Wills, Trusts & Estate Planning

Wills, Trusts & Estate Planning

David W. Magann’s Top 20 Most FREQUENTLY ASKED QUESTIONS for Estate Planning, Wills and Trusts

1. What are the essential estate planning documents needed in the State of Florida?

The basic documents are:

• Durable Power of Attorney
• Living Will
• Durable Health Care Power of Attorney (also known as a “Health Care Surrogate Designation”)
• Testamentary Trust for your minor children which describes who will be the guardian of the person and property for your children
• Last Will and Testament

2. What is a Last Will and Testament?
A will describes how your property is distributed upon your death. It must be in writing, signed by you, and properly witnessed by two persons. A will should also be “self-proving” to avoid having to find witnesses upon death. A self-proof is an affidavit stating that the testator/testatrix signed the Last Will and Testament and that the witnesses and the testator/testatrix signed the will in the presence of each other.

A Last Will and Testament may contain:

• Name of a guardian for your minor children
• Trust provisions to control how the property is to be distributed after your death
• Provision for a separate writing for personal items
• Specific distributions of property or cash
• Name of a personal representative to handle payment of bills and coordination and distribution of your estate

3. What is probate?
In Hillsborough County you must have an Attorney in most probate matters. Florida law contains detailed instructions for the handling of the probate of an estate. Probate is the legal process to ensure that all assets are transferred in accordance with a will or by law. Once the personal representative is appointed then he or she is generally responsible for gathering all the assets and filing an inventory with the court. Taxes and creditors must be paid, and the remaining assets are distributed in accordance with the will or by law. A full accounting must be rendered to the beneficiaries and the court unless it is waived by all interested parties.

4. Who can be the Personal Representative of my estate?
In general, you can name almost any person or persons you want as your executor or personal representative, as long as that person is over the age of 18, competent, a resident of Florida, and willing to be the representative. The designated personal representative must meet statutory relationship requirements if the person is not a resident of Florida. If you do not want to name an individual as personal representative, then you can name a professional fiduciary, such as a bank trust department, your attorney, or your accountant.

5. What are the responsibilities of a Personal Representative of an estate?

• Confer with the lawyer who will serve as attorney for your estate and arrange with the lawyer for probate of your will
• Make an inventory of all assets and creditors of the estate
• Locate your will
• Talk with family members to determine their immediate financial needs
• Make tentative arrangements for support and maintenance payments to be paid to your loved ones during the settlement period
• Seek court authority to serve as your executor
• Manage your property, including your business, during the settlement period
• Distribute your property according to the directions in your Will
• File your estate’s state and federal income tax returns
• Become a party to litigation relating to the estate
• Sell assets, such as real estate, stocks and bonds
• Invest assets that are not needed immediately for distribution or expenses
• Account to the beneficiaries for all actions taken during administration

6. How can I avoid probate?
There are a number of techniques to avoid the probate process. However, all may have significant potential problems in their implementation. Here are a few of the techniques:

Use jointly-owned property with rights of survivorship. The probate process is avoided until there are no more joint owners surviving. The property is then exposed to the probate process. In the situation where your gross estate is in excess of the available unified credit the use of jointly-owned property may cause federal estate tax problems. Because of the “dangers” discussed the use of joint property might be the least advantageous way to avoid probate.

Use a Revocable Trust. Property which is titled in the name of the trustee is not exposed to the probate process. Note that a revocable trust only avoids probate for those assets retitled to the trust. Assets that remain in your individual name may still require a probate proceeding.

Name beneficiaries and provide for contingent beneficiaries for all life insurance policies and retirement plans, including IRAs.

Use “in trust for”or “pay on death” designations for bank accounts and stocks. Many assets can be titled in your name but with a designated beneficiary at your death. This avoids many of the problems associated with joint ownership but also avoids probate. A typical designation would read “Joe White in trust for Beth Thomson” or “Joe White I/T/F Beth Thomson.”

7. What is a Revocable (“Living”) Trust and how does it avoid probate?
You must be very cautious when utilizing a trust. Placing real property in a trust may exclude you from the rules of homestead exemption. Certain assets should not be transferred to a trust because income tax problems may result. Although you can avoid “probate” expenses there are “trust” expenses. Further, establishing a trust generally costs more up-front and you must be certain that the trust is properly funded.

A Revocable (“Living”) Trust is a document created by you to provide for management of your assets during your lifetime and you can designate to whom your assets will be distributed at your death. In general, ownership of assets must be formally transferred to the trust before your death to get the probate avoidance benefit from the trust. If assets are not properly transferred to the trust, then the assets may be subject to probate. You can amend or revoke this document at any time as long as you are not incapacitated. If you are the initial trustee, then the document will name a successor trustee to administer the trust upon your death or incapacity.

Upon your death the successor trustee is responsible for paying all claims and taxes and then distributing the assets in accordance with your instructions contained in the trust agreement. This avoids the costs, time and necessity of going through the probate procedures.

8. How do I know if my assets are in a Trust?
The account statement, stock certificate, title or deed will make some reference to the trust or to you as trustee. Some examples are:

David Thomas, U/T/D 2/3/98
David Thomas , as Trustee FBO David Thomas
David Thomas, TTE
David Thomas Trust dated February 3, 1998

9. What is a guardianship?
A legal process whereby a person with debilitating physical or mental conditions is declared incapacitated, and a guardian of the person or property is appointed by the court. This process is usually very expensive as court appearances are required with expert testimony and there is ongoing court supervision and accountings.

10. What is a Durable Power of Attorney (DPOA)?
A DPOA permits you to name an “agent” or “attorney-in-fact” to handle your financial affairs if you become incapacitated which can be defined in the document. For example, a person can be deemed incapacitated upon the writing of two (2) doctors. The DPOA can authorize the agent or attorney-in-fact to transfer property, borrow money, handle bank accounts and pay bills.

