MOVING TO FLORIDA? Reasons Why New Florida Residents Should Have Their Wills Reviewed
We often talk to people who have moved to Florida and have “heard” that their Will, which was drafted and signed in another state, is no longer valid. The myth that an out of state Will is automatically invalid once you move to Florida simply is not true. A Will signed by a non-resident of Florida is valid in Florida if: (1) it complies with the Florida statutory formalities for executing a Will or (2) the Will is valid under the laws of the state where the Will was signed: UNLESS the out of state Will was either verbal or hand written. A verbal Will (like “deathbed” wishes) is not valid in Florida. In Florida a Will must be in writing to be valid. A Will in the person’s own handwriting is not valid unless it meets the formal document signing requirements of either Florida or the state in which it was signed. (If you fully understand this, you may pass “go” and collect your $200.)
BUT there is a big difference between a Will being VALID and being EFFECTIVE. Some provisions of your out of state Will may not be valid under Florida law. For example, if you named a friend or neighbor from your old home town as guardian for your minor children, that person may not be qualified to serve as guardian under Florida law. Only a Florida resident or close blood relation who resides out of state may serve as a Florida guardian. Some states recognize “common law” marriages. Florida does not. Some states have “community property” rights. Florida does not. A Will provision based on such laws may not be effective in Florida.
Additionally, even though a Will signed out of state may be procedurally sufficient, it still can be attacked on substantive grounds, such as lack of testamentary capacity or undue influence. Having to defend the validity of an out of state Will, involving out of state witnesses, can increase costs significantly.
It is not only your Will (or Trust) which might be invalid, but Florida laws concerning your other planning documents may be different from the state where those documents were signed. For example, a Power of Attorney drafted in some states loses its validity when the person who signed it becomes incapacitated. In Florida, it does not - if properly drafted. A “Living Will” drafted in another state may not comply with the particularities of Florida law. Florida law provides that you may designate a “health care surrogate” to make health care decisions for you in the event that you are unable to make those decisions for yourself.
These are just a few examples highlighting how an out of state Will might be VALID, but not EFFECTIVE. We believe that when someone moves to Florida they should consult with a Florida estate planning attorney to ensure that their estate planning documents are up to date and conform with Florida law.
If you have family, friends, or neighbors who recently have moved to Florida, please feel free to share this newsletter with them.
TRANSITIONS
Change is in the air at Cramer Law Center. Many of you have noticed that our longtime legal assistant, Janet Marshall, has left us to explore other opportunities. You also know that I took some time off to see our son get married. Because of the difficulty in finding someone who will live up to Janet’s high standard of client service and caring, we’ve had some temporary assistants over the past couple of months. I’m pleased to announce that our search for help is now over. Join me in welcoming Valentina Chapman as the newest member of our team.
Val is both an Advanced Certified Paralegal and a Certified Florida Legal Assistant with over 15 years experience. Val previously worked for one of Jacksonville’s top estate planning law firms. She has handled hundreds of probate and estate administrations, has drafted all different types of estate plans, and has helped fund numerous trusts. Her organizational skills and fresh ideas already have begun to have an impact on the office. Plus, she is a delightful individual. Val hails from Pennsylvania and has been in Jacksonville for the past 16 years.
Melinda and I are delighted that our son, Barrett, married his longtime sweetheart, Lexie Abramson, on May 30. They have dated for 7 years, beginning with the Bolles School senior prom. They had been in school together since the 3d grade. In fact, in the 5th grade, Barrett (in budding engineer fashion) sent Lexie a note asking if she would be his girlfriend and put boxes to check “yes” or “no”. She checked “no” then, but eventually came around. They are living in Gainesville where he is working on his Ph.D in environmental engineering and she is attending the college of veterinary medicine.
Now that these milestones have been marked, we hope to continue sending out this newsletter on its regular schedule, chock full of interesting and useful information about estate planning.
Change is in the air at Cramer Law Center. Many of you have noticed that our longtime legal assistant, Janet Marshall, has left us to explore other opportunities. You also know that I took some time off to see our son get married. Because of the difficulty in finding someone who will live up to Janet’s high standard of client service and caring, we’ve had some temporary assistants over the past couple of months. I’m pleased to announce that our search for help is now over. Join me in welcoming Valentina Chapman as the newest member of our team.
