1. What is a Revocable Living Trust?
The revocable living trust, like a will, is a set of instructions whereby a grantor bequeaths the grantor's property to designated beneficiaries. Instead of passing through probate administration like a will, trust property is instead re-titled in the name of the trust while the grantor is still alive. The grantors may act as trustee and beneficiary of the trust property during their lifetime. Upon the grantor's death, the successor trustee(s), settle the estate and distribute the trust estate to the named beneficiaries. Thus, the time and expense of probate can be avoided. Additionally, Federal estate taxes can be eliminated or minimized.
2. What is a Durable Power of Attorney?
Durable Powers of Attorneys allow their grantors to name an attorney-in-fact to manage the grantors' financial affairs and execute financial documents on behalf of the grantors. Unlike a regular power of attorney, the durable power of attorney survives the incapacity of the grantor. Thus, the attorney-in-fact can manage the financial affairs of the grantor even in the event of dementia, stroke, heart attack, coma, Alzheimer's disease or the like.
3. What is a Designation of Health Care Surrogate?
Any competent adult may also designate authority to a Health Care Surrogate to make all health care decisions during any period of incapacity. During the maker's incapacity, the Health Care Surrogate has the duty to consult expeditiously, with appropriate health care providers. The Surrogate also provides informed consent and makes only health care decisions for the maker, which he or she believes the maker would have made under the circumstances if the maker were capable of making such decisions. If there is no indication of what the maker would have chosen, the Surrogate may consider the maker's best interest in deciding on a course of treatment. The suggested form of this instrument has been provided by the Legislature within Florida Statutes Section 765.203.
4. What is a Declaration of Pre-Need Guardian?
Since the durable power of attorney is suspended once a guardianship proceeding is initiated, the designation of pre-need guardian spells out the maker's intention to the guardianship court as to who should be the maker's guardian. Therein, the maker designates a guardian of the person (healthcare) and a guardian of the property (financial). The designation of pre-need guardian allows the court to know the maker's wishes as to the choice of guardian and creates a legal presumption in favor of that person. The only person who can select a guardian for you is a circuit court judge.
5. What is the difference between a Living Will and a legal will?
A Living Will should not be confused with a persons legal will, which disposes of personal property on or after his or her death, and appoints a personal representative or revokes or revises another will.
6. How do I make my Living Will effective?
Under Florida law, a Living Will must be signed by its maker in the presence of two witnesses, at least one of whom is neither the spouse nor a blood relative of the maker. If the maker is physically unable to sign the Living Will, one of the witnesses can sign in the presence and at the direction of the maker. Florida will recognize a Living Will, which has been signed in another state, if that Living Will was signed in compliance with the laws of that state, or in compliance with the laws of Florida.
Please note, however, that Florida Statutes (765.104) allow for verbal statements made in front of two witnesses to rescind or modify the document if made by a competent individual.
7. After I sign a Living Will, what is next?
Once a Living Will has been signed, it is the maker's responsibility to provide notification to the physician of its existence. It is a good idea to provide a copy of the Living Will to the maker's physician and hospital, to be placed within the medical records.
8. How do I designate a Health Care Surrogate?
Under Florida law, designation of a Health Care Surrogate should be made through a written document, and should be signed in the presence of two witnesses, at least one of whom is neither the spouse nor a blood relative of the maker. The person designated as Surrogate cannot act as a witness to the signing of the document.
9. Can I have more than one Health Care Surrogate?
The maker can also explicitly designate an Alternate Surrogate. The Alternate Surrogate may assume the duties as Surrogate if the original Surrogate is unwilling or unable to perform his or her duties. If the maker is physically unable to sign the designation, he or she may, in the presence of witnesses, direct that another person sign the document. An exact copy of the designation must be provided to the Health Care Surrogate. Unless the designation states a time of termination, the designation will remain in effect until revoked by its maker.
10. Can the Living Will and the Health Care Surrogate designation be revoked?
Both the Living Will and the Designation of Health Care Surrogate may be revoked by the maker at any time by a signed and dated letter of revocation; by physically canceling or destroying the original document; by an oral expression of one's intent to revoke; or by means of a later executed document which is materially different from the former document. It is very important to tell the attending physician that the Living Will and Designation of Health Care Surrogate has been revoked.
11. What is a Living Will?
Every competent adult has the right to make a written declaration commonly known as a "Living Will." The purpose of this document is to direct the provision, the withholding or withdrawal of life prolonging
procedures in the event one should have a terminal condition. The suggested form of this instrument has been provided by the Legislature within Florida Statutes Section 765.303. In Florida, the definition of "life prolonging procedures" has been expanded by the Legislature to include the provision of food and water to terminally ill patients.
12. What is a Marital Shelter Trust and a Credit Shelter Trust?
The traditional IRS marital tax deduction (unified credit) allows you to pass any size estate directly to your surviving spouse without the penalty of tax implications. The only drawback is, when the surviving spouse dies and wishes to pass the balance on to heirs there may be a taxable transaction due to the loss of the first spouse's applicable tax exclusion. This loss can be mitigated by establishing a Marital Trust (A) (essentially the marital deduction) and Credit Shelter Trust (B).
Under the Credit Shelter Trust, when the first spouse dies, an amount equal to the approximate amount protected by the unified credit is placed into the Credit Shelter Trust with the crucial condition that the surviving spouse has the right to use the property for life and is entitled to any income it generates. This trust is not taxed at that time or at the later death of the surviving spouse, even though it may appreciate in value. By utilizing Credit Shelter Trust that takes advantage of federal credits, sometimes twice as much can be transferred to beneficiaries free of federal estate taxes. When the surviving spouse dies, the property passes to the trust beneficiaries, yet is not considered part of the second spouse's estate for estate tax purposes. Assets remaining in Trust B can be passed directly on to heirs at the surviving spouse's death.
