What is a Will?
A will is a legal document where a testator (you) decides how your assets will be distributed upon death. In order for a last will and testament to be valid in Florida, it must be signed by the testator in the presence of two witnesses. Simply stated, a will is just your instructions about “who will inherit what” upon your death.
Keep these things in mind:
1. A will is effective upon death; and it therefore cannot deal with issues of incapacity. Simply, a will is kept in a drawer or in a safe deposit box; and it is pulled when the testator dies.
2. You can amend your will as many times as you want as long as you are alive; you have capacity; and you follow the formalities. You can amend a will in its entirety, in which case you draft a new will revoking the prior. Or you can amend just a clause, in which case you draft a Codicil.
3. A will goes through a probate process. A lot of people think that a will avoids probate, and that is WRONG! Therefore, if you are concerned about probate, a last will and testament will not be a solution for you.
4. A last will and testament is relatively inexpensive at the beginning, but it is very costly at the end. You need to understand all the costs associated with a will and the probate process. Florida law sets probate fees; and these fees vary depending on the value of the probate assets. For example, for probate assets up to $1,000,000, the attorney’s fees are 3% (or $30,000). In addition, you need to pay court costs and fees for other services such as CPAs, publications, appraisers, etc.
5. Not all of your properties will be disposed of in accordance with the last will and testament. Only property that you own in your own name will be governed by your will and distributed through probate. Assets that you own jointly and assets that have a beneficiary designation will not be governed by a will and won’t go through probate.
6. In Florida, the person in charge of administering your estate is called “Personal Representative.” In other states, that person is called the “Executor.” Same thing, different names.
Trusts are contractual arrangements among three parties: a Settlor, a Trustee, and a Beneficiary. Under the arrangement, the Settlor sets up instructions and transfer assets to a Trustee for the benefit of a Beneficiary. A properly set up trust can avoid probate, as long as the trust follows the formalities and the property of the Settlor is properly titled in the name of the trust.
One person can actually be all parties of a trust! For example, if Joe Doe wants to set up a trust for his benefit, and he also wants to be the administrator of the trust, Joe Doe then becomes the Settlor, Trustee, and Beneficiary. Joe Doe prepares the instructions in writing and signs the trust in front of two witnesses; Joe Doe appoints himself as the Trustee, and for as long as Joe Doe is living, he is the sole Beneficiary of the Trust. Joe Doe can appoint successor trustees in the event that he is no longer able and willing to serve as trustee and can also appoint residuary beneficiaries in the event he passes away. Since Joe Doe properly transferred his property in the name of his trust, his beneficiaries won’t have to go through the probate process to receive the property.
Here are key points and questions about trusts:
1. A trust can be irrevocable. If a trust is irrevocable, in theory, the settlor cannot amend or undo the trust. There are legal ways to modify an irrevocable trust, but they are beyond the scope of this article. For now, just think that an irrevocable trust cannot be changed. Under most irrevocable trusts, you are not the Trustee or Beneficiary. That person could be a family member; it won’t be you.
2. How do I decide whether I want a revocable or irrevocable trust? Irrevocable trusts have specific purposes:
- Asset Protection—to protect your assets against lawsuits.
- Estate or Income Taxes–to take advantage of tax laws to minimize your estate or income tax exposure.
- Medicaid Planning or Veterans Benefit Planning–to qualify for Medicaid or Veteran benefits in the future without having to use your assets to pay for the costs of nursing homes and care.
3. Since a trust is effective upon execution, it can be used to plan for incapacity. If you become incapacitated, and if you included incapacity provisions in your trust, you may avoid guardianship proceedings. For example, you can include a clause that says: “I instruct my Trustee that I want to be cared for at home and not in a nursing home.” If you transfer assets to your trust, your trustee must use the money in accordance with your instructions.
4. The process of transferring assets to your trust is called “funding,” and it must be done asset by asset. This idea is very important! When we say that your property must be transferred to your trust, you have to take each asset and sign the proper document to transfer such property to the trust. For example:
- If you own real property, you must sign a deed transferring the property from you to the Trustee of your trust;
- If you have bank accounts, you need to go to the bank and re-title the account in the name of the trust;
- If you own stock, you need to re-title the account in the name of the trust;
Certain assets won’t be transferred to the trust—for example, life insurance and retirement accounts. But you can name the trust as a beneficiary of these accounts. The point is, you must be careful and take an asset-by-asset approach! Adding a statement in your trust along the lines of “I hereby transfer all property belonging to me to my trust” is insufficient.
Even if we properly prepare and fund a trust, something can go wrong later. You may purchase property and forget about transferring it to the trust. Or you just may forget that you have prepared a trust. A pour-over will has the effect of transferring a non-funded asset into the trust upon death. That way, you will ensure that all of your property will be governed by the trust, even if later you purchase property and forget to transfer to the trust. A pour-over will operates as a catch-all document.
Durable Power of Attorney
In a durable power of attorney, a Principal appoints an agent so that the agent can make financial or medical decisions for the Principal. Key concepts to understand:
1. “Durable” means that the agent can make decision for the Principal, even when the Principal is incapacitated. But if the power of attorney does not say that it is “durable,” then power of attorney is terminated when the Principal is incapacitated. To be durable, it must contain the following, or similar, statement: “This durable power of attorney is not terminated by subsequent incapacity of the Principal, except as provided in chapter 709, Florida Statutes.”
2. A “Durable Power of Attorney” is terminated upon the death of the Principal. Therefore, the agent’s powers are terminated upon the death of the Principal.
3. A “Durable Power of Attorney” must contain specific powers. You cannot include a blanket statement like “my agent can perform any act that I may be able to perform if I had capacity.” The Principal must initial certain powers—which believe it or not are actually called “Super Powers”!
4. A “Durable Power of Attorney” is effective upon execution. That means that whoever is appointed agent can start acting immediately after you sign a durable power of attorney. As such, the agent can go to a bank and deplete the bank account. Therefore, you must be very careful when choosing your agent!
5. A properly drafted “Durable Power of Attorney” may avoid guardianship. Guardianship is a procedure of last resort. If a court finds valid alternatives to guardianship—such as the existence of durable power of attorney, health care surrogate, or a living will—it may deem guardianship unnecessary.
6. Formalities must be followed: The law requires two witnesses and that a Notary Public acknowledges the signature of the Principal. “Super Powers” must be initialed.
Designation of Health Care Surrogate
In a Designation of Health Care Surrogate, a Principal appoints a Surrogate so that the Surrogate can make medical decisions for the Principal. Here are key concepts to understand:
1. The designation of the Surrogate may be immediate, but you have to affirmatively say so in the document. If you don’t, the Surrogate starts acting upon the determination of incapacity of the Principal by the doctors.
2. A properly drafted “Designation of Health Care Surrogate” may avoid guardianship. As we’ve discussed, guardianship is a procedure of last resort. If a court finds valid alternatives to guardianship—such as the existence of durable power of attorney, health care surrogate or a and living will—it may deem guardianship unnecessary.
3. Formalities must be followed: The law requires two witnesses; however, you do not need a Notary Public.
Living wills direct the providing, withholding, or withdrawal of life-prolonging procedures in the event that a person has a terminal condition, has an end-stage condition, or is in a persistent vegetative state. Formalities must be followed when preparing this document. As with the Health Care Surrogate just discussed, the law requires two witnesses; however, you do not need a Notary Public.
1. Living Wills should not be confused with Last Wills and Testaments. A Living Will only deals with terminal conditions.
2. Living Wills should not be confused with Living Trusts. A Living Will only deals with terminal conditions.