Trusts can be divided into two worlds: revocable and irrevocable.
A revocable trusts is typically drafted so that the creator of the trust may change the trust in later years. For example, the creator of the trust may change who will manage the trust once she is unable to do so or who will receive the assets of the trust after she dies.
Irrevocable trusts, on the other hand, are generally considered to be 'locked up' once they are created. In very general terms, changes to the trust may not be possible at all.
Most of my clients have trusts and most of these trusts are revocable. The obvious reason for the preference for revocable trusts is control. With revocable trusts, clients retain the ability to make changes as their circumstances change - with irrevocable trusts, this is generally not the case.
With this in mind, the question may be asked: Why would anyone ever use an irrevocable trust? The answer is that irrevocable trusts can help reduce estate tax exposure, shelter assets from future creditors and achieve certain other client objectives. As a general rule, however, most people simply don't need irrevocable trusts.
I've taken some care to use the term 'generally' throughout this post. This is because it is possible to draft an irrevocable trust so as to give some flexibility for changes down the road. In doing so, however, much care must be given in drafting the trust or the purpose of the trust (estate tax reduction, creditor protection, etc.) may be lost. In addition, Florida law does allow judges (and certain other individuals) to make changes to irrevocable trusts.
Nonetheless, because of the time, expense and uncertainty involved in seeking to amend an irrevocable trust, it is best to consider irrevocable trusts as beyond amendment when planning. Accordingly, think carefully prior to signing an irrevocable trust.
Monday, September 29, 2008
Wednesday, September 24, 2008
Domicile
'Domicile' and 'residence' issues answer the question of where an individual lives. For most people, these questions are easy to answer; but, if an individual spends a great deal of time in more than one state, the lines become less obvious.
Recently, a client who spends time in New York and Florida asked for help in solidifying his Florida domicile. Clients often want to establish Florida domicile to:
(1) Avoid state income taxes in their 'old' state (Florida has no state income tax on individuals).
(2) Avoid state death taxes in their 'old' state (Florida also has no state death tax).
(3) Obtain Florida property tax benefits that are available only to Florida residents.
Domicile issues are also important in determining whether Florida probate law governs the administration of a decedent's estate.
Unfortunately, there is no single step to definitively establish Florida domicile for all purposes. Rather, Florida courts review a list of relevant factors, such as (i) what domicile is indicated on the individual's Last Will and Testament, (ii) where the individual owns real property, and (iii) where the individual's car is registered. Depending on whether the court is reviewing domicile for tax, probate or other purposes, there may be as many as 10 or 20 such factors.
Accordingly, domicile decisions typically boil down to whether the various factors point more towards Florida domicile or domicile in another state. Complicating the process is the fact that each state has their own rules for determining domicile, which may or may not yield the same result as the Florida tests.
Especially for our 'snowbird' friends here in Florida, domicile issues must be considered in an individual's overall estate and tax plan. Otherwise, you (or your heirs) may be in for a surprise.
Recently, a client who spends time in New York and Florida asked for help in solidifying his Florida domicile. Clients often want to establish Florida domicile to:
(1) Avoid state income taxes in their 'old' state (Florida has no state income tax on individuals).
(2) Avoid state death taxes in their 'old' state (Florida also has no state death tax).
(3) Obtain Florida property tax benefits that are available only to Florida residents.
Domicile issues are also important in determining whether Florida probate law governs the administration of a decedent's estate.
Unfortunately, there is no single step to definitively establish Florida domicile for all purposes. Rather, Florida courts review a list of relevant factors, such as (i) what domicile is indicated on the individual's Last Will and Testament, (ii) where the individual owns real property, and (iii) where the individual's car is registered. Depending on whether the court is reviewing domicile for tax, probate or other purposes, there may be as many as 10 or 20 such factors.
Accordingly, domicile decisions typically boil down to whether the various factors point more towards Florida domicile or domicile in another state. Complicating the process is the fact that each state has their own rules for determining domicile, which may or may not yield the same result as the Florida tests.
Especially for our 'snowbird' friends here in Florida, domicile issues must be considered in an individual's overall estate and tax plan. Otherwise, you (or your heirs) may be in for a surprise.
Tuesday, September 23, 2008
What Is Probate
"Probate" is the court-supervised process of judicially acknowledging a decedent's will (if any), identifying all of the 'probate assets' of the decedent, identifying all of the creditors of the decedent and distributing the probate assets in accordance with law.
This process generally requires around nine months in Lee and Collier Counties (southwest Florida), although the process may be much quicker if the value of the probate assets is less than $75,000 or the decedent has been dead for at least two years; then again, the process may be much longer if the decedent has IRS issues (e.g., estate tax issues, as discussed in a prior blog).