LATEST UPDATE ON THE STATUS OF THE ESTATE TAX
The future of the estate tax remains a back-burner item in Congress. With so many legislative priorities ahead of it and as more and more members of Congress become preoccupied with mid-term elections, the likelihood of legislation being enacted before the end of the year grows more remote. There has been some talk of passing a bill that would permit 2010 estates to choose to follow either the 2009 law (3.5 million dollar exemption, step up in basis and a 45% tax rate) or the 2010 law (no estate tax, but carryover basis ). But it remains just talk.
Meanwhile, 2011 is fast approaching—with a return to an estate tax with a 55% rate and only a $1 million personal exemption. If this concerns you, remember that the democrats favor, and the house already has passed, a bill which extends the 2009 law into the future. The republicans want a $5 million exemption and a 35% rate. The problem with that position is that under the “pay-as-you-go” requirements, the estimated $91 BILLION cost of this change must be offset by increasing taxes elsewhere. There is no cost to extending the previous law. This proposed $91 billion reduction in the estate tax will benefit only the wealthiest ¼ of 1% of all households. Under the prior law, 99.75% of all households paid no estate tax. This should make voting to extend the prior law a ”no-brainer”, but instead it appears that the republicans have “no brains” on this issue.
Many of you will be subject to the increased estate tax next year. If you aren’t successful in lobbying your Senators to extend the 2009 law, you must seriously consider beginning the estate planning that you’ve been putting off until “absolutely necessary”. 2011 is that time.
On a lighter note, while Congress dithers, I’m taking a week off to see my son get married. I should be back in the office on June 2.
NATIONAL HEALTHCARE DECISIONS DAY - April 16, 2010
I’ll bet you had no idea that April 16th is National Healthcare Decisions Day! Hallmark may not have developed a greeting card to mark the occasion, but highlighting the importance of advance healthcare decision-making is worthwhile. Hopefully, as a result of National Healthcare Decisions Day, many more people will think about their healthcare decisions and complete reliable advance directives to make their wishes known.
Having swift and immediate access to well-drafted healthcare directives in a medical emergency can reduce stress on patients, hospital staff, and most importantly, loved ones. This is why, as part of our service of providing comprehensive estate plans, we make sure that our clients complete advance healthcare directives, including a Designation of Healthcare Surrogate, Living Will, and HIPAA release.
Although we counsel clients to make healthcare decisions before an actual medical emergency occurs and stress the value of having the necessary documents prepared, that is not enough. We take our commitment to our clients one step further by making sure that our clients’ healthcare directives are immediately available to them, to family members, and to the hospital in an emergency. We know that clients don’t take their advance healthcare documents after leaving our office and stuff them into their wallet, so they always will be available. It does not do any good to have beautiful documents sitting in a drawer at home after an encounter with one of Jacksonville’s less skilled drivers results in you being transported to a hospital in an ambulance while unconscious. This is why we provide to our clients a wallet card that will enable a hospital to obtain the client’s legal directives and other critical medical information around the clock, even if the client can’t communicate.
One of our goals as estate planners it to help make sure that everyone has protected themselves and the ones they love by completing advance healthcare directives. National Healthcare Decisions Day helps highlight the importance of advance healthcare decision making. Celebrate the day by making your healthcare decisions. Here’s wishing you a stress-free April 16th!
The Power of Story-Based Planning – Part 1 – By Scott Farnsworth
We know that 70% of adults do no estate planning. One possible explanation for this frightening statistic is that there is a huge gap between what clients want and what lawyers think clients want. (or what lawyers can deliver!) To help reduce this gap, I associate with thought leaders like Scott Farnsworth of the Sunbridge Legacy Building. I am sharing with you one of his concepts which we utilize in our practice. I would appreciate any comments you may have after reading this article.
The Power of Story-Based Planning – Part 1 – By Scott Farnsworth
Virtually all my “official” training as an estate planning attorney and a Certified Financial Planner has been about numbers. Tax rates, code sections, rates of return on investments, asset allocation models-the unwavering focus has been on something quantifiable. The underlying message always came through loud and clear: unless something can be tallied on a ledger sheet, it isn’t worthy of our professional attention and probably isn’t all that important. Only “numbers-based planning” is real planning.
But my gut-and my real-life experience-told me something different. They told me that when numbers-based planning collided with human beings, i.e., our clients and their children and grandchildren, either the planning was never actually implemented by the clients, or the wheels came off when the planning landed with a thud on the succeeding generations. They told me that the most clever and tightly-wound estate or financial plans could and would be unraveled by the people they were designed to “help” or “protect.” They told that we planners ignore the human issues at our peril, and at the peril of the beautiful numbers-based plans we crank out.
