What is estate planning?
Estate planning is more than just filling out legal documents on Legal Zoom, bringing them to AAA or your bank for notarization, and sticking them in a safe deposit box. The documents are important, but they’re just one piece of the puzzle.
In addition to legal documents, you need a financial plan that works with your estate plan. If you die owning nothing – or if the government takes everything from you – your Will might be useless for anything other than lining a birdcage.
You also need appropriate insurance – liability, health, long-term care, business continuation, etc. The type and amount of insurance you have affects both your financial plan and your estate plan.
See how they’re all tied together?
Estate planning is about planning. Planning for life. Planning for incapacity. Planning for death.
And your estate plan is designed around your current situation – the age of your kids, the health of you and your spouse, the current law.
So the estate plan you created in your 30s, 40s or 50s can become ineffective – or even detrimental – when you’re in your 60s, 70s and 80s.
We look at estate planning as a journey, not a destination.
Estate Planning Tools
These are some of the more common tools that may be used to achieve your current estate planning goals. Not every tool is appropriate for every situation, and different tools may be used at different times of your life.
- Effective only for a brief period after your death.
- Allows you to leave instructions for your Personal Representative (known as an Executor in other states) and the probate judge as to who gets what when you die.
- Subject to a specific state’s probate laws. Florida has some weird quirks other states don’t have.
- Subject to probate (court oversight) at death; your Will becomes a public record.
Revocable Living Trust
- Effective while you’re living and for as long as you want after you die.
- Allows you to transfer your property into a separate entity called a trust. You still possess the property, but the Trustee of the trust (generally you) now has legal ownership of the property. The Trustee holds the property for the benefit of the Beneficiaries, which generally include you, your spouse, and your children.
- Easily and privately allows another Trustee to step in as needed – without court interference – if you become incapacitated or die.
- May help you avoid probate at death if all the appropriate property is properly transferred to the trust.
- Not truly a “Will substitute” because you still need a Will to stand-by when you die. A special kind of Will catches any property you didn’t transfer into your trust while you were alive and “pours” it into your trust when you die.
- Eliminates multiple probate proceedings involving non-Florida real estate as long as those assets are transferred to the trust.
- Superior to just having a Will if control, privacy, personalized customization, and freedom from court oversight are important to you.
Durable Power of Attorney
- Effective only while you’re living.
- Allows you to name a trusted person (your Agent) to step into your shoes and handle all your financial matters if you become incapacitated.
- Your Agent’s powers end at your death.
- In Florida, a Durable Power of Attorney becomes effective as soon as it’s notarized.
- Effective only while you’re living.
- Allows you to express your desires for a natural death under certain conditions.
- Allows you to determine ahead of time when you would want medical personnel to “pull the plug.”
Designation of Health Care Surrogate
- Sometimes called a Health Care Power of Attorney.
- Effective only while you’re living.
- Allows you to name a trusted person (your Health Care Surrogate) to step into your shoes and handle all your medical decisions if you are unable to provide consent.
- Applies to decisions that are not “pull the plug” decisions. However, many people allow their Health Care Surrogate to enforce their Living Will when appropriate.
- In Florida, your Health Care Surrogate can order an autopsy, but not necessarily authorize the disposition of your remains (cremation vs. burial).
- May be effective while you’re living and/or after you die.
- Allowed under Florida law for the care of pets, such as cats, dogs, horses, parrots, etc. The caretaker receives payments only when another party verifies the pet’s well being.
- Can prevent this typical Will situation: Aunt Molly leaves $5,000 to nephew Ben for the care of Fluffy. Aunt Molly’s Personal Representative gives the money and Fluffy to Ben. Ben drops Fluffy off at the shelter and uses the $5000 as a down payment on a Camaro.
- Money remaining in the trust when Fluffy dies can go to human beneficiaries or a charity.
- Florida judges can (and have) limited the amount of money in a pet trust to a “reasonable” amount.
- Effective while you’re living and as long as you want after you die.
- Gun Trusts (also known as firearms trusts) are used to allow legal sharing of certain regulated firearms and weapons, and to control what happens to your gun collection and heirloom firearms when you die or become incapacitated. Learn more here.
Planning for Special Situations
Special Needs Planning
- Children and adults with special needs require special planning. Leaving money outright to such individuals may disqualify them from needed government benefits while not improving their standard of care.
- The money in a Special Needs or Supplemental Needs trust can be used only to supplement their care.
- Depending on the type of trust, any money remaining in the trust may have to be used to repay the government or may go to other family members or charities.
Second Marriage Planning
- Spouses in second (or third) marriages and blended families generally need more complex planning than those in first/only marriages.
- Children from a previous marriage may be inadvertently disinherited due to an old estate plan.
- Family dynamics may be volatile. Some children and their stepparents may not get along.
- Prenups and independent successor trustees should be seriously considered.
- If you’re seriously considering or have started divorce proceedings, update your estate plan immediately!
- Your life has changed dramatically and your old plan is no longer appropriate. Do you really want your eventual ex to be making financial and medical decisions for you? Deciding whether to cremate or bury you? Do you still want your ex’s sister (who now hates you) to be your child’s guardian?
- Don’t delay – your legal spouse has more rights and protections than you can imagine under Florida law.
Retirement Plan Inheritance Planning
- You can use a trust to make sure your children don’t spend all of your hard-earned retirement money (IRAs, 401(k)s, 403(b)s, etc.) within a year or two of your death.
- Generally appropriate when the bulk of your assets are in retirement plans.
- You can provide a steady stream of income over their life expectancies – or allow your trust to accumulate the income and distribute to your beneficiaries at a later date.
- Can help prevent accidental disinheritances of your children when your spouse remarries.
- Using a trust mandates your distribution choices – your children can’t change them. Provides much more control and protection than Stretch IRAs or other planning techniques offered by financial institutions.
- But there are adverse tax consequences due to new IRS regulations, so additional planning discussions are needed.