BASICS OF ESTATE PLANNING:

WILLS, LIVING TRUSTS AND POWERS OF ATTORNEY

Proper estate planning is not necessarily complicated. It starts with the desire to protect your assets and minimize the potential harsh effects of the probate process, where your estate could be contested in a court of law. This is a legal process, not an accounting one. Therefore, you need a knowledgeable probate attorney to help you plan your estate.

Working closely with an attorney, your first step is to establish a plan incorporating the following objectives:

*Upon your death, ensure that assets are passed on to your beneficiaries in accordance with your wishes.

*Reduce estate and/or inheritance taxes, thereby maximizing asset distributions to your beneficiaries.

CREATING A LAST WILL AND TESTAMENT

First, you would determine your intentions for the disposition of all of your assets. Your assets fall into two categories: (1) probate assets which are subject to court administration and (2) non-probate assets which are not subject to administration.

Probate assets are all assets owned in your individual name, excluding joint assets with rights of survivorship such as bank and brokerage accounts and securities; "In trust for..." bank accounts; life insurance policies where there is a designated individual beneficiary; and death benefits in pension and profit sharing plans and individual retirement accounts where there is a designated individual beneficiary.

The first document to be produced as part of this plan is your "Last Will and Testament." A Will is a written direction controlling the disposition of property at death. A Will provides for the disposition of your probate assets. Probate administration is the process through which your Will is filed with the Court, admitted to probate, your Personal Representative (executor) is appointed, your debts and taxes are paid and your remaining assets are distributed to your beneficiaries, all subject to court supervision. The laws of each state set the formal requirements for a legal Will. In Florida:

1. You, the maker of the Will (called the testator), must be at least 18 years old.

2. You must be of sound mind at the time you sign your Will.

3. Your Will must be written.

4. Your Will must be witnessed in the special manner provided by law for wills.

5. It is necessary to follow exactly the formalities required for the execution of a Will.

6. To be effective, your Will must be proved in and allowed by the probate court.

No Will becomes final until the death of the testator, and it may be changed or added to by the testator by drawing a new Will or by a "codicil," which is simply an addition or amendment executed with the same formalities of a Will. A Will’s terms cannot be changed by writing something in or crossing something out after the Will is executed. Writing on the Will after its execution may invalidate part of the Will or all of it.

WHAT CAN BE ACCOMPLISHED BY A WILL?

1. You decide who gets your property instead of the law making the choice for you.

2. You may name the personal representative (executor) of your Will as you choose, provided the one named can qualify under Florida law. A personal representative is one who manages an estate, and may be either an individual, a bank or trust company, subject to certain limitations.

3. A trust may be created in a Will. A trust would provide that the estate, or some portion of the estate, will be kept intact with income distributed or accumulated for the benefit of your beneficiaries. Minors can be cared for without the expense of guardianship proceedings. A trust can detail the terms and conditions under which the beneficiary receives the funds. It is an excellent vehicle for keeping assets out of the hands of creditors of the beneficiary, including former spouses.

4. Real estate and other assets may be sold without court proceedings, if your Will authorizes it.

5. You may make gifts, effective at or after your death, to charity.

6. You decide who bears the burden or taxes and expenses of administration. If not provided for then the law makes those decisions.

7. A guardian may be named to care for minor children.

Should you die without a Will ("intestate"), state law imposes the distribution of probate assets. The intestacy statute contains a rigid formula and makes no exception for those who may have different or unusual needs. This may be different than you intended and could cause estate taxes to be greater than would be paid had your estate been properly planned. Also, if a minor or someone incapacitated is the named beneficiary, a guardian may have to be appointed by the Court whereas under a Will the funds for a minor or incapacitated beneficiary could be held in trust for the minor or incapacitated beneficiary by a trustee that you designate. You cannot provide for transfers of probatable assets to a charity unless you have written a will.

Consequently, not having a will at the time of death may lead to additional estate taxes and increased costs of administration such as a surety bond and guardianship.

HOW LONG IS A WILL VALID?

A Will is valid until it is changed or revoked in the manner required by law. Your Will may be changed as often as you desire while you are sane and not under undue influence, duress, or fraud, provided it is changed in the required manner, with the formalities required by law. Changes in circumstances after the execution of the will, such as tax law amendments, deaths, marriage, divorce, birth of children, or even a substantial change in the nature or amount of your estate, may raise questions as to the adequacy of your Will. Divorce does not invalidate a Will but does invalidate provisions for a former spouse in a Will if the Will was made prior to the divorce. All changes require a careful analysis and reconsideration of all the provisions of your Will and may make it advisable to change the Will to conform to the new situation.

SPOUSE'S RIGHT TO TAKE ACTION AGAINST WILL: ELECTIVE SHARE

In Florida, for decedent’s who died prior to October 1, 2001, the surviving spouse is entitled to elect to take an outright distribution of 30 percent of the probate assets subject to administration less valid debts and real estate outside Florida, in lieu of the provisions made for the surviving spouse under the Will. For decedent’s who die after October 1, 2001, the assets subject to a spouse’s elective share are increased to include certain non-probate assets. The surviving spouse's share may be waived before or after marriage. The spouse's elective share cannot be defeated by will and is in addition to any assets which the spouse may receive outside the will such as jointly owned assets.

ESTABLISHING A LIVING TRUST

An alternative to probate is the "living (revocable) trust" where a trustee holds legal title to your assets in trust, subject to terms and provisions stipulated in the trust agreement.

