Frequently Asked Questions.
Some of the most common estate planning questions are addressed below. Please note, however, that this information should not be considered legal advice. Every situation is different, so it's important to consult a qualified attorney to ensure you're getting the right answers.
WHAT IS ESTATE PLANNING?
Estate planning is a broad term that encompasses a wide variety of client objectives. Some of these include:
- Providing for and protecting current and future generations of family members or loved ones
- Transferring property and wealth in a structured and efficient way, either during life or at death
- Transitioning ownership or management of, or activity in, businesses and investments
- Minimizing income and wealth transfer taxes
- Ensuring that preferences related to health and medical care are honored
- Protecting persons in lifestyle contexts (e.g., marriage, cohabitation, or divorce)
- Protecting persons in a financial context (e.g., asset protection)
WHO should have an estate plan?
When many people hear the term "estate," they think of stately manor houses or large tracts of land. However, under Florida law, an estate is simply the property a person owns. This includes both real property, such as land and buildings, and personal property, such as vehicles, household furnishings, or jewelry. Since virtually everyone owns some property, everyone has an estate and therefore everyone - not just the wealthy - should have an estate plan.
What most people don't realize is that they already have one. In Florida, the property belonging to persons who die intestate - that is, without a valid will - passes to their heirs in a manner defined by the state legislature. The real question is, does the state's default plan for inheritance reflect what you really want to happen? The only way to be sure is to create your own estate plan.
What most people don't realize is that they already have one. In Florida, the property belonging to persons who die intestate - that is, without a valid will - passes to their heirs in a manner defined by the state legislature. The real question is, does the state's default plan for inheritance reflect what you really want to happen? The only way to be sure is to create your own estate plan.
What should a basic estate plan INCLUDE?
Even the most basic estate plan should include the following five components:
- Will
- Sometimes known as a "Last Will and Testament," this document is a writing that communicates a person's final wishes regarding the disposition of his property and the care of his dependents. A will is the cornerstone of any estate plan.
- Sometimes known as a "Last Will and Testament," this document is a writing that communicates a person's final wishes regarding the disposition of his property and the care of his dependents. A will is the cornerstone of any estate plan.
- Durable Power of Attorney
- This document can authorize another person to manage your property if you become incapacitated, without having to open a guardianship proceeding in court. This is especially useful for paying your bills and protecting your assets. A power of attorney is only valid and enforceable when you're alive; when a person dies, the power of attorney expires.
- Living Will
- A living will is an individual's written declaration regarding the use of life-prolonging procedures.
- Designation of Health Care Surrogate
- A health care surrogate is a person designated to make important health care decisions for you when you're unable to do so. This designation also includes the power to decide when, according to your Living Will, to withdraw life-prolonging procedures.
- Designation of Pre-Need Guardian
- Florida law allows you to designate in advance the person whom you wish to serve as your guardian if you should ever become incapacitated, or your children's guardian if you should ever become incapacitated or die. If you ever need a guardian and have not designated one, the Court will appoint one for you.
should i be concerned about estate or gift taxes?
Probably not. For 2017, the estate and gift tax exemption was $5.49 million per individual, or just under $11 million for a married couple. However, this exemption more than doubles under the Federal Tax Cuts and Jobs Act recently signed into law. Effective January 1, 2018, married couples may now transfer a combined $22.4 million, and this amount will be adjusted annually for inflation. Only estates that exceed the exemption amount are subject to the tax, so the average person can distribute assets in a will without worrying about estate tax issues.
For estates that are worth more than the exemption amount, additional planning is required to avoid paying the 40 percent federal estate tax. Also, it’s important to understand that married couples don’t automatically receive the entire $22 million exemption. When the first spouse dies, an unlimited marital deduction allows all the deceased spouse’s assets to pass to the surviving spouse free of any federal estate tax. However, the surviving spouse must claim the deceased spouse’s unused exemption amount by electing “portability” on the deceased spouse’s estate tax return – which must be filed even if no tax is due. If the surviving spouse doesn’t properly claim the unused exemption amount, that spouse’s estate may receive an unexpected federal estate tax bill.
