As we enter a new tax year, we have new exemption and exclusion amounts which have been adjusted for inflation.

The Federal Unified Credit for Estate and Gift Tax is now $5,430,000

The Federal GST Exemption is now $5,430,000

The Federal Annual Gift Tax Exclusion remains at $14,000

The Federal Estate and Gift and GST Tax Rates remain at 40%

Florida continues to have no state gift or estate tax

As always, an estate planning attorney should be consulted on the best way to save on estate taxes. Please contact our office to schedule an appointment to discuss your specific situation.

"I don’t have that much. All I really need is just a simple will." Most estate planning attorneys often hear this phrase during their first meeting with a client. However, there are different kinds of simple. A good estate planning should address who is to receive the property, how to devise that property in the most efficient way, and address certain contingent possibilities. While the wish to keep things as simple as possible is understandable (especially if the legal budget is limited), it is not always possible to accomplish a "simple" estate plan with a short simple document. Many simple estates can create a nightmare for you and your heirs at some point in the future. Such complications may include:

Probate - Probate is the court process whereby property of the deceased person is transferred after death to individuals named in a will (or pursuant to the law if there is no will). Probate can be expensive, time consuming, overwhelming for the beneficiaries, and all information becomes public records. Probate is often viewed as something to be avoided in an estate plan. A "simple" will does not avoid the probate process. A revocable living trust, on the other hand, is a great alternative that allows your estate to be managed more efficiently, at a lower cost and with more privacy than probating a will. A revocable trust can be more expensive to establish, but will avoid a complex probate proceeding. Moreover, if the client owns real estate in several states, there is a possibility that separate probates may be necessary in each state. Real property transferred to a revocable trust avoids probate regardless of the location of the real property.

Minor Children or Grandchildren - If you have minor children, you may need to consider who should be in charge of the property passing to such minor child. If both parents pass away, and the minor child does not have a trust set up through either parent’s estate planning documents, the child’s inheritance will be subject to a court process known as guardianship until the child turns 18, at which time the entire inheritance may be given to the child. Once the money is distributed to the child, there are no "checks and balances" on how the money is spent, and the money may become subject to the claims of child’s creditors or ex-spouse, if applicable. By setting up a testamentary trust for a child (meaning that it does not come into existence until you and your spouse pass away), you can create guidelines and limits on what the money can be spent (such as education, assistance with the purchase of a home, starting a business). A trust also allows you to designate the age at which the child is to receive the benefits, and even create certain several different standards, which would change as your child is getting older. An additional benefit of setting up a trust for a child is the ability to structure an inheritance trust to protect the inheritance you leave your beneficiaries from a future divorce as well as creditors. Another situation where a testamentary trust may be warranted is when a gift is made to a grandchild or another young beneficiary (whether directly or a contingent gift if one of the children predeceases the testator).

Non-Citizen Spouse - Transfers between Citizen spouses can be accomplished freely without any immediate tax consequences. However, non-citizen spouses do not have the same level of freedom. Transfers during life or at death to a Non-Citizen spouse are immediately subject to estate and gift taxes and can result in a waste of the Gift and Estate Tax exemption. This issue is often overlooked if the spouses are long-time U.S. Residents and speak fluent English. A possible solution could be to set up a trust (which must meet certain strict IRS requirements) for the benefit of non-citizen spouse to avoid immediate tax consequences.

Second Marriages - A simple will may not be a proper document for "blended" families - where one or both of the spouses have children from a prior union. Often, spouses execute simple wills leaving everything to each other, in an attempt to provide for each other’s care, and then divide the property equitably among their respective children. However, the surviving spouse may get remarried, or change their will and leave everything his or her own children. Instead, it may be advisable to leave the property for the spouse in a special marital trust, which would not be subject to divorce or death claims of a new spouse and could not be changed by the survivor.

Incapacity Planning – A significant aspect of estate planning is making sure your family has the ability to take care of you and your affairs in the event of your temporary or permanent disability (whether physical or mental). You need to have proper documents to enable someone you trust to manage your affairs and address your day-to-day needs if you become incapacitated. The important thing is to established these documents while you have capacity. After the capacity is lost, which may be unexpected, the court guardianship or conservatorship proceedings (which tend to be burdensome and expensive) may be the only options for your relatives in order to allow your family to help you.

