this article by CNBC for a great explanation on all the reasons why one needs an estate plan.) We believe that an effective estate plan is a comprehensive one, which might include a will, a trust, a durable power of attorney, advance healthcare directives, and other important documents. In larger and more complex estates, we work closely with you CPAs and financial advisers to ensure your estate plan reflects the goals of your financial plans as well. Click the boxes below to learn more:ontrary to popular opinion, the area of law known as estate planning is beneficial to everyone, not just the extremely wealthy. Estate planning means to plan for not just an inevitable death, but also for potential incapacity, which affects an increasing percentage of the aging population as life expectancies continue to increase. (See
A will (not to be confused with a “living will”) is a legal document that, upon death, directs how the assets of the “probate estate” should be distributed. In Florida, there are strict rules that govern the execution of wills, which, if not met, may keep a will from being effective. If there is no will in effect at the time of death, the probate estate will pass in accordance with the intestacy rules of Florida, which is the state’s best approximation of how it thinks an individual would want his or her assets distributed. The will is also used to instruct on such things as whom the “Personal Representative” should be, how debts and taxes should be paid, and who should care for any pets of the decedent.
A revocable (“living”) trust is a legal entity established during the creator’s lifetime that holds assets with the purpose of distributing those assets to predetermined beneficiaries. “Revocable” means that the creator of the trust is free to put in (“fund”) and take out assets from the trust during his or her lifetime. Typically, Living Trusts become “irrevocable” – i.e., the creator has given up all his or her rights of ownership to the assets in the trust – upon the death or incapacity of its creator. At that point, a “successor trustee” takes over and distributes or manages the assets in accordance with the terms of the trust document and applicable trust law.
What are the Benefits of a Living Trust? A Living Trust may provide a number of benefits to its creator, including: 1.) probate avoidance; 2.) planning for incapacity; 3.) cost savings; and 4.) increased privacy.
- Probate Avoidance. Probate can be an expensive, time-consuming, and very public process. Because of this, it is often preferable to avoid the process altogether, if possible. By transferring all of one’s assets into a Living Trust, upon death, the creator will have little or no “probatable” assets and, therefore, there is no reason to probate the estate. (As a matter of practice, a “Pour-over” will accompanies a Living Trust, which is simply a will that acts as a safety net and directs all remaining assets of the decedent to “pour” over into the trust.)
- Planning for Incapacity. With advancements in healthcare and technology, people are living longer today than ever. Unfortunately, this also means that more of us will be inflicted with some form of dementia. Thus, one of the most important aspects of estate planning today is planning for incapacity. With a Living Trust, if you were to become incapacitated, whomever you have designated as your successor trustee would begin managing your trust and financial affairs, using the trust’s assets to pay your expenses and take care of you. This avoids the need to have a court appoint a guardian over you and your property, which can be expensive and embarrassing.
- Cost Savings. As mentioned above, probate administration and guardianship proceedings are costly. Having a Living Trust can avoid both of these things. Likewise, for married individuals with larger estates, Living Trusts may also save on federal estate taxes by including a provision in the trust that allows the creator to use the Unified Tax Credit of each spouse.
- Increased Privacy. Both probate and guardianships can be very public. For instance, in Florida, any “interested person” may be granted access to probate documents filed with the court, including a copy of the will. This means that an interested person may be given access to see which beneficiary gets what asset, and so on. For obvious reasons, this might not be something an individual wants. In contrast, a Living Trust is not subject to the same public access.
A “Living Will” (also called an “Advance Heath Care Directive“) is a legal instrument that communicates an individual’s wishes regarding certain health care procedures when that individual is not able to speak for him or herself. In Florida, a Living will instructs the family and presiding physicians to withhold defined forms of treatment where its creator is incapacitated and has a “terminal condition,” or an “end stage condition,” or is in a “persistent vegetative state.” In contrast to a will, the creator of the Living Will is very much alive when it is given legal effect. Additionally, the Living Will has no effect on the disposition of the creator’s property and speaks only to the creator’s desire concerning life-prolonging procedures.
When planning for larger estates, more sophisticated planning tools must be employed. One of these tools is the Closely Held Business, which is most often in the form of a Family Limited Partnership (“FLP”) or Limited Liability Company (“LLC”). The unique characteristics of these entities provides opportunity to minimize transfer tax (i.e., federal gift, estate, and generation-skipping tax) liability due to special valuation rules*, while retaining flexibility and control over the business’ assets.
*UPDATE: Cathy Hughes, advisor to the Office of Tax Policy at the United States Treasury Department, has suggested that provisions in the documents of closely held businesses may be disregarded in the valuation of the business for transfer tax purposes among family members. At the date of this writing, the proposed treasury regulations have yet to be circulated to the general public.
A Durable Power of Attorney (or “DPOA”) permits an agent designated by you to handle your financial affairs. The “durable” language indicates that the agent’s authority survives even if you become incapacitated. Unlike other states, here in Florida the DPOA becomes effective upon the execution of the document and does not “spring” to life only after incapacity.
A DPOA can be drafted to grant your agent very broad or very narrow powers. This is important as individuals have very different needs and one size does not necessarily fit all.
A DPOA is a fantastic estate planning tool that, when used properly, can add tremendous flexibility to an estate plan while making it unnecessary to have a court appoint a guardian to handle your property if you were to become incapacitated.
No estate plan is complete without a Designation of Preneed Guardian. In the event that a court were to find you to be incapacitated, this document would provide the court instruction as to whom you would have be your guardian. Although the ultimate authority to determine who will serve as your guardian lies with the court, the document creates a statutory presumption of appointing the individual designated in the document as your guardian.
The best way to think of a Designation of Preneed Guardian is as a precautionary measure, or a back-up plan, for your estate plan. Ideally, the other instruments created in your estate plan (such as your revocable trust and durable power of attorney) will prevent the need for a guardianship proceeding. However, if something goes awry (e.g., no one is willing to serve as your agent under your durable power of attorney) and a guardianship proceeding takes place, this document serves to protect your wishes as to whom should care for you and your property.
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