This is a "lifetime" (while you are still alive) transfer of assets by you, the grantor, to the trustee (usually you during your lifetime) in which you specifically retain the power to revoke the trust agreement and to re-acquire the assets. This power to revoke also includes the authority to amend the trust agreement. The living trust is different from an "irrevocable trust" (which cannot be changed after it is established). The living trust acts as a last will and testament upon death and should be complemented with a "Pour Over Last Will and Testament." A Pour Over Will directs that assets which have not been transferred to the trust during your lifetime, be added to the trust on your death.

Here are five good reasons to create a living trust:

* It avoids the costs of probate.

* It ensures privacy (living trusts are not part of Probate Court file or public record).

* It provides a testing ground for the designated trustee.

* It allows management of assets over an extended period of time.

* It more than likely will avoid incapacity proceedings in probate court if you (the grantor) became incapacitated during your lifetime.

There are no tax consequences regarding the creation of a living trust. There is no gift tax since transfers are revocable. Also there is no change to your income tax filing and reporting. At the time of death all trust assets are subject to estate tax.

Another important decision you must make is the determination of a trustee. You, the grantor, would usually serve as the sole trustee during your lifetime but a co-trustee could also be utilized or you could designate someone else to serve as trustee. The trustee could be an individual or a bank acting with the grantor, alone, or as a co-trustee. The choice of a trustee is an individual decision and should take into account your personal preferences, family needs and the complexity of your financial situation. After incapacity or death, the named individual and/or bank would become the sole trustee.

POWERS OF ATTORNEY

A Power of Attorney is a legal document delegating authority from one person to another granting that person (the "attorney-in-fact") the right to act on behalf of the maker of the Power of Attorney (the "principal"). The extent of the authority is granted would turn on the specific language of the Power of Attorney. A person giving a Power of Attorney can make it very general or can limit the Power of Attorney to specific acts.

A Power of Attorney can be used to give another the right to sell a car, home or other property in the place of the maker of the Power of Attorney. A Power of Attorney might be used to allow another to sign a contract for the maker of the Power of Attorney. It can be used to give another the authority to make health care decisions, handle financial transactions, or sign legal documents for the maker of the Power of Attorney. A Power of Attorney can give others the right to do almost any legal acts that the maker of the Power of Attorney could do himself.

A "general" Power of Attorney gives the attorney-in-fact very broad powers to perform any legal act on behalf of the principal. In doing estate planning, it is common to grant a general Power of Attorney to plan for a time when one may not be able to take care of things due to incapacity or otherwise. By executing a general Power of Attorney, one may designate someone to handle financial and other matters on his behalf.

Limited and general Powers of Attorney granted by a competent principal to another terminate if and when the principal becomes incapacitated. Because many people want Powers of Attorney for the sole purpose of designating someone to act on their behalf if they are no longer able, Florida law provides for a power to be designated as a "Durable Power of Attorney." When a person can no longer act for themselves, as is the case in the event of incapacity, the Power of Attorney is most valuable. A Durable Power of Attorney remains effective even if a person becomes incapacitated. The item that distinguishes a Durable Power of Attorney from a non-durable Power of Attorney is special wording that provides the power survives incapacity of the principal. However, even a Durable Power of Attorney may be terminated if court proceedings are filed to determine the principal’s incapacity.

If a guardianship court proceeding is begun with regard to the principal after the Durable Power of Attorney was signed by the principal, the authority of the attorney-in-fact is automatically suspended until the court decides whether the Power of Attorney should remain in force. The law requires that an attorney-in-fact receive notice of the guardianship proceeding. If a guardian is appointed, the Power of Attorney is no longer effective unless the court allows certain powers to continue. By law, the courts must look to any alternatives to guardianship. If the alleged incapacitated person executed a valid Durable Power of Attorney prior to his or her incapacity, it may not be necessary for the court to appoint a guardian since the attorney-in-fact already has the authority to act for the principal. As long as the attorney-in-fact has all necessary powers, it may not be necessary to file guardianship proceedings and, even when filed, guardianship may be averted by showing the court that such power exists.

The authority of the attorney-in-fact of a Durable Power of Attorney automatically ends when one of three things happen: (1) The principal dies; (2) the principal revokes the Power of Attorney; or (3) when a court determines that the principal is totally or partially incapacitated and does not specifically state that the Power of Attorney is to remain in force. If any one of these three things occur, the Durable Power of Attorney is terminated. If, after having knowledge of any of these events, a person continues to act as attorney-in-fact, they are acting without authority.

On June 15, Governor Bush signed into law the new "springing" power of attorney to be effective January 1, 2002. Therefore, Durable Powers of Attorney for Financial Matters executed after January 1, 2002 can be conditioned upon becoming incapacitated, as opposed to becoming effective immediately upon execution.

LIFETIME GIFTS

Lifetime gifts are distributions of your estate's assets to individuals and/or charities while you are still alive. The significant benefit of this is that (to the extent of $10,000 per year per recipient) it reduces the assets which are subject to estate and/or inheritance tax when you die.

Gifts to charities are unlimited. Gifts to individuals are gift tax free to the extent of $10,000 annually. For gifts in excess of $10,000, a gift tax return must be filed. However, for cumulative taxable gifts (greater than $10,000 per recipient per year) of up to $675,000 (in 2001), no gift tax is due. The form of the gift may be outright or through an irrevocable trust.

If you have been successful in accumulating personal assets during your business or professional career but fail to plan for the inevitable, you could leave your loved ones or favorite charities far less than you expected. Now is the time to talk with your attorney about proper estate planning.

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