By: Gary I. Teblum
Most of us prefer to do those things that are fun and tend to procrastinate as to things that are the more mundane and that are not so interesting or exciting. Does that describe you?
So are you one of those who, back in the 1990s said they would do their estate planning – but here we now are in 2016 and you still have no will? Are you still partying like it’s 1999 and putting off doing anything of significance about your own estate planning?
If so, the recent passing of Prince should be a good wake up call and reminder. First, let us say that I was not a particularly big fan of Prince or his music. But there is no question that Prince was a great musical talent and his passing at such a young age is quite sad and is a great loss. If you have been following the news, you are probably aware that when Prince died last month, he apparently died without having done any estate planning – he had no will.
Under Florida law, as in most states, a person who dies without a will is considered to have died intestate. For a person who dies intestate, the courts get to decide who will administer the person’s estate and who will be the guardian for their minor children – and the laws of intestacy in the state will specify how and to whom that person’s assets will pass, which may not necessarily be the way the person who died would have wanted those assets to pass.
Prince is by no means alone in not having a will – and, indeed, he is one of many famous people who died without a will. Among those who died intestate are Howard Hughes, Abraham Lincoln (remember, he was a lawyer!), Michael Jackson (did Prince know that?), Sonny Bono (again, someone in the music business – or was he a politician?), Jimi Hendrix (are you seeing a pattern?), Bob Marley, Kurt Cobain, Amy Winehouse, Pablo Picasso and Martin Luther King, Jr.
If one examines the aftermath of these high profile intestate deaths, what is often the case is that the lack of a last will and testament and the lack of estate planning led to great confusion, infighting and unnecessary financial expense. Even a simple last will and testament might have eliminated some of these challenges.
A last will and testament allows a person to dispose of property at death in the manner he or she chooses rather than relying on intestacy statutes which may allocate assets in a manner that is not in alignment with an individual’s true wishes or intentions. For example, if an individual is charitably inclined and dies intestate, no assets will be distributed to any charities, except in very rare circumstances.
In addition, proper estate planning is especially important in second marriage scenarios where one or both spouses may have children from a prior marriage. Ensuring that both your current spouse and the children from the prior marriage are provided for takes careful planning, particularly if ultimately the desire is to get the assets to the children of the first marriage after the current spouse has passed. As a general matter, in the absence of a pre or postnuptial agreement, a person cannot disinherit his or her spouse in Florida – a surviving spouse is entitled to a 30% “elective share” of his or her spouse’s “elective estate.” Proper planning may allow a person to leave the appropriate elective share amount in an elective share trust such that the second spouse is not given outright control over the assets. Utilizing this type of estate planning trust, a person is able to control where any remaining trust assets are to pass after the second spouse dies (e.g., charity, the children from the first marriage, etc.).
Implementing planning techniques such as the creation of a revocable trust and proper use of beneficiary designation forms (e.g., for assets such as life insurance policies, retirement plans, etc.) often allows a person to avoid probate altogether, which reduces the expense and delays associated with a court-supervised probate administration. But without such careful planning, the assets are subjected to the rigors and costs of probate; and with no will, the assets get allocated as the intestacy laws direct.
The absence of a clearly drawn last will and testament often leads to expensive probate litigation. In Florida, it may encourage individuals to claim an extended family relation to the decedent in a situation where the decedent had few close relatives or family members, with such individuals hoping to inherit under intestacy laws. In addition, while there is a statute on preference in appointment of personal representatives (executors), individuals could also fight over who gets appointed since a personal representative (executor) is, by statute, entitled to compensation based on the value of the estate’s assets (generally 3% of the first $1 million).
For larger estates, such as Prince’s estate, the absence of a will and the failure to engage in effective estate planning may mean that the estate ends up bearing estate taxes (and possibly generation skipping transfer taxes) substantially greater than it really needs to. The result is that illiquid assets may need to be sold on a fire sale basis (thus not realizing full value) and the descendants end up inheriting fewer assets.
Further, you should be wary of relying on a will that was prepared years earlier and never updated. Although you may not be subjected to the intestacy laws, your estate may face many of the same problems, challenges and financial burdens. Your “outdated” will may not have the desired persons named as personal representatives and/or guardians. It may not reflect your current desires for how you want your assets to be distributed, particularly if there have changes in the family, such as marriages, divorces, births and deaths. Undeserving relatives and/or charities may inherit assets while other more deserving persons or more favored charities get nothing.
Thus, no matter what the size of your estate, you would be well advised to do estate planning and at least have a will. Your estate planning documents should be reviewed at least yearly (and also following significant life events such as death, divorce or remarriage of yourself or your children’s marriages or divorces) and updated as necessary.
Too many of us tend to think we are invincible and we have plenty of time to do the planning – death is too far away for this to be a high priority. But, if you think about it, you know all too many people where early unexpected deaths have occurred.
Here are some of the items that a will should address:
- Designate a personal representative – and successors. This is the person who will be responsible for collecting and marshaling the assets of the estate, paying all of your valid debts and obligations and distributing the remaining assets of the estate to your designated beneficiaries.
- Designate a guardian for minor children – and successors.
- Identify who gets which assets and/or in what amounts. A consideration that is often important is whether all beneficiaries be treated equally or perhaps you want one or more beneficiaries to get more because they have greater needs than others.
- Make sure that the documents address estate tax planning, if the estate is large enough, and in all cases, take into account income tax planning (which under recent law changes has become even more important) and planning for retirement assets.
Other documents that constitute part of a comprehensive estate plan include (i) a Durable Power of Attorney, (ii) a Living Will and a Designation of Health Care Surrogate (these two documents are often referred to as “advance directives”) and (iii) a Declaration Naming Preneed Guardian.
In addition, a revocable (or inter vivos) trust can enable a person to maintain confidentiality as to his or her financial affairs after death (because of the lack of court supervision) and provide a mechanism by which a successor trustee may, without court intervention, assume responsibility for the assets of the trust if he or she becomes incapacitated.
Irrevocable life insurance trusts may offer solutions for those individuals who seek liquidity to pay any estate taxes that may be due at death without reducing the assets available to their beneficiaries or forcing beneficiaries to sell estate assets to pay such taxes.
Dynasty trusts may be appropriate if the desire is to transfer wealth from one generation to the next for so long as Florida law allows (currently 360 years).
If you do this right, it will make things easier for your survivors, eliminate confusion, eliminate undue expense, avoid unnecessary tax burdens – and maybe even make you feel better that things are in order – and then you can go back to partying like it’s 1999!
FOR MORE INFORMATION
For more information about wills and estate planning, please contact your lawyer, or if you are not currently a client of our firm, contact:
Gary I. Teblum; 813-227-7457 | gteblum@trenam.com