My sense was often that with numbers-based planning, the tax tail was wagging the dog-driving the planning instead of riding in the back seat along with all the other significant but not critical factors. One significant study found that the likelihood of a family-based business surviving into the second generation was inversely correlated to the amount of tax planning the first generation had done. (Correlates of Success in Family Business Transitions, Morris, Williams, Allen, and Avila, Journal of Business Venturing 12, 365-401, 1997) In other words, the tax doctors were actually killing the patients they were hired to “save.”
Numbers-based planning might work if we were planning for robots, but we’re not. We’re planning for real flesh-and-blood people. I recall a series of conversations with a couple from New York City who had spent tens of thousands of dollars for one of the premier law firms in the country to draft a plan to care for their estate and their two teenage children. The plan touched all the legal and tax-planning bases, but in the words of the wife it was “cold and impersonal, not what I want to leave for my children.” The expensive, well-drafted plan was never executed but remained nothing more than a pile of paper, glistening with lawyerly brilliance on the surface but empty and meaningless underneath.
Unfortunately, that couple’s experience is repeated all too often. In my view, such outcomes will not change until we take a fundamentally different approach to this whole business of estate and financial planning. They will not change until we spend more time listening to client stories than tallying up their balance sheets; until we tailor their plans to the human hopes, dreams, and fears imbedded in their stories; and until the plans we create help them tell the story of their legacy-of who they really are and what impact they have had and hope to have on the people and causes they love. I call this approach story-based planning.
O THOU HAST A WILL - YOU JUST DON’T KNOW ABOUT IT!
According to statistics, at least sixty percent (60%) of you reading this newsletter have not done any estate planning. You have taken no steps to have your own will or trust prepared. Nevertheless, you do have a will! The State of Florida has drafted one for you. So, if you have not yet taken things into your own hands, here is what your will says:
MY WILL
(According to the State)
(1) I leave everything to my surviving spouse, so long as I have no lineal descendants.
(2) If I also have surviving lineal descendants, all of whom are the lineal descendants of my surviving spouse, then I leave the first $60,000 of my estate, plus ½ of the balance of my estate to my spouse. I leave the remaining assets equally to my lineal descendants, per stirpes. (“Per Stirpes”, . . . what?)
(3) If I have lineal descendants who are not the lineal descendants of my surviving spouse, then I leave ½ of my estate equally to those lineal descendants, per stirpes, and the other ½ of my estate to my surviving spouse.
(4) If there is no surviving spouse, I leave everything equally to my lineal descendants, per stirpes.
(5) If I have no lineal descendants, I leave all of my estate to my father and mother equally, or to the survivor of them.
(Still reading? Keep going, it gets better . . .)
(6) If I have no surviving spouse, lineal descendants or parents, I leave everything equally to my brothers and sisters, as well as the descendants of any deceased brothers and sisters. (Say what?)
(7) If there is none of the foregoing, I leave ½ of my estate to my paternal relatives and the other ½ to my maternal relatives in the following order:
(a) to the grandfather and grandmother equally, or to the survivor of them; or
(b) if there is no grandfather or grandmother, then to uncles and aunts and descendants of deceased uncles and aunts; or
(c) if there is either no paternal kin or maternal kin, the estate shall go to the other kin who survive, in the order stated above.
It does keep on going until you completely run out of living relatives, but you get the point.
Now that you know what the State of Florida has in mind for you, is that what you want? Terrific! Is it time you took charge and began your own planning? Please give us a call and we can help.
HELP YOURSELF TO THE BIG HOUSE: WHY WOULD YOU RISK GOING TO JAIL RATHER THAN TALK WITH A LAWYER?
We have just finished our series on the 6 common mistakes people make when naming guardians for their minor children. If that series doesn’t convince everyone with minor children about the need for careful estate planning, then I give up! But what about parents with adult children? Why is it important for them to plan?
I have heard many people say something to the effect of “why do I need an estate planning attorney, I’ll just add my adult children to the deed on my house and add them to my bank accounts. Then I won’t have to pay a lawyer to design an estate plan, nor will I have to pay probate fees.” These “self-help” remedies ARE viable estate planning alternatives, if done properly. However, if you do not have a complete understanding of the gift tax law and know the difference between a “completed” lifetime transfer and “incomplete” transfer, then you may know just enough to get into trouble.
As the gift tax law now stands, everyone may give away up to $13,000.00 to another individual in 2010 without filing a gift tax return. You also currently have a One Million Dollar ($1,000,000.00) lifetime gift tax exemption amount, so no gift taxes would be owed until you have given away over your lifetime a cumulative total of over One Million Dollars. However, if you give a gift to any one individual in a calendar year that exceeds $13,000.00, then a gift tax return is legally required to be filed. So, let’s look at how the gift tax applies to joint bank accounts and “adding a person to the deed”.
