Archive for Probate
Common Estate Planning Myths and Superstitions
In honor of today’s holiday, Groundhog Day, we wanted to share some common myths and superstitions about estate planning. Most Americans know the story of Groundhog Day: if a groundhog comes out of its burrow this morning and sees its shadow, it will retreat back into the burrow and six more weeks of winter weather will follow. On the other hand, if the groundhog does not see its shadow and remains aboveground, winter will soon end.
Most of us recognize that the ability of a groundhog to accurately forecast the weather is just a myth. (The reality is that groundhogs get it right only 39% of the time.) However, many people still believe in the following estate planning myths and superstitions (or at least use them as an excuse not to plan):
#1: You are more likely to die once you complete your estate planning. This is simply absurd; generally, the only people who die shortly after executing an estate plan are people who waited ALMOST too late to plan in the first place.
#2: Estate planning is only for the wealthy. When you hear the word “estate,” do you think of a palatial mansion or fine jewels? The truth is that if you own a home, a car, a bank account, life insurance, etc., then you have an “estate”.
#3: Estate planning only matters after death. A big part of the estate planning we do at our firm is planning for possible future disability. Wouldn’t you like to leave directions for how you want to be treated if you become incapacitated as well as for who gets your stuff when you’re gone? What about requests for who will care for you and/or your children?
Please feel free to post comments on our Facebook or Twitter or make an appointment if you have individual questions or concerns.
Cramer Law Center offers full estate planning services including wills, trusts, durable powers of attorney, health care surrogate designations, living wills, designations of preneed guardian, and more.
THE IMPORTANCE OF THE PRE-ARRANGED FUNERAL
The single most important benefit of estate planning is peace of mind. We often focus on the legal documents necessary for us to create an estate plan that provides such peace of mind. However, I recently had a personal experience that reminded me of the importance of one of the more practical aspects of planning.
My mother passed away a few weeks ago. Although my siblings and I had a general idea of what the funeral arrangements would be, no plans had been finalized. This lack of planning created a chaotic situation when I arrived to visit my mother in hospice care. I was immediately and less than delicately informed by the hospice caseworker that I had to make my mother’s funeral arrangements straight away. So before I could focus my attention on my mother in her final hours, I had to phone different funeral homes until I found the one I needed.
Making last-minute funeral arrangements for my mother added more stress to a situation that was already emotionally taxing. Especially after my experience, I highly recommend taking care of funeral arrangements in advance to avoid creating greater stress for your loved ones at such a difficult time.
PRICELESS CONVERSATIONS
In keeping with the theme of August as “What Will Be Your Legacy?” month, we would like to introduce you to “Priceless Conversations”. Share the meaning of your life, the events that shaped your decisions and which causes and people have significance. Thoughtful reflection gives heirs a sense of the wholeness of your wealth and the financial decisions you make. We have a tool for sharing your life story with future generations called “Priceless Conversations” – a precious gift that integrates legacy building into your estate planning.
Recording a “Priceless Conversation” is a way for us to make tangible the “non-financial” dimensions of your wealth for you and your loved ones. Using a handful of interesting questions and a digital recorder, we help you share and save the lessons and experiences of your life. There is no homework, no tedious research, no writing, and no camera. We help you turn a simple chat into a touching and lasting treasure. The process is simple, practical and fun. “Priceless Conversations” can be individual, family, or group events.
Leaving a legacy involves more than just dollars and “cents”. Help future generations have a “sense” of who you are.
When you’re gone, how will you be remembered?
At the end of the day, how will your life have made a difference?
When all is said and done, what will those you love say about what you’ve done?
What have you accomplished with your wealth?
Not just your money, but all the wealth – the real wealth – you have at your disposal?
Whose lives have been touched by your life?
Let us know if you wish to explore how recording “Priceless Conversations” can benefit you.
NEW LEGISLATION: PART II
For those of you who are married and have not had your own Will or Living Trust prepared, the Florida Legislature has just changed your “Will”. The bill was sent to the Governor for his signature on June 13th and was signed in June 21st.
