CAN I DISINHERIT MY CHILD UNDER FLORIDA LAW?
Parents sometimes come to us and ask if they can leave nothing to their son or daughter in their will or trust (“disinherit” him or her). The reasons for this question vary widely; it may be due to a long estrangement or a recent dispute. We have also seen strong distrust of the child’s spouse as a cause.
Whatever the story behind the desire to disinherit, a parent can legally disinherit his or her child in Florida, with a few exceptions. First, parents have a legal duty to support their minor children, so you can only disinherit your children who are over the age of 18. Second, you cannot disregard an agreement, contract, or court order (usually the result of a divorce and/or child support proceeding) stating that you will provide for your child after your death.
So how do you disinherit your child under Florida law? The most important step is to consult an estate planning attorney and have them draft a will or trust for you. A valid estate plan is the only way to have your desire that your child receive nothing recognized by the legal system. If you die without a valid plan, your assets will pass under Florida’s default estate plan. This “plan” treats all of your children equally and gives them high priority; they are next in line after your spouse (or first if you die widowed or unmarried).
An estate planning attorney can also counsel you on the practicalities of disinheritance. Should you leave your child a small amount? The nominal $1.00? Nothing at all? Is there any way to prohibit or discourage the child from challenging your will or trust after you are gone? Our attorneys can answer these questions for you and guide you through the process of disinheriting a child. We are here to help.
WHY THE ELDERLY – AND THEIR LOVED ONES – SHOULD CARE ABOUT SEQUESTRATION
You have probably heard about sequestration, the latest in the fiscal cliff saga that started late last year. Although the term sounds complex, “sequestration” simply refers to automatic government spending cuts that are set to go into effect today, March 1, 2013. These cuts will take $1.2 trillion out of the federal budget over the next 10 years.
The spending cuts will be spread across government agencies and will affect the budgets of various programs, including one that is vital to the elderly across the country: Meals on Wheels. Meals on Wheels provides over one million hot meals every day to seniors in need. They even deliver meals to the homes of those who have limited mobility. Unfortunately, spending cuts will reduce the number of meals that can be delivered and hinder the program’s mission of ending senior hunger.
Meals on Wheels is as important in our area as anywhere else; Florida is in the top 10 states for senior hunger risk. There are several agencies in Northeast Florida that participate in Meals on Wheels and together deliver hundreds of thousands of meals each year.
Sequestration was set to occur at the end of 2012, but was pushed back to March 1 as part of Congress’ year-end fiscal cliff deal. Even if Congress “punts” again, and defers the spending cuts to later this year at the last minute, the elderly and their loved ones should be aware that these cuts likely will affect them eventually. For more information, including how you can help, see: http://www.mowaa.org/.
Please feel free to post comments on our Facebook or Twitter or to make an appointment if you have individual questions or concerns.
Cramer Law Center offers full, flat fee estate planning services including wills, trusts, durable powers of attorney, health care surrogate designations, living wills, designations of preneed guardian, and more.
The next “Truth About Estate Planning” workshop will be held at the Cramer Law Center located at 4217 Baymeadows Rd., Suite 1, Jacksonville, Florida 32217 on March 5, 2013 at 10:45 a.m. Please call us at (904) 448-9978 to reserve your seat.
“I LOVE YOU” WILLS – THE PERFECT PLAN FOR COUPLES?
Still looking for that perfect gift for your valentine? If so, you may be thinking an “I Love You” Will – really anything with those three little words in it – might do the trick. But what exactly is an “I Love You” Will?
When wills and trusts lawyers talk about “I Love You” Wills, we are referring to a simple will that leaves everything first to your significant other and then to your children. The name comes from the fact that we usually design these wills in pairs for happy couples who love each other and the responsible adult children that they had together. If you are lucky enough to lead such an idyllic life, an “I Love You” Will might be a suitable estate plan for you.
However, there are many issues common to the rest of us that are not adequately addressed by an “I Love You” Will. For example, such a will does not make any plan for the possibility that your significant other or one of your children will be disabled and/or receiving government benefits at the time of your death. An “I Love You” Will also does not address who will care for your minor children, or how that care will be paid for, should something happen to you. In fact, it doesn’t even address how you would like to be taken care of if you were to become mentally disabled.
Planning your estate can be a wonderful gift to your loved ones – and yourself – but you should consult an attorney to make sure you are getting true peace of mind and not a false sense of security. If you would like more information on “I Love You” Wills or any other type of estate plan, we are here to help.
SUMMARY ADMINISTRATION: AN EASY AND INEXPENSIVE SOLUTION? OR NOT?
