Estate Planning

A well-designed estate plan provides for your loved ones during your life and at your death. It is not just a matter of filling out a simple will. A planned estate is designed to minimize taxes and the government’s share of your money, designate who can make health care decisions for you should you become incapacitated, select a guardian for your minor children, indicate where your assets will go, and ensure your finances are taken care of by the right person in the event of temporary or total disability. Proper estate planning spares your loved ones of the expense, delay, and frustration associated with managing your affairs when tragedy strikes in the form of disability or death.

Estate? What estate?

Despite this common misperception, everyone has an “estate.” An estate is merely a collection of property owned by someone at death. An estate can be simple and consist of merely personal effects – such as clothes, jewelry, and shoes – or it can be complex and contain various types of property such as a home, a vacation property, individual retirement accounts (IRAs), annuities, and life insurance. The size and complexity of your estate determines what documents you need to have in your estate plan to ensure your property will be distributed to the right people and the right time.

A testamentary will is often what comes to mind when someone mentions a “will.” It sets forth your wishes regarding your assets upon death. Often, though, a will is not the best estate document to have. Wills must go through probate – a costly, often drawn out procedure in which a court divides up your assets according to your wishes.

Setting Expectations

A will may be all that is needed to dispose of your property according to your wishes. But it is important to understand what a will does and does not do.
A will:

  • Gives away property at your death to the people/organizations you select
  • Names a personal representative (commonly referred to as “executor”)
  • Can appoint a guardian for your minor children
  • Is administered in probate court

A will does not:

  • Dispose of any jointly held property if the other joint tenant survives
  • Dispose of insurance proceeds, retirement plan benefits, or trust assets
  •  Take effect until death – leaving assets exposed during temporary or permanent disability
  • Avoid probate

Probate
Probate is a public court supervised procedure for validating your will, paying debts and expenses of your estate, resolving any will challenges, and distributing property. All wills must be probated. Probate can be costly, cause delay for your heirs, and cause your asset distribution to be conducted in the public eye. The length of the delay depends on the situation. If there is a will contest, the delay will be significant. If creditors remain at death, they have a statutory right to be notified when the estate is opened and they have time after the notification to file and submit claims against the estate. During this delay, funeral and burial costs, administration costs, and bills are typically paid by remaining family members.

Types of Trusts

A “trust” or “trust fund” is not a singular concept. Rather, there are many different forms of trust: revocable, irrevocable, land trusts, life insurance trusts, GST trusts, beneficiary trusts, bypass or AB trusts, charitable lead/remainder trusts, Qualified Terminable Interest Property trusts, grantor retained annuity trusts, intentionally defective grantor trusts, and intervivos or testamentary trusts.  Despite the myriad of trusts available, most estate plans involve one type: the revocable grantor trust (also called revocable living trust, revocable trust, or sometimes just living trust), described more completely below.

Revocable Trust

A revocable trust is a flexible estate planning document often used as an alternative to a will. To conceptualize a trust, imagine you put all of your property into a jar and fastened a set of instructions to the jar setting forth exactly how you’d like your property handled in the event of death or disability —  to whom, when, and how. Essentially, a trust allows you to dictate from the grave, for up to 360 years, how your property is to be handled.  To cover any property left out of the hypothetical jar, a pour-over will instructs that such property shall be distributed to the trust at your passing.

A trust and pour-over will work in conjunction to distribute your assets. A trust is a set of instructions that directs how, where, when, and to whom your property will be given. Unlike a will, the trust’s instructions will apply not only when you die, but also if you become incapacitated or permanently disabled. Any property acquired after the trust’s creation that is not covered by the trust can be administered through the trust with the use of a pour-over will.

A trust is a complex document that can help in planning for unique needs and situations. Such situations may include a special needs child, a disabled spouse, a spendthrift child, a non-U.S. citizen family member, or an untrustworthy spouse of an heir. The trust provisions – think “instructions” – can limit distributions of property to certain beneficiaries to ensure continuation of public benefits, creditor protection, and in some cases, divorcing spouse protection. In sum, a trust is a malleable document that can be drafted to meet your personal and family legacy planning goals while also addressing your concerns.

