Effective estate planning through the use of wills, and trusts prevents the time and expense of probating an estate. In probate administration, the court is involved in the passing of assets to the decedent’s beneficiaries. As a result, the probate process is public, time consuming, and can cause delay in distribution of assets at death. At such a difficult time in your life when grieving the loss of a loved one, the transfer of assets can be done privately and timely. We encourage our clients to establish an estate plan that avoids the additional costs and stress of probate administration.
A will is a legal document that outlines how you want to distribute your assets after your death. However, having a will does not necessarily mean you don’t have to probate an estate. A will and probate are two totally separate concepts. If you own property/assets in your own name without “designated beneficiaries”, the asset must go through probate regardless of a will. The probate process moves the assets out of the decedent’s name and distributes them to the heirs. These assets are called “probate assets” and they will be distributed in probate in accordance to the will.
- In Florida, if you die intestate, or without a will, the Florida Probate Code will dictate who inherits your assets pursuant to its rules of intestate succession. The assets will be distributed in probate in accordance with Florida’s intestate statutes. It takes into account the degree of “closeness” a relative is to you by law to determine their share of your estate. Under these rules, a long time partner that is not your spouse would have no standing to inherit. Nor would your feelings about a relative be taken into consideration.
A trust is a fiduciary relationship where a third party, or trustee, holds assets on behalf of the beneficiary. There are different types of trusts that can be used to accomplish your goals. For example:
- Revocable Living Trusts: Also known as an inter-vivos trust, a revocable trust is the most common type of trust used in Florida. It is when the grantor (or person that settles the trust) retains their interest in the assets placed in the trust while they are living. This allows them to revoke or amend the trust at will. Only upon the death of the grantor are the assets in the trust dispersed to the beneficiaries. Revocable living trusts are a capable tool to utilize in the avoidance of probate.
- Irrevocable Living Trusts: An irrevocable living trust transfers ownership of the assets to the trust. Once the trust goes into effect, it is not able to be revoked, nor are its terms able to be changed. This type of trust is useful in avoiding probate and keeping assets out of a taxable estate for the purposes of federal estate taxes.
- Life Insurance Trusts (ILIT): An ILIT is an Irrevocable Life Insurance Trust that is commonly drafted as Crummey trusts. The trust can purchase the policy from its inception. Subsequently, when the insured dies, the proceeds flow directly into the ILIT and are not includable as an asset in the estate. This type of trust is ideal for taxable estates as the insurance proceeds can be used to pay federal estate taxes, as well as allocated to generation skipping transfer (GST) taxes.
- Intentional Defective Grantor Trusts (IDGT): An IDGIT is a very important tool for estate planning as it allows for the freezing of the value of assets transferred into the trust. This is commonly known as “estate tax freeze” in which the asset can appreciate outside of the estate without being subject to federal estate taxes.
Health care advance directives allow your wishes to be known should you become incapacitated and unable to make your own decisions regarding your medical care. In Florida, Health care advance directives are governed by Chapter 765, Florida Statutes, and consist of various legal documents, including those listed below.
- Durable Power of Attorney: A Durable Power of Attorney (DPOA) permits the named agent (attorney in fact) to handle personal financial matters, property, and your healthcare if you become incapacitated. Without a DPOA, families would need to petition the court to get a conservator/guardian appointed.
- Living Will: A Living Will allows you to express your wishes and desires if it is determined that your death will occur whether or not life-sustaining procedures are utilized and where the application of life-sustaining procedures would serve only to artificially prolong the dying process. It is a declaration that such procedures be withheld or withdrawn, and that you be permitted to die naturally with only the administration of medication or the performance of any medical procedure deemed necessary to provide you with comfortable care.
- HIPAA Release: HIPAA laws (Health Insurance Portability Accountability Act of 1996) govern the release of sensitive medical information. In order for your agents to have access to your medical information and thereby make informed decisions regarding your medical care, you will need to execute a HIPAA release. As it authorizes a medical institution to release personal health information to your agent(s).
- Healthcare Proxy/ Surrogate Designation: A Healthcare Proxy allows you to designate a surrogate to make health care decisions for you if you are determined to be incapacitated to provide informed consent for medical treatment and surgical and diagnostic procedures.
Enhanced Life Estate Deed (Lady Bird Deed)
A Lady Bird Deed allows you to retain control during life of real property while also avoiding probate with an automatic transfer of the property at death. This effective probate avoidance tool can also be utilized for Medicaid Planning (hyperlink to Medicaid planning) as the property will not be subject to the Medicaid penalty period or Medicaid recovery.
Having enough to retire comfortably and leave a legacy to your loved ones requires sound investment and planning. However, many overlook what could be their most costly expense related to aging: paying for long term care. Long term care is expensive whether you receive care in a nursing home, assisted living facility, or in your home. Many people do not have the resources to pay for long term care, including individuals who did well for themselves in their working years. This leaves Medicaid as the only viable option many have to pay for their long-term care needs. In order to qualify for Medicaid, there are certain income and asset limitations. Here are a few examples of effective tools that can utilized to facilitate the reduction of income levels to below the applicable limit:
- Qualified Income Trust “Miller Trust”: The Miller Trust can be utilized while receiving care at home, an assisted living facility or in a nursing home.
- Irrevocable Burial Trust: The Irrevocable Burial Trust can be utilized to fund and pay for a Medicaid applicants’ funeral and burial expenses.
- Enhanced Life Estate Deed (Lady Bird Deed): The Lady Bird Deed is not considered a transfer for purposes of calculating the Medicaid penalty period. It also avoids Florida Medicaid Estate (Probate Estate) recovery.