Here's How It Works. At death, an individual leaves an amount equal to the estate tax applicable exclusion amount to a credit shelter trust. In 2009, this is equal to $3.5 million. Federal estate taxes are repealed briefly in 2010 and then the exclusion amount reverts back to $1 million in 2011. The estate tax applicable credit amount is applied against the tax from this transfer and thus is exempt from federal estate tax. The trust can be used to provide the surviving spouse with income for life and principal payments if needed to maintain his or her lifestyle. When the surviving spouse dies, the entire value of the trust, including appreciation, is passed to the heirs of the original spouse, federal estate tax-free. Upon death, the estate tax applicable exclusion amount of the surviving spouse is applied to the value of his or her estate, which does not include the assets in the trust. Thus, the maximum tax savings is achieved by ensuring that both applicable exclusion amounts are fully utilized.
QTIP Protection: One special type of marital trust is the QTIP Trust. The QTIP provides a surviving spouse with income from the trust for the spouse's lifetime. However, unlike other marital trusts, once the surviving spouse dies, the remaining trust assets are passed to those beneficiaries named in the first spouse's will. Thus, an individual may provide financial support for a surviving spouse but retain control of, or direct the distribution of, the trust assets after the surviving spouse's death. Upon the death of the surviving spouse, the entire value of the QTIP trust is included in the surviving spouse's gross estate and may be subject to estate taxes.
Advantages
The advantages of the Credit Shelter Trust are obvious. It allows double the assets to pass free from federal estate taxation. If all assets were left to the survivor and then the survivor became deceased, then the survivor would only be able to protect the basic level of assets from federal estate tax. By using the Credit Shelter Trust planning, double the amount of assets can avoid federal estate taxes. This would save a good deal in federal estate taxes.
Disadvantages
The disadvantages of the Credit Shelter Trust planning are more practical than legal. One of the basic premises that we use in estate planning is that the estate plan not interfere with the way individuals want to live the rest of their lives. In this regard, the initial division of assets one-half into the husband's name and one-half into the wife's name is often impossible to accomplish. Often, the psychology of having the assets split into two names is something that clients do not want to or cannot deal with. One elderly client of ours said to me that he had been married for fifty-three years and was not about to split their assets up like they were divorced. Our argument that it would save estate taxes was not compelling to him.
Another practical disadvantage to the Credit Shelter Trust is that oftentimes spouses will be very reluctant to give up control over half of their combined assets. We describe their rights under a Credit Shelter Trust as follows: they have the right to the income, but they have to ask the trustee for more money. Most clients have grown accustomed to living on their entire asset pool and to have the freedom and independence that that creates. To tell them that because their spouse died, which is difficult enough to deal with, that then they have to give up full dominion and control over half of their assets adds another level of change to their situation that is often unacceptable to them. We have had a surviving spouse tell us that when she asked for a distribution from the principal of the Credit Shelter Trust for travel the trustee suggested a different destination or traveling at a different time of year. This resulted in severe agitation on the part of the surviving spouse of the trust because now someone else was telling her what she could do with "her money". We also had a situation where a client had placed fifty percent (50%) of the stock of his company, which he had worked years to establish, into a Credit Shelter Trust that his wife had created to avoid estate taxes. His wife had her brother as the trustee of her Trust. When we told him that if his wife died, his brother-in-law would control half of the stock of his company, he went ballistic. The possible estate tax savings that would result from the Credit Shelter Trust simply did not offset the potential loss of control of his business.
The essential disadvantage of the Marital Deduction Trust is that the survivor is giving up absolute dominion and control over the assets in the Credit Shelter Trust. If this is something that will make the survivor uncomfortable, then this planning tool does not work.
13. What is an Enhanced Life Estate?
With an Enhance Life Estate Deed, you could transfer the remainder to your child or to a revocable living trust that would permit greater control of the property after your death. The Enhanced Life Estate Deed is a specially designed instrument that is only available in a few states, including Florida. It is similar to a traditional Life Estate Deed, and there is no capital gains tax if the property is sold shortly after your death. However, you retain the right to change your mind. Without your child's consent, you can take the property back and give it to someone else. In addition, you have the right to sell or mortgage the property and keep all of the proceeds without your child's consent. To underscore the difference between the Traditional and Enhanced Life Estate Deed, with an Enhanced Life Estate Deed,
a. The condominium association approval should NOT be required.
b. You should NOT need mortgage company approval.
c. The transfer should NOT affect your homestead tax exemption.
d. You should be able to sell or mortgage your property without your child's consent (although some title companies may ask for your child to sign).
e. You will NOT be required to file a gift tax return since IRS considers the transfer and incomplete gift.
f. The value of the interest transferred will NOT be considered as a completed gift for Medicaid purposes and will NOT be the basis for a "waiting period" that could delay your access to Medicaid benefits to pay for skilled nursing home care.
g. However, if your child has any income tax liens or judgment liens, they may have to be paid off before the property can be sold. There are differences of opinion on this point. Until there are court decisions resolving these issues, we assume that the liens will have to be cleared. Many attorneys take the position that if you can sell your property without the signature of your child (the remainderman), then why should you have to pay off the remainderman's lien in order to sell your property?
In conclusion, the Enhanced Life Estate Deed is an incredible tool for avoiding probate with minimal downside when compared to the alternatives.
