Trust and Estate Tip of the Day: A friend asked if a life estate avoids probate. The answer is yes it does. As a little background, a life estate is a way of owning real estate. Title is split between two parties, the life tenant and the remaindeman. When the life tenant dies, title automatically passes to the remainderman. Under the right circumstances, this is a great tool to avoid probate. But there are several drawbacks of this type of ownership. For instance, sometimes the remainderman dies before the life tenant, and then a probate is needed for the remainderman. Even when using enhanced life estate deeds (aka lady bird deeds) problems can arise. In most circumstances, a revocable trust is a much better choice than a life estate deed.
Trust & Estate Tip of the Day: You have a Last Will and Testament, so your estate will avoid probate . . . . WRONG! Having a Will does not keep your estate from going through the probate process. Probate is a court proceeding which is necessary when you die owning assets that don’t pass to someone automatically. What passes automatically? Jointly owned assets, financial accounts that name a beneficiary, and assets titled in a trust do not have to go through probate. All other assets that you own typically will go through probate, even if you have a Will. A revocable trust is a simple way of avoiding probate, especially for real estate. Naming beneficiaries on all financial accounts (which was the subject of a prior post) also helps tremendously.
Trust & Estate Tip of the Day: Where is the best place to store your estate planning documents? Well, that depends on the type of document and your specific circumstances. But one thing is for sure, you want your health care advanced directives to be easily accessible by your designated surrogate(s). Give copies of these documents to your surrogate(s) – which might include hard copies or electronic copies (such as email) or if you feel comfortable then store them in the cloud. Your surrogate may need to make a quick decision and will need to show that he/she has the legal authority to do so. DO NOT store your health care advanced directives in a safe deposit box. They do you no good there. Where should you store your will? Stay tuned
- I have a Will so my estate won’t go through probate
- Not true. Assets pass through probate when the title needs to be transferred. It doesn’t matter if you have a Will or not. Examples of assets that don’t pass through probate are assets that are jointly owned with rights of survivorship, assets with beneficiary designations, and assets titled in a Trust.
- My Will controls the disposition of all of my property
- Not true. You Will ONLY controls disposition of probate assets.
- I am married, so I have legal authority to make all decisions for my spouse and my spouse’s assets
- Partially true and partially wrong. Spouses have equal control over some joint assets, such as bank and brokerage accounts. Spouses do not have control over jointly owned real estate – for instance, if your spouse is incapacitated due to illness or injury, you cannot re-finance or sell your home without a valid durable power of attorney or a court appointed guardian. Additionally, spouses do not have any access to accounts solely titled in the other spouse’s name.
- Estate Planning is for wealthy people only
- Couldn’t be more wrong. At a minimum, everyone should choose who will make medical and financial decisions for them by way of a Health Care Directive and Durable Power of Attorney, and many people should have a Will and even a Revocable Trust in place to ensure that your hard earned assets pass to the appropriate people outside of the lengthy and expensive probate process.
- Estate Planning is for old people
- Sadly, you don’t have to be old to become ill and/or pass away. The idea is to have documents in place “in case” tragedy strikes.
- I am not wealthy enough to have a revocable trust
- One of the main purposes of a revocable trust is probate avoidance. It also gives creditor protection to your beneficiaries, and it provides for contingencies in the event a beneficiary should predecease you. Wealth is definitely not a requirement for a revocable trust.
- I have access to my college student son/daughter’s medical information because I still support them financially and I’m paying for college
- Wrong – Once they turn 18 years old they are adults and parents have no access to their medical information due to HIPAA.
- My kids all get along so I know there won’t be any problems after I die
- If only this were true . . . . . . . .
- I think I need an irrevocable trust
- Probably not. Most people need a revocable trust. Irrevocable trusts are used in certain cases, but the majority of people want to retain the power to modify or revoke their trust.
63 year old man gets punched in the face by Pablo Lyle, a Mexican soap star, and dies 4 days later in Miami.