Adding an adult child’s name to your bank account does not result in a completed gift until the child withdraws money from that account. If the child (or sibling or other friend or relative) withdraws more than $13,000.00 from that account in a calendar year, then you must file a gift tax return.
There are other problems with adding an adult child to the bank account such as: is it your intent to “give” the child complete access to the funds or are you doing it just “in case of an emergency”? If there is no written agreement as to the use of the funds, misunderstandings can occur which could result in ugly lawsuits between family members.
Contrary to the joint bank account situation, adding an adult child to the deed is a complete gift at the time it is made. This is so even if you are retaining a traditional life estate in your home and giving only a remainder interest to the child. This is a taxable gift of a future interest based upon the full value of that remainder interest. If it is valued in excess of $13,000.00, then you must file a gift tax return for the year in which the child is “added to the deed”.
The problem with not knowing enough to file a gift tax return is that, although no taxes or civil penalties would be due until you have given away over One Million Dollars ($1,000,000.00), there is a criminal penalty for failure to file a gift tax return which could expose you to a fine of up to $25,000.00 plus 1 year in jail. So, without proper legal advice, it is not inconceivable that you could end up in jail for “adding a person to the deed”.
The moral of this story is that before you can decide “I can do this myself”, stop and think whether you really know enough about the legal ramifications of what you are about to do. Most of us have no trouble with calling a plumber or an electrician to perform work which we are not trained to do. Consulting with a lawyer is no different – and sometimes even less expensive!
THE STATE STEPS IN!
This is the final newsletter in our series on the six common mistakes parents make when naming guardians for their children. MISTAKE #6. YOU MAY NOT HAVE NAMED ENOUGH ALTERNATES TO SERVE IF YOUR FIRST CHOICE CANNOT SERVE.
Deciding on who should be a guardian for your children is a difficult question. Often you will struggle just to find one person who you feel might do an adequate job. Unfortunately, if that ideal person should die before you, then the State will name a successor guardian, if you have not done so. We recommend naming at least a second and even a third alternate guardian, to avoid this problem. Of course, an ideal solution is to have an ongoing relationship with your estate planning attorney, including an annual estate planning “check up”, so that your plan may be revised in a timely manner in the event of an unforeseen occurrence such as the death of the person you have named as primary guardian for your children.
This concludes our series on the Six Common Mistakes Parents Make When They Are Naming Guardians For Their Children. Avoiding these mistakes is easy. When you work with us – we specifically focus on the needs of parents – like you!
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We are pleased to announce that we will offer a series of “Lunch and Learn” workshops on a quarterly basis in 2010. The first “Lunch and Learn” will be from noon to 1:00 p.m. on Thursday, February 25, 2010 in the Learning Center in our office. We will discuss Advance Healthcare Directives, Healthcare Surrogates and Living Wills. These sessions are designed to discuss a topic of general interest in an informal setting. Clients in the annual maintenance program will be given first opportunity to attend and if there are remaining seats, we will open the workshop up to other newsletter subscribers.
YOUR EIGHTEEN YEAR OLD SON’S PORSCHE
This newsletter continues our series on the six common mistakes parents make when naming guardians for their children. MISTAKE #5. YOU MAY NOT HAVE PROVIDED FOR SOMEONE TO TAKE CARE OF THE MONEY YOU ARE LEAVING BEHIND.
So, having learned how to avoid the first four mistakes, you have named short term and long term guardians for your children, specified what would happen if the couple you have named to act as guardians are no longer together, prepared a confidential document excluding anyone who might challenge your decision, and have provided necessary financial resources through life insurance or other means for the guardians to properly take care of your children. However, in so doing you named your minor children as the beneficiaries of your life insurance policy. Uh Oh! Big Mistake!
Minor children are not legally permitted to receive life insurance proceeds. Naming them as your beneficiary guarantees that court involvement will be necessary in order for someone to be appointed to safeguard this money. The court will supervise the money only until each individual child reaches the age of eighteen (18), at which time the child receives his share of the money outright, to be used as an eighteen (18) year old sees fit, including buying an expensive automobile.
