Last Will & Testament
A will is an essential part of your estate plan. Your will is a written legal document that specifies how you want your assets to be distributed after you are gone. It must be filed with the Florida Probate Court upon death. The court then supervises the distribution of your assets. Many people incorrectly believe that if their estate is modest and not subject to estate taxes, there will be no need for probate. This is a misconception! Any estate where assets must be distributed through the provisions of a will is subject to probate, regardless of whether the estate is taxable. If you die without a will (intestate), the State of Florida determines how your assets get divided, and who your beneficiaries will be. A judge will decide who handles the administration of your estate. If you're like most people, you'll want to plan so that the state doesn't make these important decisions for you!
Who Should Be Your Personal Representative?
Your Personal Representative will be required to report periodically to the Probate Court. Selecting a Personal Representative (or co-Personal Representatives) is easy for some people, harder for others. You must evaluate the individual's level of responsibility, time constraints, etc. If you're thinking of appointing several co-Personal Representatives -- all your adult children, for example -- you must assess whether they can work together amicably. You must also consider Florida restrictions on who may serve. For example, Florida allows you to choose a Personal Representative who resides out of state -- but only if that person is a relative.
Revocable Living Trust
The Living Trust is a popular estate planning tool in Florida. Potential benefits include:
Keep the Court Out of Your Personal Affairs
Unlike a will, which is a death instrument only, the Living Trust also protects you while you're alive by allowing you to appoint someone to handle your business affairs in the event you become incapacitated. This minimizes the chances of guardianship and court involvement in your personal affairs.
Probate Avoidance
A Revocable Trust can spare your family the trouble and expense of dealing with the Probate Court. This is of particular importance to Florida residents, since Florida's probate system can be cumbersome and family members often live at great distances.
Maintain Family Privacy and Discourage Challenges
The Living Trust is a private document and need not be filed with the court. That means another advantage: privacy. Your dispositions are not public record, as they are with a will. That also reduces the possibility of your plan being challenged by any disgruntled heirs.
Estate Tax Advantages
For couples with taxable estates, the Living Trust can offer additional advantages. A Credit Shelter Trust, (also known as the AB Trust or Bypass Trust), allows couples to pass more tax- free money to beneficiaries by taking full advantage of each spouse's estate tax exclusion. When the first spouse dies, his or her assets equal to the amount exempt from estate taxes -- currently $5.25 million -- flow into a Credit Shelter Trust. The survivor still has access to the income and principal. When the survivor dies, the money from the Credit Shelter is not included in the survivor's estate, thereby allowing twice as much money to be passed tax-free to heirs.
The Successor Trustee
When you establish a Revocable Trust as part of your estate planning, you, the grantor, make yourself the trustee of the assets you place in the trust. You are still free to sell, trade and give away the assets as you see fit. You may also change the terms of the trust, or revoke it, at any time. But once you pass on, the successor trustee(s) you've designated take control of your assets, and distribute them in accordance with the provisions of your trust. In certain circumstances you may find it preferable to appoint a third party rather than a relative as successor trustee. For example, you may believe that time constraints or questionable integrity will interfere with your adult child's ability to handle the job. Also, if your adult children do not get along, choosing a third party can be preferable to choosing just one child, which may inflame sibling rivalries, or to appointing all your children as co-trustees and somehow hoping that they can work together amicably. A bank, broker, or an attorney may serve as a third-party trustee.
Providing for Minor Children
It is important that your estate plan address issues regarding the upbringing of your children. If your children are young, you may want to consider implementing a plan that will allow your surviving spouse to devote more attention to your children, without the burden of work obligations. You may also want to provide for special counseling and resources for your spouse if you believe they lack the experience or ability to handle financial and legal matters. You should also discuss with your attorney the possibility of both you and your spouse dying simultaneously, or within a short duration of time. A contingency plan should provide for persons you?d like to manage your assets as well as the guardian you?d like to nominate for the upbringing of your children. The person, or trustee in charge of the finances need not be the same person as the guardian. In fact, in many situations, you may want to purposely designate different persons to maintain a system of checks and balances. Otherwise, the decision as to who will manage your finances and raise your children will be left to a court of law. Even if you are lucky enough to have the person or persons you would have wanted selected by the court, they may have undue burdens and restrictions placed on them by the court, such as having to provide annual accounting.
Estate and Gift Tax Planning
Do you want to benefit a charitable organization or cause? Your estate plan can provide for such organizations in a variety of ways, either during your lifetime or at your death. Depending on how your planned giving plan is set up, it may also let you receive a stream of income for life, earn higher investment yield, or reduce your capital gains or estate taxes.
