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Estate Planning

What is Estate Planning

What comes to mind when you hear the phrase “estate planning?”

For some, those words conjure up images of super-rich families with complex financial agreements. Many people falsely believe that unless they have a ton of assets, estate planning is not necessary for them.

Contrary to popular belief, estate planning is not just about who gets your “stuff” when you pass. It’s not just a tool of the rich to minimize tax liabilities. Estate planning is about making thing as easy as possible for your loved ones if something unexpectedly happens to you and preserving as much of your estate as possible for your loved ones and not wasting money on court costs and attorney’s fees.

I am not an attorney, nor am I practicing law. I am a Graduate Estate Planning Consultant. I received this designation from The National Institute for Estate Planners. As a full service financial advisor, I always take great professional and personal pride in that I am very good at what I do in the continuous offering of “full service” to my clients.

The definition of estate planning is the transference of wealth to your family, heirs and beneficiaries. If you have assets—cash, cars, homes, investments, jewelry, etc—you also have an estate. So estate planning is simply a process for building and preserving those assets during your lifetime and it provides for an orderly transfer after your death.

Clicking on the links above will inform you of some basic and complex estate strategies.

Florida Will

A “will” is a defined term in the Florida Probate Code. Under §731.20 (40) a will “means an instrument, including a codicil, executed by a person in the manner prescribed by this code, which disposes of the person’s property on or after his or her death and includes an instrument which merely appoints a personal representative or revokes or revises another will.”

I will translate for you. A will is a written document that tells the probate court who should receive your assets when you die. In the state of Florida, your will must be in writing. You must sign the will in the presence of two witnesses. A handwritten will, called a holographic will, is not valid in Florida.

In 2011, the Florida Legislature revised its Probate code to allow any interested person to reform a deceased person will. Under §732.615 upon application of any interested person, the court may reform the terms of a will, even if unambiguous, to conform the terms to the testator’s intent if it is proved by clear and convincing evidence that both the accomplishment of the testator's intent and the terms of the will were affected by a mistake of fact or law, whether in expression or inducement. In determining the testator’s original intent, the court may consider evidence relevant to the testator’s intent even though the evidence contradicts an apparent plain meaning of the will.

I will translate for you. They can change your will after you are gone. This will come as a shock to most people. This law went into effect July 1, 2011.

Please contact us with any additional questions. We will put you in touch with one of our trusted attorneys.

If your attorney hasn’t contacted you, it is time for a second opinion.

Florida Probate

Florida Probate is a court-supervised process for identifying and gathering the assets of a deceased person (decedent), paying the decedent’s debts, and distributing the decedent’s assets to his or her beneficiaries.

Probate passes ownership of the decedent’s probate assets to the decedent’s beneficiaries. Most nontaxable estates take from 6 to 12 months to be cleared by probate. Most taxable estates can take upwards of 2 years. The estate cannot be closed until the IRS signs off on the estate tax return.

According to §733.6171 Florida Statute compensation of attorney for the personal representative—compensation for ordinary services of attorney in formal estate administration is presumed to be reasonable if based on the compensable value of the estate, which is the inventory value of the probate estate assets and the income earned by the estate during the administration as provided in the following schedule:

(a)One thousand five hundred dollars for estates having a value of $40,000 or less.
(b)An additional $750 for estates having a value of more than $40,000, but not exceeding $70,000.
(c)An additional $750 for estates having a value of more than $70,000 and not exceeding $100,000.
(d)For estates having a value in excess of $100,000, at the rate of 3 percent on the next $900,000.
(e)At the rate of 2.5 percent for all above $1 million and not exceeding $3 million.
(f)At the rate of 2 percent for all above $3 million and not exceeding $5 million.
(g)At the rate of 1.5 percent for all above $5 million and not exceeding $10 million.
(h)At a rate of 1 percent for all above $10 million

In addition to fees for ordinary services, the attorney for the personal representative shall be allowed further reasonable compensation for any extraordinary service.

If you would like to know what assets are not subject to probate, or how your beneficiaries can benefit without the delays and costs of probate, it is time for a second opinion.

7 Major Errors in Estate Planning

By Rob Clarfeld, Forbes Magazine

Estate Errors Image

1. Not having a plan

In a sense, everyone does have an estate plan; state law makes this point a certainty. It simply may not be the plan that you had in mind, or that your family would have preferred. Not having a will means that at your death the distribution of your assets will be dictated by the inheritance laws of the state where you were domiciled when you died. These “intestacy laws” vary from state to state but, typically, leave percentages of your assets to various family members. There is always a remote chance that these laws will accomplish what you would have intended – but not likely. It is highly improbable that, by chance, your dispositive intentions as to who gets what, when and in what form will be fulfilled. This is true even if your estate is below the tax threshold. Your will applies to the disposition of your “probate assets” – those assets NOT otherwise following a beneficiary designation or the titling of the asset. Non-probate assets will pass by operation of law or contract. For example, whoever the beneficiary designation may have been when you originally began your 401(k) or IRA at the start of your work life will override either your will or the laws of intestacy. Even a simple plan that is well thought out and results from the identification of your personal objectives will be much more successful than nothing at all.

