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Estate Planning

Who Needs Estate Planning?

Estate planning isn't about how much money you have. It’s about protecting what you have—both for yourself while you’re alive and for your loved ones who should receive it after you’re gone. It ensures that what you have goes where you want it, the way you want, when you want.

If you were to die today, do you feel sure that everything will be taken care of the way you wanted? Estate planning means legally providing sufficient instructions to ensure that things will be handled the way you want them to be.

Estate Planning really is for everyone! It doesn’t matter if you have $40,000 or $400,000. You still have to plan for the future. Estate planning includes naming guardians for minor children or ensuring that your children (or anyone else) don’t burn through your assets if you unexpectedly die or become disabled.

Estate planning can only be done by attorneys, and it can be as simple as a Will, Health Care Documents, Living Will and Durable Power of Attorney. It can also be more extensive, including a revocable, probate-avoidance trust; asset protection trusts; multi-generational tax-saving trusts; tax-saving charitable trusts; private family foundations; and many other fact-specific strategies. It’s up to you!

Keeping your Estate Plan Current...

Once completed, your estate plan should be reviewed and kept current with life events such as the birth, death, marriage, or divorce of anyone included in your plan. In addition, you should review your plan if there is a significant increase or decrease in your finances or if the laws related to your estate plan change.

Estate Planning Attorneys

Would you have an optometrist do your heart surgery? Sounds like a silly question, right? However, the same could be said for choosing the right attorney for your estate planning. Unfortunately, the legal profession does not have as clearly defined specialties as the medical profession does. You have to do some research to be able to tell which attorney is qualified to guide you through your estate planning options.

It seems every brochure or letter you receive from your bank, financial advisor, or brokerage firm asks if you have done your “estate plan.” But your bank, financial advisor, or brokerage firm can only help you with the financial planning aspects of your estate. You need a qualified estate planning attorney to help you with the legal aspects of your estate plan. A good estate planning attorney will work with both your financial advisor and your accountant to create the best plan for you.

Some attorneys attend a short seminar to learn a certain area of law and then immediately add it to their existing law practice. Others take the time to get the education required to become a specialist in one or two areas of law. The intricacies around estate, Medicaid, and tax planning are extensive. Not only does the attorney need a thorough knowledge of probate law, estate administration, trust, asset protection and Medicaid laws, they must also have an extensive knowledge of income tax, estate tax, gift tax, generation-skipping tax and excise tax laws. All of these areas intertwine and have a significant impact on your estate plan.

“Florida Bar board certified specialist,” “board certified expert,” and “B.C.S” are terms you can look for to let you know that an attorney is a legal expert in his or her field. It is a credential that can help you sort through the clutter of legal advertising when comparing lawyers.

Certification is the Florida Bar’s highest evaluation of attorneys’ competency, experience, and professionalism in the areas of law approved for specialization. The Florida Bar maintains high standards that lawyers must meet before seeking certification in an area of law practice. Florida has 26 areas of law in which lawyers may specialize—more than any other state.

While general attorneys may have some knowledge of the law and be able to guide you through certain parts of the estate or Medicaid planning processes, they will not be aware of the many exceptions and detail s an attorney who limits his practice to only estate planning will know.

An attorney who does traffic court one day, divorce on another, business law on the third day and sues for personal injury on the fourth, will not have the experience and knowledge of the loopholes as an attorney who practices exclusively in estate planning. If you're looking for a divorce, find an attorney who focuses on divorce. If you want estate planning, find an attorney who focuses on estate planning.

Medicaid Planning

Assets in a revocable living trust are not protected and must be used to pay for the costs of long-term care.

If you are married, your home is exempt and cannot be taken from you when applying for Medicaid. If you are single or widowed, your home is exempt up to $552,000. If you transfer your home to your children, not only will it result in immediate ineligibility for Medicaid, but it could also:

Trigger a gift tax, Result in the loss of any property tax exemption, and, Result in your child's spouse (the in-laws) inheriting your home.

Giving your assets away means losing control. It's not safe even if you “trust” whom you give it to. If that person divorces, goes bankrupt, or is sued, all of the money you transferred is at risk. There are asset protection trusts that permit you to keep 100% control of your assets without the risk of losing them if long-term care is needed.

You do not have to wait 60 months to qualify for Medicaid. Eligibility is calculated on a case-by-case basis. It is possible to have over $250,000 in cash and qualify immediately. Get professional advice and learn the facts.