Finally, the amount of a properly-claimed unused exemption – often the entire exemption amount, unless the deceased spouse made lifetime gifts that exceeded the annual gift tax exclusion amounts – is based upon the exemption amounts that were applicable the year the decedent died. If a spouse died in 2012, for example, the maximum unused exclusion that could be transferred to the surviving spouse is $5.12 million. Also, because portability was only recently added to the tax code, decedents who died prior to 2010 have no unused exemption amount that can be transferred to a surviving spouse.
For estates that are worth more than the exemption amount, additional planning is required to avoid paying the 40 percent federal estate tax. Also, it’s important to understand that married couples don’t automatically receive the entire $22 million exemption. When the first spouse dies, an unlimited marital deduction allows all the deceased spouse’s assets to pass to the surviving spouse free of any federal estate tax. However, the surviving spouse must claim the deceased spouse’s unused exemption amount by electing “portability” on the deceased spouse’s estate tax return – which must be filed even if no tax is due. If the surviving spouse doesn’t properly claim the unused exemption amount, that spouse’s estate may receive an unexpected federal estate tax bill.
Finally, the amount of a properly-claimed unused exemption – often the entire exemption amount, unless the deceased spouse made lifetime gifts that exceeded the annual gift tax exclusion amounts – is based upon the exemption amounts that were applicable the year the decedent died. If a spouse died in 2012, for example, the maximum unused exclusion that could be transferred to the surviving spouse is $5.12 million. Also, because portability was only recently added to the tax code, decedents who died prior to 2010 have no unused exemption amount that can be transferred to a surviving spouse.
HOW OFTEN SHOULD I REVIEW MY ESTATE PLAN?
Estate planning is usually done in view of the client's current or anticipated near-term situation, which changes over time. Significant events - marriage, the birth of a child, the death of a loved one, divorce, an inheritance, a serious illness, an impending medical procedure, the occurrence of a natural or other disaster, or even upcoming travel - can dramatically change the way one views, and plans for, the future.
For this reason, we recommend reviewing your estate plan each time a significant life event occurs, or, in the absence of such events, every 5 years.
For this reason, we recommend reviewing your estate plan each time a significant life event occurs, or, in the absence of such events, every 5 years.
DO I NEED A TRUST?
Maybe. Trusts are extremely flexible, and can be used effectively to shield estates from taxes, protect beneficiaries, avoid probate, and a wide variety of other purposes. Whether or not you need one really depends on what you want to accomplish.
For the sake of illustration, let's say that a parent wishes to provide a $30,000 gift for her son in the event of her death. Then, after executing her estate plan, the parent dies. At the time of her death, the son is sixteen years old.
If she leaves the gift to her son by making a general devise in her will, the court will appoint a guardian to manage the son's property since he is still a minor. Upon reaching the age of eighteen, the guardian will be discharged and the entire sum will be transferred to the son. For most young adults, such a windfall would be, at best, quickly depleted, and at worst, detrimental to their well-being.
If, however, she leaves the gift to her son by creating a trust, she has much more control over how he receives the money. For example, she may wish to stipulate that the trustee should pay her son the income from the trust annually; that one-half of the principal should be paid on his 25th birthday; and that the trust should terminate and distribute all remaining principal and income on his 30th birthday. As you can see, such a scheme accomplishes a number of things: it provides a small income for the son's needs; it protects the trust assets from any unwise decisions he might make in his youth; and it ensures that those assets are available for life's important milestones, such as the purchase of a house, marriage expenses, or children.
For the sake of illustration, let's say that a parent wishes to provide a $30,000 gift for her son in the event of her death. Then, after executing her estate plan, the parent dies. At the time of her death, the son is sixteen years old.
If she leaves the gift to her son by making a general devise in her will, the court will appoint a guardian to manage the son's property since he is still a minor. Upon reaching the age of eighteen, the guardian will be discharged and the entire sum will be transferred to the son. For most young adults, such a windfall would be, at best, quickly depleted, and at worst, detrimental to their well-being.
If, however, she leaves the gift to her son by creating a trust, she has much more control over how he receives the money. For example, she may wish to stipulate that the trustee should pay her son the income from the trust annually; that one-half of the principal should be paid on his 25th birthday; and that the trust should terminate and distribute all remaining principal and income on his 30th birthday. As you can see, such a scheme accomplishes a number of things: it provides a small income for the son's needs; it protects the trust assets from any unwise decisions he might make in his youth; and it ensures that those assets are available for life's important milestones, such as the purchase of a house, marriage expenses, or children.
