Naming a trust as a beneficiary of life insurance policy can have a huge benefit for people with large estates that are not taxable. It is also a great way to protect the insurance proceeds from future creditors and to help beneficiaries better manage their assets

There are a few common types of trusts that can serve as the owner or beneficiary of a life insurance policy. These trustees might include: an irrevocable life insurance trust, a living trust, a special needs trust and a spendthrift trust.

Irrevocable Life Insurance Trust

This type of trust, often referred to as ILIT, is used to irrevocably purchase insurance on the life of the grantor of the trust. This means the trust will have actual ownership of the policy, rather than the person the policy is for. This is done usually to avoid the taxing of life insurance proceeds at death under the Federal estate tax.  Since the person does not actually own the life insurance policy, the proceeds are not subject to estate tax or included in that person’s estate when he or she dies.

Once a person with an ILIT dies, the insurance proceeds will be deposited into the ILIT. Usually, an ILIT is set up to provide for the other spouse during his or her lifetime, and the balance passes to the children or other named beneficiaries.

ILITs are typically used to save money on estate taxes by ensuring the life insurance proceeds would not be included in the insured person’s estate.   In 2002, the estate tax exemption was only $1 million. Since 2013, Congress has raised the estate tax exemption has been raised to $5.43 million, and $10.86 for married couples.  This much higher exemption means a large number of estates are no longer facing estate taxes. However, those with larger estates can still benefit greatly from the use of an ILIT. In addition, some families are still using ILITs incase the estate tax exception is lowered in the future.

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The U.S. Supreme Court recently ruled that an inherited IRA is not a “retirement account” for purposes of protection under the Bankruptcy code. This now means that inherited IRAs are available to satisfy creditor’s claims in order to pay off debt.

The court characterized an inherited IRA as money that is set aside for the original owner’s retirement rather than money set aside for a designated beneficiary’s retirement. The court reached this conclusion using three elements to differentiate an inherited IRA from a participant-owned IRA:

  1. The beneficiary of an inherited IRA cannot make additional contributions to the account, while an IRA owner can.
  2. The beneficiary of an inherited IRA must take required minimum distributions from the account regardless of how far away the beneficiary is from actually retiring, while an IRA owner can defer distributions at least until age 70 1/2.
  3. The beneficiary of an inherited IRA can withdraw all of the funds at any time and for any purpose without a penalty, while an IRA owner must generally wait until age 59 1/2 to take penalty free distributions.

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In Florida, the assets of an estate can be transferred in three different ways upon the death of the estate owner. Some assets are transferred freely without a court’s approval by contractual terms. A court will also provide limited administration for an estate worth under $75,000. Finally, there is a formal administration for large estates without a valid will. A lengthy probate is not always necessary if the owner of the estate has a will that dictates how a person’s assets are to be distrusted upon his or her death.

Assets that Avoid Probate

There are some types of property that can be transferred to a new owner without a probate court’s approval. One of the most common types of non-probate property is property that is owned by multiple people in joint tenancy with rights of survivorship or as tenants by the entireties.  This property is usually owned by married couples such as a car or house.

Assets held in a trust may also avoid the probate process. The other type of asset that can bypass the probate process is an asset for which the person has designated a beneficiary. A good example of this is a payable on death bank account or life insurance proceeds.

Summary Administration

When a person dies with very few assets, the executor of the estate may use a summary administration. A summary administration is a much quicker process than the formal administration. A summary administration can be used in Florida if: (1) the death occurred more than 2 years ago, or; (2) the value of the probate estate, not including the non-probate assets, is not more than $75,000.00.

To start a summary administration,  the personal representative will file a petition for summary administration.  The petition must be formally served to the beneficiaries, if they did not sign or consent in writing with the petition, If there is no executor, and the court determines that the estate qualifies for summary administration, the court will simply issue an order to release the property to the beneficiaries.

Formal Administration

If the estate does not qualify for a summary administration, formal probate may be necessary. The probate proceeding will usually take place in the county where the deceased person was living at the time of his death. The law in Florida requires anyone who has possession of a will to file it with the local circuit court within 10 days of receiving notice of the death.

The court will then issue a Letters of Administration, which gives the executor the authority to settle the estate. If a will exists, it must be filed with the court and proven valid. Most likely the will be deemed “self-proving.” Under Florida law, a will is self-proving, if the witnesses sign the will in front of a notary public.

The executor will be responsible for gathering assets, paying debts and taxes, and distributing the assets to the beneficiaries. After the estate has been properly distributed, the executor files the receipts of his distribution with the court, and asks the estate to be closed. The court will then issue an order closing the estate and the executor will be relieved of his duties.

For more information on an estate is probated and how a will can prevent a lengthy probate process, contact the Law Office of David Goldman PLLC today at 904-685-1200.

