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Basic Estate Planning

Third Edition

Herbert Elliott, Attorney at Law, Tarpon Springs, Florida

 

Few decisions in life are as distasteful, yet as important, as planning for its end. Those who do such planning save their heirs much anguish and frustration, and often a great deal of money. This article attempts to explain in broad terms various estate planning vehicles for the elderly, such as living wills, durable powers of attorney, federal estate and gift taxation, the probate system, avoiding probate, Medicaid eligibility, and guardianship.

 

Probate

The probate system has a bad reputation, as something always to be avoided. Like most institutions, the probate system is sometimes wrongfully criticized by those who are misinformed. Probate is the process by which a decedent's bills are paid and property held in the decedent's name alone are transferred by court authorization, in accordance with the decedent=s will, if there was one, or by general law if no will is found. Contrary to what some people think, if you don't have a will, the State does not "take" your property. Rather, State law just writes a will for you, based upon what is generally accepted in our society as the standard will. However, if your titled assets are transferred properly prior to death, there is no need for judicial involvement. That is the purpose in "avoiding probate", but there are pitfalls to be avoided. By "adding names" to property during one's lifetime, it may be difficult to have the property returned to, or conveyed by, the donor, or to the donors intended beneficiaries.

 

The most common types of probate in Florida are formal administration and summary administration. Summary administration applies to probate assets less than $75,000.00 in total value, excluding the value of the homestead; attorney's fees and court costs would amount to between $600.00 and $1,000.00. The process takes approximately two weeks from beginning to end. Formal administration takes around five months, in large part because of the three‑month period for claims to be filed against the estate.  Attorney fees for formal administration are specifically set forth in the Florida Statutes.

 

There are many ways of avoiding probate of one's assets. The major ones are a living trust, putting property in joint ownership with a survivorship interest, such as life estates on real property, or joint tenancy with right of survivorship for real property, bank accounts, stocks and bonds. Again, beware of pitfalls. Even though one plans to avoid probate, however, it is still an excellent idea to have a current Florida will, to cover assets which inadvertently or unavoidably were not transferred into the name of the trustee, remainderman, or joint tenant. If even one titled asset is in the decedent=s name alone at death, probate would still be necessary  in order for title of that asset to be transferred. Although out‑of‑state wills are generally valid in Florida, it is time consuming and therefore expensive to go out‑of‑state to find the witnesses to those wills. Life insurance proceeds also pass outside of the probate system, unless your estate is a beneficiary of the policy. You can expect to spend between $100‑$300 for two reciprocal husband and wife simple wills, and more for more complicated wills, testamentary trusts, or a separate contract between spouses that the will shall not be revoked or modified after the death of the first spouse.

 

One can avoid the probate of real property by signing and delivering a deed to the grantee, or to an escrow agent. You can keep the full homestead exemption by reserving a life estate, with the remainder to whomever you choose.  Retaining an Aenhanced life estate@ enables you to sell the property without getting formal approval of the remaindermen. You can place an automobile in joint names, and do the same with bank accounts and stocks and bonds. You should use the magic phrase "joint tenancy with right of survivorship" in order to do so. Legal assistance is strongly advised; please don't do it yourself.

 

Medicaid Planning

 Medicare pays less than two percent of all nursing home bills. Medicare will pay only for skilled care in a Medicare approved skilled nursing facility which follows a period of hospitalization of at least 3 days. Medicare will not cover merely custodial care. Even when all the requirements are met, Medicare will pay the entire nursing home bill only for the first 20 days. It will pay part of the bill for an additional 80 days, with the client or his family paying co‑insurance amounts. After 100 days, Medicare provides no assistance. There are a number of long‑term nursing home health care policies available, which differ significantly in terms of eligibility and benefits. Medicaid is a federally-funded program, administered through the several states, which will pay nursing home expenses to those who qualify.

   Very generally speaking, in order to qualify, income eligibility and resource eligibility must be established. For income, the applicant cannot earn more than $1,600 per month. With respect to assets, the applicant is allowed to keep a home (regardless of value), personal effects, $87,000 cash, if married, (otherwise $2,000), a car, annuities, business property, life insurance, and certain other assets. Property divested within 36 months (60 months if to or from a  trust) prior to application is included in the determination of eligibility, although you may transfer up to $3,300 each month without affecting eligibility. The regulations are both confusing and illogical, and elder law specialists should be consulted long before nursing home care is required.

 

Living Wills

 One has the right to compel the termination of life support systems, if one is terminally ill, so long as that intention is expressed properly, preferably in writing. A living will may be obtained at your attorney's office for a nominal charge, or from most local physicians or hospitals.

 

Durable Powers of Attorney/Health Surrogates

 A power of attorney is a vehicle whereby one may authorize another person to act in one's behalf.  By placing certain language in the power of attorney, the document becomes a "durable power of attorney", and thereby one may authorize any person to act on one's behalf, even though one is disabled.   By signing a durable power of attorney, one can avoid or at least minimize the risk of a guardian being appointed. A separate Health Care Surrogate form is usually used to authorize routine medical care.