Formal estate administration (the most common form of probate) is a detailed process set out by Florida law which can be expensive and time-consuming. As you might imagine, there are some situations where formal administration does not make sense, economically or otherwise. Florida statutes recognize this and set out an alternative process when the decedent either (1) has been dead for more than two years or (2) left less than $75,000 of assets that need to go through probate.
This alternative process, called “Summary Administration,” is supposed to be simpler, shorter, and less expensive than formal administration. Theoretically, summary administration allows for an estate to be opened and closed, and the assets distributed, with only a few documents filed and no court hearing. The law even says that summary administration may be done without an attorney. However, our experience has been that many summary administrations have legal and procedural issues that even attorneys cannot entirely solve.
For example, summary administration quickly becomes more complicated when the decedent left unpaid bills or other debts because summary administration does not use the streamlined process for creditors’ claims that formal administration offers. Formal administration allows a Notice to Creditors to be published in a local newspaper as soon as the estate is open. This publication of notice gives creditors a maximum of three months to file their claims; if they fail to do so, their claims are barred and the estate does not have to pay them. The estate also has a right to object to any creditor claim that is filed.
In summary administration, however, the estate cannot publish a Notice to Creditors until after the Order of Summary Administration is entered. Any Order of Summary Administration (the order closing the estate and listing the persons who will receive the estate assets) entered by the court must provide for the payment of creditors “to the extent that assets are available.” This is true even though creditors may be unknown.
The result is that beneficiaries may suffer in summary administration because there is no clear way for estates to object to and avoid paying creditor claims. New creditors may pop up after the Notice to Creditors is published, which may diminish the amount each beneficiary receives. Another danger is that no Notice to Creditors is published, because it is not required by law, creating the possibility that unknown and unpaid creditors may be able to come after the estate beneficiaries years later
Although summary administration may be a viable solution in some situations, we recommend that our clients take advantage of the formal administration process if there is any possibility that a decedent left unpaid creditors. We would also recommend at least consulting an attorney before pursuing a summary administration.
WHY SHOULD I PLAN NOW THAT I’M NOT WORRIED ABOUT PAYING AN ESTATE TAX?
As discussed in our last newsletter, the New Year brought with it significant changes to the estate tax law. Without these changes, individuals with estates of $1,000,000 or more would have been subjected to estate and gift taxes. Now, only estates over $5,250,000 (or $10,500,000 for married couples) will be taxed.
So, you are asking, why plan? Here are just three of many reasons:
1. Asset Preservation
Estate planning can help to protect both your current assets, and also the assets you leave for your children and grandchildren, keeping them in the family for many years into the future and making sure they are used for good purposes. Failure to take advantage of available protections could mean that your hard earned assets end up being lost or wasted. Asset preservation is a key benefit of estate planning that should not be ignored.
2. Disability Planning
Proper estate planning also makes sure that you and your loved ones are taken care of in the event that you become disabled. An annual review, such as we provide through our annual maintenance and updating program, is key to ensuring that your disability planning documents are up to date when/if you ever need them.
3. Planning to make a difference
Several clients are asking about ways they can use their wealth to make a difference in their community or in the world. Again, estate planning provides opportunities and solutions. A well-drafted estate plan can teach children and grandchildren how to be responsible with significant sums of money. It can also reach farther through philanthropic giving (which can be rewarding personally, as well as financially, through income and/or estate tax reduction.)
Of course, these are just three ideas out of many that could provide benefits to you and your family. We are here to help.
CONTESTED GUARDIANSHIP: NOT EVEN THE RICH AND FAMOUS ARE SAFE
While even the simplest guardianship is an expensive, lengthy, and public undertaking, a contested guardianship can be much worse. A contested guardianship is a case in which there are multiple interested persons (usually family members) with different ideas of what is best for the incapacitated person (the “ward”). As you might imagine, contests like this can drive up the financial and emotional cost of the proceeding, delay results, and air a family’s “dirty laundry” in open court.
A recent celebrity example of a contested guardianship is Fredric von Anhalt’s guardianship (called a “conservatorship” in California) over his wife Zsa Zsa Gabor. Gabor’s daughter asked the court to appoint her as her mother’s guardian instead, accusing her stepfather of sedating and isolating her mother and mishandling her finances. All of this and more has been discussed in court, and is memorialized in the public records and gossip columns. Von Anhalt, who appears to have generally taken good care of his wife, has had to justify all his actions and pay for his defense.
As in the Gabor case, the point most often in dispute in a contested guardianship is who is best suited to take care of the ward as his or her guardian. This issue is usually resolved by the court at the time it determines that the ward needs a guardian. However, a serious debate between family members over who should serve as guardian can extend a hearing that should take fifteen minutes into a trial that spans over several days. Additionally, challenges can continue throughout the guardianship, like they have in the Gabor case.