Here at the Law Office of David Goldman, we wanted to list some of the more important clauses that might be used in a Florida will or Florida Living Trust. Every person who makes a will or trust has different circumstances and therefore every will or trust is designed with that person’s specific needs in mind. Many of these clauses might not be needed in your will or trust, but we like to include them anyway in case the unexpected happens to you or your family. We urge our clients to learn about these clauses, so they can decide if these clauses might help to meet their estate-planning needs or how they may want to make changes to deal with their specific family circumstances.

Disaster Clause

This clause deals with what happens if both spouses or a beneficiary die at the same time. This will or trust usually states that a spouse’s assets will only be transferred to the second spouse or beneficiary if the second spouse survives the first spouse by a certain time period. This period is usually 30 days. This clause can help to prevent the confusion of where assets should go based upon who died first.  The time limit can be increased to add additional protection, but this can delay distributions also.

Revocation

This clause is great for if a testator already has previous wills or codicils. A revocation clause will revoke the older wills and trusts and let a court know this document is now the controlling force on the testator’s estate. Without this clause, a court would be forced to determine which portions of each will applies. This clause can save the estate from a very expensive probate process or unnecessary court intervention.

Appointment of executor or personal representative

One of the most important parts of creating a will is naming someone to serve as the will’s executor or as we call them in Florida the Personal Representative (PR). The PR is the person in charge of gathering the estate’s assets and distributing them to the beneficiaries. If an executor is not appointed, the state will then be forced to appoint an executor, and the court will usually chooses someone from the immediate family such as the spouse, child, or close relative. A PR has many duties, such as protecting the assets, and the paying debts and taxes of the estate. This means that a PR should be chosen carefully.

Spendthrift Provisions.

Earlier this week we covered the benefits of a spendthrift provision in your will or trust documents.

Guardianship of children

In Florida, a will allow a testator to name a guardian for his or her minor children in the event of the testator’s death. This clause usually takes effect if the other spouse is deceased or incapacitated. Naming a guardian is a good idea to prevent other family members from later fighting over custody of the children. To qualify as a guardian in Florida, the person named must be of sound mind and at least 18 years old. In addition, they must either be a resident of Florida or be a close family member or spouse of a close family.  You can also choose different people to be the guardian of the person and the property.

Total failure clause

If all the named beneficiaries and eligible heirs die before a testator dies, their estate is given to the government. This very rarely happens, but many testators find they would rather see the money go to a good someone else or a charity. Therefore a total failure clause will allow a testator to name a charity as the beneficiary if no eligible heirs are alive at the time of the testator’s death. Many people choose to have their closes family relative as a default.

For information on how a will can be drafted to meet your individual estate-planning needs, contact the Law Office Of David Goldman today.

There are many ways that a settlor, or a person who creates a trust, can help to prevent creditors from attacking the assets he or she leaves a beneficiary through a trust or a will. One of the best ways to protect a trust’s assets is through a spendthrift clause.

In a trust, most beneficiaries are able to freely transfer their interest in the trust to someone else. A spendthrift provision prevents a beneficiary from being able to transfer their interest in the trust either voluntarily or involuntarily. While this puts a restraint on the beneficiary’s rights, it has the added benefit of preventing creditors from reaching these funds.

The provision must restrict the beneficiary’s ability to make voluntary and involuntary transfers. A restriction on just involuntary transfers will generally not be deemed valid by a court and will still allow creditors to reach the trust funds.

Florida as well as many other states permit spendthrift provisions in a person’s will or trust.

What is important to note about this asset protection is that it does not apply to assets that are distributed to the beneficiary by the trustee. This means that once a trustee distributes the assets of the trust to the beneficiary the creditors can reach these assets. In some cases, creditors cannot compel the trustee to make a distribution if the trust is discretionary. However, Florida’s trust code does not allow a trustee to withhold a distribution otherwise due to be paid to a beneficiary solely to protect the assets from creditors. If a trustee receives notice of a beneficiary’s creditors, and the trustee makes a distribution, the trustee may be required to pay the creditors directly.

Florida’s trust code also makes exceptions for other special creditors. This includes a beneficiary’s child, spouse, or former spouse who has a court order against the beneficiary. This means a spendthrift clause might not prevent the court from ordering the beneficiary to use his trust funds for child support or support of a former spouse. There is also an exception for creditors who are attorneys that have also provided services to help protect the beneficiary’s interest in the trust. A spendthrift clause also does not protect a trust’s assets from the federal or state government.

This trust agreement can also protect a beneficiary from wastefully spending her share of the trust. A settlor, or someone who creates the trust, may want to protect the beneficiary from her own tendency to make imprudent or wasteful financial decisions. Without a spendthrift provision it would be possible for a beneficiary to sell his interest in the trust to another for a quick profit. A spendthrift provision included for this purpose will usually be found in a discretionary trust, which allows the trustee to make distributions of the trust’s assets at his discretion.