By failing to properly plan for these contingencies, a "simple" will can instead cause many problems of logistical and financial nature. Often, an effective estate plan will utilize techniques which may have nothing to do with a will or a trust, but will provide with necessary flexibility and efficiency. An experienced estate planning attorney can provide valuable insight and offer effective mechanisms that would fulfill your wishes while providing protection and comfort for you and your loved ones for years to come.

Considering the accessibility and inundation of online services recently, many people have turned to the internet to prepare their estate planning documents. The cost and ease of using the service however does not mean a better value or a better plan. Usually, using this type of service will give you a false sense of security because your loved ones will only realize the failure of your planning after you have passed away.

Do your documents comply with local law?

Each State has it’s own set of laws regarding the process of executing legal documents and what is actually required within the document to make it valid. Generally the online service creating your estate planning documents does not take each individual jurisdiction’s requirements into consideration and a failure to properly execute the documents will result in their invalidity for administration purposes. This could mean that the money spent to procure these documents is wasted and instead the State laws where you live will determine who inherits under the intestacy (passing away without a Will) laws.

Does your planning minimize your taxes and expenses?

In addition to execution considerations, each State has specific laws regarding taxes including inheritance taxes and estate taxes and a failure to take these specific laws into consideration could cost your loved ones more in taxes than what you saved by preparing your own plan. Again, this type of misstep would only be discovered after you have passed away when it would be to late to change the documents and provide any kind of tax relief.

Do your documents accurately reflect your specific family circumstances?

Finally, the online process is "cookie cutter" and does not take into consideration your specific goals and needs with regard to your family. Meeting with an estate planning attorney will help to create a set of documents that are specific and tailored exactly to your needs and family situation. For example, do you have a child who is in the process of a divorce or bankruptcy or who is currently receiving state and/or federal benefits? Leaving money to that child without any further planning could result in that child’s inheritance ending up in the hands of an ex-spouse or creditor or could disqualify him from the state and/or federal benefits he is receiving. Without a consultation with an estate planning attorney, there is a much greater chance that your wishes for the inheritance left to your loved ones will not be carried out. There is no way an online service could contemplate your individual concerns and provide you with the necessary vehicles to protect your assets after you pass away.

Are there steps necessary beyond creating your documents?

Another issue to consider is what happens with your documents after you have signed them. Often, the creation of a revocable trust is just the beginning of the estate planning process, a trust must be "funded" by re-titling assets in the name of the trust in order to provide any benefit. An online service cannot properly advise you as to funding matters since it is necessary to know exactly where your assets are and how they are titled to complete this process.

There is a varying level of uncertainty that your planning will save time and money for your loved ones after you pass away when you use an online service. An estate planning attorney can assist with documents that are customized to your family’s specific situation while saving taxes and the expense and time associated with the probate process.

So, you have been to see an attorney, you create a comprehensive estate plan, you are done, right?  Just like many aspects of your life, your estate planning is subject to change for a variety of reasons.  Our firm recommends that you sit down and review your entire estate plan on an annual basis, but the time of year is up to you.  Whether it is April (tax season) or December, sitting down to review decision-makers and beneficiaries you have named in your documents is a good habit to fall in to.  Below are some examples that may result in the need to update your documents.  Some events would require your decision to make a change and others would be something that an attorney would determine whether changes are required.

There are numerous life-changing situations that may result in the need to update your documents.  Many of these involve your ever-changing family: did you get married or divorced; did one of your children get married or divorced; did you become a parent or grandparent for the first time or the third time; or did you lose a parent, child or spouse? 

Planning becomes particularly important when you have recently gotten divorced or married, especially in a second marriage situation where you want to provide for your new spouse and children from your previous marriage.  Reviewing your documents may also remind you to take a look at the beneficiary designations you have on your life insurance, annuities or retirement accounts.  If a beneficiary is not changed before you pass away, your ex-spouse may end up receiving funds from your life insurance simply because you neglected to update the beneficiary. 

As a new parent, one item on your checklist should be putting a Will in place to create a trust for your child in the event that both parents pass away.  In addition, you will want to nominate guardians for your minor children in the event that both parents pass away. 

An individual who has just lost a loved one should review his or her documents to determine if the loved one is a decision-maker and/or beneficiary.  In the event that such deceased person is a decision maker, who is his or her alternate and is that alternate person able and willing to serve?  Also, are the alternate beneficiaries who you want them to be?  Again, it is also important to review and update your beneficiary designations when a loved one passes away.  Often times, if there is no back-up beneficiary named on your life insurance, annuities or retirement accounts then that asset must go through the probate process to be distributed to the beneficiaries of your Will.

