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Estate Planning

Once drafted and properly executed, legal documents are valid and honored in any state. However, as a rule of thumb clients should review their documents with an attorney whenever they have a life event (ie: birth, death, marriage, divorce, move to a different state) OR every 3-5 years to make sure there has not been a change in Florida law that would affect their planning.

If a will is valid, it is effective until it is changed, revoked, destroyed, or invalidated by the writing of a new will. Changes or additions to an otherwise acceptable will can be most easily accomplished by adding a codicil. A codicil is a document amending the original will, with equally binding effect. Therefore, a codicil must be executed in compliance with applicable law, using the same formality as the original will. Wills cannot be changed by simply crossing out existing language or adding new provisions, because those changes do not comply with the formal requirements of will execution.

Changes to an individual’s personal property may prompt a change to an existing will. To avoid frequent changes as property is acquired, a will can specify that personal property (property other than money and real estate) is to be distributed in accordance with instructions provided in a separate document. Many states provide for such a document, which can be updated as often as needed without requiring a formal codicil or revised will. A personal property instruction should be kept with the will to which it relates, and should describe each item in detail to avoid later confusion or hard feelings.

An outdated will may not achieve its original goals because its underlying assumptions have changed. Additionally, changes in probate and tax law may change the effectiveness of certain provisions. If a will is based on outmoded circumstances, for example if a chosen devisee has died or has alienated the testator, the probate period may be extended as the court determines how to construe the old provisions. Wills should be reviewed at least every two years, as well as upon major life changes such as births, deaths, marriages or divorces, and major shifts in a testator’s property. Because state law governs wills, if a testator moves to another state, the will should be reviewed for compliance with the new state’s laws.

As long as the testator is mentally competent, his or her will can be revoked entirely without replacement by a new document. A testator can revoke a will by intentionally destroying, obliterating, burning, or tearing the will. If the will was executed in multiple originals, or if additional copies exist, those should be treated in the same fashion. If a testator wants to minimize estate taxes and probate, he or she should make validly executed changes to a will or replace the will with a subsequent will, rather than completely revoking the will. If undertaken, however, the testator should have the revocation witnessed and recorded to avoid future contentions that the will is still valid, but has been lost.

Generally, the law requires that adults manage children’s inheritances until the children turn eighteen. If a testator wants to leave property to children, it makes sense to name an adult to manage that property. Otherwise, a court will name someone to safeguard the property, a procedure that may delay speedy transfer of assets. There are several ways a will can provide for property management while heirs are underage:

Trusts: A will can establish a trust to handle property left to children. A trustee is named to manage the property for the children’s benefit, and distribute trust property according to the testator’s instructions. A will can either set up an individual trust for each individual child, or a pot trust that covers multiple children. The trustee usually follows instructions to spend trust funds to meet children’s needs until they come of age. When the child or youngest child covered by the trust reaches eighteen or another given age, the trust funds usually are distributed amongst the beneficiaries and the trust ends.

Uniform Transfers to Minors Act (UTMA) custodians: The UTMA is a law that exists in almost every state, and gives a testator the ability to choose a custodian to manage property left to a child. If at the testator’s death, the child is under eighteen, twenty-one, or twenty-five (depending on the specific version of the state UTMA law), the custodian will manage the property until the child reaches the statutory age. At that age, the child receives whatever is left of the property outright. Unlike a trust, the testator cannot change the age at which the child receives this distribution.

Property guardians: A will can name a property guardian for a child. At the testator’s death, if the child is still underage, the probate court will appoint the chosen guardian to manage property for the child. This option is available when a trust or UTMA custodian is not specified.

The option chosen for gifts to children will depend on the testator’s goals, the size of the intended gift, and the age and character of the children.

First, a testator should make certain his or her family and friends know that there is a will, and that it is kept in a safe, secure location known to the personal representative and other people close to the testator. If a will is not presented for probate, the estate will be distributed as intestate. There is no need to file a will with a governmental agency as long as these steps are taken (although some states allow for this procedure).

Assuming that a will is presented for probate, the testator’s survivors still may challenge it in court, although such challenges are relatively rare. Challenges cannot be founded on the will being unfair, or because a devisee did not get what he or she wanted; there must be a legal basis for the claim. Sometimes, a will challenge is based on the testator’s mental competence at the time he or she made the will. Generally, however, all the estate must show is that the testator was of sound mind and memory when the will was made, which often can be supported by testimony from the will’s witnesses. The will’s challenger bears the burden to prove otherwise. Another possible challenge asserts that the testator was subjected to fraud, coercion, or undue influence when he or she made the will; these claims usually follow the marriage of an elderly person to a much younger individual of strong personality. Ambiguities in the will’s text, and charges that the will presented for probate is a forgery or does not meet statutory requirements are other bases for will challenges.