2. Online or DIY rather than professionals

There has been a noticeable uptick in the number of people who will look to the Internet to prepare their own wills and trusts. There are dozens upon dozens of websites that will profess to offer you just the right discounted estate planning documents. Even wealthy clients who stand to benefit the most from expert planning advice have been impacted. Unfortunately, relying on web-based, do it yourself solutions is a recipe for disaster.Estate planning documents should represent the culmination of a well thought out financial and estate plan. An amalgam of stand-alone documents does not a plan make. Furthermore, those pesky nuanced requirements (i.e. the “formalities”) for a validly written and executed document will vary from state to state. Internet sites can provide you with documents but no actual advice that fits you in the context of your specific financial and personal life. What happens when the laws change? Does the document create an unnecessary tax if the state and federal tax laws diverge substantially? Also, use an experienced estate attorney. All wills are perfect documents while they are in your desk drawer. Only when examined post-mortem are the inadequacies revealed.

3. Failure to Review Beneficiary Designations and Titling of Assets

One of the most basic and most overlooked items on every estate-planning checklist is the review of beneficiary designations and the proper titling of accounts. Unwittingly, many people will often let beneficiary designations and asset titling determine their estate plans for them, contrary to their intentions. Why? Regardless of what your well developed wills and trusts say, your beneficiary designations and the title of your assets will control the ultimate distribution of those assets. Most investment accounts allow for the designation of a beneficiary (IRAs, 401(k)s, company plans, etc.). More recently, many states have enacted legislation to convert even otherwise ordinary brokerage accounts into accounts with beneficiary designations via Payable/Transfer Upon Death Registrations. All of these beneficiary designations absolutely control who gets the asset at your death. The titling of assets is a property law concept with estate implications. An account that is held jointly with right of survivorship will pass automatically to the survivor of the joint owners. Why does this matter? Assets can flow to the wrong people due to old, wrong and/or out-of-date designations, often with unintended estate and income tax implications.

4. Failure to Consider the Estate and Gift Tax Consequences of Life Insurance

Life insurance proceeds are included in the estate when owned by the insured at death. However, the insured may choose to transfer all incidence of ownership during his/her lifetime thereby avoiding any potential estate tax inclusion. Notwithstanding this accessible planning fix (usually via trust), relinquishing ownership and control is not necessarily an automatic decision. In some instances, large sums of available, tax-advantaged and asset-protected cash has accumulated in permanent life insurance policies (i.e. whole life). Accordingly, the decision as to how an insurance policy should be owned and, as importantly, controlled, can be complex and is highly individualized. In the right fact patterns, especially when tax is not the only important consideration, credible arguments can be made for both trust ownership and direct ownership. As in most estate planning, it is very much dependent on individual circumstances: family dynamics, net worth, financial / liquidity position, personal preferences and, even, your philosophy on the transfer of assets to future generations.

5. Maximizing annual gifts

Gifting is, probably, the oldest and best way to minimize future estate taxes. The entire universe of exemptions and deductions available for the reduction of estate taxes consist of: the lifetime exemption ($5.12 million in 2012), the marital deduction (for gifts to citizen spouses during life or at death), the gift and estate tax charitable deduction, annual exclusion gifts ($13,000 in 2012) and direct transfers (not to be treated as gifts) for education (tuition) and medical care (both theoretically unlimited). For the wealthy, maximizing all of these is smart planning. Making annual exclusion gifts every year to as many family members (this includes anyone close to you) as is financially prudent (given your financial situation) is good planning. Over the long run, you can transfer significant sums of money out of your estate along with any appreciation, thereby reducing the tax. Even better planning would be to use your annual exclusion gifts, strategically, so that each annual gift can be leveraged into larger sums being transferred out of your estate. Strategies such as sales/ gifts to defective grantor trusts, the use of LLCs/FLPs in the case of hard to value assets and life insurance are just a few ways to leverage the annual exclusion gifts. In the case of gifting, leverage is a very good thing and strategies that allow you to leverage this scarce resource – tax-free gifts – are crucial to successful estate planning.

6. Failure to Take Advantage of the Estate Tax Exemption in 2012

As every estate and financial planning practitioner will tell you (and probably already has told you), making lifetime gifts is a simple and effective estate tax minimization strategy. Simply giving away assets at no gift tax cost will allow both the corpus and its appreciation to escape the Federal estate tax on the passing of the donor. Using the exemption equivalent amount during your life is better than leaving it for use at death. The urgency is to act now to take advantage of the current estate tax regime that it is set to expire at the end of 2012. Above and beyond the annual exclusion gift limit of $13,000, the federal applicable exemption amount for transfers during life (gifts) and death (estates) has increased (by indexing) to $5,120,000 per person for 2012 — by far the highest it has ever been since the establishment of the estate tax. Wealthy individuals, who have both the means and desire to do so, should plan on making these gifts during 2012.

7. Leaving assets outright to Adult Children

In recent years, there has been a growing opinion among advisors for wealthy families that assets should remain in trust, even for adult children, for as long as possible for the asset protection and other benefits that a trust can offer. For a wealthy couple with adult children, the question may no longer be a one of legal capacity or maturity (although those issues may still remain). The bigger questions may, more accurately, become: who should really benefit from the fruits of my labor and how do I protect those assets from creditors, potential creditors and ex-spouses. Depending on your perspective, dictating from the grave may or may not be a pejorative expression. For as long as trusts have been in existence (800+ years), the idea of controlling assets for as long as allowed with a set of instructions has been considered acceptable and often sought after planning. In fact, centuries ago, keeping assets in trust forever was, more likely than not, the goal; hence the genesis of the “rule against perpetuities.” This rule was law in all 50 states to prevent perpetual or “dynasty” trusts. Over the last several years, many states have been modifying this rule to allow for longer trusts or have outright abolished the rule. Whether or not to leave assets in trust for adult children depends on many factors; not the least of which is personal preference. However, in our litigious society of high divorce rates, leaving some assets in trust with fairly liberal access is certainly worth consideration.