Did you win the lottery or inherit a substantial amount?  Another trigger for an estate plan review involves a change in your assets.  In the event that your net worth has dramatically increased or decreased, your plan should be reviewed by an attorney to determine whether you need more planning to avoid paying estate taxes or whether your plan can be simplified if the tax planning you have is unnecessary.

Did you move?  Even if you relocated to another state from Florida, your Florida Will may be "probated" as a valid document as long as it was executed in conformity with the laws of the State of Florida.  However, the tax laws in your new state of residence may be different from Florida, so it is important that you see an attorney licensed in the new state to make sure your documents are appropriate.  Have you moved to Florida from another state?  We recommend that you sit down with a Florida attorney to have your documents reviewed.

Another major event that happens every few years are changes in the tax laws.  Again, this is something that your attorney should inform you about if changes will adversely effect your existing plan.  However, if you haven’t looked at your documents in over ten years, it is a good idea to sit down with an attorney because there have been significant changes in the tax laws, namely the federal estate tax exemption in the last five years, that may affect you.

If one of the above events has recently happened to you and your family and you want to make a change to your existing plan or if you have questions about documents from another state or your tax liability, please give our office a call to schedule a consultation.

WHAT CAN I DO TO AVOID PROBATE?

There are three main ways to avoid probate: joint ownership, beneficiary designations and trusts. Most individuals have a combination of all three techniques.

Joint Ownership

Joint ownership occurs when two or more individuals hold the title to the same property. Joint ownership comes in several flavors. Joint ownership with right of survivorship and tenancy-by-entirety are the two types of joint ownership that allow the property to pass outside of probate. Tenancy-by-entirety is a special type of joint ownership with right of survivorship available only to married couples (which, in addition to probate avoidance, provides creditor protection from creditors in some cases).  In both instances, when one of the owner passes away, his or her share automatically (without court’s involvement) passes to the remaining owner(s). In contrast to joint ownership with right of survivorship, property that is held as tenants-in-common gives you title only to a share of the property and does NOT allow the property to pass outside of probate. Therefore, it you are planning to use joint ownership as a technique to avoid probate, you should make sure that the property is held with right of survivorship or as tenants-by-entirety. 

Joint ownership is not always a good idea for two reasons: liability and control.  For example, if you own something jointly with another person, the creditors of that person can go after the property and attach their interest to such jointly-titled property (unless it is owned as tenants-by-entirety). Furthermore, if you hold property jointly, you will no longer have exclusive control over the property. For example, if you and your child are joint owners of a bank account, your child is free to withdraw the entire account.

Beneficiary Designation

A beneficiary designation is a useful and free way to avoid probate.  Beneficiary designations can be applied to life insurance policies, retirement accounts, bank accounts and similar custodial arrangements.  Such designation notifies the institution that holds the assets for you of who the next-in-line owner of the assets is.  The important distinction from joint ownership is that the beneficiary will have no control over the assets until you have passed away. For example, a retirement account in the decedent’s individual name that has the children designated as beneficiaries will not require probate.  As a matter of fact, once such designation is in place, the designation determines the distribution of the property and not the Will.  Similarly, a bank account can become a “transferable on death” (TOD) or a “payable on death” (POD) account if the current owner adds a beneficiary to that account. A POD account will automatically pay the proceeds to the beneficiary. 

Trust

Trust is an entity that holds, manages and distributes the trust property in accordance with the trust agreement, a documents that specifies the beneficiaries, their rights and entitlements. Generally, a trust is a more expensive way to avoid probate.  Additionally, in order for the trust to be funded, certain assets have to be re-titled into the name of the trust.  However, it may be the only option for probate avoidance for certain assets, such as real property that you do not wish to hold jointly with anyone else. A revocable trust is a flexible structure that can hold your assets.  Because the assets will no longer be in your individual name, the assets that are in the trust will not have to go through probate. A revocable trust is not a public document (unlike a will which must go through the probate process). Rather, trust administration is a private process that avoids the costs and the delay of probate in its entirety.

As mentioned above, most individuals and families use a combination of all three techniques in order to accomplish their estate planning goal and avoid probate. Please contact if you have any questions or would like to discuss these techniques further.

