Figuring out your options for planning your estate can be a confusing task. Here is a brief overview of the different elements you need to consider. However, before proceeding with any plans, it’s important to contact a qualified legal professional.
Anyone who meets one or more of the following factors:
- owns all or part of their own business;
- recently moved to Florida;
- owns real property other than homestead (especially when located in other counties);
- is married and has a net worth (including the death benefit value of life insurance) exceeding $5.34 – HOWEVER THIS AMOUNT IS SUBJECT TO CHANGE;
- needs asset protection planning for their children’s inheritance;
- is in a 2nd marriage, blended family or separated/divorced;
- has a special needs spouse or child;
- has a minor child or children;
- does not want their assets passed to their children in an immediate lump sum but rather over a longer period of time to ensure creditor protection and proper money management; or
- wants to avoid a formal probate that could take over a year to complete and can cost 3-4% of the gross value of all assets subject to probate administration
A business owner has shares in a corporation or partnership, units in an LLC, or individual assets in a sole proprietorship. All of these types of business ownership will go through probate (most likely a formal probate) unless assigned to a trust during the lifetime of the business owner.
Other Real Property
Your primary Florida residence (or homestead) usually does not go through a formal probate because it is a creditor-protected asset under the Florida Constitution that automatically passes to your surviving spouse and legal heirs. Most title insurers require an Order of Determination of Homestead Status for marketable title purposes. Attorneys usually charge a small fee to petition the court for a homestead determination, which normally takes no longer than a few weeks. If, however, you own real property other than your homestead, then a formal probate administration is almost always required in every county where there is real property in your individual name. By utilizing a trust as owner of any real property other than your homestead, you can bypass probate altogether.
Married with a Net Worth Exceeding $5 Million
Through use of the marital deduction and the $5 million exemption for federal estate taxes available to both spouses, attorneys can use what is called an “A-B Revocable Trust” to protect married couples from federal estate tax liability on estates valued as high as $10 million on the date of death of the first spouse. Keep in mind, however, that the $5 million per spouse exemption will expire at the end of 2012 and we will most likely end up with a lower threshold in 2013.
Florida trusts (both revocable and irrevocable) do not provide asset protection benefits for either the individual or spouses who create the trust. Trusts may, however, provide a level of asset protection for beneficiaries other than the creator(s) of the trust by incorporating what is called a “spendthrift clause” prohibiting a beneficiary from assigning his or rights in a trust to a creditor. Trusts also provide a level of asset protection for beneficiaries other than the creator(s) by allowing the trustee to make discretionary rather than mandatory distributions to a beneficiary under creditor attack.
Second Marriages or Blended Families
Attorneys also use the A-B Revocable Trust to segregate and protect assets for children from a prior marriage while also ensuring that the surviving spouse is taken care of financially during his or her lifetime.
Florida law requires the appointment of a guardian to look after the best interests of a minor child whenever a minor receives an inheritance of more than $15,000 in assets. The guardian-appointment process can be even more expensive than a formal probate when you consider that a guardianship administration lasts until a minor child reaches the age of eighteen (18). A trust can designate a trustee to look after a minor child’s inheritance in exactly the same way as a court-appointed guardian at a fraction of the cost and at a fraction of the burdensome reporting requirements.
Control of Distribution of Assets
Most young adults lack the maturity and financial acumen to handle receiving all of their inheritance at once. A prudently-invested trust can provide adequate income over time while distributing assets to the beneficiary at various age intervals or at milestones such as graduating from college, getting married, or buying a first home.
Avoiding Formal Probate
Probate is simply a court-ordered process directing the change of title of your assets to your legal heirs or designated beneficiaries. Not all probate is bad. If you pass away with less than $75,000 in your individual name then it’s possible to go through what is called a “Summary Administration.” With a revocable trust, you may spend a little money on the front end to save a lot more money on the back end avoiding the burdensome costs and extended time frame of formal probate.
Funding Your Trust
A revocable trust is only as good as the assets that you fund into it. An unfunded trust is just like carrying an umbrella into the pouring rain and forgetting to open it up – you are left with assets in your individual name rather than the trust’s name that usually go through a formal probate. The goal is to transfer as many of your larger assets as possible into the name of your trust. The result: you avoid formal probate while continuing to manage and control your assets exactly the same way as before when those assets were held individually.
Last Wills & Testaments
A Last Will & Testament is better than nothing. The last thing you want to have happen is to die intestate (without a will), which means your estate will be administered through probate by a default set of laws that predetermine who your personal representative (executor) and beneficiaries will be. The better strategy is to prepare a revocable trust and pair it with a shorter form of the Last Will & Testament called a “Pour-Over Will.” A Pour-Over Will is simply a safety valve to cover any assets held in your individual name and transfer them to your trust. Again, the goal is to transfer as many of your larger assets as possible into the name of the trust. But sometimes smaller assets are forgotten about or purposely left unfunded into the trust. No big deal if you have a Pour-Over Will because attorneys can use it in an inexpensive Summary Administration (remember not all probates are bad if assets total less than $75,000) to quickly transfer these assets to the trust.
The most frequent question that attorneys get asked is this: Why do I need a trust when all of my assets already avoid probate because they are jointly held? Although jointly-held property may technically avoid probate on the first spouse or individual to die, the same does not hold true for the second party to die. Jointly-held property is therefore only half of the estate planning solution and only delays formal probate to the spouse or individual lucky enough to survive with the entire value of the jointly-held property in their individual name.
For more information about your Estate Planning options, please contact me at (813) 907-9807.