At the Noble Law Firm, we understand it is difficult to think about death or disability, however, establishing an estate plan can help protect your family from the delay and frustration associated with managing your affairs when you pass away or become disabled. A proper estate plan will ensure that your assets are distributed according to your wishes and will protect the inheritance you leave from your beneficiaries’ creditors and divorcing spouses. Additionally, a well developed estate plan will minimize legal fees and court costs associated with a probate and can also assist in reducing, if not eliminating, your federal estate tax burden.
You should always have a qualified estate planning attorney prepare and/or review your estate planning documents to make sure they are aligned with your individual financial situation.
Estate Tax Liability upon your Death
In addition to income taxes, you may also owe federal estate taxes at death.
Until December 31, 2012, under current law, there is a gift and estate tax exemption of $5,000,000 with a 35% tax rate for assets above the exemption amount; after such time, the exemption is scheduled to be reduced to $1,000,000 with a 55% tax rate. If planning is not put in place, you may owe significant taxes at your death, thereby reducing the amount of inheritance your beneficiaries receive.
Strategic planning can be implemented to minimize such taxes, but you must start the planning process early in order to implement many of these techniques. Planned gifting, life insurance trusts and family limited partnerships can be utilized to reduce or eliminate your tax burden.
Incapacity
Durable Power of Attorney
Due to accident, illness or old age, you may become mentally or physically incapacitated. In such case you will not be capable of managing your own financial affairs and your spouse or adult children may be forced to hire an attorney to petition a court to declare you legally incompetent before they can begin managing your finances.
You can save your family from this expensive and time consuming situation by executing a Durable Power of Attorney, designating a person with the authority to withdraw money from your accounts to pay your bills and otherwise manage your affairs.
Health Care Surrogate
A person should be appointed to make medical decisions for you in case you cannot make them yourself. Florida law allows you to use a health care surrogate form to appoint an agent to make such decisions. It is suggested that you appoint a family member or close friend whom you trust to make medical decisions for you.
Living Will
It is important to designate the medical treatments you wish to have withheld should you become terminally ill or under permanent coma. If not, you could be kept on life support which could unnecessarily prolong suffering and financially devastating to your family. In a living will, you can explicitly designate that, for example, if you are terminally ill, you do not wish to have life sustaining measures or experimental drugs used on you, but still wish to have medicines administered for pain relief.
Avoiding Probate
Probate is a complex, court administered process where a petition must be filed with the court, the personal representative qualified to serve, and an accounting may be required. This process can be time consuming, costly and open to the public. Your assets can be tied up until all claims have been resolved and all property distributed. If you want to allow your family immediate access to your assets while your estate is being administered, you may wish to take steps to avoid the probate process. With proper re-titling of assets, utilizing pay on death designations or a Revocable Trust, you can pass your assets to your loved ones in a quick and inexpensive manner.
Minor Children
If you have minor children, your estate plan should designate the person or persons you would prefer to act as the guardian of your children. You may wish to appoint the same person or different person to handle the finances for your children. It may be appropriate for you to purposely designate different persons. If you do not provide such designation, the decision will be left to a judge to determine.
Protecting the Inheritance
Outright inheritances can be a huge mistake. Your beneficiaries can be subjected to future lawsuits, divorce or their own bad decisions. Rather than making the typical outright gifts in a will, your assets can be placed in trust and protected from these risks. Assets left in trust, especially in “dynasty trusts” can be afforded unsurpassed protection from a beneficiary’s creditors and can avoid being subjected to unnecessary federal taxation upon their death.
Integration of Corporate Entities
Utilizing entities such as limited liability companies, S-corporations and family limited partnerships can provide additional advantages for your estate plan, including increased asset protection and further estate tax savings derived from the ability to “discount” gifted interests in such entities. Additionally, use of various entities can help segregate liability prone assets, so that your nest egg will not be exposed to lawsuits. For example, if you own rental real estate, it may be a good idea to establish a limited liability company to own the real estate, thereby insulating your other assets from lawsuits stemming from the property.
If you already own a business or businesses, it is important to hand over control of the business in a way that is the least disruptive to the business's operations and value. For example, the use of cross-purchase agreements utilizing life insurance can assist in providing the liquidity necessary to place the ownership of the business in the proper hands to allow it to continue running smoothly and without deadlock.
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