WHAT IS PROBATE?

If I already have a Will, does that mean that I have avoided “probate”?  What is “probate” anyway?

Probate is a court process to transfer the property of a person who has passed away (or the “decedent”) to the beneficiaries of the decedent’s estate, either based on a Will or through the Florida intestacy laws (which apply if there is no Will or the Will is invalid).  Even if you have a Last Will and Testament, your property may have to go through the probate process.  All assets titled in your individual name without a beneficiary designation are subject to the probate process.   Legally speaking, no one has access or authority over an asset that is titled in the name of someone who passes away, which is why probate necessary in such case.  However, assets that have a beneficiary designation (such as life insurance, retirement accounts or an annuity) are not subject to probate.  In addition, some forms of joint ownership allow to avoid probate.  For example, the assets titled in joint names “with right of survivorship” (however, not the assets titled as “tenants in common”) will avoid probate and pass to the survivor without the court’s involvement.  These assets have already been designated to pass to the person listed either as a beneficiary or joint owner so probate is not required.  However, it is important to determine that the assets are properly titled in joint names “with right or survivorship,” or have an appropriate beneficiary designation.

All of the decedent’s assets that have to be transferred through the probate process are collectively referred to as the “probate estate.”  The value of the assets of the probate estate determine which of the two main types of probate in the State of Florida are needed, the two types are referred to as a full administration or a summary administration. 

Full Administration

A full administration is a lengthy complicated process that takes about 12 -15 months to complete and may cost several thousand dollars. This type of administration requires that a Personal Representative be appointed by the court.  A Personal Representative is the person who will advocate in front of the court on behalf of the decedent’s estate and be in charge of collecting and distributing the estate assets.  Usually, the decedent’s Will (if any) will contain a provision that names one or more persons to serve as Personal Representatives.  However, if that provision fails, because the individual is unable to serve or is not authorized to serve pursuant to Florida law, then the court will appoint a person who would be suitable for this position (usually a family member).  Typically, when someone passes away without a Will, a majority in interest of the intestate beneficiaries of the probate estate must agree on the person who will serve as Personal Representative.

In Florida, the Personal Representative must be represented by an attorney. Once the Personal Representative is appointed, he or she is responsible for filing the requisite pleadings with the court. There are no less than twenty-five separate pleadings that are required to be filed in any full administration, however, the contents of each pleading vary greatly from case to case. In addition, the Personal Representative is responsible for determining the validity of the claims filed against the probate estate by creditors and he or she also has specific duties regarding keeping the beneficiaries of the probate estate informed.  Besides an attorney, the personal representative will also need to hire [at the expense of the estate] an accountant to file the appropriate tax returns, both for the decedent individually and for the probate estate, with the Internal Revenue Service.  In the event the Personal Representative fails to file a return or perform his or her duties, he or she may be held liable either by the court or, in the case of taxes, by the IRS.

Once all issues associated with debts of the estate, tax liability and, possibly, disputes between beneficiaries of the estate, are resolved, the Personal Representative may begin to make distributions from the estate to the appropriate beneficiaries. Depending on the types of the assets that had to be probated, this can also take several weeks or months. For example, one probate asset may be real property that must be sold so the proceeds can be divided between beneficiaries. Only after the distributions from the probate estate are complete will the Personal Representative be discharged and the estate proceeding closed with the Probate Court.

Summary Administration

A summary administration is a much simpler process. In a summary administration, there is no appointment of a Personal Representative and the entire process usually takes around 4-5 months to complete. It is also much less expensive to administer. In order to qualify for summary administration, the total value of probate estate’s “non-exempt” assets has to be less than $75,000. The probate estate may include exempt property (discussed below) of any value without jeopardizing the eligibility for summary probate. Also keep in mind, that this threshold only applies to probate assets, so any assets passing via beneficiary designation or joint ownership are non-probate assets and are also not included in the $75,000 limit. 

Exempt Probate Assets

There are several types of assets that are considered “exempt” from the probate estate when determining the value of the probate estate for administration requirements.  These assets include homestead real property and exempt personal property consisting of the decedent’s car, furniture and furnishings in his or her usual place of abode.  There are specific requirements that must be met in order for the real property and tangible personal property to qualify as exempt.  Please consult an attorney when trying to make this determination.