For more information on how a spendthrift provision can suit your estate-planning needs, contact the Law Office of David Goldman today at 904- 685-1200.

Most people assume when they receive an inheritance, either through a will or a trust, that they must accept it. This is actually not the case as a beneficiary is also allowed to disclaim, or not to accept, the inheritance. Refusing an inheritance may seem like an alien concept, but can actually be the best course of action for many beneficiaries in some situations.

There are many reasons to disclaim an inheritance, with the most common reason being to avoid costly taxes. A common example of this might happen when parents leave money to affluent adult children. In this case, the children could disclaim the inheritance in order for the grandchildren to receive the inheritance instead. The money would then be taxed at the grandchildren’s tax rate rather the adult’s rate, which could save a large portion of the inheritance from being taxed. In addition, if the disclaimed assets would not be subject to the estate taxes of the parent.

Letting the inheritance pass to the next beneficiary through a disclaimer can be a much more efficient process compared to the beneficiary accepting the gift and passing the gift to the next beneficiary herself.   This is especially true if the gift is real property as is does not require the first beneficiary to go through the re-titling process. Someone with a large estate can also use a disclaimer to save on gift taxes, which will be incurred if the beneficiary takes the inheritance and passes it to another person.

A disclaimer can also be used for personal reasons, such as when a beneficiary knows another beneficiary needs the money more than she does. A good example of this occurs when a parent leaves her estate to two children, and names each child the alternative beneficiary.   In this scenario lets assume one child is a doctor and the other is a school teacher who supports a large family. The doctor may disclaim the inheritance so the schoolteacher receives her share of the inheritance because she knows the schoolteacher needs the money more.

In some cases there are restrictions on funds or assets that make them much more valuable to the children and a disclaimer can be used to remove the restrictions.

A beneficiary may wish to disclaim an inheritance if she is facing bankruptcy. In Florida, the bankruptcy law is complicated and may not allow a beneficiary to become a disclaimant.   We recommend consulting with a bankruptcy attorney before disclaiming an inheritance in order to avoid any fraudulent transfers of assets.

Beneficiaries often disclaim property that has become undesirable. A property might become undesirable for many reasons such as when extensive repairs are needed, or the property has incurred large debts.   It might often cost the beneficiary more to use or sell the property, and in taxes, than it would be worth. A disclaimer would allow the property to go to another beneficiary or back to the settlor’s estate.

All disclaimers should be done according to the Internal Revenue Code § 2518 to be valid, and should be prepared by an experienced estate-planning attorney. For more information, contact The Law Office of David Goldman at 904- 685-1200.

A common estate-planning problem arises when parents with young children die or become incapacitated. Usually when one parent dies, the second parent assumes custody, but if the second parent is also not available the issue is who has the right to and who will raise the minor children.

The best solution to avoid this issue is to plan ahead by naming a guardian through a will. A guardian should be someone who is willing to raise the minor children in the event something happens to the parents. To qualify as a guardian in Florida, the person must be at least 18 years old and of sound mind.

In the will, a personal guardian should be named for each of the parent’s children. It is also a good idea to name an alternative guardian in the event the first guardian is unable to serve. Besides the age requirement, a guardian must be a Florida resident unless a close blood relative or spouse of one. A testator, or one who executes a will, may also name co-guardians if they prefer that two people care for the child. This could allow another couple to raise the children, and would give each guardian the ability to make important decisions for the child.

The parents can select one guardian to raise the child, and another to take care of their property.

Selecting a guardian is not a process that should be taken lightly and there are many factors we urge clients to consider before naming a guardian in the will. The most important factor is whether the prospective guardian has a genuine desire to care for the children. A parent should have an honest discussion with the guardian to determine if this person is fully prepared to take on this big responsibility.

Even if the guardian is 100 percent on board with the idea, we urge clients to weigh other factors as well, such as if the prospective guardian is physically capable of raising the children. A parent might also want to consider how much time the guardian has to be a parent, and whether the guardian would be able to afford raising the children.   The latter factor may also depend on if the parent can leave the guardian any assets to help. A parent might also wish to factor whether the guardian already has children, and if their children would need to move out of state.

The majority of the time, parents will wish for their children to stay together with one guardian. However, it is possible for different guardians to be appointed for different children. This might be a good idea if children have become attached to different adults within the extended family. For instance, the older child may like spending the majority of her time with the grandmother, while the other child may prefer an uncle. This situation arises most commonly when a parent has children from different marriages.