Previously, your government-made “default will” provided that if you are survived by a spouse and children of that spouse, the surviving spouse would receive the first $60,000 of your estate and then one-half (½) of the remaining estate. The other half (½) would be divided equally among your children (or their descendants). That now has been changed. In the traditional marriage situation, where all of the decedent’s surviving children are also the children of the surviving spouse, the surviving spouse now receives one hundred percent (100%) of your estate (providing the surviving spouse has no children or grandchildren [descendants] from another relationship).
This change in the “default will” does bring the state’s version of estate planning more in line with the typical choices of married couples. Most married couples do choose to leave everything to their surviving spouse.
In cases of second marriages and/or blended families, the State’s “default will” remains unchanged. Fifty percent (50%) of the estate goes to the surviving spouse and the other fifty percent (50%) is divided equally among the decedent’s lineal descendants (children/grandchildren). This new law does not have any effect on Florida’s current elective share, homestead, exempt property or family allowance provisions.
So, if you like the Will the Florida legislature has prepared for you, stand pat. If you’d like to make your own choices and/or learn how the laws mentioned in the previous paragraph affect your “default will”, call us…we can help.
END OF LIFE PLANNING
Two of the statements I hear most frequently from seniors are “I don’t want to go into a nursing home” and “I don’t want to be put on machines”. However, without proper legal documents in place, your medical decisions may end up out of your hands. This delicate subject seems to be difficult for many families to even bring up. Although we know there is a need to prepare, we tend not to want to think about someone in the family becoming terminally ill or tragically injured. Sometimes a diagnosis comes that leaves a family time to prepare, but many times there is an unexpected crisis which can leave a family reeling to making decisions. Many people lack understanding or misunderstand advanced health care directives. We are happy to explain the designation of healthcare surrogate, living will, power of attorney or even how guardianship works.
If you or someone you know has ever made one of the two statements at the beginning of this article, we invite you to stop in and talk with us. There is never a charge for an initial consultation to explore your estate planning goals.
GIFTING AND THE GIFT TAX
Many people are confused about the rules which apply to giving gifts. There is good reason to be confused. First, there are two different gift tax exclusion figures, which change frequently. Then, there is the question of basis. This newsletter will attempt to provide a basic understanding of the gift tax rules.
First, there is an ANNUAL EXCLUSION. The amount of the annual exclusion for 2011 is $13,000. With this exclusion, you can give a gift to any one person in the amount of $13,000 or less and not have to report it or even file a gift tax return. If your spouse also wishes to make a gift to an individual, a married couple can effectively give away $26,000 to any member of individuals without having to file a gift tax return.
Then there is the LIFETIME EXCLUSION. The lifetime exclusion was $1,000,000 through 2010, but for the years 2011 and 2012 has been temporarily increased to $5,000,000. If you give away more than $13,000 to an individual at any one time, you must report it to the IRS on a gift tax return. However, you will not be subject to gift tax until you have given away a cumulative total of $5,000,000 over your lifetime. For couples, this means there is a $10,000,000 lifetime gift exclusion. For example, if you wish to give your son a $50,000 gift for a down-payment on a new house, you simply file a gift tax return to report this gift and apply $50,000 of your lifetime gift exclusion to eliminate any tax being owed.
As you can see, there are a wealth of opportunities presented in 2011 and 2012 to utilize gifting strategies as part of your estate plan. However, we must remember that property received as a lifetime gift generally takes a “carry over” basis. This means that the basis in the hands of the person who receives the gift is the same as it was in the hands of the person who made the gift. Thus, if given a gift of stock that was purchased many years ago for $1,000, but is worth $10,000 at the time of the gift, the basis is $1,000. This means that if the person who received the gift turns around and sells the stock for $10,000, the gift recipient will owe $9,000 in (capital gains) income tax.
However, if the property is left to beneficiaries in a Will or a Trust and received after a decedent’s death, then that property takes a “stepped up” basis meaning that in our same example, the stock recipient would have basis of $10,000 and there would be no capital gains tax due if the beneficiary turned around and immediately sold this inherited stock.
