Planning For Your Childrens' Futures

Many clients with young children ask me how to plan for the possibility that  they may die before their children become adults.  This is a particular concern for a single parent.  In this scenario, there are two issues that need to be addressed: who will care for the children until they become adults, and how will the assets that the parent devises to the children be managed during this time.

Pre-Need Guardian Declaration

A pre-need guardian declaration is an instrument prescribed by Florida Statute § 744.3046 in which a competent adult tells a court whom she would like to be a guardian of herself or her minor children under certain circumstances.  The declarant must reasonably identify the chosen guardian in the document, sign it in front of 2 witnesses, and then file it with the local clerk of court.

  A guardianship for minor children needs to be established when the last surviving parent dies or becomes incapacitated.  A parent plans for this contingency by filing a Pre-Need Guardian Declaration while she is alive and well (hence “pre-need”).  If the children subsequently become orphaned, the court will hold a hearing to determine who to appoint as their guardian.  The Court considers the wishes expressed by the parent in the pre-need guardian declaration in this proceeding.  Ultimately, the Court has absolute discretion to select a guardian that will best serve the interests of the  children.

 Testamentary Trust

A parent can plan for her children’s financial well-being by creating a testamentary trust in her will.  This provision typically creates an irrevocable trust upon the death of the testator. In the case of a testamentary trust for a minor child, the trust corpus will consist of assets that the parent devises to a trustee for the benefit of the minor child.   The Trustee will manage these assets on behalf of the child until he becomes an adult.

Uniform Transfers to Minors Account

The Uniform Transfer to Minors Act is a model law intended to simplify custodial transfers of assets to minors.  A UTMA account provides some of the advantages of a trust, but is easier to set up and less costly to administer.

Florida’s version of the UTMA can be found at  § 710.101 of the Florida Statutes.  It provides for a party to transfer assets to an account controlled by a designated custodian (who could be the transferor) for the benefit of the minor.  Upon transfer to the UTMA account, the property belongs to the minor, but the custodian manages it as the minor’s fiduciary.

A UTMA is a popular way to transfer funds for the benefit of a minor beneficiary when the transferor definitely intends for the minor to take control of the asset when he becomes an adult.  A trust, on the other hand, would be preferred in a situation where the transferor does not wish for the minor to become outright owner of the asset when he reaches the age of majority.  Also, the trust affords the beneficiary protection from collection efforts by his creditors while a UTMA account, to which the beneficiary has legal title, is not protected from such actions.

Contact attorney John Clarke at (305)467-5560 if you would like assistance with estate planning.

Special Needs Trusts

       A special needs trust (“SNT”) is an arrangement set up by a special needs individual or a third party to provide income to this person while allowing him to receive public benefits (such as SSI or Medicaid).

         A special needs trust is contemplated by United States Code 42 USC Section 1396p(d)(4).

Necessity of Special Needs Trusts

          If money were put in the special needs beneficiary’s personal bank account, the funds would be counted against him in terms of qualifying for needs-based public benefits. Funds put in a qualifying SNT, on the other hand,  are not countable against  his eligibility for such programs.    The “catch” is that the  goods and services purchased by the SNT must not be provided  by the government benefit received by the special needs individual.

Definitions: First Party and Third Party SNTs

        A first-party SNT is funded by the special needs individual himself while a third party SNT is funded by someone else (often a family member).  A first-party SNT is also known as a “self-settled” SNT because the support applicant is both the creator and beneficiary of the trust.  Most provisions of the self-settled trust are similar to those of a third-party SNT. The most prominent  rules of SNTs of both varieties are:

   - a restriction against distributions that would eliminate or reduce the beneficiary’s eligibility for public benefits, and

   -  a prohibition against the special needs beneficiary demanding income or principal from the SNT.

             Third-party special needs trusts are  typically created by family members of special needs individuals to plan for their future care. For instance a third party SNT may be set up in a parent’s will or living trust for the benefit of her child. These arrangements are designed to prevent  the special needs descendant from receiving an inheritance that would cause him to lose eligibility for government assistance.

            Self-settled SNTs, on the other hand,  are used by public assistance beneficiaries who suddenly receive a lot of assets. For instance, if a medicaid recipient is involved in a car accident that results in a settlement or award, the resulting payment may disqualify the accident victim from continuing to receive benefits unless it were placed in a self-settled trust. If the parent of a special needs individual failed to create a special needs trust in her estate planning documents, her bequest to this heir may  disqualify  him from receiving government benefits.unless he were to create his own self-settled SNT and assign the devise to it.

Differences Between First-Party and Third-Party SNTs  

               Self-settled SNTs in Florida are different from third-party SNTs in three ways. First, only disabled persons under the age of 65 may create a self-settled SNT. Third-party SNTs may be established by anyone at any time regardless of the age of the beneficiary. Also, self-settled special needs trusts must be irrevocable; the disabled creator of the trust cannot change his mind and either amend or undo his trust. Third-party trusts, by contrast, may be freely amended or terminated by the third-party creator until her death. Finally, first-party SNTs must provide that the SNT pay all assets in the trust at the time of the beneficiary’s death to the government to the extent required to reimburse for the  lifetime Medicaid benefits received by the beneficiary.  Since a third-party SNT is funded by the third-party’s assets, the trust creator is free to devise the trust assets as he chooses.

Contact Fort Lauderdale Attorney John Clarke at (305) 467-5560 for all your estate planning and elder law needs.

Estate Planning Tips From a Professional

      In this time of uncertainty, it is more important than ever to plan for the future.   By executing the right estate planning documents and making your plans known to your loved ones, you can protect your health, wealth and legacy.