It is never too late to protect your assets even if you are already in a nursing home. In fact, you can qualify for Medicaid even if you are already in a nursing home.

A nursing home or hospital that offers to file a Medicaid application for you has no obligation to (and often cannot) advise you on how to protect your assets. Only a qualified Medicaid planning attorney will be able to look out for your interests.

Applying for Medicaid prior to qualification could result in being disqualified for a longer period of time than you otherwise would have been (it’s not limited to 36 months).

Make sure the attorney you hire is experienced in Medicaid planning.

Consider long-term care insurance. An annual premium for a married couple is usually less expensive than one month of nursing home care. Also, with proper planning, it may also enable you to stay home if you become ill.

Power of Attorney

If you become sick or disabled, either temporarily or permanently, who will make decisions for you? There are two kinds of Power of Attorney. One allows someone you trust to manage your finances if you are unable to. The other kind allows someone you trust to make healthcare decisions for you. Every adult over 18 years of age should have both.

A Power of Attorney allows you to appoint someone you trust to handle your affairs if you cannot do so.

If you cannot pay bills, get records or make other decisions, your family should have the power to help you get treatment, pay medical bills, and help you in other ways.

Without a Power of Attorney, your family may have to file what is known as an Article 81 Proceeding, seeking guardianship of the disabled person. This process involves the Court, several lawyers and usually at least $4,000 to $50,000. On the other hand, a Power of Attorney might cost $200.

It is important that you give your family the tools to help you if you cannot help yourself.

Last Will and Testament

If you own assets in your name alone, they can quickly pass from you to the people you love—if you leave a Will. Without a Will, your assets pass according to the State's rules, also known as intestacy. The State may not pass your assets to the people you care about. In order to be sure your stuff goes where you want it to, you should leave a will.

You should also know that...
      • Assets will pass through your Will to your loved ones if the Will is written properly.
       • You can reduce your estate tax liability by using a trust in a Will.
      • You can protect the ones you love by creating a trust in your Will which can protect your family from creditors.
      • You can protect yourself.
      • It is important that you give your family the tools to help you if you cannot help yourself.
      • Your Will (if you don’t have a trust) must go through probate, using the courts to divide your property.

Want protect your children from losing their inheritance through divorce? Want to leave money to your financially irresponsible child but prevent her from burning through it quickly? Want to leave money to a disabled child or grandchild without disqualifying him from public benefits? You can do all those things. Find a qualified estate planning attorney to help you.

Revocable Living Trusts

A trust is a contract among three parties:

      • the Grantor (the person who creates the trust) 
      • the Trustee (one who controls the trust) 
      • the Beneficiary(ies) (those named to benefit from the trust). 

You, as Grantor, determine 1) how the trust will be operated by the Trustee and 2) who benefits, how they benefit, and when. You can create a trust that permits you to be Trustee and give yourself the right to receive full benefits from it. This type of trust is typically referred to as a Revocable Living Trust and is often used as a substitute to your Will. It permits you to keep total control and access to all your assets during your lifetime, and provides for the distribution of your assets to your beneficiaries at your death. A revocable living trust is your “Book of Instructions.” A well-established advantage to Revocable Living Trusts is the avoidance of probate. Other advantages of Revocable Trusts, when property drafted, can include:

      • Asset protection for your spouse after your death.
      • Special needs planning for disabled beneficiaries.
      • Asset management and protection for children who are not proficient with handling money.
      • Protection of assets from a spouse's subsequent remarriage after your death.
      • Disability planning in the event you become disabled prior to death.
      • Asset protection for your child if his or her marriage should fail to ensure your assets are not part of a divorce 
      • Keeping your affairs private (as opposed to open for public review in probate).
      • No court intervention required (handled entirely by the Trustee you name in accordance with your detailed instructions).
      • Plan for proper management of your business in your absence.

Only a qualified estate planning attorney will know how to incorporate these protections into your plan. Also, while a Revocable Living Trust has many advantages, it does not protect your assets from nursing homes, lawsuits, divorce bankruptcy or other creditors.

Irrevocable Trusts

While a Revocable Trust permits you to maintain full control (as Trustee) and have access to all your assets (as beneficiary), an Irrevocable Trust, once created, may prohibit your right to control the trust (as Trustee) or have access to your assets (as beneficiary), but you get to decide to what extent.

It is a common misconception that irrevocable trusts, once created, cannot be changed. While that is true of many irrevocable trusts created to avoid taxes (tax reduction or avoidance trusts), it is not true of all irrevocable trusts. An irrevocable trust is a trust you create for the benefit of yourself or others and once created, you (the Grantor) must give up your right to something.