If one parent dies, the default rule in most jurisdictions is that the other parent will retain custody of the child.   This will happen unless the other parent has legally abandoned the child or the parent is deemed unfit by a judge. It is often difficult to prove a parent is unfit, however, courts may rule a parent to be unfit if they have a serious problem such as habitual drug or alcohol abuse, a mental illness, or a history of child abuse.

For more information on how to name a guardian through a will, contact Florida estate-planning attorney David Goldman at 904-685-1200.

A will is an important tool in the estate planning process that allows a testator, a person who creates a will, to distribute the assets of an estate in the manner is deemed most appropriate. If no will is present, a testator’s estate is executed by the rules of intestate succession and assets are distrusted to the testator’s predetermined beneficiaries at a certain percentage.

To create a valid will, Florida requires the testator to posses the intent to create a will. To make a will, Florida requires the testator to be of sound mind and at least 18 years old. Additionally, a court requires the testator to understand the extent of her property, and to know the nature and scope of the act of executing a will. The testator must also be able to sign the will with this intent.

Courts do not allow a will to be signed by a power of attorney, guardian, or conservator of the testator.

Often people do not think someone is competent, but they may still be able to execute a will. There is a difference between a court determining someone to be incompetent and a doctor saying it.

In Florida, case law has shown that even if a testator is deemed incapacitated, it can still execute a Will without a guardian. Generally, an incapacitated person does not have the testamentary capability to execute a will.   It must be proved that the testator returned to a state of testamentary capacity by demonstrating that the will was executed during a lucid moment. A “lucid moment” is a period of time during which the testator returned to a state of comprehension and possessed actual testamentary capacity.

If a will was executed while determined to be incapacitated by a court, the burden of proof lies with the proponent of the will, which means those who wish for the will to be executed must present some evidence that the testator was lucid and possessed the proper intent to execute the will. In Am. Red Cross v. Estate of Haynsworth, the proponents of the will provided two expert witnesses that stated they believed the testator to be lucid when the will was executed. However, only one of the witnesses had examined Mr. Haynsworth and the other had not examined him near the time he signed the will. The court did not buy the proponent’s argument because neither of the expert witnesses, or lay testimony, offered any evidence that Haynsworth was lucid near the time the will was executed.

Therefore, the proponents of a will should have the incapacitated testator examined by an expert or the will could be deemed invalid by a court. The court in Haysworth did not further define how near the examination by the expert should take place in regards to when the will is executed. The best course of action would be to have the testator examined by a physician and psychiatrist on the same date the will is executed, and to then seek a judicial determination of competence by the court.

For more information on how to execute a will, or the effects of an incapacitation in estate planning, contact The Law Office of David M. Goldman PLLC at 904-685-1200.

The estate executor or personal representative is one of the most important roles in managing a loved one’s estate after death.   Serving as an executor comes with many responsibilities, but knowing what to expect will make the transition into this important role much easier. The following checklist can be helpful in organizing your efforts.

The first step an executor should take is to look for records and important documents that relate to the deceased’s estate.

The common places to look for records

  • Personal filing cabinets: Many people keep physical copies of financial records in a home filing cabinet, safe, or in other types of physical storage. Financial records might also be kept near areas where bills are paid in the home.
  • Electronic storage: Search through the deceased’s home computer, laptops, and other electronic devices for folder names that might relate to the estate. A good place to look on a computer include the “my documents” and “downloads” folders on PC or Mac.   Important files are often times kept in storage devices such as an external hard drive or USB thumb drive.
  • Mail: Look for correspondence from banks and other investment companies. These institutions will periodically send financial statements or even checks.

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The duties of a trustee vary depending on the laws of the state in which the trust is situated and the extent of the trustee’s powers provided for in the trust agreement. In some cases where there are conflicts between the terms of the trust and the state laws, the duty or obligation can vary depending on what the state law permits. In some cases, the terms of the trust will prevail and in others, the default law cannot be modified by the terms of the trust. When you become a trustee of a trust, it is recommended that you sit down with a trust attorney to review the terms of the trust as well as how state law may impact the written terms of the trust.

In addition, the type of trust can change your obligations and the role of a trustee in dealing with beneficiaries. Below is a list of some of the typical duties that are contained in trust agreements and the laws of many states:

Fiduciary Duty. A trustee has a fiduciary duty to the beneficiaries of the trust, This includes both the current beneficiaries and any remainder beneficiary’s name in the trust. A fiduciary duty is a very high standard to do what is in the best interest of the beneficiary. This is not necessarily what the beneficiary asks for or what you want.

The Trust’s Terms. It is important to read the terms of the trust carefully and understand your duties and how state laws may impose additional provisions or remove or modify the terms of the trust. The trust is a flow chart of what actions you must take and when. Some states, like Florida, reduce the statute of limitations when certain disclosures are made. This can reduce the potential liability of a trustee to the beneficiaries. Continue reading

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