Frequently Asked Questions About Estate Planning
Question: Why do I need a will?
Answer: Primarily to make the probate process easier and less expensive. Without a will, the distribution of a person’s assets at death would be controlled by a statutory formula that may not be the same as the decedent’s wishes and the probate process may also result in higher administration fees.
A properly prepared and executed will allows a person to control who receives certain assets at death, to name a trusted person as a personal representative (i.e., executor), and to reduce probate fees and expenses. Added provisions to the will may avoid bond requirements and allow the sale of real property of the estate without court permission.
Question: If I have a will, does that avoid probate?
Answer: No. A will must be admitted to probate by order of the court. It is not self-executing.
Question: Can a “durable power of attorney” authorizing my agent to act for me be used to avoid probate at my death?
Answer: No. A durable power of attorney terminates when the principal dies.
Question: What are my options if I don’t want a beneficiary to receive an outright distribution of assets?
Often, grantees would prefer their assets be distributed differently in circumstances where the beneficiary:
- Is not old enough or mature enough to manage the assets
- Is a minor and the assets will be held by a court-appointed guardian until the minor reaches age 18
- Is a “special needs” person with a disability
- Is a “spendthrift” who has irresponsible spending habits
- Is the surviving spouse and concern that if the survivor remarries the new spouse may receive some or all the assets and none for the person’s children
- Is the surviving spouse of a second (or later) marriage who also has children and concern that the person’s children may not receive the assets after the death of the surviving spouse
Answer: A contingent “testamentary trust” can be included in the will. A contingent “subtrust” can be included in a revocable trust to hold certain assets for a stated period of time (e.g., until a young beneficiary reaches a certain age) or for the life of the beneficiary (for a spendthrift beneficiary or for the surviving spouse). These trusts can name alternate beneficiaries (e.g., children) after the death of the life beneficiary or after the termination of the trust. A “special needs trust” can be created for a disabled beneficiary.
Question: What is a revocable trust?
Answer: A “revocable trust” is also called a “revocable living trust” or a “living trust.” It is different from an “irrevocable” trust in that it can be amended or revoked by the person who established the trust.
A revocable trust is a written agreement between the “settlor” (also called “grantor” or “trustor”) and the “trustee,” for the trustee to hold title to assets usually for the benefit of the settlor who is often both the settlor, the trustee and the beneficiary during the settlor’s life. The settlor reserves the right to amend or revoke the trust during the settlor’s life. As a general rule, re-titling of the settlor’s nonretirement assets into a revocable trust does not constitute a taxable event and the law treats such transfers as incomplete gifts for gift tax purposes. At the settlor’s death, the revocable trust is a will’s substitute and names beneficiaries who are to receive the remaining trust assets either outright or in further trust.
Question: Is a “revocable living trust” preferable to a will?
Answer: It depends. A revocable living trust is designed as an asset management tool during life and as a probate avoidance device at death. It is appropriate in situations such as a person: (1) who has significant nonretirement investment assets; (2) who is elderly and worries about managing his or her assets and paying bills in the event of incapacity and being forced into an expensive guardianship proceeding; (3) who owns real property out of state; or (4) who is concerned about privacy of asset distribution at death or unnecessary court interference.
Under Florida law, a revocable living trust has limitations, including the following: (1) it does not avoid claims of a person’s creditors during life or after death; (2) it does not avoid fees for the trustee and the trustee’s attorney for trust administration after the death of the settlor, although the fees are usually less than those incurred in probate administration; (3) if no probate is filed after the death of the settlor, there is a two-year statute of limitations for claims of most creditors, which can put the trustee at risk if full distribution is made prior to expiration of the two-year claims period; and (4) certain assets usually should not be held in the trust, including homestead real property, tangible personal property, retirement assets and certain assets payable to named beneficiaries at death (e.g., life insurance).
Even if a person establishes a revocable living trust, a “pour-over” will is recommended to distribute certain nontrust assets (e.g., tangible personal property) and to allow the trust to receive certain other assets that pass through probate.
Question: What’s the purpose of a revocable trust?
Answer: The most common answer you hear is “to avoid probate.” That is not the only reason, but it is one reason. It also allows the management of a person’s assets that are held in the revocable trust by a successor trustee if the person becomes incapacitated.
Question: When is a revocable trust most beneficial?