       Estate planning encompasses management of your assets while you are alive and succession of your property when you die. It includes making healthcare advance directives, as well as appointing trusted individuals to make decisions for you.   Good estate planning protects your assets now and in the future from creditors to the greatest extent possible, and minimizes your tax liability.

     Here are some strategies that I use to help my clients create the best possible estate plan:

1. Re-Title Assets to Avoid Probate:

      Upon a person’s death, his remaining assets will become a part of his probate estate .   The more assets that are in the probate estate, the higher the legal costs of the probate for the estate.  This is because a probate attorney’s fee is calculated according to the value of the estate, pursuant to statute.

 So it is generally in your best financial interest to designate beneficiaries on the titles of your assets in order to avoid probate.   

Florida law provides that all banks and financial institutions must allow account holders to designate transfer-on-death beneficiaries.   Upon the death of the owner, his beneficiary- designated account transfers automatically to his chosen beneficiary.  So this account will not need to be included in the owner’s probate estate.

 The same principle holds true for real property.   Florida law recognizes an enhanced life estate deed that allows the property owner to name a beneficiary of the property while the owner is still living.   This type of deed is enhanced because the property owner reserves the right to sell the property to someone else, if he changes his mind.   Once the owner dies, the property automatically passes to the designated beneficiary free of probate.          

2. Plan for the Improbable:

A good estate plan should plan for all contingencies.  A parent usually assumes that his child will outlive him, and may devise his property to the child in a will or trust.   The parent should also consider, however, that he may outlive his own child and should designate contingent beneficiaries.  The same principle holds true for appointment of personal representatives and trustees.  A well-drafted will or trust will provide for contingent fiduciaries to serve if the primary fiduciary is dead or incapacitated.

3. Choose Your Fiduciaries Carefully:

       A good estate plan will designate trusted individual(s) to administer a trust or to act as personal representative of the estate in a probate proceeding.    The estate planning document should state the powers that you are grant to your fiduciary.  If there is more than one fiduciary, the document should provide for how to resolve disputes between the fiduciaries.

4.  Consider Carefully Whether to Create a Will or a Trust:

       Generally speaking, a person can pass their assets upon their death by way of a will or a living trust.  Each tool has distinct advantages and disadvantages.   A formal probate of an estate pursuant to a will takes many months and involves substantial legal fees and costs.   On the other hand, the probate process is overseen by a court so there are strong incentives for the personal representative of the decedent’s estate to act honestly and diligently.

        A person who creates a living trust, on the other hand, transfers property to his trust during his life.   He designates someone to act as trustee after his death and to manage or distribute the property according to his instructions. Because the property is already in the trust at the time of his death, there is no probate needed.  The administration of the trust is not supervised by any court (though the successor trustee is required by law to file a copy of the trust in the public records upon the death of the trust creator, which puts beneficiaries of the trust on notice as to their rights).

5.      Let Your Loved Ones Know Where You Keep Your Documents:

         Florida law requires your heirs to prove your will upon your death.  By properly executing a will along with a “self-proving affidavit,” you make this process easy .  Your heirs need only file the original will with the clerk of court, and the will is proved.   If , however, your heirs can not locate the original will, proving the will can be difficult or impossible.  Furthermore, if no copy of your will can be found, then a presumption arises under the law that you intentionally destroyed the document.

6.     Consult an Experienced Estate Planning Attorney:

          Effectively planning an estate requires a lot of specialized knowledge.   There is specific language required to effectively convey your assets to your loved ones.   Florida law also requires strict compliance with certain formalities when you execute your documents. 

If you need assistance planning your estate or for the succession of your business,  contact estate planning attorney John Clarke using the form on this website or call the office at (954) 556-8952.

Low-Cost Strategies to Avoid Probate

Probate is the process by which a court settles the estate of a decedent.   Unfortunately, a probate case can be time-consuming and expensive. Below are some strategies to help you plan your estate to avoid the need for a probate.

Assets that are included in the probate estate:

-All the decedent’s personal and real property which he individually owns at the time of death,

- for which there is no provision for succession of ownership at death.

"Ladybird" Deed

                The enhanced life estate deed, colloquially known as a “ladybird deed,” is a type of deed in which the grantor designates a beneficiary to take ownership of his property at the time of his death.  Since the ownership succession takes place automatically, the property never goes through probate.  Another advantage of the ladybird deed is its flexibility – the grantor can change his mind at any time and sell or convey the property to another party without the beneficiary’s consent. 

Life Insurance

           After the insured dies, the proceeds of a life insurance policy flow directly to the named beneficiary, thus avoiding the probate process (as long as the beneficiary is not the decedent’s estate). 

Pay on Death Bank or Investment Account (aka “Totten Trust”)

                The owner of the account can avoid it passing into his probate estate by providing advance written instructions to the financial institution to transfer ownership of the account to his beneficiary upon his death.  The pay on death bank account was traditionally known as a  Totten trust, as the bank acts as a trustee, taking on the duty to convey the owner’s wealth to his beneficiary at his death.

Property Held as Joint Tenants with Right of Survivorship

                The owner of an asset can avoid the asset falling into the probate estate by making the beneficiary a joint owner of the asset while he is alive.   In order to accomplish this purpose, the conveying  deed would have to state that each owner takes title as a joint tenant with the right of survivorship.  When the grantor dies, the joint tenant will automatically take a 100% ownership interest in the property.  It is important to note that when a married couple in Florida takes title to real property, the law presumes that they are “tenants by the entireties”, which gives each spouse survivorship rights upon the death of the other spouse.

                As you can see, there are many ways to title assets so that they are not subject to the probate process when the owner dies.   Keep in mind that there are other considerations involved in estate planning, such as asset protection and tax planning.   If you would like assistance in planning your estate, contact Clarke Law today.  I offer a free twenty- minute consultation to assist you in planning for the future.