If the court does find that the challenge is correct, it may choose either to disallow only those portions of the will that were at issue, or to throw out the entire document. If the entire will is disallowed, property either will be distributed as an intestate estate, or the court will revert to the testator’s last previous otherwise valid will, if one exists. This decision will be based on the relevant laws and the particular situation.

Certain provisions in an outdated will may be voided in probate. For example, many states provide that divorce automatically removes the ex-spouses from each other’s wills; in other states, divorce revokes the ex-spouses’ wills in their entirety. A law executed under the laws of one state may contain provisions that are not enforceable after a testator moves to another jurisdiction. Laws of this sort underline the importance of keeping wills updated and synchronized with current law.

In some cases, a person will try to make a will verbally or in his or her own handwriting. So-called oral and holographic wills have extremely limited validity in a few jurisdictions. An oral will is usually only valid if made by a person in the military or the merchant marine who is in active service at the time the will is made, and does not have time to make a written will. Therefore, an oral will should not be relied upon unless subsequently transferred into a valid written form. Holographic wills are only recognized in about twenty-five states, and many of these laws still require certain formalities such as a witnessed signature or inclusion of certain provisions. Therefore, oral and handwritten wills are to be avoided, and would-be testators should make reference to the formal statutory requirements for wills to ensure validity.

Trusts enable the trustor to determine who receives the money, when they receive it, and what conditions must be met. The pros and cons of trusts depend on whether it is a living trust or a testamentary trust. A living trust is set up during the trustor’s life, while a testamentary trust takes effect upon the trustor’s death.

The most-touted advantage of a living trust is a substantial tax benefit to the trustor. Assets placed in an irrevocable living trust are not attributable to the trustor, although the trust itself may be taxed. Estate taxes also may be avoided. Other advantages cover both revocable and irrevocable living trusts. If a living trust covers all of the trustor’s assets, then he or she may not even need a will. Many people wish to spare their relatives from going through probate, and living trust assets are not subject to probate. Because there is no probate, survivors do not have to reveal the extent of the living trust’s assets through a public filing as happens with probate. If the trustor holds real estate in more than one state, a living trust covering that property may allow survivors to avoid probate in those states. Aside from the advantages for the survivors, a living trust can help a trustor manage his or her financial affairs because a trustee takes over the administration of the trust’s assets. Some people are particularly concerned about how their finances will be managed if they should fall ill. A living trust may provide peace of mind because a trustee can continue to manage the trust’s funds in the event the trustor becomes mentally or physically incapacitated.

The main disadvantage of a living trust is that the trustor loses some flexibility and control over his or her property and funds. Because a living trust becomes effective upon creation instead of at the trustor’s death, the assets covered by the trust start to be administered by the trustee at that time. If an individual prefers to have unrestricted control over his or her assets, or feels that he or she may want to modify an estate plan, a testamentary trust or will provides the flexibility to change terms for as long as the trustor is able.

The major advantage of a testamentary trust is that the trustor retains absolute control over his or her assets. Because a testamentary trust becomes effective only upon the trustor’s death, the trustor may make changes to its terms any time before death. For many people, retaining control of their property is an important goal that testamentary trusts help them achieve. Retaining control can have its disadvantages, though. If the trustor becomes incapacitated prior to death, the trustee cannot take charge of the trust assets in order to manage the trustor’s finances during that time. A guardianship may be required for such incapacitated trustors. Another drawback is that survivors must probate the testamentary trust.

The choice of a trustee is extremely important. The trustee owes beneficiaries a fiduciary duty to act in their best interests and usually receives compensation for trust management activities, so the trustor usually wants to make this decision personally. Many trustors choose family members or close friends due to personal confidence in those individuals, but others prefer professional trustee institutions because of staff expertise. A trustor should consider the burden posed by the trust’s administration, the compensation required by a trustee, and the particular needs of the trust. If a trustee is not specified in the trust document, then a court will appoint one, possibly choosing a trustee the trustor would not have chosen freely.

A trustee can be any person or institution capable of taking legal title to property. In order to make the trustee fully effective, however, the trustee also should be able to convey property. For example, minors and certain corporate entities can receive ownership but may not pass it on. Conveying ownership is necessary when distributing the trust property.

Legally, it is not necessary to notify the trustee prior to creating a trust, but a trustee may decline his or her appointment. Therefore, the trustor should choose someone who is willing to take on the required responsibilities. It is advisable to choose an alternate trustee in the event the original choice is unable or unwilling to accept the trust obligations when the trust commences. Successor trustees are also a good idea in case a trustee resigns or is removed by court action.

Trustors may choose multiple trustees to act together in managing trusts. Co-trustees must act unanimously unless the trust expressly allows division of responsibilities. Even when responsibilities are divided, each trustee retains complete individual legal liability for the entire trust.

