Wills And Estate Planning FAQ
1. What is estate planning?
Estate planning is a term used by attorneys, financial planners, accountants and other professionals to describe planning and execution of documents to minimize probate, reduce estate taxes, provide for the distribution of one’s assets and to protect a person in the event of illness or incapacity. The process may range from the most basic to more complex planning. At its simplest, an estate plan may involve just a simple Last Will and Testament (“will”) accompanied by certain basic health and life care documents like a living will, health care power of attorney and a durable power of attorney. At a more complex level, estate planning can include the use of trusts, both revocable (also known as “living trusts”) and irrevocable. When describing the process of estate planning, perhaps a broader and more accurate description would be planning for one’s death, disability and incapacity.
2. Who needs to do estate planning?
If estate planning is really more aptly described as planning for one’s death, disability and incapacity, then every adult would benefit from some form of estate planning. The goal is to protect a person, his or her assets and family when a person faces these difficult times in life. If the saying is true that “nothing in life is certain but death and taxes”, then estate planning is crucial since it deals with both death, taxes and much more. Most stages of adult life raise concerns which can be addressed through estate planning. Younger adults sometimes express the belief that they do not feel a pressing need to engage in estate planning since they are at an age when death and disability seem remote. However, young adults who marry and especially those who have minor children at a minimum need a will to designate a legal guardian for their children. If both parents died and had no will, the state of Florida would determine who would get custody of their children. If a person owns a business and dies without at least a basic estate plan, the business could be left “in limbo” and without resources to continue operation. If a person who has assets dies without an estate plan, the assets could be subject to expensive and time-consuming probate, outrageous estate taxes, and could be distributed to undesirable or unintended heirs. In addition, every person needs to legally set forth their desires in the event of an incapacitating or life-threatening condition. Residents throughout the nation, and especially in Florida, learned first hand from the Terri Schiavo case what happens when faced with a terminal condition, an end-stage condition or a permanent vegetative state without having a properly executed living will and health care power of attorney.
3. What topics does a last will and testament (“will”) need to cover?
There are many purposes for a will but we will only discuss a few of the primary purposes. First, a will provides a legal document to designate a person to oversee your final affairs at the time of your death. In Florida, this designated person is known as the “personal representative” of the estate. In other states, this designation is called an “executor” or “administrator.” Second, the will provides a legal means to designate who will be the beneficiaries of your estate. Often, a will names primary beneficiaries to receive distribution from your estate and designates alternate beneficiaries in case one or more primary beneficiary predeceases you. Third, a will provides a means to designate what each of your beneficiaries will receive from your estate and when they will receive it. Gifts, known as “bequests,” can be special bequests leaving specific property to specific beneficiaries or may be general leaving the “residue” (or the “rest”) to the beneficiaries in certain percentage amounts. Fourth, a will can designate a guardian for minor children. If a person dies with minor children but without a will, the children are at risk of having a court determine their guardian. Finally, a will may contain trust provisions creating a “testamentary trust.” This is a trust that only comes into existence at death and is used to hold bequests for distribution at a later date. Meanwhile, the assets are held and managed by a trustee designated in the will.
4. What is probate?
Probate is the court process through which a person’s estate is administered. In layman’s terms, probate is one of the means through which a person’s final affairs are resolved. In probate, various matters are addressed. These include matters such as payment of creditors, gathering of estate assets, payment of any unpaid taxes, determination of beneficiaries, appointment of a guardian, and distribution of a person’s assets. In Florida, there are two types of probate: Summary administration and formal administration. A summary administration applies to estates of less than $75,000 (not including exempt assets such as a homestead). A formal administration applies to estates valued at more than $75,000. The determination of whether an estate requires a summary or formal administration should be made with the advice of an experienced Florida probate attorney. For a more detailed discussion of probate, see the frequently asked questions on Probate And Trust Administration. Because probate can be expensive and time-consuming, one of the objectives of estate planning is to avoid or at least minimize probate.
5. If I have a will, does my estate still have to go through probate?
Many people are of the mistaken impression that if they have a will, their estate will not need to go through probate. This is not correct. The will does not avoid probate; the will merely provides the probate court direction on your wishes as far as how the estate should be probated. This is accomplished by setting forth matters such as designation of a personal representative, beneficiaries, distribution and the appointment of a guardian for minors. The will can be analogized to a “road map” for the probate court to follow. Even though a will does not avoid probate, it is still crucial to have a will because if you do not, when the probate estate is administered, the court or Florida law will make decisions for you. Most people do not want a Florida judge deciding matters like appointment of a personal representative or guardian of their children. They also do not want the Florida Legislature determining who will be their beneficiaries (which is what happens if they die with no will).