950-ton pedestrian bridge at FIU in Miami crashed into several cars stopped at a red light below, killing six people.
Two people were killed in Broward County (age 17 and 61 – granddaughter and grandmother) and four others injured in a violent weekend crash in Deerfield Beach when a car veered across a road into oncoming traffic.
Aneurism/Stroke – 41 year old Plantation man simply drops dead in front of his wife and 2 young daughters (this is unfortunately someone that I actually know).
What do all of the above stories have in common? I bet non of these people left their houses in the morning thinking they were going to die. Who thinks a bridge is going to collapse on them on their way to work or school? Who thinks that someone driving next to you will become so angry they will punch you in the face? Better yet, who expects to die from being punched in the face? What 41 year old thinks they are just going to drop dead in their home on an ordinary day?
Many of the people that I interact with think of death as something that is going to happen when they grow old and get sick. They think that just because today, right now, they feel ok, they don’t need to be thinking of estate planning because they aren’t old. Well, as you can see from the above stories, life doesn’t always go as planned, and the unexpected does happen. We aren’t invincible. Weird and crazy things happen – and not only to “someone else” – sometimes it’s you, me, etc. People die in car accidents every day. People get cancer and die 3 months later. People bump their heads whitewater rafting and die on family vacations. And people die when a bridge collapses on them.
We don’t do estate planning expecting to die or become ill. We do estate planning to be protected – to protect our family – to make things easier for our loved ones – in the event that the unexpected happens. So why do so many people delay putting an estate plan in place? Why do so many people feel that making a will is something that only old people do? While the odds of dying increase as we get older, young and middle aged people die every day.
We will all die someday, and hopefully we get an opportunity to grow old and die (peacefully and painlessly). But planning for your death or incapacity well before it ever happens is the best way to plan because you are truly protected in the event the unexpected happens. If you are over the age of 18 you should, at a minimum, have a health care surrogate and durable power of attorney so that someone can make medical and financial decisions for you. If you are a little older, and especially if you have children, you should, at a minimum, have a will and possibly even a revocable trust (in addition to a health care surrogate and durable power of attorney). And everyone should have designated beneficiaries on their checking, savings, brokerage, life insurance, retirement and any other financial account that your might have. This gives your designated beneficiary immediate access to money, vs. having to wait until a Broward County probate court gets around to hearing your case and giving you legal access.
The unexpected does happen – will you be prepared?
Jane and Harry decide to marry. Both Jane and Harry have been married previously, each owns assets that he/she acquired prior to this marriage and, each have children from prior relationships. Jane and Harry both agree that they will pass their respective estates to their own children (i.e., nothing will pass to Jane/Harry as surviving spouse). Jane and Harry each execute a Last Will and Testament leaving everything to their respective children. After they marry, Jane and Harry will live in a beautiful house in Plantation, Florida that Jane owned prior to their marriage.
Jane and Harry have a beautiful wedding in Boca Raton, Florida and are living happily ever after – for one day – and then sadly Jane is in a terrible car accident with a Broward County bus and dies. After Harry grieves for 3 months, he consults with a Trust & Estate lawyer to discuss administering Jane’s estate. Harry’s lawyer advises him that he has rights to Jane’s house and also to part of her estate. Harry explains to his lawyer that he and Jane were only married for 1 day, and besides, they agreed they wouldn’t leave anything to each other and that they even have a Last Will and Testament stating such. Harry’s lawyer says it doesn’t matter how long they were married or what their wills say, under Florida law Harry (as a surviving spouse) automatically gets a life estate in Jane’s homestead; alternatively, Harry can make an election to take a 50% tenant-in-common (“TIC”) interest in the homestead. The TIC election MUST be made within 6 months of death (this is a strict deadline). But is the TIC election really important to make? It certainly can be! Although a life estate is nice, it’s very restrictive. Neither the life tenant nor the remainderman can really do much with the property without the other’s consent. The main advantage of the TIC interest is that it allows either owner to force a sale of the property (through a process called “partition”). This can be a crucial benefit when the life tenant and remainderman don’t get along.