 

Guardianship

 Florida has a large number of senior citizens, with no local family for support. If one has not executed a Durable Power of Attorney while one is still competent, upon being declared incompetent by a judge, the judge would also appoint a guardian to take care of one's person or one's property, or both. Because of past abuses of the system, the legislature has imposed a great deal of restraint on guardianships to the point where the cure, in my opinion, is often worse than the disease. That is, fees and expenses in guardianship, and the red tape involved, prevent many incapacitated people, who would otherwise need a guardian, from getting the benefits thereof.

 

Record Keeping

 One often overlooked aspect of dealing with elderly clients is the lack of accurate records kept by the client. It is important to give a list of your assets (including secret hiding places), your important papers, your debtors and creditors, life insurance policies, death benefits, funeral arrangements, to your loved ones, your banker, your attorney, (this is redundant if you love your attorney) or some other trusted person who is likely to survive you. Otherwise, assets may be thrown away, go unclaimed and wind up in the State treasury, or be converted by those who may not be authorized. If you have worked hard for your assets, then you should see the need to preserve what you have left for your friends, family, charities, or whomsoever you have intended to receive the benefits of your bounty.

 

Federal Estate and Gift Taxes

 A federal estate tax return is due when one has an estate in excess of $1,000,000. However, if you give everything to your surviving spouse, there is no federal estate tax on the estate of the first spouse to die. By proper planning, by will or by trust, each spouse can transfer $1,000,000 free of estate tax. The $1,000,000 amount gradually increases to $3,500,000 in 2009. The federal estate tax rate goes from 20% to 50% of taxable values. All assets are included (real estate, bank accounts, auto and life insurance proceeds, cars, boats, stocks, bonds, mutual funds, C.D.'s for example), even if  title passes outside of the probate system. One of the many benefits of living in Florida is that there is no additional Florida inheritance tax.

 

The annual federal gift tax exclusion allows one to give $11,000 per calendar year (adjusted for inflation) per recipient, free of estate, gift, and income tax.  By giving during your lifetime, you would also be able to see how your descendants use your property, help them with proper management, share the joy and appreciation they may have, and give them an opportunity to extend their appreciation to you. By the way, think about sharing your bounty with local charities or institutions which helped you get where you are today.

 

Trusts

 The trust is an enormously flexible vehicle for all kinds of legal maneuvers. In the typical "revocable living trust", the settlor (one who makes a trust) appoints himself as trustee until his death, disability, or resignation ,and then appoints a successor trustee or trustees to manage trust property and dispose of it by giving the settlor the use of the property during his period of disability, and then distributing it to the settlor's successor beneficiaries. Some non‑tax benefits include:

 

   1. avoidance of probate delays and expenses;

   2. opportunity for professional asset management;

   3.  permit distribution over time (probate without a testamentary trust requires immediate distribution to all adults);

   4. minimize risk of multiple inheritance taxes by having the real estate and personal property held in one Florida trust;

   5.  prompt transfer of management of assets at disability;

   6. avoidance of publicity;

   7. insulation from pleas for money ("Fred, I'd lend you the money, but it's tied up in trust");

   8. avoidance of mental blocks about signing wills;

   9. avoidance of guardianship;

10.  reduce the likelihood of will contests;

11.  restrict the wasting of assets by spendthrift beneficiaries and their creditors; and

12.  avoidance of surviving spouse deviating from predeceased spouse's estate plan.

 

Average attorney's fees for the preparation of simple living trusts usually are between $550.00‑$800.00, depending on complexity. On occasion, the goal of avoiding probate is accomplished by a method simpler and less expensive than a living trust. After the trust declaration is executed, you still must transfer the assets into the name of the trustee. Again, by transferring the asset during one's lifetime, to a trustee (even oneself as trustee) one avoids probate of that asset. Many people prepare elaborate living trusts, but improperly fund the trust by failing to put all appropriate assets into the name of the trustee, thereby not implementing what was intended.

 

A corporate trustee would probably charge around one percent of principal per year as the trustee's fee. Corporate trustees are held to a higher standard of care than an individual trustee, and for many reasons, the peace of mind created with a professional, independent, impartial, experienced, fully insured, fully regulated  corporate trustee may be well worth the expense. For example, suppose your child is trustee for the benefit of your grandchild. If the trustee does not invest the money wisely, is the grandchild really going to sue the parent for negligence or breach of fiduciary duty?

 

This article is written with the hope that you will contact your attorney, accountant, and other advisers, to discuss these matters in more detail. Estate planning is a constantly changing field, rife with loopholes and potholes. Please understand that the scope of this article is general in nature, and should not be used as a basis to plan your estate matters without professional assistance. Each of us is unique, and the use of "do‑it‑yourself" estate planning or the use of a "will kit" is not much different from "do‑it‑yourself@ hospital surgery.

8 Herbert Elliott, 2002

 


 

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