Whether you’re creating your first Estate Plan or updating a previous one, here are the general steps we will go through in order to make sure you and your heirs are provided for in the best possible way.
Step 1: Create Your Last Will and Testament
A Will is a written direction controlling the disposition of property at death.
Through a Will, you decide who gets your property instead of the law making the choice for you through a process called intestacy.
You also choose the person who will administer your Estate, called a personal representative (or executor), provided that person qualifies under Florida law.
You can also may make gifts, effective at or after your death, to charity.
Taking Care of Your Children and Grandchildren
With a Will, you can name a guardian to care for your minor children.
Additionally, you can provide financially for your children (or your grandchildren) by creating a Trust in your Will (called a Testamentary Trust). In this way, the Estate will be kept intact with income distributed to or accumulated for the benefit of family members or others.
These measures can avoid the expense of a guardianship proceeding.
What Happens If There Is No Will?
If you die without a Will (called dying “intestate”), your property will be distributed to your heirs according to a formula fixed by law.
In other words, if you fail to make a Will, the inheritance statute determines who gets your property. The statute contains a rigid formula and makes no exception for those in unusual need.
Moreover, when there is no Will, the court appoints a Personal Representative, known or unknown to you, to manage your estate. The cost of probate may be greater than if you had planned your Estate with a Will, and the administration of your Estate may be subject to greater court supervision.
Step 2: Create Your Medical Directives and Financial Power of Attorney
Medical Directives are usually contained in an instrument called a Living Will with the Designation of a Health Care Surrogate.
This document protects you if you become unable to make health care decisions for yourself.
Through your Living Will, you can leave directions as to the use of life-prolonging procedures and include your other wishes regarding medical-related matters.
You can also designate a person to make health care decisions for you when you may not be able to do so. This person is known as a Health Care Surrogate. Among the Surrogate’s powers is the authority to decide when to withdraw medical procedures.
Financial Power of Attorney
Through a Durable Power of Attorney, you can appoint an attorney-in-fact (or agent) to assist you in handling your property if you become incapacitated, thus eliminating the need to open a guardianship proceeding in court.
This instrument is especially valuable for paying your bills and protecting your assets.
A Power of Attorney terminates when you pass away.
Can My Personal Representative, Health Care Surrogate and Attorney-in-Fact Be The Same Person?
Yes, this is the most common arrangement, but not always.
For example, if your daughter is good with money and your son is a nurse, then you might want to appoint your daughter to be your personal representative under your Will and your attorney-in-fact under your Power of Attorney, and designate your son to serve as your Health Care Surrogate. The choice is yours.
In any event, the person(s) should be trustworthy, responsible and organized. And, you should definitely let them know their role in your Estate Plan. You should also name an alternate in case your first choice is unavailable.
A Last Will and Testament, a Living Will with a Designation of Health Care Surrogate, and a Durable Power of Attorney form a solid Estate Plan.
I recommend this basic Will Package to all of my clients.
Step 3: Name Beneficiaries For Your Non-Probate Assets
Naming beneficiaries for your bank accounts, employee benefit plans, retirement plans and insurance policies makes these assets automatically “Payable on Death” (or “Transferable on Death”) to your beneficiaries, thereby allowing the funds to skip the probate process.
Likewise, in almost all states, you can register your stocks, bonds, or brokerage accounts to transfer to your beneficiaries upon your death.
This is step is often overlooked.
However, if your Will and your Payable on Death accounts are not coordinated, your total assets may distributed much differently than you intended.
I will review all of the beneficiary designations on your assets to make sure they match your wishes regarding your overall Estate Plan. Where adding or changing beneficiaries on those assets is necessary, I can assist you in getting that done.
Probate vs. Non-Probate Assets
Probate Assets are ones that are transferred by virtue of your Will. These are, generally speaking, assets that are owned by you alone.
- Real property owned solely by you, or held as a tenant in common
- Personal property, such as jewelry, furniture, art work, collectibles, and automobiles
- An interest in a business
Non-Probate Assets are ones that automatically pass to another by law upon your death. These are, generally speaking, assets that you own jointly, and assets for which you have named a P.O.D. beneficiary.
- Real property owned with your spouse or a joint tenant with rights of survivorship
- Joint bank accounts
- Life insurance policies
- Employee benefits plans
Sometimes, assets can be structured to change a Probate Asset to a Non-Probate Asset (such as by setting up a Trust) and vice versa.
Most times, clients structure assets to avoid probate administration. However, there are situations, where it may be beneficial to structure your Estate Plan so that Non-Probate Assets become part of your Probate Estate. One example is funding a Testamentary Trust in your Will to provide for your minor children or grandchildren.
A further example of Non-Probate Assets are those that are held by a Trust. Because the assets held in the Trust are not in your name, they are not subject to probate. This is one of the attractive features of setting up a Trust.
To learn more about Trusts, keep reading.