A well-crafted estate plan should provide for your loved ones in an effective and efficient manner by avoiding guardianship during your lifetime, probate at death, estate taxes and unnecessary delays. You should consult a qualified estate planning attorney to review your family and financial situation, your goals and explain the various options available to you. Once your estate plan is in place, you will have peace of mind knowing that you have provided for yourself and your family in case the worst happens.
Advanced Estate Planning
You've worked hard your whole life to provide for your family and make your loved ones more secure. Without advanced estate planning strategies, much of the significant assets you have accumulated may end up with the IRS and state taxing authorities. Our firm regularly assists affluent families with such sophisticated planning strategies as Family Limited Partnerships or Limited Liability Companies, Personal Residence Trusts, Irrevocable Life Insurance Trusts and a wide range of charitable gifting techniques to reduce Federal Estate Taxes, Gift Taxes and Generation Skipping Transfer Taxes.
Family Limited Partnerships
A Family Limited Partnership (FLP) is a form of a limited partnership among members of a family. The main advantages of forming and funding an FLP involve estate and gift tax savings and asset protection. An FLP also allows you to retain control over the transferred assets while enjoying these advantages. Once the FLP is established and your assets are transferred to it, you can make gifts of limited partnership interests to your children or other beneficiaries. This accomplishes several different estate planning objectives simultaneously. First, the value of each limited partnership interest which you give away decreases the value of your taxable estate and, consequently, any tax which your heirs would have to pay upon your death. The gifts are made using the annual gift tax exclusion, so you do not have to pay any gift tax on the transfer. Second, the value of the partnership interests transferred to your beneficiaries is far less than the corresponding value of the assets in the partnership. Since limited partners do not have the ability to direct or control the day-to-day operation of the partnership, a minority discount can be applied to reduce the value of the limited partnership interests which you are gifting. Furthermore, because the partnership is a closely-held entity and not publicly-traded, a discount can be applied based upon the lack of marketability of the limited partnership interest. This allows you to leverage the FLP as a vehicle to transfer more wealth to your beneficiaries, while retaining control of the underlying assets. Lastly, a properly-structured FLP can have creditor protection characteristics since the general partners are not obligated to distribute earnings of the partnership.
Qualified Personal Residence Trusts
Our homes are often our most valuable assets and hence one of the largest components of our taxable estate. A Qualified Personal Residence Trust or a QPRT (pronounced “cue-pert” allows you to give away your house or vacation home at a great discount, freeze its value for estate tax purposes, and still continue to live in it. Here is how it works: You transfer the title to your house to the QPRT (usually for the benefit of your family members), reserving the right to live in the house for a specified number of years. If you live to the end of the specified period, the house (as well as any appreciation in its value since the transfer) passes to your children or other beneficiaries free of any additional estate or gift taxes. After the end of the specified period, you may continue to live in the home but you must pay rent to your family or designated beneficiary in order to avoid inclusion of the residence in your estate. This although may be an added benefit as it serves to further reduce the value of your taxable estate, the rent income does have income tax consequences for your family. If you die before the end of the period, the full value of the house will be included in your estate for estate tax purposes, though in most cases you are no worse off than you would have been had you not established a QPRT. An added benefit of the QPRT is that it also serves as an excellent asset/creditor protection vehicle since you no longer technically own the property once the trust is established and your residence is transferred to the QPRT.
Irrevocable Life Insurance Trusts
There is a common misconception that life insurance proceeds are not subject to Federal Estate Taxes. While the proceeds are received by your loved ones free of any income taxes, they are countable as part of your taxable estate and therefore your loved ones can lose about half of its value to estate taxes. An Irrevocable Life Insurance Trust is created specifically for the purpose of owning your life insurance policy. A properly established and administered trust holds the policy outside of your estate and keeps the proceeds from being taxable to your estate. The proceeds from the insurance policy can then be used to provide your estate with the liquidity to pay estate taxes, pay off debts, pay final expenses and provide income to a surviving spouse or children. The ILIT will be the policy owner and beneficiary. Once your trust is established, you use your annual gift tax exclusion to make cash gifts to your trust. Your beneficiaries forgo the present gift (in lieu of the future proceeds) and the trustee uses the remaining gift to pay the premium on the life insurance policy. There are many options available when setting up an ILIT. For example, ILITs can be structured to provide income to a surviving spouse with the remainder going to your children from a previous marriage. You can also provide for distribution of a limited amount of the insurance proceeds over a period of time to a financially irresponsible child. Our firm is dedicated to helping clients make educated, informed decisions about their assets and will work with you and your team of financial advisors and CPAs to implement a highly sophisticated estate plan.