This document can be very useful to avoid the time and expense of a court appointed guardian. The agent or attorney-in-fact named should be a person who you trust and who is capable of carrying out your wishes.

11. What is the difference between a “non-springing” DPOA and a “springing” DPOA?
A “springing” DPOA is defined in Florida Statute §709.08 and permits the attorney-in-fact to assume control of your business affairs only when certain affidavits are signed, including an affidavit sworn to by a doctor (not just a letter signed by your doctor) stating that you are unable to handle your affairs. Unfortunately, many individuals probably will not use “springing” DPOAs as many doctors will be reluctant to sign an affidavit. Before 2002 Florida only allowed “non-springing” DPOAs which meant that a DPOA became effective upon signing and, when necessary, could then be used by the attorney-in-fact.

Many lawyers would have clients sign an Escrow Instruction Letter which allowed the release of the DPOA only upon the signer’s oral or written instructions or a written letter signed by a physician.

12. What is a Living Will?
A Living Will is a document that expresses your desire not to be kept alive by artificial means and/or nutrition or hydration. It describes what levels of care you do and do not want if you have a terminal condition. The Living Will must be in writing and have two witnesses.

13. What is a Durable Health Care Power of Attorney?
A Durable Health Care Power of Attorney allows you to name an individual to make medical decisions for you if you become unable to do so yourself. The statement must be in writing, notarized and signed by two witnesses.

14. How is an estate taxed for federal estate tax purposes?
If the value of all assets owned by you (net of deductions) exceeds your available “unified credit,” then federal estate tax must be paid. The federal estate tax rates begin at 18% and increases to 50%. Your taxable estate includes everything you own, no matter how you own it.

The amount that each individual can distribute, without paying an estate or gift tax, is called the “applicable credit amount.” This amount is scheduled to increase through the year 2009 as follows:

2001 $ 675,000
2002 & 2003 1,000,000
2004 & 2005 1,500,000
2006, 2007 & 2008 2,000,000
2009 3,500,000
2010 no estate tax

15. What types of “joint” ownership property are allowed in Florida?
There are several types of “joint” ownership in Florida. Some typical types are:

Joint Tenancy with Right of Survivorship is allowed in Florida, but to be sure that the parties intended survivorship, which could result in the disinheritance of other family members, Florida law requires that the title to such property specifically state: “Thomas Brown and Daniel Brown, as joint tenants with right of survivorship and not as tenants-in-common.” Otherwise, the ownership may be construed as tenants-in-common and the interest will pass under each owner’s will.

Tenancy-by-the-Entirety is joint ownership of property by a husband and wife and provides that the survivor will own the property upon the death of the other spouse. Neither spouse can sell, gift or convey their undivided one-half interest without the joinder of the other spouse.

In Florida, real property titled in the name of husband and wife is presumed to be tenants-by-the-entirety property unless there are more people on the deed. However, it is a good idea to title any future joint purchases of real property by spouses as follows: “David Johnson and Betty Johnson, Husband and Wife, as tenants-by-the-entirety.” In Florida, personal property titled in the name of husband and wife is not presumed to be tenants-by-the-entirety property. Therefore, personal property should also be titled: “David Johnson and Betty Johnson, Husband and Wife, as tenants-by-the-entirety.”

Tenants-in-Common does not have the element of survivorship. Property owned in this manner will pass under an owner’s will upon death. Florida law will construe tenants-in-common in situations where non-spouses are involved and it is not clearly survivorship property. A suggested title so as to avoid tenancy-in-common treatment is: “ John Brown and Henry Brown, as joint tenants, with right of survivorship and not as tenants-in-common.”

16. What are some of the dangers of owning property jointly with someone other than a spouse?
If a joint owner is involved in litigation with creditors, such as the IRS, or the victim of an automobile accident with that joint owner, then the jointly-owned property may be subject to attachment by those creditors, even if that joint owner really is on the title only to avoid probate.

If a joint owner becomes incapacitated, and the property is jointly-owned real estate, then a court appointed guardian may have to be obtained to sell the real estate. The family of the first joint owner to die may be disinherited because the property will pass by operation of law to an unrelated surviving joint tenant. There can be a great deal of tax uncertainty with respect to whether a gift is made when a joint account is set up and who should pay the income tax on interest earned by a joint account.

17. What kinds of insurance should I consider to enhance my financial and estate plan?
Life insurance, health insurance, long-term care insurance, umbrella liability and disability insurance are examples of kinds of insurance you may need.

18. What is an “elective share?”
An “elective share” is the right of a spouse to elect against the provisions of a will and/or trust. On October 1, 2001, the legislature changed the law regarding the right of a spouse to make an “elective share.” The law now provides that the 30% is based upon a total of all of the assets of the decedent, not just the probate assets in a certain order under the statute. The elective share may be satisfied with assets distributed to the spouse directly, including, but not limited to, life insurance, IRAs, pension plans, real estate and trust assets.

19. What is the Florida Uniform Transfers to Minors Act?
This is a statutory provision for holding assets for the benefit of a minor. Since minors are unable to own property the law allows you to designate a “custodian or guardian” to be responsible for the assets until they reach majority. The “custodian or guardian” may be authorized to use the assets for the minor’s education and other necessary expenditures.

20. What happens to my safe deposit box upon my death?
If you are the only person authorized to enter the box, then a court order must be obtained to enter the box and remove any contents. However, if you have other authorized signers, such as a spouse or children, then they may access the box after your death or in the event of your incapacity. Florida does not “freeze” safe deposit boxes like many other states.