6. How can I avoid or minimize probate?
One of the major objectives of estate planning is to avoid or minimize probate. This can be done using several planning strategies. For example, assets such as life insurance can have beneficiary designations so that at death the insurance proceeds are paid directly and do not go through probate. However, not all assets or property have beneficiary designations. Real estate is a prime example. In that case, a frequently used means to avoid probate is the establishment of a “living trust” (also known as a “revocable trust”). When a living trust is set up, assets can be transferred into the trust so that at death, the appointed trustee has the ability to manage and transfer them without having to go through probate. No probate court needs to be involved. This allows for a less complicated, less time-consuming and usually much less expensive means to distribute one’s estate.
7. What is a living trust and how do I establish one?
A living trust is established by executing a formal written document which appoints a trustee to take possession of assets transferred into the trust and directs the trustee how to administer or manage the assets in the trust. The living trust allows the person setting up the trust (usually called the “grantor” or “settlor”) to designate themselves as the initial trustee and then to designate a successor trustee if the grantor dies or becomes incapacitated. The living trust authorizes the trustee to exercise certain specific powers in managing the trust without having a probate court involved. The living trust also allows the grantor to designate who will be the beneficiaries of the trust and to specify how the beneficiaries will receive their distributions. Many people like the living trust as a means of making distributions into the future, in increments or over a period of time rather than all at once. This becomes very important when beneficiaries are minors or are not mature enough to receive an inheritance all at once. While there are some similarities between a will and a living trust, the main difference is that with the living trust, assets or property are actually transferred to the trust during the grantor’s lifetime whereas with the will no transfer occurs until after death. As a result, with the living trust when the grantor dies, the grantor’s property is already in the trust and therefore is not subject to probate. Another attractive feature of the living trust is that it has great flexibility during the grantor’s lifetime. The living trust can be modified or amended by the grantor at any time. The assets and property transferred into the living trust can also be added to, replaced and removed at will. This means that to the grantor, he or she gains a great estate planning benefit from the living trust but does not lose use of his or her assets by transferring them into the living trust.
8. Can I set up a will or living trust using an internet or software form?
In today’s digital age, many people are finding legal documents and forms on the internet or through software purchased either online or through a local office supply store. Perhaps at no time has there been more truth to the saying: “You get what you pay for.” Many of the document forms being used are generic and try to apply to customers throughout the United States. They also are rarely specific to the person’s individual needs. When it comes to estate planning, whether it involves wills, living trusts or other related documents, the legal requirements are very state specific and precise. In addition, with wills and trusts, the legal requirements are very unbending and one mistake in their form or in their execution can make them either problematic or even unenforceable. Since there is so much at stake when it comes to the subject matter of these documents, the risk of making a mistake outweighs the cost of having them prepared by an experienced Florida estate planning attorney.
9. Can estate planning help save my estate from paying taxes?
Another significant objective of estate planning is to minimize or avoid estate or inheritance taxes altogether at the time of death. Many persons are shocked when they learn the amount an estate can be taxed if thorough planning is not done in advance. At present, federal estate tax rates can be as high as 46 percent. This rate is shocking when you consider that the estate tax is being imposed on assets that have already been taxed for income. Under present law, estates in excess of $5,400,000 (as of the year 2016) are particularly at risk for estate taxes. With the use of good planning and the establishment of properly prepared living trusts, persons can significantly reduce (and in some cases eliminate) the estate tax bite. The techniques recognized by the Internal Revenue Service to reduce or avoid estate taxes are very complex and should only be accomplished through an experienced Florida estate planning attorney.
10. What is a living will and why do I need one?
A living will is a document authorized by Florida law which allows you to formally express your desires in the event you develop a terminal condition, an end-stage condition or are in a permanent vegetative state. The document also authorizes the appointment of a “surrogate” who is authorized to act on your behalf in carrying out the purposes of the living will. Most people became aware of the importance of a living will during the highly publicized Terri Schiavo legal battle. In that case, Terri Schiavo had a heart attack and was left in a permanent vegetative state. However, because she had no living will, her husband and her parents were at odds over what would have been her true desires when faced with her situation. Ultimately, multiple courts had to intervene. If Terri Schiavo had executed a living will prior to her illness, the dispute over her outcome probably would have been avoided. A living will is a very simple document but it has far-reaching effects and should be included as part of any estate plan. Under today’s HIPPA laws, the disclosure of medical information is very strictly governed. As a result, any living will should include language giving an HIPPA authorization for the release of medical information to the person appointed as your surrogate. Otherwise, adequate information for making medical decisions may not be available. Many living will forms do not include this language.