Special Needs Trusts / Disability Planning
If you have a special needs child or a spouse in a nursing home, our Florida Special Needs Planning lawyers can help you establish the legal framework necessary to protect your loved one. Of course you want to provide for your disabled loved one.
The problem is, if you leave the person a lump sum, your "gift" could render your loved one ineligible for vital government benefits he'd otherwise be entitled to, such as SSI or Medicaid.
Special Needs Trust For A Disabled Child
Generally speaking, a Special Needs Trust (also known as a Supplemental Needs Trust) is a better option. The Special Needs Trust is designed so that the trustee can provide life-enhancing services the government does not ordinarily cover. These services may include special wheelchairs and other equipment, therapies, medical second opinions, travel expenses for medical appointments, etc. The assets in the Trust are not available to the beneficiary for the asking, but are totally discretionary. Therefore, they are excluded by the government when it evaluates your loved one's eligibility for benefits.
You can fund a Special Needs Trust now, while you're alive, or you can earmark funds through your Will or Trust that will flow into the Special Needs Trust when you’re gone. Other family members can also contribute funds to the Special Needs Trust without fear of endangering the child's access to government benefits.
Special Needs Trust For a Disabled Spouse Receiving Medicaid or Other Government Benefits
An individual in a nursing home may lose Florida Medicaid long-term care benefits if he/she receives a lump sum of money. Florida law states that your spouse must receive 30% of your "augmented estate" whether or not the assets are probated. If you predecease your spouse, his/her inheritance may result in your spouse being dropped from the Medicaid program until the inheritance is completely exhausted.
Fortunately, you may leave the 30% elective share in a Special Needs Trust, thus ensuring that benefits are not interrupted. Under Florida law, the elective share amount may be left in a Testamentary Special Needs Trust for the benefits of the institutionalized spouse, under the Last Will and Testament of the well spouse. That is why, in a Medicaid case, the Will of the well spouse must always be reviewed, and in most instances, revised to include a Testamentary Special Needs Trust. This ensures that the surviving spouse does not directly receive the elective share, which if over $2,000.00, would result in a suspension of Medicaid benefits.
You may also include provisions in the trust so that when your spouse dies, any remaining trust assets pass to the beneficiaries.
The Special Needs Trust is a complex instrument and should be drafted only by a certified and experienced elder law/estate planning attorney. Contact The Karp Law Firm for assistance.
Business Succession Planning
No company can survive without an able owner, executive, or shareholder at the helm. In the event of a key member’s sudden death, illness, or retirement, businesses are often left scrambling to recover lost assets and find a replacement. Large corporations and small businesses alike can avoid a tumultuous transition by creating a succession plan with a knowledgeable attorney.
Without a Plan
If an owner, executive, or shareholder does not have a succession plan in place, his or her stake in the company is either passed on to relatives as part of the estate, absorbed by other shareholders, or a combination of the two.
In family-owned businesses, disputes may occur between siblings and other relatives. Those more active in the day-to-day operations of the business may feel entitled to larger shares than others who are less involved.
In larger corporations, employees and clients may leave the company for fear of instability, shareholders may not be able to buy out the extra shares, and temporary replacements may not be equipped to lead the company through such a delicate time. In addition, if a spouse or other relative inherits the shares of the deceased owner, disputes between shareholders may occur, stalling progress and possibly leading to a loss of assets.
With a Plan
An attorney with expertise in business and estate planning can help owners and shareholders make a plan to ensure a smooth transition. Plans are customarily created after employees, coworkers, other shareholders and family members have been consulted and after goals for the future of the company have been outlined. Though succession planning can be tailor-made to fit any business model, it typically involves either retention or buy-sell retention.
• Retention Planning involves keeping the business or shares within the family. With a retention plan a spouse, children, or other relatives will retain control of assets.
• Buy-Sell Retention Planning offers the other shareholders or vital employees a larger stake in the company. Interested parties stipulated in the plan will be granted the right of first refusal, or the ability to accept or reject the shares before they are offered to individuals outside of the company. The price of the shares will be determined by a valuation mechanism agreed upon during succession plan negotiations. For example, a valuation mechanism may require that shares be offered for their prevailing full market value, or require multiple professional business valuation appraisals
Properly drafted succession plans provide the remaining members of the company with a procedure to follow in case the unexpected happens. Planning can designate a competent successor, a successor will be named who will be able to guide the business through the transition, reassure employees about their job security, and put safeguards in place to protect the company from loss. A pension or retirement fund may also be written into the plan.
Other arrangements can be made that would transfer the owner or executive’s interest into trusts to be paid out to family members. Assets may also be divided among employees or in other cases, it may be best to sell the company. With so many factors to consider, it is important that you consult an experienced business planning attorney who can understand all of the interests at stake and work with you to protect them.
