We live in crazy and uncertain times. So far, over 12,000,000 people have contracted the virus named COVID-19 and over 520,000 people have died. These numbers are likely understated and will continue to rise. Economies and travel worldwide have been shut down and are slowly opening, but our way of living life has changed dramatically. To top it off, riots have engulfed the USA and now a new swine flu may be coming.
It is especially scary for the elderly and those with certain underlying health conditions who are at most risk, even though COVID-19 can strike a devastating blow to the health and young. It is like playing Russian Roulette.
Now more than ever, families need an estate plan for family and tax reasons. Do you have an estate plan? In this blog we will start with the basics before getting into estate tax planning matters and asset protection.
The basic estate plan documents everyone should have or consider regardless of wealth include the following:
1. Last Will and Testament. A Will is the most basic of estate documents. It appoints a personal representative who is in charge (subject to probate court judge supervision and approval) of closing the life of a deceased person by dealing with a decedent’s liabilities. Taxes and disbursing assets to certain individuals, charities, and/or trusts as designated by the decedent in the Will are two responsibilities. This document directs how you want the contents of your estate to be distributed after you pass away. If the trust is the beneficiary under a Will, the Will is referred to as a pour-over Will. If you do not have a Will in place, you are at the mercy of the Florida intestate laws to determine which survivors receive certain assets. Another important function of Wills is to name guardians for your minor children, although this may be done in a different document as well.
2. Family Holding Company. A person creates a holding company for its various holdings. This company can be used for consolidating voting, administrative reasons, gifting, estate tax planning, and creditor protection.
3. Trusts. There are two types of trusts: grantor and non-grantor. Each type of trust will have trustees, successor trustees (or a method to select them), beneficiaries, and the benefits for such beneficiaries. An example of a grantor trust is a revocable trust and non-grantor trust is an irrevocable trust (although certain irrevocable trusts can be treated as grantor trusts). The assets in a revocable trust are controlled by the grantor while alive and able.
The revocable trust is disregarded for income taxes purposes during the grantor’s life, and the assets in such trust are included in the estate of the grantor for estate tax purposes and subject to creditor claims. So, why have one? The revocable trust often acts like a Will while someone is alive (and after death), but the benefit is that assets in the revocable trust, unlike the assets held in one’s name passing via a Will, are not subject to the costly and time-consuming probate court proceedings. If structured properly, an irrevocable trust can avoid probate; also, the assets may be excluded from the grantor’s estate for estate tax purposes and may provide asset protection from creditors.
The downside includes lack of control and potential gift tax implications. The terms of the trust dictate the use of the trust assets and distributions of such assets.
4. Advance Healthcare Directive. Thinking about a situation in which you are unable to communicate your wishes when it comes to your medical care is uncomfortable. However, putting together a document called an advance healthcare directive, living Will, or health care surrogate can let your loved ones and medical team know which life-prolonging measures you want to receive and/or who will make those difficult decisions.
5. Durable Power of Attorney. A person appoints a durable power of attorney (POA) to act in that person’s place. The POA must be a person who is very trustworthy, as they have a great deal of power (as the powers can be wide and broad (i.e. a general power) or limited). In addition, a POA can become effective upon signing, even if the granting person has capacity and/or after a person loses capacity. Generally, a POA can be revoked at any time. Durable powers of attorney are useful to handle a person’s affairs if they are not available (i.e. traveling and out of the country) or beginning to lose capacity (or have already lost capacity).
Conclusion
We strongly encourage you to take advantage of this moment and get started on an estate plan that meets your needs and goals. Our firm is well-equipped to help you draft and update the estate-planning documents that put you and your family first. Get in touch with us today.
Waserstein & Nunez, PLLC
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