What is Estate Planning?
First, it is important to understand what an “estate” is. According to Black’s Law Dictionary, an estate is the interest which anyone has in lands, or in any other subject of property. This means that your estate is anything that you own whether it is your home, your car, stock investments or even bank accounts. An estate also includes personal property such as artwork, jewelry or family heirlooms.
Estate planning is a collection of documents, tools and actions that are utilized to determine what steps will be taken in distributing your assets after you pass away or how decisions should be made in the event that you are unable to make those decisions for yourself.
Two of the main documents of an estate plan are the Last Will and Testament or a Trust.
Last Will and Testament
A Last Will and Testament (also known simply as a Will) is one of the most common documents in an estate plan. Many times people think that a Will is the only estate planning document, but it is just one of many options to convey your wishes about how your property be transferred after you pass away. A Will allows for the person executing the Will, the testator, to outline who they want their property and assets to be given to after they pass away. After the testator passes away, the Will is sent to the court to oversee the division and distribution of the property according to the testator’s instructions in the document.
Another component of the Will is the designation of the Personal Representative. The Personal Representative is the individual who will represent the estate in court and carry out the distribution of the assets.
Similar to a Will, a Trust is a method by which the person creating the Trust (the grantor) can decide how they want their assets and property transferred after their death. Unlike Wills, however, Trusts permit the grantor to keep the Trust document private. There may also be certain structures that can be used to distribute property in a Trust that are not typically used in Wills. For example, in a Trust, the grantor may indicate that they want the property to pass to their children 1/3 when the child reaches 21 years of age, 1/3 when the child reaches 25 years of age and 1/3 when the child reaches 30 years of age.
Similar to a Will, the Trust contains a provision appointing a representative of the estate. In the management of the Trust, this party is called the Trustee. The Trustee has the responsibility of managing the Trust property for the benefit of the beneficiaries.
Another method of estate planning is through the creation and recording of Deeds. One example of a Deed that is useful in estate planning is a Life Estate Deed. Life Estate Deeds transfer the property so that one party has possession of the property during their life and then the property transfers to another party after the death of the life tenant. In some cases, parents will create a Life Estate Deed for their homes so that they own it during their life and then it transfers automatically to their children after they pass away. This may be a useful estate planning tool because the transfer occurs automatically, rather than needing to go to court to transfer the property. Life Estate Deeds do create ownership interests in both the grantor who holds the life estate and the party who will receive the property after the death of the life tenant. Because both parties have ownership interests in the property, the life tenant cannot sell the property without the permission of the party who would get the property in the future.
Florida also permits a special type of Life Estate Deed, called an Enhanced Life Estate Deed. The Enhanced Life Estate Deed permits the owner to retain the ability to convey the property during their life without the permission of the future interest holder. For more information on Enhanced Life Estate Deeds, check out our article Lady Bird Deeds: How an Enhanced Life Estate Deed Could Save You Money.
Another option that many times is overlooked as part of the estate plan is advanced directives. Advanced directives include both healthcare directives as well as a Power of Attorney designation. The reason that advanced directives are included in the estate plan is they are an assertion of your wishes for how decisions should be made or what level of care you would prefer in the event that you are unable to communicate your wishes or make those decisions yourself.
The common advanced healthcare directives that are included in an estate plan are the Designation of a Healthcare Surrogate and a Living Will. The Designation of a Healthcare Surrogate is a manner by which you can designate an agent who will make healthcare related decisions in the event that you are incapacitated and require medical attention.
A Living Will is a document that contains your wishes and instructions for what care should be provided in the event that you are incapacitated and the doctors determine that you have little chance of recovery. In the Living Will you can convey your intent for doctors to maintain your life through life support machines or to end the use of artificial life prolonging methods.
These health care documents are not only essential in communicating what you want done in the event that it is necessary for medical decisions to be made when you are unable to make those decisions, but the documents also communicate those wishes to your family and friends who would be the ones involved in those decisions. These documents may help to minimize disagreements between your loved ones in the event that they have to make decisions for you because your wishes will be clearly indicated for them.
If you want more information on living wills, check out our article, What is a Living Will and Why Should I Have One?. We also have an article on What is a Health Care Surrogate and Why Should I Have One?.
Transfer on Death Beneficiaries
Many accounts that you may already have will have a beneficiary designated so that when you pass away, the account is transferred to that beneficiary. However, it is important that as part of your estate planning process you take the time to assess the beneficiaries on your accounts and ensure that the designated individuals are who you want them to be. Sometimes a spouse will be listed as the beneficiary but then the couple divorces and the beneficiary is not changed. The institutions may still pass the account or investment proceeds to the ex-spouse because of the designation. As part of the estate planning process it is essential to just make sure that you have a beneficiary listed for those accounts and that the beneficiary listed is who you intend to receive the account after you pass away.
The best thing about estate planning is that together with an attorney you can decide which documents and planning tools are the best options for you. For example, while you may rent your home and not need a deed prepared, you may also want to ensure that you have a healthcare agent designated. Or you may decide that a Trust will better suit your needs than a Last Will and Testament. If you are interested in discussing what the right estate planning options are for you and your loved ones, please contact The Probate Law Firm.
As a reminder, the information provided in this article is intended only for informational purposes and is not intended to be used as legal advice.