The good news is that everyone, rich and famous or otherwise, can avoid guardianship altogether with proper planning. A comprehensive estate plan may include documents such as a revocable living trust, a designation of health care surrogate, and a power of attorney that can serve as an alternative to guardianship, when well-drafted. The plan also may include a designation of pre-need guardian, which allows you to name the loved one(s) you would want to be your guardian, if a court should ever decide you need one.
NEW ESTATE TAX LAW – TIME TO EXHALE?
So, it appears that we did not go off the first “Fiscal Cliff” and some momentary “permanence” has been given to the Estate Tax Law. In the just passed “American Taxpayer Relief of 2012,” Congress kept in place the 2010 estate tax law with its Five Million Dollar ($5,000,000.00) personal exemption, adjusted annually for inflation. The only thing the lawmakers actually changed is the gift and estate tax rate, which has gone up to a top rate of forty percent (40%) from a previous maximum of thirty-five percent (35%). The exemption amount in 2012 was 5.12 million dollars, per person. The 2013 exemption amount is reported to be 5.22 million dollars per person. This amount of money either can be given away during lifetime or after death; it also can be given or devised to grandchildren without occurring any additional generation skipping tax.
Congress also increased the gift tax annual exclusion to Fourteen Thousand Dollars ($14,000.00). Remember, you can give away $14,000.00, per year, per person, to any individual(s) you choose, without it counting against your 5.22 million dollar lifetime exemption.
Can we now exhale? Will we ever have to worry again about the personal exemption reverting back down to $1,000,000, per person, as was only hours away from happening on January 1? I must give you the typical lawyer answer, “it depends”, and here’s why: the estate tax has been around almost 100 years. Throughout that time, an average of about 2% of all adult deaths resulted in taxable estate tax returns being filed. Under the current law, it is estimated that only 0.2% of all adult deaths will result in taxable estate tax returns. In order for the estate tax to continue to generate taxable estates at its historic 2% average, the personal exemption would have to be reduced to about 1 million dollars ($1,000,000.00). Yes, we have the lowest estate tax rates ever and yes, Congress seems to have made those tax rates permanent. However, in looking at the historical perspective, coupled with upcoming “fiscal cliff” (automatic spending cut) deadlines and a growing federal deficit, you have to wonder how long these historically low rates can be sustained.
The best way to stay abreast of continuing congressional volatility and changes in the estate tax laws is to have an ongoing relationship with an estate planning attorney, such as we provide with our Annual Maintenance and Updating Program.
SOME BASICS OF BUSINESS SUCCESSION PLANNING
More than eighty percent (80%) of businesses in the U.S. are private or family dominated. Yet, these closely held businesses have an extraordinary failure rate. Seventy percent (70%) do not survive to the second generation. Eight-five percent (85%) do not survive to the third generation. The average family owned business lasts only twenty-four (24) years.
Why do so many businesses fail after the first generation? Primarily because the majority of business owners do not have either a formal business succession plan or comprehensive estate plan. A business succession plan must be part of the business owner’s overall estate plan. The four (4) leading causes for failure of family owned businesses are: inadequate estate planning; failure to properly prepare and provide for the transition for the next generation; lack of funds to pay estate taxes; and conflicts with family members not actively involved in the business.
There are many ways to guard against such failure. This article will highlight the following five (5) techniques for business succession planning: Buy/Sell Agreement; Family Limited Partnership; S. Corp. Recapitalization; Employee Stock Ownership Plan; and Intentionally Defective Grantor Trusts.
A “Buy/Sell Agreement” is an agreement among the Company and shareholders to buy stock from shareholders upon certain events, such as, disability, death, divorce, or retirement. Key components of a Buy/Sell Agreement include properly valuing the business and providing for funding of the agreement, usually by an insurance policy taken out against the shareholder’s life.
A family limited partnership strategy works well when a business owner has family who will continue in the business and the business is valued at $5,000,000.00 or above.
One of the most frequent types of business ownership for closely held interests is an S. Corp. Unfortunately, due to the ownership restrictions of S. Corp., many business succession strategies are not available to S. Corp. owners. There is, however, one strategy known as “S. Corp. Recapitalization” which is available. This technique is typically used when the owner has family who will stay involved in the business.
An Employee Stock Ownership Plan (ESOP) allows owners of closely held companies to sell to an ESOP and reinvest the sales proceeds on a tax deferred basis, providing the ESOP owns at least thirty percent (30%) of the company and certain other rules are met. The company establishing the ESOP must be a C. Corp, not an S. Corp. This technique provides liquidity for the retiring shareholder and also provides motivation for employees to continue the company as owners. Use of this technique requires that there are key individuals who are willing and able to continue the business after the current owners have sold or retired. ESOPs are effective, but are subject to many rules and regulations and should be considered only after a thorough examination of all factors involved.