One final concept to be aware of is the difference between a “completed gift” and an “incomplete gift”. Here is an example of which many people are not aware. If you put a child’s name on the deed to your house, you have made a completed gift at that moment of the full value of your house, or at least the value of the interest you have deeded to your child. This gift must be reported on a gift tax return. On the other hand, if you put your child’s name on your bank account, you have made an “incomplete gift” and it will not be completed until the child actually withdraws money from the account to use for his or her own benefit. When the child does withdraw money, you must report the gift.
Gifting also has serious implications if you are going to need to apply for Medicaid benefits within five (5) years of making certain gifts. So, you can see that there are both opportunities and pitfalls with respect to gift giving. As a Jacksonville, Florida Estate Planning attorney, my purpose is to guide my clients so as to maximize the opportunities and minimize the pitfalls.
UNCERTAINTY ABOUT ESTATE TAX: WILL IT DISAPPEAR? A history lesson.
In our last newsletter, we outlined some of the highlights of the temporary extension of the estate tax that will be effective from January 1, 2011 through December 31, 2012. What will happen next? Is the estate tax likely to disappear or even remain “as is” with lower rates and a more generous personal exemption than at most any time in history? Well, let’s take a look at the history of this tax.
American governments have taxed estates, at least on a temporary basis, since the founding of this country. The first estate duty was imposed by the Federalists to finance an undeclared war with France. Abraham Lincoln imposed a temporary inheritance tax during the civil war. A third, temporary estate tax was enacted to fund the Spanish-American War. Then, in 1916, the current estate tax law was enacted and has remained in existence ever since.
Who were the champions of the idea of an estate tax in the early part of the 20th Century? It was a Republican President, Theodore “Teddy” Roosevelt (“TR”), who was the modern champion of the estate tax. In 1910 TR stated: “We grudge no man a fortune in civil life if it is honorably obtained and well used.”… “We should permit it to be gained only so long as the gaining represents benefit to the community…” The really big fortune, the swollen fortune, by the mere fact of its size, acquires qualities which differentiate it in kind as well as in degree from what is possessed of men of relatively small means. Therefore, I believe in a graduated income tax on big fortunes, and … a graduated inheritance tax on big fortunes, properly safeguarded against evasion, and increasing rapidly in amount with the size of the estate.”
TR was not alone in advocating for an estate tax. Supreme Court Justice, Louis Brandeis, said, “We can have concentrated wealth in the hands of a few or we can have democracy, but we can’t have both.” Even one of the nation’s wealthiest men at the time, Andrew Carnegie, testified in Congress in favor of an estate tax as the best way to address wealth concentration. So, the estate tax never was intended to be solely a device for raising revenue for the federal government. Rather, it was meant to address the phenomenon of a small number of Americans controlling large amounts of the country’s wealth, which was considered a national problem at the beginning of the 20th Century. This period has been referred to as the “Gilded Age”.
When the estate tax was enacted in 1916, the richest 1% of Americans owned more than 50% of the country’s wealth. By 1976, the amount of the nation’s wealth controlled by the richest 1% had fallen to only 20%. Over that time, this greater disbursement of wealth fostered growth of a strong middle class. However, the tax policies of the last 35 years have reversed the trend. Today, the wealthiest 1% own more than 33% of the country’s wealth.
So, has the estate tax accomplished the goals of its supporters? Is it a necessary component of our democracy? Only time will tell how the political debate over the estate tax plays out.
ESTATE PLANNING TO CARE FOR YOUR PETS
As a Jacksonville, Florida Estate Planning Lawyer, I frequently have clients ask about planning for their pets. Sure, there have been many jokes and stories about the dog or cat who inherits a fortune. The truth of the matter is that many people want to ensure that their pet is cared for if they become disabled or pass away. Considering how much like members of the family many pets become, this just makes sense. So, pet trusts and other estate planning tools are becoming more common as means to ensure that a beloved pet is cared for even if you are no longer able to care for the pet yourself.
As a pet owner, you can take effective steps to make sure your pets not only are well cared for, but also that the funds left are used properly. You do not need a complex estate plan to carry out your wishes. Here are just a few ways that you might provide for the care of your pet:
1. Make no specific plans, but leave it up to your personal representative, family, or friends to find the pet a new home after your death.