A REVOCABLE LIVING TRUST:

  • May be revoked anytime
  • Avoids probate
  • Provides you with full control over all of the property until death
  • Allows for management and distribution of assets in the event of disability or incapacity
  • Protects separate assets from a spouse’s creditors in the event of divorce
  • Passes property at death in the manner and at the time that you wish
  • Keeps asset distribution out of the public eye

A REVOCABLE LIVING TRUST DOES NOT:

  • Go through probate
  • Avoid estate taxes
  • Minimize gift taxes
  • Avoid creditors

Irrevocable Trust

An irrevocable trust is similar to a revocable living trust except that you cede control of the assets placed into an irrevocable trust. Once the assets are put into the trust, they cannot easily be taken back out. The primary two reasons for using an irrevocable trust are to minimize gift & estate taxes, and for creditor protection. An irrevocable  trust is used as an alternative to a revocable living trust when gift & estate taxes are of concern. In January 2013, the American Taxpayer Relief Act was passed providing for a $5,000,000 per person estate tax exemption indexed to inflation. Accordingly, in 2013, the first $5,250,000 of an individual’s estate, provided it was not given away through taxable gifts during life, will be exempt from federal estate tax. Any amount over the exemption will be burdened with a 40% tax rate if not planned properly. Florida does not have a separate estate or inheritance tax. But Floridians owning property in other popular states – including New York, Massachusetts, Illinois, D.C., Maine – at death, may owe state estate taxes, the rates which top out at 16%.

AN IRREVOCABLE LIVING TRUST:

  • Avoids probate
  • Minimizes estate & gift taxes
  • Is not revocable
  • Allows for management and distribution of assets in the event of disability or incapacity
  • May be used to gift property while controlling distribution and future disposition
  • May provide creditor protection
  • Passes property at death in the manner and at the time that you wish
  • Keeps asset distribution out of the public eye.

AN IRREVOCABLE LIVING TRUST DOES NOT:

  • Go through probate
  • Allow you to retain control of property

 

The Florida Durable Power of Attorney typically gives your agent complete control of your finances, and the power to make or sign any contract or agreement on your behalf. It is an extremely powerful document and the decision of who to appoint should never be taken lightly.

You may be asking yourself why you should appoint someone to have this much control over your affairs. Imagine what would happen to your life, your credit score, your bills, your home if you were hospitalized for a month. Imagine what would happen if you had an extended stay at a rehabilitation facility after a car or boating accident and no one was able to receive account information from your bank, savings, insurance carriers, phone, mortgage, or investment accounts. In the case of a medical emergency and temporary disability, the last thing you want your family worried about is not being able to stay financially afloat while you are recovering. This is where a Florida Durable Power of Attorney comes into play.

Through a properly executed Durable Power of Attorney, your agent will be able to manage your finances, pay your taxes, deal with insurance claims, talk to your phone and cable providers, and correspond with the government on your behalf.  The document is “live” at the moment of signing, making the POA the most powerful financial instrument.

The “Terry Schiavo” Document

Living in Pinellas County in 2005, it was hard to escape the barrage of national media lining the streets of Clearwater & the daily news coverage of the drawn out legal battle between Michael Schiavo and Robert & Mary Schindler over the fate of Pinellas County woman Terri Schiavo. In 1990, Terri Sschiavo collapsed in her St. Petersburg home in full cardiac arrest. She suffered massive brain damage and doctors diagnosed her as being in a vegetative state. In 1998, Terri’s husband, Michael, petitioned to have her feeding tube removed. That was the beginning of a 7-year long legal battle with Schiavo’s parents over what Terri’s wishes would have been. Unfortunately for her family, Terri died without a living will.