With an Intentionally Defective Grantor Trust (IDGT), the owner sells shares of stock in the company to an irrevocable trust in exchange for a small cash down payment and a long term installment note. This freezes both the value of the asset and the return on that asset (and reduces the size of the grantor’s estate.) The trust is intentionally drafted so that the creator is treated as the owner for income tax purposes. By paying the income tax on trust income, the grantor effectively makes additional gift tax free transfers to the beneficiaries. Children of the owner are usually the beneficiaries of this type of trust. A major concern with this technique is whether there will be sufficient cash flow to play the installment obligation.
In summary, there are a number of techniques available to minimize estate tax exposure while achieving a business owner’s wishes to transfer and continue the business which he or she has built. Whichever technique is used, it should be part of a comprehensive financial and estate plan. The attorneys at Cramer Law Center are available to assist with that planning. Remember, history has shown that having a good estate plan does not accelerate the date of death.
AN ESTATE PLAN FOR SANTA CLAUS
What if Santa and Mrs. Claus decided to do an estate plan? Although they would doubtless be great clients, the actual plan could be challenging.
What is the size of the Claus estate? It is extremely hard to calculate, even for Mr. and Mrs. Claus. Their accountant merely shrugs when asked. Unless estate taxes are totally repealed forever, Santa has a tax problem. Santa’s toy making business is prospering. He has enough inventory to supply every child on earth with at least one toy each year. There are now over 6 billion people on earth, and if just half of those are children, and if Santa spends just $20 on each child, he is spending 60 billion dollars per year on Christmas gifts alone. Apparently this formal gifting program is not reducing the size of his estate nor his tax liabilities sufficiently since he’s continued to do this since the 4th century.
Another consideration for Santa’s estate plan will be caring for the hundreds of elves that work in his shops and are apparently totally dependent on his largess for survival. There are no known relatives to serve as guardians in the event of Santa and Mrs. Claus’s joint demise. And even if relatives can be tracked down, it is doubtful that they will have the wherewithal to care for so many dependents. We might want to consider starting a charitable organization that establishes homes, jobs, and caretakers for these magical little people.
Santa has also invested a lot of time, money, and love in his wild animal preserve. Besides the normal elk, caribou, and polar bears, Santa has successfully bred a unique species of flying reindeer and at least one with a light-emitting snout. It’s likely that several world zoos will be clamoring to add these animals to their collection, but it would be advisable for Santa and Mrs. Claus to make some of these decisions ahead of time, and use these charitable opportunities for further estate tax planning.
Obviously, death isn’t the only concern for the Clauses. If Santa were to be disabled by a collision with an aircraft, a fall from his sleigh on a fast take-off, or a gunshot wound from someone who mistakes him as a burglar, the business could be in trouble. Mrs. Claus has had her hands full taking care of the elves, and hasn’t had a lot of direct involvement with the toy making. It might be wise to pick some key elf employees from executive management who can be trained to take over. Perhaps an ESOP is appropriate, or a pre-negotiated buy-sell agreement. Due to his advanced age (approximately 1600), and the fact that he is overweight and smokes, life insurance is also unlikely – but should not be ruled out because of his overall good health and vitality.
One other issue to be considered is citizenship. Although we think of Santa as an American icon, he was actually born as Nicholas of Myra in Anatolia – which is now southwestern Turkey. Rumor has it that he met Mrs. Claus while watching the annual tree lighting at Rockefeller Center in New York. If Mrs. Claus is a U.S. Citizen, proper tax planning will require her to at least prepare a Qualified Domestic Trust.
Obviously, planning for Santa and Mrs. Claus will be a daunting task requiring our best efforts. Like Santa, our firm wishes you a “Merry Christmas to All”, Happy Holidays, and a Happy and Prosperous New Year.
Happy holidays from all of us at Cramer Law Center! We truly appreciate your support which has helped make this another year of steady growth for our practice.
We hope that everyone will be able to spend time with family and friends this holiday season. For parents with adult children, we encourage you to consider telling them about your estate plan. Most people avoid this discussion because it involves two sensitive topics: money and death. However, explaining your will or trust and your desires for final arrangements is one of the greatest gifts you can give your children. Making clear what you want, and why, will provide peace of mind all around.
Adult children may also wish to initiate this talk with their parents. We are happy to facilitate family discussions at our office for our clients. Anyone else needing a little help may find this article useful: http://www.forbes.com/sites/ashleaebeling/2012/11/21/generations-apart-talking-turkey-over-turkey/
We wish everyone a healthy and prosperous New Year! Please note: our office will be closed on December 24, 25, and 31, 2012 and January 1, 2013. We will be holding our year-end planning retreat on December 26, 27, and 28 and therefore will be unavailable except for emergencies.