Debtor/Creditor law provides that whatever you can get, your creditors can get. There are two kinds of creditors: known (i.e. credit card debt) and unknown potential (unforeseen lawsuits, nursing home, divorce, etc.). A typical income-only irrevocable trust permits you to receive the income on your assets, but you must give up your right to your principal. In some irrevocable trusts, you can retain the right to change who gets your assets during your life and after your death, and maintain 100% control of your assets until your mental disability or death. Again, it’s up to you what you do with your stuff. A qualified estate planning attorney can help you.

Tax reduction/avoidance trusts are much more restrictive than asset protection trusts. Typically, you cannot retain any right to control or access any of the assets in an irrevocable tax reduction/avoidance trust. There are many irrevocable trusts available that are quite flexible and grantor-friendly. You should consult a qualified estate planning attorney to get counseled on all your options before creating an irrevocable trust.

Disabilities and Special Needs

If assets are left directly to a disabled beneficiary, they could disqualify him from state or federal programs under which he is receiving benefits. In 1993 Congress enacted new laws that entitled disabled individuals to derive the same estate planning benefits as non-disabled individuals without affecting their eligibility for state or federal benefits. The law made provision for Supplemental Needs Trusts, which enable you to leave any amount of money to a loved one who has special needs without affecting her eligibility for the state or federal benefits she receives.

The law further provides the trust proceeds must be used to provide luxuries for the disabled individual he would not otherwise receive under the state and federal programs. Luxuries can include vacations, computers, power wheel chairs, prosthetics, and other comforts not generally provided by the government.

A Supplemental Needs Trust can be created by a disabled individual with his own funds or be created by someone other than the disabled individual, typically a parent or relative.

There are different rights and restrictions to any trust, but they ensure immediate qualification for federal and state benefits (i.e. Medicaid) and provide luxuries to the disabled beneficiary she otherwise, most likely, would be unable to have.

When Do I Need Guardianship for my Special Needs Child?

As a parent of a special needs child, you are the child's “natural guardian” and can make all decisions regarding the child. However, your rights as guardian do not allow you to have access or control of your child's assets (i.e., proceeds from a lawsuit or gifts from a family member). In addition, when your child reaches the age of 18, you lose your rights as the natural guardian to make healthcare and other life decisions for them. To maintain these rights, you must have a power of attorney or commence a guardianship proceeding; otherwise, the State will assume legal authority over your disabled loved one. To avoid losing your authority, you should contact a qualified attorney to begin a guardianship proceeding at least six months prior to your child's 18th birthday.

Charitable Planning

Charitable giving techniques are typically used for those who have accumulated wealth that is subject to estate tax after death. The estate tax rates are as high as 50% and those who have worked hard to create and accumulate assets usually choose to utilize charitable giving techniques to minimize taxation while creating a lasting legacy without necessarily depriving family from benefitting from your assets. Charitable planning is also utilized to minimize income taxes (which can exceed 40%), and you can retain full control of your assets.

Charitable planning can also be effective when selling your business. When properly utilized, you can avoid paying income taxes on the sale of your business when sold.

Utilizing a charitable giving plan enables the donor to direct the use of his or her assets that would otherwise go to the IRS. Your assets can pass to your family, charities, or the IRS, but you must choose two out of the three. If you don’t, the IRS wins by default.

There are many ways to do charitable planning, including Charitable Remainder Trusts and Charitable Lead Trusts.

Charitable Remainder Trusts enable you to:

      • Transfer highly appreciated assets,
      • Liquidate them with no tax consequence,
      • Receive a charitable tax deduction against your current income , and 
      • Still receive the benefits from your assets for the balance of your life.
      • At death, the remainder goes to the charity of your choice. 

Charitable Lead Trusts:

      • Provide income to a charity for a term of years, and at the end of the term, the remainder is paid to your family.
      • A Charitable Lead Trust is primarily a gift-discounting technique that permits you to gift $1 worth of assets to your family members, and the IRS will view it as less than $1 (typically 30% - 60% less). This enables you to gift more than you otherwise would be able to.

Other charitable strategies include: 

      • Private Family Foundations.
      • Donor Advised Funds.
      • Special Funds as part of a Local Community Foundation.

All will work to minimize taxation and create a lasting legacy.

The bottom line is, it is important for you to have an estate plan. And it is important that that estate plan fits your needs and wants. Both are possible.

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