A trustor should avoid possible conflicts of interest when choosing a trustee. The trustee’s fiduciary responsibilities prohibit actions not in the beneficiary’s best interests under the terms of the trust. A conflict of interests may raise a concern over whether the trustee is performing up to this standard, or may make a breach of fiduciary duties more likely.

A trustor may name himself or herself as trustee during his or her life. Additionally, a trustor may name one of the trust’s beneficiaries as a trustee. The only impermissible combination is naming the same person as sole trustee and sole beneficiary, because this arrangement merges the legal ownership with the property benefits as in regular property ownership.

The trustee has several major duties:

Loyalty: The greatest duty is for the trustee to be loyal to the beneficiaries. The trustee must administer the trust solely for the benefit of the beneficiaries, and provide full disclosure of his or her dealings. The trustee must deal fairly with the beneficiaries, and not manage the trust to profit his or her own financial interests (i.e., by buying stock in a company the trustee owns).

Administration: The trustee has a positive obligation to do what is necessary for the good of the trust.

Productivity: If the purpose of the trust is to maximize assets over time, the trustee owes a duty to make productive investments.

Earmark: The trustee must keep trust assets separate from all other assets, including those of the trustee, and must clearly identify those assets belonging to the trust in all dealings.

Account: The trustee must provide financial statements regarding the state of the trust.

Nondelegation: Because the trustee holds legal title, only the trustee may manage the trust.

Diversification: If the trust involves investment of assets, the trustee must diversify the trust’s holdings as a prudent investor would do with his or her own money.

Impartiality: The trustee must act for the benefit of the trust as a whole, and not favor one beneficiary’s interests over another’s.
If a trustee breaches his or her duties under the trust, the beneficiaries may sue him or her for any damages to their interests.

Some states use a community property model to attribute ownership of the property of married individuals. The community property system of ownership segregates property an individual owned before marriage, as well as property received individually as an inheritance or gift, as that individual’s separate property. Other property gathered during the marriage, such as wages and items purchased jointly or by either spouse individually, is community property considered to be half-owned by each spouse. The important distinction of the system is that each spouse is considered to own half of the community property regardless of his or her contribution to the marital assets. Neither spouse can sell or give away part of the community property during the marriage unless the other spouse agrees. Each community property state uses certain variations on the concept, but the basics are the same. Upon death without a will, community property either goes to the surviving spouse, or in some states, the late spouse’s share is given to his or her descendants. If one spouse dies with a will, that document can dispose of separate property and his or her half of the community property, but not the surviving spouse’s half of the community property.

Nine states have a community property system: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. The remaining states and the District of Columbia use a common property system, which allows a surviving spouse to make a legal marital share claim on a portion of the late spouse’s estate, regardless of whether that property was gained prior to or during the marriage, or by what means.

When an individual dies owning property in his or her name, that property generally must go through probate. Probate is a legal procedure that establishes ownership of property in others. The probate system is designed to ensure the validity of a will, to give notice to all possible claimants of property and to resolve ownership disputes and rights. Probate courts also distribute property not covered by a will (intestate estates) according to legal defaults. Some property does not require probate to change hands: joint tenancy property and contractual arrangements such as insurance policies and retirement accounts generally go directly to the surviving joint tenant or named beneficiary without probate oversight. Probate also is not required for assets held in trust.

The probate court first establishes whether the deceased left a valid will. If so, the probate process guides the division of property in accordance with the will’s provisions. If the estate is intestate or if a will is found to be invalid, the probate division applies state laws to divide up the estate. The probate court signs off on the final accounting of the distribution, thereby finalizing the transfers of ownership.

There are two levels of probate:

Informal probate covers estates that require no court supervision or adjudication due to their clear, undisputed nature and simplicity. This procedure allows the personal representative to accept full responsibility for promptly, completely, and legally probating the estate with only minimal court oversight. Typically, the personal representative can act more quickly to divide the property under this process, with the probate court giving final approval once the estate is fully distributed. Personal representatives may apply for informal probate, but should be aware of the possible legal liability for mistakes that their acceptance of the procedure involves.

Formal probate applies to more complex or contested estates, and involves court supervision of distribution. The probate court supervises the personal representative on each legal step he or she takes to administer the estate, adding substantial time to the process. The personal representative may post a bond to guarantee his or her performance and to protect the estate’s creditors. The court may need to hear and resolve conflicting claims to the estate assets, or even find heirs when they are not apparent. The court scrutinizes each distribution. While this procedure takes far more time, it is indispensable when disputes and complex issues are involved. Most personal representatives hire a lawyer to help them with at least some of their duties, even in informal probates. While making a will does not prevent the need for probate, a carefully drafted will minimizes the time a personal representative spends in court and speeds up the distribution of property to survivors.