In addition to the homestead interest, Harry’s lawyer tells him that he can also take an elective share, which is 30% of all of Jane’s assets. Harry tells his lawyer that Jane named beneficiaries on all of her financial accounts, so nothing will pass through probate. The lawyer explains to Harry that it doesn’t matter, the elective share applies to ALL of Jane’s assets (with some exceptions), including her $2,000,000 Fidelity account which should have passed directly to her children. Harry is shocked by this information. But the elective share is not automatic like the homestead interest. If Harry decides he wants to pursue his elective share rights, then he has to file an election in Jane’s probate administration (if there is no probate administration, he would have to initiate one). The good news for Jane’s children is that the elective share is inclusive of the homestead rights, so in simple terms (because the elective share calculation can be quite complex), if the homestead is worth $1,000,000, then Harry is deemed to have received $500,000 (i.e., ½), so he would only be entitled to $100,000 from the Fidelity account.
What did Jane and Harry do wrong? Was there any way to accomplish their goal of their respective children inheriting their estates? There sure was. Jane and Harry could have executed a marital agreement (either before or after their marriage), or they could have signed a simple waiver of rights under Florida Statute 732.702 (such a waiver requires financial disclosure). Marriage is a significant legal step. If you are thinking of getting married and you have assets or children from a prior relationship, I strongly suggest you meet with your lawyer before getting married. The Law Offices of Samantha J. Fitzgerald has counseled numerous clients on how to protect their estates from unintended consequences.
Mary Client, a 72 year old widow with 3 adult children, comes into my Plantation office to discuss doing a simple Will. Mary says she wants to leave her assets equally to her 3 kids upon her death. Mary’s only assets consist of a checking and savings account. I explain to Mary that she should have a durable power of attorney as part of her estate plan so that her children can help pay her bills and help with other financial matters in the event she became incapacitated. Mary says that she added her daughter June to her checking and savings accounts, so she doesn’t need a durable power of attorney. I explain to Mary that upon her death, her checking and savings account will automatically belong to June 100%, even if Mary’s Will says she leaves all her assets equally to her 3 children. The accounts will not pass through probate since they are jointly owned and therefore the Will does not control them. This is a surprise to Mary and it is not the outcome she intended. But what’s even worse, Mary then tells me that June is being sued after defaulting on a loan and she is also in the middle of a divorce. Since June is legally the owner of the bank accounts and can withdraw 100% of the balance as a joint owner, the full value of both accounts is at risk of being taken by June’s creditors and being divided as a marital asset in her divorce. Mary was shocked by this news and did not anticipate these outcomes when she added June to her accounts. I advised Mary that she should remove June as an owner of her accounts. Unfortunately, June would have to sign off on this since she is a legal owner of the accounts and June lives in Minnesota, and it would be very costly for her to travel to Florida to sign the paperwork.
What did Mary do wrong? Mary should have consulted with a lawyer prior to adding June to the accounts. Often times people do things out of convenience not realizing that there may be significant legal consequences. Had Mary met with me before doing this, I would have advised her that she could execute a durable power of attorney that would give June all the power that she needed to help Mary pay bills, and many other things, and it would not automatically transfer the accounts 100% to June upon Mary’s death. The durable power of attorney would not subject Mary’s accounts to June’s creditors nor would it cause the accounts to be treated as marital assets subject to division in a dissolution proceeding. June might be able to prove in court that the money really belongs to mom and that she was only added to the accounts for convenience purposes and that she is not “really” an owner. But who wants to be litigating that issue in court? How much money in legal fees will that cost June and/or Mary? The moral of the story is, Mary should have a trusted attorney that she can call before she makes any sort of decision like this in the future.