Estate Planning Basics

Florida Elder Law

Wills

A will is a document whereby an individual expresses their wishes and desires concerning the disposition of their property (assets) after death. With a few limitations, a person can give property to whomever they want and for whatever purpose they desire upon their death.

A will is also used to designate the person who will act as the personal representative. The personal representative (referred to in some states as an “executor”) is the individual who acts as decedent's legal representative charged with administering that person’s estate. The personal representative has the right to bring legal claims on behalf of the decedent or defend claims of third parties against the probate estate.

Often a will is used to designate the guardian of a decedent’s minor children in the event that there is no other surviving biological or adoptive parent of the child.

No will becomes final until the death of the testator, and it may be changed or added to by the testator by drawing a new will or by a "codicil," which is simply an addition or amendment executed with the same legal formalities of a will. A will's terms cannot be changed by writing something in or crossing something out after the will is executed. In fact, under Florida law, writing on the will after its execution may invalidate part of the will or all of it.

Revocable (“Living”) Trusts

The primary advantages of a living trust are its role in the event of the grantor’s incapacity and the avoidance of probate upon the grantor’s death.

The living trust typically provides that in the event of the grantor’s incapacity a successor trustee automatically takes over the administration of trust property. The incapacity provisions of a living trust permit the grantor and his family to avoid a public guardianship in the event that the grantor becomes unable to manage his trust property.

Probate is avoided because living trust property is not owned by the grantor at the time of death. As long as property is properly titled in the name of the trust, the property is not part of the grantor's probate estate and can be transferred to trust beneficiaries without probate.

In addition to provisions for incapacity and avoidance of probate, living trusts have other estate planning benefits. For clients with property located in multiple states, a living trust which owns all of the client’s property avoids probate proceedings in each state where property is located. The administration of a client’s property is consolidated through the use of a single trust document.

Living trusts do not provide asset protection. In fact, a living trust provides no asset protection benefits in Florida and most other states.

Advance Directives

The Florida Legislature has recognized that every competent adult has the fundamental right of self-determination regarding decisions pertaining to his or her own health, including the right to choose or refuse medical treatment or procedures which would only prolong life when a terminal condition exists. This right, however, is subject to certain interests of society, such as the protection of human life and the preservation of ethical standards in the medical profession. To ensure that this right is not lost or diminished by virtue of later physical or mental incapacity, the Legislature has established a procedure within Florida Statutes § 765 allowing a person to plan for incapacity, and if desired, to designate another person to act on his or her behalf and make necessary medical decisions upon such incapacity.

• Living Will: A competent adult has the right to make a written declaration commonly known as a "Living Will." The purpose of a Living Will is to direct the withholding or withdrawal of life prolonging procedures in the event one should have a terminal condition.
• Health Care Surrogate Designation: A competent adult may designate authority to a Health Care Surrogate to make all health care decisions during any period of incapacity. During the maker's incapacity, the Health Care Surrogate has the duty to consult expeditiously, with appropriate health care providers. The Surrogate also provides informed consent and makes only the health care decisions for the maker, which he or she believes the maker would have made under the circumstances if the maker were capable of making such decisions. If there is no indication of what the maker would have chosen, the Surrogate may consider the maker's best interest in deciding on a course of treatment.

Irrevocable Life Insurance Trusts

An irrevocable life insurance trust (an "ILIT") is an irrevocable trust created for the principal purpose of owning a life insurance policy. As with any other trust, the insurance trust is a contract between a grantor and a trustee to administer certain property, in this case an insurance contract, for the benefit of named beneficiaries. The insurance trust, like other irrevocable trusts, cannot be rescinded, amended, or modified in any way after it is created. Once the grantor contributes property to the trust, he cannot later reclaim ownership of the property or change the terms of the trust.

One of the primary reasons for executing a life insurance trust is estate tax considerations. If an ILIT is properly structured, the death benefits paid to the trust will be free from inclusion in the gross estate of the insured. In addition, the ILIT can also be structured so that the trust will provide benefits to the insured's surviving spouse without inclusion in the surviving spouse's gross estate.

Estate Tax Basics

The Estate Tax

Federal estate taxes are imposed on the transfer of wealth at death. The calculation of the estate tax is based on the value of a decedent's "gross estate". The gross estate can be loosely defined as the value of all property in which the decedent had any interest at the time of his or her death (plus certain other statutorily mandated items). The determination of the amount of estate tax due is based on the computation of a taxable amount multiplied by a progressive tax rate. The estate tax return must be filed within nine months after the decedent's death, although an extension of an additional six months is generally granted upon the filing of an application for extension.

The Taxable (“Gross”) Estate

Property interests included in the gross estate are typically valued at fair market value on the date of death. Some of the rules regarding the inclusion of property in a decedent's gross estate are as follows:

• Property Owned Outright. Property owned outright comprises all property that a decedent owned individually and outright.
• Jointly-Held Property and the Estate Tax. If joint property is held with rights of survivorship between husband and wife, then one-half of the value of such joint property is included in the gross estate of the first joint tenant to die and the other one-half is excluded from the gross estate. If joint property is held with right of survivorship between persons who are not husband and wife the entire value of any joint property will be included in the estate of the first joint tenant to die, unless the estate can prove that the surviving joint tenant supplied some, or all, of the money used to purchase the joint property. 
• Life Insurance. The proceeds of any life insurance on the decedent's life is included in his gross estate if: (i) the policy proceeds are payable directly or indirectly to the decedent's estate; or (ii) the decedent held any incident of ownership in the policy, such as the right to change the beneficiary, surrender or cancel the policy or borrow against the policy.

Marital Deduction

Of the various estate tax deductions the most significant is the unlimited marital deduction which provides an estate tax deduction for property left to a surviving spouse. There are two basic prerequisites of the unlimited marital deduction:

• An Interest Must Pass to the Surviving Spouse. A marital bequest must be to a legally recognized spouse. A bequest to a divorced or deceased spouse will not warrant a marital deduction. The surviving spouse must also be a citizen of the United States. 
• The Interest Must be a Deductible Property Interest. Mere passing of property from a decedent to a surviving spouse alone is not enough to warrant a deduction. An interest is deductible only to the extent such interest is included in determining the value of the gross estate. The reason for this rule is simple; if an item is not included in the gross estate, its passing should not qualify for a deduction.

Taxable Estate vs. Probate Estate

The taxable estate or gross estate is sometimes confused with the concept of the decedent's probate estate. A person’s taxable estate includes those assets subject to estate taxation. The taxable estate encompasses more property than the probate estate including all property in which the decedent had an interest or over which he had control. For example, unlike the probate estate, the taxable estate includes the decedent’s interests in property owned jointly, financial products involving contracts with third parties (life insurance, etc.), IRAs or 401K plans, and all other property over which the decedent exercised any control or power.