Most personal representatives hire a lawyer to help them with at least some of their duties, even in informal probates. While making a will does not prevent the need for probate, a carefully drafted will minimizes the time a personal representative spends in court and speeds up the distribution of property to survivors.

Many state and federal tax regulations impact estate planning, but a carefully crafted estate plan can reduce the tax burden on an estate and survivors. Both state and federal rules and regulations are extremely complex, and the advice of an estate planning attorney to maximize tax savings is highly recommended, particularly if an estate is likely to be substantial.

Some states have inheritance taxes that devisees to a will must pay; recipients under a will or trust also may face state and federal income tax consequences. The current federal exemption amount for estate taxes is $5 million dollars per person (or $10 million dollars per couple). Any inheritance above these exemption amounts will be taxed at 35%. The federal gift tax augments estate and inheritance taxes by regulating gifts to individuals while living; gifts exceeding $13,000 per recipient per year are taxable. This provision prevents people from giving away their assets in order to avoid estate or inheritance tax.

Estate planning specialists can assist people with potentially large estates to create trusts that may allow transfers without any or limited tax consequences.

None of these taxes form a substantial source of revenue for state or federal government. Most estates are not affected substantially by the various tax rules because they do not exceed taxable minimums.

Planning for the future raises complicated worries and even fears about the unknown. Often, emotions run high when people contemplate the distribution of their possessions after death. However, estate planning includes more than deciding “who gets what.” A good estate plan provides a sense of security and comfort that one’s desires about many future contingencies will be met. Estate planning not only defines a person’s wishes to be carried out after death regarding his or her estate (all the property owned), but also sets out the means for personal well being far into the future. To reach this goal, estate planning encompasses several connected legal areas and techniques.

Elder law is defined by the client rather than by specific legal distinctions. Elder law attorneys specialize in the legal issues facing older people, which may include issues almost as diverse as the entire legal spectrum. The main issues addressed, however, involve advance planning. As they age, many people become concerned about distributing their estates, establishing alternative decision makers in case of mental or physical incapacity, investigating possible long-term care needs (including the type of care and how to finance it), and otherwise ensuring a comfortable retirement. Often, people seek legal techniques for achieving these goals.

Guardianships and conservatorships are established for people who need representatives to oversee their own personal affairs or finances. A child or a person incapacitated by health problems may come under the care of a legal guardian or conservator. This relationship is often established by court order when a child loses a caregiver or an adult becomes unable to deal with personal affairs, but in some instances a guardian may be elected in a will or by the individual directly concerned. Often an individual has both a guardian and a conservator, and the two must coordinate their efforts to give the protected person the best result.

Living will is the popular name for a document providing advance directives on an individual’s health care preferences in case of terminal illness or permanent unconsciousness. Many people hold strong opinions about heroic measures and life-support machines, and living wills offer an opportunity to formalize their wishes. Laws on living wills vary widely from state to state, so it is important to comply with local laws to ensure one’s preferences will be honored.

A power of attorney and a power of appointment allow someone to select an individual for responsibilities or benefits. A power of attorney allows a person to appoint another (called the attorney-in-fact, although the person is not required to be an attorney at law) to act as his or her agent in specified situations. For example, an elderly person may delegate all the powers and responsibilities of a guardian and conservator to a designated individual, using a power of attorney, so that if the person becomes incapacitated the attorney-in-fact quickly can begin making decisions. In contrast, a power of appointment is an individual’s ability to designate an owner or recipient of property. For example, in a will or trust, the owner of property can appoint another to manage or distribute property; the designated person has a power of appointment to choose who receives what property from the will or trust.

Trusts include a variety of arrangements in which a property owner (the grantor or trustor) separates the benefits from the burdens of ownership and gives them to different people. The owner of a vacation cabin enjoys the ready get-away, but must pay for its upkeep; if the cabin is put in trust, the trustee manages any repairs and financial obligations for the property, while the beneficiary receives the benefit of its use. A grantor may choose a trust in order to ensure a continuing benefit to the beneficiary as opposed to making a one-time gift. Additionally, a trust may provide tax benefits to the grantor or to his or her estate.

A will is a legal document specifying how a person’s property and assets should be handled after death. A testator (the person making the will) can give instructions on how the property should be divided, who should receive what portions or specific items, and even who will take care of any surviving minor children. A will can establish a trust or make gifts to charity. Without a will, the government determines how property will be distributed, and may impose a substantial tax burden on the estate. Wills must meet state legal requirements to be effective, so professional guidance is important.

Disclaimer: This publication and the information included in it are not intended to serve as a substitute for consultation with an attorney. Specific legal issues, concerns and conditions always require the advice of appropriate legal professionals.

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