The expenses of probate include:
Attorney fees - up to 3% of the estate
Personal Representative (executor) fees - up to 3% of the estate
Court filing fees - about $300
Newspaper costs to file notice to creditors - about $400
Miscellaneous costs, depending on the particulars of the estate
As an example, suppose I die owning a CD worth $10,000 and my Will says my wife gets everything. My wife could walk into the bank with my death certificate and my Will and the bank would tell her to go to probate court. They would simply refuse to release the CD to her without an order from a probate judge telling them to release it, despite the fact that she is my sole heir under my Will and she has proof that I have died.
Because of the hassle and expense involved, many clients endeavor to avoid probate. This is possible for many clients, through the use of trusts, joint accounts, payable on death arrangements and other devices. Each of these devices has its pros and cons, so it is always good to go over your situation to be sure you are not trading one problem for another problem.
This process generally requires around nine months in Lee and Collier Counties (southwest Florida), although the process may be much quicker if the value of the probate assets is less than $75,000 or the decedent has been dead for at least two years; then again, the process may be much longer if the decedent has IRS issues (e.g., estate tax issues, as discussed in a prior blog).
The expenses of probate include:
Attorney fees - up to 3% of the estate
Personal Representative (executor) fees - up to 3% of the estate
Court filing fees - about $300
Newspaper costs to file notice to creditors - about $400
Miscellaneous costs, depending on the particulars of the estate
As an example, suppose I die owning a CD worth $10,000 and my Will says my wife gets everything. My wife could walk into the bank with my death certificate and my Will and the bank would tell her to go to probate court. They would simply refuse to release the CD to her without an order from a probate judge telling them to release it, despite the fact that she is my sole heir under my Will and she has proof that I have died.
Because of the hassle and expense involved, many clients endeavor to avoid probate. This is possible for many clients, through the use of trusts, joint accounts, payable on death arrangements and other devices. Each of these devices has its pros and cons, so it is always good to go over your situation to be sure you are not trading one problem for another problem.
Friday, September 19, 2008
Estate Taxes
The federal estate tax currently imposes a 45% tax rate on a decedent's estate. For this purpose, your "taxable estate" consists of more assets than you might think. For example, just because a joint bank account may avoid probate administration does not mean the IRS won't be able to tax the decedent's share.
Fortunately, federal law also provides for two very big reductions from the estate tax burden:
First, the estate tax marital deduction. Federal law allows you to deduct from the estate tax calculation the value of all assets that you leave to your spouse. In the previous sentence, "all assets" means just that - the estate tax marital deduction is unlimited. Good news for Bill Gates, who can leave billions to his wife tax free. (Don't get too excited, the IRS is patient and they know they can tax his wife's estate when she dies.)
Second, the unified credit. Federal law allows you an exemption of up to $2 million, no matter who receives your estate. So, if the aggregate value of all of your assets (don't forget your home equity, IRAs, 401(k)s and the death benefit on your life insurance) is less than $2 million, you won't owe any estate tax. Even better, that amount is scheduled to increase to $3.5 million on January 1, 2009.
For married couples with a combined net worth over $2 million, there are ways to reduce your estate tax exposure. And, yes, the IRS has sanctioned them!
Fortunately, federal law also provides for two very big reductions from the estate tax burden:
First, the estate tax marital deduction. Federal law allows you to deduct from the estate tax calculation the value of all assets that you leave to your spouse. In the previous sentence, "all assets" means just that - the estate tax marital deduction is unlimited. Good news for Bill Gates, who can leave billions to his wife tax free. (Don't get too excited, the IRS is patient and they know they can tax his wife's estate when she dies.)
Second, the unified credit. Federal law allows you an exemption of up to $2 million, no matter who receives your estate. So, if the aggregate value of all of your assets (don't forget your home equity, IRAs, 401(k)s and the death benefit on your life insurance) is less than $2 million, you won't owe any estate tax. Even better, that amount is scheduled to increase to $3.5 million on January 1, 2009.
For married couples with a combined net worth over $2 million, there are ways to reduce your estate tax exposure. And, yes, the IRS has sanctioned them!
Wednesday, September 17, 2008
The Big Four
I offer a free initial consultation for clients to go over their financial and family issues affecting their estate planning. In this meeting, I make sure to talk about The Big Four estate planning issues:
1. Incapacity Planning: A Durable Power of Attorney and a Health Care Advance Directive are basic documents for all clients. These documents answer the question: "Who will make medical and financial decisions for me if I can't make them myself?"
2. Distributions: Your Last Will and Testament (and Revocable Living Trust, if you have one) answer the question of who will receive your estate - and when. Many clients want to hold back distributions so that their children (or others) receive their inheritance over time, rather than all at once.
3. Probate: In the State of Florida, probate administration is required to clear title to assets that were owned in the deceased's name at the time of death. In other words, if I die holding a CD in my name, the bank won't pay the CD to my wife - even if she is my sole heir - until the probate judge orders the distribution to happen. I'll discuss more about probate in another post, but as a general rule most clients try to avoid it.
4. Taxes: First the good news: the State of Florida does not impose a death tax. Now the bad news: the federal government is not so kind. The federal estate tax is currently imposed at a 45% flat rate, with a $2 million exemption amount. Again, I'll talk about taxes more in a later post.
