Estate Planning

Many people think that estate planning is simply the writing of a will to direct who will administer the estate and who will receive the assets of the estate. Estate planning, however, includes much more than the writing of a will. An estate plan should also protect you in the event of your incapacity and reduce the costs of administration and any potential estate taxes.

The best time to plan your estate is now while you can and before it is needed.

The following sets out many of the frequently asked estate planning questions:

1. Q. What happens if I die without a will?

A. If you fail to plan your estate and die without a will, Florida law will create an estate plan for you. The entire complex system of "intestate" succession or "descent and distribution" is set forth by law. This law prescribes both the persons to whom your property will pass and the division of your estate among those persons. The distributions provided by law are inflexible and may not satisfy your desires as to the distribution of your estate. There may be special problems such as with minor children or a family business. In short, adverse results can occur if you die without a will.

2. Q. Why can't married people simply hold joint title to all property?

A. Florida law provides that real and personal property jointly owned by a husband and wife automatically vests with the survivor when one spouse dies. While this initially avoids probate, it:

a. Fails to plan for the death of the survivor. A simultaneous death or incapacity would prevent the survivor from making a will.

b. Fails to take advantage of federal estate tax avoidance techniques.

c. Fails to address other issues such as guardianship for minor children and assets not ordinarily subject to joint ownership.

3. Q. What is a "simple" will?

A. The common or simple will provides that everything passes to the surviving spouse, and with the survivor's death, passes equally to the children. If a married couple or a single person has total assets substantially less than $2,000,000 and the children are all adults and from the one marriage, a "simple will" may be all that is necessary. Slight variations may be added for matters such as specific devises (gifts), premature death of a child, and protection of grandchildren.

4. Q. Why should my will be more than one-page long?

A. Your will could be drafted to be no longer than one page.

The problem, however, is that such a will may not accomplish your objectives for your beneficiaries. We prefer to draft wills to cover various factual and legal situations that reasonably may be expected to arise. Our standard language, often known as "boiler-plate", has a very specific and recognized meaning. Its use is intended to avoid questions of interpretation.

The will that we draft for you may be a lengthy document. The burden to you of reviewing and approving a long will may be a blessing to your family when they later find that you have anticipated and addressed what might have been cumbersome problems.

5. Q. Is a handwritten will legally effective?

A. Under Florida law, a handwritten will is not treated any differently than a typed will. Accordingly, it is admissible to probate if it is executed and witnessed in accordance with all statutory formalities.

6. Q. What is a trust?

A. A trust is an entity whereby title to property is held by the trustee for the benefit of the beneficiaries. The person creating the trust is commonly referred to as its settlor or grantor. A trust may be either a "living trust" or a "testamentary trust".

A living trust is immediately effective and is often used to avoid probate. Ordinarily, it is a revocable trust and may be revised or revoked at any time while the grantor is alive and competent.

A testamentary trust is contained within a will (testament) and becomes effective on death. As part of the will, it may be revised at any time while the grantor remains alive and competent.

Estate plans sometimes further use other specific trusts such as irrevocable trusts, charitable trusts, and qualified personal residency trusts.

7. Q. What is the purpose of a living trust?

A. A living trust is generally used for three purposes:

1. Avoidance of probate. Probate administration ordinarily results in court costs, personal representative's fees and attorney's fees. These expenses may be avoided if all of one's assets are transferred into an existing (living) trust during the person's lifetime.

2. Independent management. Often an individual creates a living trust with himself as trustee and provision for a successor trustee upon his disability. This oftentimes avoids the necessity of court proceedings for the appointment of a guardian.

3. Privacy. Although Florida is very protective of private financial matters in probate proceedings, there is a certain amount of disclosure which would be avoided with a living trust.

Unfortunately, living trusts are sometimes promoted as a "cure all" for everyone. Individual circumstances, however, would determine if a living trust is best for you.

8. Q. What is a living will?

A. Simply, a living will directs that care-providers withhold or withdraw life-prolonging procedures in the event of a terminal condition.

9. Q. What is a designation of a health care surrogate?

A. Effectively, the designation is a limited power of attorney for medical decisions. It appoints someone to make health care decisions when the maker is unable to do so. By example, if a person is incompetent (permanently or by virtue of emergency medical treatment), his health care surrogate may make treatment decisions.

10. Q. What is a durable power of attorney?

A. A power of attorney is a writing that appoints another person to act on your behalf as your attorney in fact. Powers of attorney are ordinarily effective only so long as the maker is alive and competent and has not revoked the power.

A durable power of attorney is especially useful in that it remains effective during periods of disability. By creating a durable power of attorney, a person may avoid the expense and other costs of formal guardianship proceedings.

11. Q. What is the significance of my residency?

A. Generally, the issue of residency governs state taxes. Your state of residency determines if you pay state income taxes during your life and any state estate (death and inheritance) taxes on your death. Florida is often considered the most "tax friendly" state. The state has no individual income tax, no gift tax, and no inheritance tax. While it technically has an estate tax, it simply shares in a portion of what would otherwise be paid as federal estate taxes.

12. Q. What is the federal unified credit?

A. The federal estate tax and the federal gift tax have been combined ("unified") and one progressive set of rates applies. Currently, there is no tax until reportable lifetime gifts and the net estate at death reach a value of $2,000,000. Thereafter, you are effectively taxed at 45%. It is very important to realize that your gross estate and your probate estate (if any) are two distinct concepts. Your gross estate will include the value of all the property in which you own an interest at the time of your death. Additionally, your gross estate may include property that you do not own, but over which you have retained or received certain rights or powers. Thus, it is important to recognize that avoiding probate does not avoid estate taxes.

13. Q. When should I plan for avoiding estate taxes?

A. Once the potential estate of a single person or of a married couple approaches $2,000,000, complex estate tax issues arise and tax planning becomes an immediate concern.

14. Q. What is a marital deduction?

A. The marital deduction in effect allows all transfers to the surviving spouse to be excluded from the adjusted gross estate. In order to qualify for the unlimited marital deduction, property must be transferred to the surviving spouse in a fashion that satisfies the technical requirements of the statute.

The availability of the unlimited marital deduction will allow many estates to pass tax-free to the decedent's surviving spouse. While this result seems desirable initially, it allows all assets to accumulate with the survivor and potentially increases the ultimate estate tax burden.