Answer: There are a few suggested situations:
1. To own certain real property located outside of Florida (e.g., a vacation home in another state) to avoid probate in more than one state. Real property titled in a revocable trust is often considered “personal property” and usually no probate in the other state is needed after the death of the settlor.
2. To allow management of nonretirement investment assets and accounts (e.g., brokerage, checking, savings, money market and C.D.s) in the event of incapacity (which may avoid or reduce the expense of an expensive court-supervised guardianship for a person’s property) especially for a single, elderly person who worries about who will pay the person’s bills or who will manage these type of assets if the person becomes disabled.
3. For a high net worth person with significant, nonretirement investment assets in order to reduce post-death administration fees that could be higher if they were to pass through probate, which is a court-supervised proceeding.
4. For a person concerned about the privacy of disposition of assets at death. It is not a public record like a will.
Question: What does a revocable trust not accomplish?
1. There is no protection of trust assets from claims of creditors. Assets held in a revocable trust during the settlor’s life or at the settlor’s death are not protected from claims of creditors simply by being in the trust.
2. A revocable trust is not in itself a tax savings device. Assets held in a revocable trust do not escape taxation. During the settlor’s life, the settlor is subject to potential income taxation for the income of the revocable trust. When the settlor and the trustee are the same people, the settlor’s social security number is used to report income of the revocable trust and no separate income tax return is required. At the death of the settlor, the revocable trust becomes “irrevocable” and is required to obtain a new federal tax identification number to report post-death trust income prior to the distribution of the assets to the beneficiaries. At the death of the settlor, assets in the revocable trust are part of the settlor’s federal gross estate and are subject to potential estate taxation. While there maybe tax saving provisions included in a revocable trust at the death of the settlor, those same provisions can be included in a will.
3. A revocable trust does not avoid post-death administration. The trustee and the attorney for the trustee both have the right to charge fees for their services for trust administration after the death of the settlor. The attorney’s fees, however, are usually less than the attorney’s fees in probate.
Question: Should all assets be retitled into a revocable trust?
Answer: No. Generally, the following assets should not be retitled into a revocable trust:
1. Tenants by the entirety property. If a person is married and owns assets with the person’s spouse as “tenants by the entireties,” this type of ownership has both a limited asset protection feature and title to those assets pass at the death of the first spouse to the surviving spouse outside of probate. Undoing the joint ownership by retitling each spouse’s assets into a revocable trust terminates the tenants by the entireties form of ownership. This also makes no sense if the revocable trust of the first spouse to die devises the same assets outright to the surviving spouse.
2. Homestead. A person’s Florida homestead that is titled in a revocable trust does not avoid the constitutional and statutory restrictions on devices at death. For example, a married person cannot devise his homestead to a third party if he is married at his death. Transferring title to the homestead to a revocable trust does not avoid this restriction. Upon the sale of the homestead by the beneficiaries after the death of the settlor, most title companies require an order from the probate court confirming that the proposed sale by the trust does not violate the homestead laws.
3. Tangible personal property. The trustee of a revocable trust does not need to manage furniture and automobiles.
4. Retirement accounts. Retitling an IRA or similar retirement account during the life of the settlor can possibly be treated as a distribution subject to income tax.
Question: What does estate planning cost?
Answer: The cost will depend on the complexity of the plan selected. Usually, after the initial 30-minute office conference when accompanied by the completed Estate Planning Confidential Questionnaire provided at this website, estate planning recommendations and estimated fees and any expenses can be provided.
Question: What does probate cost?
Answer: Probate costs are generally regulated by Florida Statutes which state that attorney’s fees for “formal administration” are “presumed reasonable” at 3% of the first $1 million of the value of nonexempt assets, excluding the value of the homestead and certain personal property. The rate is reduced for the value of estate assets above $1 million. In small estates, the lawyer may require a minimum fee greater than 3%.
Additional fees may be charged for certain “extraordinary services” provided by the lawyer such as handling disputes and litigation with creditors or beneficiaries. The personal representative and those responsible for the fee may agree with the lawyer to a different fee arrangement. Costs and expenses involved, such as clerk’s filing fees, publication fees for the notice to creditors and certified mail are additional to the fee.
For smaller estates where the value of nonexempt assets does not exceed $75,000 or if the decedent has been dead for more than two years, there is an abbreviated form of probate called “summary administration” that does not involve the appointment of a personal representative and attorney’s fees are usually less.