What you must do is not only name appropriate financial guardians for the children, but you should name either those guardians or a trust as the beneficiary on the life insurance policies themselves. For example, if you have named your spouse as the primary beneficiary on your life insurance policy and your children as the contingent beneficiaries, the contingent beneficiaries likely would need to be changed to read, for example: “Atticus Finch as guardian for Billy Sample” or as the “trustee of the Billy Sample Trust”. By properly naming a guardian as the beneficiary of the life insurance proceeds, you will avoid the time and expense of a court proceeding to establish a guardianship. You also will be able to make decisions to protect against your child receiving a substantial sum of money outright at age eighteen (18), by providing specific instructions to the financial guardians.
Check with your estate planning attorney or life insurance agent to make sure the naming of your life insurance beneficiaries is done correctly. Honestly, what 18 year old doesn’t want a Porsche!
Why the Estate Tax Repeal in 2010 May Hurt Many Americans
There is a hidden trap for middle-income Americans in the repeal of the estate tax for 2010. What most people don’t know is that also repealed along with the tax is the provision which allowed beneficiaries to receive a “stepped up basis” in assets which they inherited. Many Americans who inherit assets in 2010, without that stepped up basis, will be exposed to a capital gains tax on the increase in value from the time the assets were initially purchased until the time they are sold.
Those wage earners in the lowest income tax brackets (10% and 15%), which includes married couples earning up to $61,300.00, will be somewhat protected by the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA), because that law dropped the capital gains rate for people in those brackets to 0% for the years 2008 through 2010. (But, if the gain on inherited assets puts you over that amount . . .) For a large number of Americans in the 25% - 35% brackets, capital gains taxes on the sale of inherited assets will be owed, when no tax would have been owed had the current estate tax law remained in effect.
In 2009, everyone had a personal estate tax exemption of $3.5 million dollars. Accordingly, if a person died in 2009 with less than $3.5 million dollars in assets, all of those assets could be devised to their loved ones without any estate tax. Additionally, those assets would have passed with a “stepped up” basis, meaning that the beneficiary would inherit those assets at the monetary value of the assets on the date of the decedent’s death. In 2010, there only will be an exemption for the first $1.3 million dollars of capital gains within an estate. It is estimated that 70,000 estates will owe taxes under this “repeal”, whereas only 5,500 estates would have been affected had the current estate tax law remained in place.
To illustrate: Suppose Dad already has passed away and Mom died in 2009. You are her beneficiary. At the date of her death, she owned the family home in which she has lived the past 40 years. It had a value of $510,000 on Mom’s date of death. It was purchased 40 years ago for $10,000. Mom also left oil stocks valued at $1,510,000, which had been inherited from her grandmother. When her grandmother purchased those stocks many, many years ago, she paid $10,000.
In 2009, because this estate was valued at $2,020,000, no estate tax would have been due. (estate is less than 3.5 million) You would have inherited the home, with a basis of $510,000 and you would have inherited the stock with a basis of $1,510,000. If you then turned around and immediately sold each asset for those prices, you would have owed no capital gains tax from the sale. Total tax to the estate would have been zero. Total tax to you would have been zero.
Now, compare what happens if Mom dies in 2010 under the same scenario. Again, there is no estate tax to Mom. However, if you turn around and sell the home and the stocks for their face value, you will owe capital gains tax on $2 million dollars in gain. ($2,020,000 value - $20,000 cost). After your 1.3 million dollar exemption, you would pay 15% capital gains tax on $700,000. This will result in a $105,000 tax bill for you in 2010, which would NOT have been owed had the current estate tax law been continued.
In this example, tax would be owed even if you are in the 10% or 15% tax bracket because the 0 % capital gains tax rate only applies to gains, which added together with your income, would still fit within those brackets. So, if you and your spouse together earned $60,000 and then had a $2,000,000 capital gain from the sale of inherited assets in 2010, you would pay the full 15% ($105,000) on the sale of those inherited assets.
If you are married, it is even worse. Under the current law, you could leave your entire estate to your spouse tax free. Now, you only can leave $4.3 million dollars in assets with capital gains to a surviving spouse. This is a large amount, but it is not unlimited like it has been for decades.
Accordingly, a significant number of Americans who receive inherited assets in 2010 will be worse off for the repeal of the estate tax. Who is better off? . . . the extremely wealthy, those one percent (1%) of the population who may have estates worth more than $3.5 million and pass away in 2010. Then, instead of an estate tax rate of 45% on the amount of assets greater than $3.5 million, the beneficiaries of those estates would pay only a 15% capital gains rate on the actual capital gains owed on those inherited assets. Thus, the repeal of the estate tax in 2010 is a boon for the most wealthy among us, of little concern to the least wealthy, but is a major concern to many people in the middle.