Those are the Big Four. If you don't know the answers to those questions in your case, it's time to call.
1. Incapacity Planning: A Durable Power of Attorney and a Health Care Advance Directive are basic documents for all clients. These documents answer the question: "Who will make medical and financial decisions for me if I can't make them myself?"
2. Distributions: Your Last Will and Testament (and Revocable Living Trust, if you have one) answer the question of who will receive your estate - and when. Many clients want to hold back distributions so that their children (or others) receive their inheritance over time, rather than all at once.
3. Probate: In the State of Florida, probate administration is required to clear title to assets that were owned in the deceased's name at the time of death. In other words, if I die holding a CD in my name, the bank won't pay the CD to my wife - even if she is my sole heir - until the probate judge orders the distribution to happen. I'll discuss more about probate in another post, but as a general rule most clients try to avoid it.
4. Taxes: First the good news: the State of Florida does not impose a death tax. Now the bad news: the federal government is not so kind. The federal estate tax is currently imposed at a 45% flat rate, with a $2 million exemption amount. Again, I'll talk about taxes more in a later post.
Those are the Big Four. If you don't know the answers to those questions in your case, it's time to call.
Choosing Your Executor
A client asked whether her friend in Michigan could serve as her executor ('Personal Representative,' as we say in Florida). Unfortunately, the answer is no.
This is a question that I receive with some frequency, given the number of retirees and others who move to Florida. The answer is not simply a caution in preparing your will; it's also a good reason to visit a Florida estate planning attorney to review your current will from your old home state.
Florida law provides that your executor ('Personal Representative') must be a Florida resident or a close family member (such as a parent, child or sibling). Any other individual (such as your best friend up north) is not eligible to serve as your Florida executor and will not be appointed as your executor by the probate court.
But we'd love to have them visit. Florida loves tourists!
This is a question that I receive with some frequency, given the number of retirees and others who move to Florida. The answer is not simply a caution in preparing your will; it's also a good reason to visit a Florida estate planning attorney to review your current will from your old home state.
Florida law provides that your executor ('Personal Representative') must be a Florida resident or a close family member (such as a parent, child or sibling). Any other individual (such as your best friend up north) is not eligible to serve as your Florida executor and will not be appointed as your executor by the probate court.
But we'd love to have them visit. Florida loves tourists!
Tuesday, September 16, 2008
Parents Take Note
Under Florida law, a child is no longer a minor upon their 18th birthday. That means the parent's natural guardianship rights are terminated on that day.
As a result, you may find yourself asking a judge to appoint you as your child's guardian if you want to make medical or financial decisions for your 18-year old.
This expensive hassle can be avoided by having your child sign a Durable Power of Attorney and a Health Care Advance Directive giving you the authority to take care of your child's medical and financial decisions. Your child may not own any property, but medical decisions are always a possibility.
How's that for a great birthday gift for your 18-year old!
As a result, you may find yourself asking a judge to appoint you as your child's guardian if you want to make medical or financial decisions for your 18-year old.
This expensive hassle can be avoided by having your child sign a Durable Power of Attorney and a Health Care Advance Directive giving you the authority to take care of your child's medical and financial decisions. Your child may not own any property, but medical decisions are always a possibility.
How's that for a great birthday gift for your 18-year old!
Welcome to The Lindsay Law Firm Blog !!
This is the first entry of The Lindsay Law Firm blog. The purpose of this blog is to share with the public issues of general interest as they arise in the Firm's day-to-day practice.
The Lindsay Law Firm practices in Estate Planning and Business Law, as further described in the other areas of the Firm's website (www.TheLindsayLawFirm.com).
Because the issues discussed in the blog are for general use, the subjects addressed will focus on the 'big picture' perspectives. As a result, you should generally presume that exceptions and details exist to the general discussions in the blog. Further, the application of principles to any one person's particular situation will vary. Bottom line: please do not rely on the discussions in this blog as representing the final and definitive word for you.
If you are interested in the issues addressed, the Firm would be happy to answer any questions you may have. But, no attorney-client relationship is formed or intended by the information conveyed in this blog.
The Firm's hope is that the information in this blog will help you organize your thoughts, consider new issues and approaches and generally learn more about Estate Planning and Business Law!
The Lindsay Law Firm practices in Estate Planning and Business Law, as further described in the other areas of the Firm's website (www.TheLindsayLawFirm.com).
Because the issues discussed in the blog are for general use, the subjects addressed will focus on the 'big picture' perspectives. As a result, you should generally presume that exceptions and details exist to the general discussions in the blog. Further, the application of principles to any one person's particular situation will vary. Bottom line: please do not rely on the discussions in this blog as representing the final and definitive word for you.
If you are interested in the issues addressed, the Firm would be happy to answer any questions you may have. But, no attorney-client relationship is formed or intended by the information conveyed in this blog.
The Firm's hope is that the information in this blog will help you organize your thoughts, consider new issues and approaches and generally learn more about Estate Planning and Business Law!
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