A living will is a crucial component of a comprehensive Florida estate plan. A Florida living will is a legal document that sets forth what you would like to have happen to you if you are mentally & physically incapacitated and a team of doctors have determined that additional medical treatment will merely prolong the process of dying. The living will sets forth whether you would like to continue medical treatment, including hydration and nutrition, if you are mentally and physically incapacitated and (1) in a “persistent vegetative state,” (2) have a terminal condition; and/or (3) have an end-stage condition (an illness that has essentially become terminal).

The circumstances that bring about the need for a living will are never pleasant to think about. But creating a living will as part of a comprehensive Florida estate plan protects your family from the heartache of making that type of decision in your absence. 

A Florida Health Care Surrgoate is often created along with a Health Insurance Portability and Accountability Act (HIPAA) release to allow the person you select to have access to your medical records to make more informed decisions on your health care and medical needs. Without a HIPAA release, doctors and other medical providers are not legally allowed to give your spouse or family and information about your medical condition or records.

A Florida Designation of Health Care Surrogate is a staple of a complete Florida estate plan. A Florida Designation of Health Care Surrogate is a legal document in which you select someone to act on your behalf to make medical decisions when you are physically and mentally unable to make those decisions yourself. A Health Care Surrogate is not the same thing as a Florida Living Will. The document gives the person you select more power over your health care decisions than a standard Living Will because a Living Will only covers three very specific situations.

The Unplanned Estate

When someone dies without an estate plan – without a will or trust – he or she dies “intestate.” This basically means that your property will be distributed according to the laws of the State of Florida, not according to your own wishes. In Florida, if a person dies leaving no children or spouse, property is distributed equally to both father and mother. If a person dies without a spouse but with children, the property will go to the children. If a person dies survived by a spouse and (1) they have no children, the spouse will receive everything; (2) and only children in common with the surviving spouse, the spouse will receive the entire estate (provided the spouse does not have other children from a different person); (3) children not in common with the surviving spouse, the surviving spouse receives half of the estate and the children receive the remaining part of the estate.
In short, if you don’t want the legislature to determine where your money and property will go, have an estate plan.

Building an Effective Estate Plan

Building an estate requires building a solid foundation. That comes through reviewing your existing assets & plans, determining your personal goals, and assessing & addressing your concerns. To begin, look at the snapshot of where you are today. What assets do you currently have? What do you plan to acquire in the future? What is your current investment portfolio? How do you plan to manage it going forward? What liabilities do you have? When do you plan to pay off these debts?

Next, take a look at your plans. Do you have a will or trust? If so, does that will or trust provide for everyone you want to provide for? Who are your beneficiaries on your life insurance/IRA/brokerage accounts/bank accounts? Do you own your accounts jointly? Have you been married more than twice? Have you had children since your last will or trust? What would happen to your bills if you were suddenly no longer able to work? Do you have a place where all of your digital account information is stored in the event of an emergency? What would happen to your business if you were no longer around to run it?

After reviewing your existing assets and plans, you will have a clearer picture of what you want and need out of an estate plan. The process of reviewing your existing financial, familial, and professional obligations will help you to develop personal goals and identify potential concerns. Perhaps you have a spendthrift daughter or son and you are worried creditors will obtain their portion of the estate. Maybe you have a special needs child who requires specialized nursing care or receives public benefits. As a small business owner, the fate of your business may be uncertain in the absence of proper planning. Whatever your concerns and goals, a qualified estate planning attorney can help you build a tax sensitive, goal-orientated, personalized estate and legacy plan so you can stop worrying about your future and start living in the now.

Benefits of a planned estate can include

  • Passing on a larger share of your estate
  • Minimizing taxes
  • Avoiding probate
  • Keeping your asset administration out of the hands of the government
  • Selecting the guardian of your choice for your minor children
  • Assuring your health care wishes will be followed
  • Keeping your finances under control in the event of temporary disability
  • Providing for special needs children
  • Taking care of your pets
  • Protecting your assets from creditors
  • Ensuring the future of your business