Step 4: Consider Making A Trust
Protect what’s yours.
A solid Estate Plan does not mean just having a Will. For certain individuals, a Trust offers numerous advantages when used together with a Will. A Trust can serve many purposes in your financial, retirement, tax and Estate Planning.
The benefits of Trusts include:
Probate savings: Assets in a Living Trust pass outside of probate. This saves the time, money and hassle involved in a probate administration.
Privacy: Probate is a matter of public record; a Trust allow assets to pass outside of probate and remain private.
Estate tax savings: Using a Trust can reduce Estate taxes for high-net worth individuals.
Control of your wealth: You can specify the terms of a Trust, controlling when and to whom distributions may be made and under what circumstances. You may also, for example, set up a Living Trust so that the Trust assets remain accessible to you during your lifetime while designating to whom the remaining assets will pass afterwards. For certain types of Trusts, you may serve as the Trustee yourself.
Asset protection: A Trust can help protect your Estate from your heirs’ creditors or from beneficiaries who may not be good at or are unable to manage money.
Professional management: You can appoint a professional Trustee with the expertise to maximize the value of complex assets.
Provide for disabled beneficiaries: A Special Needs Trust can pay certain expenses of a disabled beneficiary without causing that beneficiary to lose their needs-based government benefits. Plus, depending on how the Trust is set up, the Trust assets will not be subject to government recovery and can pass to a successive beneficiary.
What is A Trust?
Now that you know some of the benefits of a Trust, let’s take a look at what a Trust actually is.
Essentially, a Trust is an Estate Planning tool used for transferring assets to beneficiaries.
More specifically, a Trust is a legal arrangement that allows a Trustee to hold, manage and distribute assets for the benefit of the beneficiaries. The person who creates the Trust is called a trustor or settlor.
Types of Trusts
For all the many benefits Trusts offer, they are just as many types of Trusts.
Trusts are mainly categorized by:
- when they are created, and
- whether or not the terms of the Trust can be altered
A Trust created while you are alive is called a Living (or Inter Vivos) Trust. The main purpose of a Living Trust is to avoid probate.
A Trust created after you pass away according to the terms of your Will is called a Testamentary Trust.
A Revocable Trust is one with terms that you can alter during your lifetime. It is also implicitly a Living Trust because you create it during your lifetime. A Revocable Trust becomes Irrevocable (see below) once you pass away.
An Irrevocable Trust is one with terms that cannot be altered. The main reason you would create an Irrevocable Trust while you are alive is for tax purposes.
Within these four main types of Trusts (Living, Testamentary, Revocable and Irrevocable) Trusts, there are further subcategories with a range of terms and potential benefits.
Here are some specialized Trusts that are commonly used in Estate Planning:
Charitable Trust: an Irrevocable Trust that is set up to simultaneously benefit you, your beneficiaries and a qualified charity under IRS rule
Qualified Terminable Interest Property (QTIP) Trust: is set up to provide income for a surviving spouse and for the grantor to control assets after the death of a spouse. QTIPs may be useful when beneficiaries exist from a previous marriage and the grantor dies before the subsequent spouse.
Irrevocable Life Insurance Trust: used to exclude life insurance proceeds from the taxable Estate of wealthy individuals and to transfer the death benefit immediately to beneficiaries. (While life insurance proceeds will usually avoid probate, for certain wealthy individuals, a life insurance benefit may be included in the Estate for tax purposes).
Irrevocable Funeral Trust: used to set aside money to cover burial and funeral costs. The funeral home sometimes serves as the Trustee. Funeral Trusts are typically funded with cash, bonds or life insurance.
Spendthrift Trust: protects inherited assets from the potential of financial irresponsibility of the beneficiary. Since the assets in the Trust belong to the Trust, the beneficiary and the beneficiary’s creditors do not have direct access or control of the Trust assets. The Trustee has the discretion to decide how the Trust assets will be distributed.
Special Needs Trust: similar to a Spendthrift Trust, a Special Needs Trust allows the Trustee to decide and direct how the assets of the Trust can be used for a beneficiary. These Trusts are commonly used for dependents with special needs, such as a child, sibling or parent who is disabled or otherwise unable to provide for their own financial needs.
Generation-Skipping Trust: as the name suggests, this type of Trust will skip over the children of the grantor to the generation following them. For example, if you want to provide for the financial well-being of your grandchildren, this Trust passes directly to them.
How Do A Trust And Will Work Together?
A Trust is best used together with a Will.
That is because a Trust can handle only the property that has been put into it. Any of your property that is not placed in the Trust either during life or at death, in most instances, escapes the control of the Trust. It is your Will that controls all property in your name at the time of death.
Therefore, a Will works hand-in-hand with a Trust. In fact, a Will is a very useful tool to add any property outside of the Trust into the Trust. This type of Will is called a “Pour-Over” Will, so called because it pours over the assets in your Probate Estate into your Trust.