11. What is a health care power of attorney and why do I need one?
A health care power of attorney is a document authorized by Florida law which allows you to appoint another person to make medical decisions and to authorize medical care in the event you become incapacitated or incompetent due to illness or injury. For example, if you are involved in a serious accident and are unconscious, you will not be able to make medical decisions or to consent to treatment for yourself. This ultimately could interfere with your getting the best of care. However, if you have executed a health care power of attorney, the person you have appointed to make health care decisions can act for you. Usually, the person appointed is a close family member or relative but it does not have to be. The important requirement is that the person you appoint understands your desires. A health care power of attorney differs from a living will in that the living will typically deal with an end-of-life scenario whereas the health care power of attorney usually involves situations which are not necessarily end of life. Under today’s HIPPA laws, the disclosure of medical information is very strictly governed. As a result, any health care power of attorney should include language giving an HIPPA authorization for the release of medical information to the person appointed in your health care power of attorney. Otherwise, adequate information for making medical decisions may not be available.
12. What is a durable power of attorney and why do I need one?
A durable power of attorney is a document authorized by Florida law which allows you to appoint another person to act for you with regard to personal, business and financial matters. This differs from the health care power of attorney which deals with medical issues. In a durable power of attorney, you authorize someone to be able to do a myriad of duties if you are unable to do them and need assistance. To understand the need for this document, imagine if you were injured in a serious accident and were hospitalized for six weeks. During your hospitalization, there are matters which need attending to such as paying bills, dealing with insurance companies, etc. If you are unable to do these activities, the person designated under your durable power of attorney can act for you.
13. Seven reasons not to add persons to title in order to avoid probate.
Sometimes clients attempt certain “planning” action on their own. Among the worst of these steps is the practice of adding their children or another person onto the title to their house or other assets. The thinking is that by doing so they will avoid probate. While this practice might in fact avoid probate, it can create far more problems than it solves.
There are at least seven good reasons not to add another person (other than a spouse) onto the title of your house or other assets. These include:
- In the event the person faces a liability or debt claim from a third party, your property can be at risk.
- In the event the person gets in trouble with the IRS, your property can be at risk.
- In the event the person goes through a divorce, your property can be at risk.
- In the event you want to sell the property, you must get the other person’s permission.
- Placing another person’s name on the title could be considered a gift, thereby triggering a gift tax consequence if the property exceeds $12,000.
- Placing another person’s name on the title could jeopardize your getting government help with nursing home care.
- If you have a mortgage on your real estate and add another person to the title, you may actually be causing a default under the “due-on-sale” provisions of your mortgage.
There are probably more reasons, but for now, these should be reason to follow this advice. When you consider making this type of transfer — don’t. Instead, seek sound legal counsel on other ways to accomplish your objectives such as setting up a living trust.
14. What do I do if a child or family member has special needs?
Many families struggle daily with the demands of caring for a family member with health or developmental challenges. Whether it is autism, Parkinson’s, cerebral palsy, birth defects or some other debilitating condition, the challenges can be immense. Perhaps one of the more challenging aspects which these families face is making sure that resources are available to provide medical and other necessary benefits over the course of the family member’s lifetime. Often these families can only turn to governmental programs such as SSDI, SSI and Medicaid to meet the overwhelming demands. For example, take the situation where a child, age six, suffers from autism. Depending on the circumstances, the family may only be able to get medical coverage through Medicaid. The child could live many, many years and need benefits during that time. If the child lives 60 years, and the medical and other care bills for the child average $10,000 per year, then the benefits are…well…huge!
Where many families fail to prepare is in the event the parents or other family members die and leave inheritance monies to the child. That inheritance could jeopardize the child continuing to get benefits. So if the inheritance is not enough to provide for the child’s needs over a lifetime, those lost governmental benefits would have an enormous impact. Instead, families with children or other family members on these governmental programs should set up an irrevocable trust (also called a special needs trust or “SNT”). If this is done correctly, the inheritance monies can go into the SNT and can be available to provide for the child over his or her lifetime. So as long as the SNT does not duplicate governmental benefits and otherwise complies with the limitations set forth by the applicable governmental program, then the benefits will continue uninterrupted. However, an SNT is a complicated planning document which should be prepared by an attorney skilled and experienced in drafting these kinds of trusts.