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Top 5 Reasons to have an Estate Plan
Having an estate plan is an essential part of the American culture. It is a way to protect yourself, your family, and your loved ones. Sadly, many people fail to set up an estate plan because of lack of knowledge, the cost involved, or they just never get around to talking to an estate planning attorney. For this reason, it is important to create your estate plan early on and adjust that plan based on your life experiences.
The top 5 reasons to create an estate plan includes:
AVOID FAMILY CONFLICT
Time and time again I see family members fight over the assets left by you after death. This is one thing that deeply troubles me as an estate planning attorney. Knowing that I could have avoided all the conflict and family fights if only the individual had come to me to create an estate plan.
When a person passes away in Florida without having a last will and testament, an administration must be opened in the probate court to transfer title to the rightful heirs. Only assets that were owned individually by you and without a beneficiary designation are transferred through Florida Probate.
In order to administer the estate, the court must appoint a personal representative. When there is no last will and testament to provide instructions as to your preference of appointment, and there is more than one person entitled to preference, the beneficiaries are likely to fight over as to who should be named the personal representative.
Lack of knowledge and understanding regarding the Probate system also creates even more conflict. The reason for this is because most people believe that if they are not appointed as the personal representative, they will lose their rights to their inheritance or that they are not going to inherit as much. Although this is not the case, this is the general understanding by many.
The death of a loved one is an emotional ordeal. Not having clear instructions as to what should happen to your assets create chaos between family members. What seems simple now becomes quite complicated when conflicts of interest arise between the beneficiaries. Money, time, and relationships are destroyed when family members fight after the death of a loved one.
AVOID PROBATE COURT
When you pass away without having an estate plan, it is more likely than not that your beneficiaries will have to go to court to transfer your assets to their name. Specially, if you fail to designate beneficiaries to assets like bank accounts, and other assets in financial institutions.
To most, the number one asset is their home. When the home is titled under husband and wife, if titled correctly, after the death of the first spouse, the home will go by operation of law to the surviving spouse. However, at the death of the surviving spouse, if no planning is done, the home will have to be transferred through the Florida Probate System when you pass away.
Your primary home in Florida is considered to be your Homestead. Although your Homestead is not considered to be a Florida probate asset, an administration in the probate court must be open in order to petition to court to enter an order determining the home to be your Homestead.
If you have to go through the Florida probate system, then you will need to hire an attorney. Florida law states that an attorney can charge up to 3% of the value of the estate as a reasonable fee. Some attorneys use a combination of flat fees or hourly fees depending on the circumstance. If there are liquid assets then the attorney could petition the court for its attorney’s fees as part of the probate process, but absent any liquid assets, it is likely that your beneficiary may have to pay up front for the probate attorney services.
Even if there are liquid assets, this means that your beneficiaries will end up with less funds than you might have originally planned. Although estate planning can seem expensive, it can save you or your beneficiaries thousands of dollars when you pass away.
In addition, Florida probate is a public process, meaning that most of the documents that are filed during the administration are public record. Anyone will be able to request the court for the documents filed, and there will be little privacy.
Lastly, most probate cases take an average of 5 or 6 months, up to 2 years or more when the probate is contested. This means that your beneficiaries will not be able to immediately sell your properties and you will have to wait for a judge to enter an order. Overall, it is better and more efficient to avoid the court system.
Although a Florida revocable trust does not provide asset protection during your lifetime, provisions can be incorporated into the revocable trust so that it protects against the creditors of your beneficiaries. Typically, a creditor in Florida cannot reach the assets in the revocable trust once you have passed, but they can attack any distributions given to your beneficiaries. By making the distributions discretionary and not mandatory, it can shield distributions when the creditor might otherwise attach the distribution.
An estate planning attorney can also help you with asset protection during your lifetime. This is done by using the vehicles provided by Florida law which shield you against creditors. Examples of vehicles provided for asset protection include business entities, insurance, and tenancy by the entireties.
One of the most popular entities to use for asset protection is the limited liability company (“LLC”). LLC’s provide limited liability protection as well as increase flexibility in management and administration. Although not required in Florida, it is recommended to create an Operating Agreement to control the operations of the LLC. In order to maintain the limited liability protection, you should not use your LLC for personal purpose and respect the formalities of a Florida business.
A creditor in Florida of a Multi-Member LLC can only attach to the distributions made by the LLC, but cannot foreclose on your interest in the LLC. One major distinction in Florida, is that a creditor of a single member LLC can actually foreclose on your interest under the right facts and circumstances.
CONTROL OF DISPOSITION
If you pass away without an estate plan, Florida law will dictate how your assets are transferred at death. You might or not might agree with this disposition. Typically, a surviving spouse and children have priority when determining who is entitled to your assets.
Although you may agree for your surviving spouse and your children to receive your property at death, you may not always agree in the percentages. For example, if you pass away without a Florida last will and testament, and you pass away leaving behind a surviving spouse and 2 kids from prior marriages, your surviving spouse will inherit 50% of your assets, and your children will inherit the other 50% in equal parts.
Is this your intended outcome? What if the kids are minor? What if one of the kids has special needs? Special needs presents its own set of issues, but these are things to think about when deciding whether to prepare your estate plan.
In addition, you may or may not agree with your children receiving lump sums of money or property at one time. When you set up your estate plan, specially if you create your Florida revocable trust, you can control the timing and quantity of distributions. You can also select a person to administer the trust while the child is a minor, avoiding guardianship court. In Florida, if a child receives a settlement or an inheritance of at least $15,000.00, a guardian must be appointed by the court to have access to those funds for the benefit of the child.
Finally, you should talk to an estate planning attorney to prepare for any unexpected incapacity. I wish I could tell you that an estate planning attorney can tell you for certain if you will be incapacitated, but with my experience, I can tell you that the longer you live, the higher the chance you may become incapacitated.
There comes a point in life that we may not be the same persons anymore. Life takes it course and we lose our capabilities. It is tough for any family member, not only for yourself. Incapacity can be because a mental generative disease like Alzheimer’s or dementia, or it can be due to an accident or any other type of medical condition that does not allow you to make decisions consciously.
Florida guardianship always looks for the least restrictive alternative. Assuming that the person has the capacity to create a Durable Power of Attorney or a Florida Revocable Trust, those options might be better suited than the appointment of a guardian. The Durable Power of Attorney allows you to select an agent to act on your behalf and the Florida Revocable Trust allows a trustee to administer the assets within the trust. The agent or Trustee has a fiduciary duty to you to administer your assets for your benefits.
It is important to talk to an estate planning attorney early on because by the time you decide that you want to create an estate plan, your capacity might not be fully there, and someone may be able to attack any documents that you prepare based on capacity. Although they might not be successful in litigation, it can still create a headache for your beneficiaries and potentially waste a lot of time and funds to your beneficiaries.
Having an estate plan and talking to an estate planning attorney can be a difficult task. However, most estate planning attorneys are friendly individuals and genuinely want to help you and your family. We understand that when you talk to an estate planning attorney you have to talk about difficult topics and issues that you rather not talk about. But, rest assured that a good estate planning attorney will make you feel at ease and become part of your family.
I would love to help you and answer any questions you may have. Feel free to fill my contact form and I will personally get back to you.
Hope to hear from you!