2. Leave your pet (in a will or a trust) to a specific caregiver that you trust. The caregiver is then responsible for the pet’s care.
3. Along with the pet, leave the caregiver a sum of money to offset their expenses in caring for your pet.
4. Create a trust to benefit the caregiver, with specific instructions on how to provide funds for the pet’s care.
5. Create a trust for the pet, along with instructions for overseeing the pet’s care, by naming a trustee or possibly a panel of people to care for the pet.
These are just a few examples of ways that we assist clients in planning to care for their pets as Jacksonville, Florida Estate Planning Lawyers.
WHY LIFE INSURANCE IS AN IMPORTANT ESTATE PLANNING TOOL
As a Jacksonville, Florida Estate Planning Attorney, I work regularly with life insurance agents as part of the estate planning team. Life insurance is helpful in many estate planning situations. Some examples are:
1. A family with young children. Life insurance can replace the income if a parent dies prematurely in order to help raise the children and put them through college.
2. Blended families. What if a husband is in a second marriage with a new child, and also has grown children from a prior marriage? Life insurance provides a means for him to leave funds to his older children at death while still providing for his new wife and child.
3. Business owners. Most business owners know that a buy-sell agreement is an important planning tool to make sure that there is a smooth transition if one of the owners retires or dies. However, this buy-sell agreement may not work if there is not sufficient cash available to pay off the owner’s family. Life insurance helps provide the cash that makes a buy-sell agreement work.
4. Payment of estate taxes. Many times, estates are not liquid or there is property that everyone wishes to keep in the family. Life insurance provides a means to pay estate taxes without having to sell family property. When combined with gift giving strategies, such as creating an irrevocable life insurance trust, life insurance can provide leverage so that you may use pennies on the dollar to transfer assets to your family without estate taxes.
You may have heard that life insurance is tax-free. Life insurance benefits only are free from income tax. However, they will be subject to estate taxes at your death. We are available to discuss specific estate tax planning strategies that can keep life insurance out of your estate.
If you are considering your estate planning, you may wish to also have an older life insurance policy reviewed. Your insurance agent or financial advisor may be able to help you obtain a better policy now. People are living longer than they were 20 or 30 years ago, so you may be able to obtain a greater death benefit at a lower premium because life insurance generally is less expensive than it was many years ago. These are just some examples of how we utilize life insurance as Jacksonville, Florida Estate Planning Attorneys.
WHY DO ESTATE PLANNING IN ORDER TO AVOID PROBATE?
As a Jacksonville, Florida Probate Attorney, I understand the probate process and why many people seek to avoid it. Probate is the legal process used when the court has to get involved to help transfer assets after someone has died. There are several legal rules and procedures set up to make sure that the transfers are done properly and that the family is aware of what is being done.
There are three major reasons why people wish to avoid probate: First, probate is a relatively slow process. Because of the need to involve the court clerks and judicial officers, finalizing an estate naturally would be more time consuming than if it were done privately. Petitions must be filed with the court, notice given to creditors and family members, inventory lists developed and an accounting of income and expenses given. So, between the more cumbersome court procedures and the necessity of dealing with the court’s calendar, it typically takes many months to finalize an estate.
Second, probate is more expensive than if assets are transferred privately. There are several court fees involved in the probate process, including paying an attorney to assist the personal representative in completing all of the additional tasks required by the court process. Filing fees, fees for publishing notices to creditors and fees for providing accountings to the court and the rest of the family all combine to make transferring assets through the probate process relatively expensive.
Third, probate is a public process. If there is a will, it is required to be filed with the court. The will and all of the probate court documents are public records. Anyone could go to the courthouse or maybe just look online to learn about your assets and who would be receiving them. A nosy neighbor just might want to know how much you were worth at death and to whom you owned debts. People who prey on the vulnerable frequently review probate documents in order to try to obtain assets at a bargain basement price. In contrast, trust administration can be completely private.
My conclusion, as a Jacksonville, Florida Probate Attorney, is that compared with trust administration, the Florida probate process is slower, more expensive, and public. There are several estate planning methods to avoid probate. Attending our “Truth About Estate Planning Workshop” will provide you with information on how you can plan to avoid probate.
