer the Florida estate. This lets a third party with no interest in the estate over see marshalling of assets, payment of creditors, and distributions to beneficiaries.

Florida Probate Vehicle Creditor Exemptions

Under the Section 732. 402 of the Florida Probate Code, a motor vehicle may be exempt from claims of creditors. As long as the vehicle is given to a child of the decedent, creditors will not be able to reach that asset for satisfaction of their claim. There is of course an exception to this exemption. Every law student who studied secured transactions remembers the rule: First in time, first in right. This applies only if the security interest is perfected- in the case of a motor vehicle this means at the time of purchase the loan company received a purchase money security interest, and perfected it by recording a lien with the state of Florida Department of Highway Safety and Motor Vehicles.

Based on the article above, for 84 months following the purchase of a vehicle using one of these ultra-long term loans (7 years! Yikes!) any transfer will require satisfaction of this loan and a release of the lien. If you’ve looked at an amortization table for your vehicle or mortgage, you know that the first payments are mostly interest. Couple this with the rapid depreciation of motor vehicles and you’ve got a much longer period where the loan will exceed the value of the asset. If the owner dies any time prior to full repayment of the loan and there will be at least one creditor who can pierce the creditor exemption.

Florida 2 Year Statutory Claim Bar

Under section 733.710 of the Florida Probate Code there is a bar against creditor claims 2 years after the date of death. All claims are barred. This applies whether or not the creditor was noticed. As mentioned above, the law permits any interested person to petition for probate. if you’ve got a claim and you want to be paid, you need to bring your claim in a timely fashion.

This is a hard bar- if you’re a creditor, you are out of luck on day 731 unless you filed your claim before then. There is an exception to this rule in the last section of the statute. This does not affect any duly recorded mortgage or security interest (or person in possession of personal property).

This may not seem like a huge deal when considering the purchasing power this gives consumers and the role auto loans play in our economy. However, you usually need to cough up a few thousand dollars to buy a motor vehicle, and if you don’t you’re starting out under water- it will be that much longer before you have any equity in the asset.

These types of loans or your plan to get such a loan should be discussed with your estate planning attorney. If your loved one owned a vehicle, you need to be aware that a loan balance like the ones contemplated in the 84 month agreements may make probate uneconomical unless the decedent has enough assets to pay the motor vehicle loan and all other creditors.

If you want to know how a loan like this may affect your estate plan or your loved one’s estate schedule your free consultation with one of our probate attorneys today.