What Documents Should Be Included With Your Estate Planning?

In this article you will learn about:

What documents are included in a proper estate plan.
How to use gifting as a tool in estate planning.
The process of trust administration.

WHAT DOCUMENTS SHOULD BE INCLUDED WITH YOUR ESTATE PLANNING?

Estate Planning Documents

Designation of Health Care Surrogate. Through this document, you designate a person to make health care decisions on your behalf if you are unable to do so yourself. Your Surrogate does not replace you, but would be able to talk to your physician, purchase medicine, hospitalize you, and generally make all health care decisions on your behalf if you were unable to speak for yourself (such as when you are in surgery).

Living Will. A living will is a document that states whether you want to be kept artificially alive if you are in a persistent vegetative state, or have a terminal condition or irreversible end-stage condition and your physicians believe there is no reasonable probability of recovery. In this document, you spell which medical interventions you prefer to continue (such as artificial nutrition and hydration, blood transfusion, etc.), if any, and indicate that you wish all other treatments to stop so that you can pass away naturally. Within the Living Will, we name a surrogate who would be charged with following your wishes.

HIPAA Release. Also included in your estate plans is a general HIPAA release which is required under federal law before medical professionals are legally permitted to share your protected health care information to your Surrogate and any other person you may designate.

Declaration of Preneed Guardian. The Declaration of Preneed Guardian declares one or more persons that would be appointed as guardians for you in court if you can no longer take care of yourself. A guardianship court proceeding can be filed by any person with the purpose of having an individual’s rights taken away. In such case, the filer alleges that the individual is no longer capable of making sound decisions that are in their own best interests (such as when an individual contracts Alzheimer’s disease or dementia). The purpose of the Declaration of Preneed Guardian is to establish who you would like to take care of your money and who you would like to take care of you in that instance. In the absence of having this form, the court typically appoints a third party from a court-appointed guardian list.

Durable Power of Attorney. The Durable Power of Attorney is the document that provides power to deal with your finances to the person you choose to act on your behalf (referred to as your “Agent’). Your Agent is able to do anything you can do regarding your finances including paying bills, opening or closing bank accounts, purchasing or selling a home, and filing your taxes. In Florida, your Agent has the power to act on your behalf immediately after you sign the document even though you can still act yourself.

Last Will and Testament. Your Last Will and Testament (your “Will”) spells out your wishes as to how you want your property dealt with after you die. You can decide to whom to give assets, in what amounts, and whether outright or in trust. Your Will is designed to ensure that your wishes are followed instead of your property being distributed by the default rules of the State of Florida. Your Will must go through the probate process to make all the distributions.

Trusts. There are different types of trusts involved in estate planning, each used for different purposes and each with their own pros and cons. The most commonly used trust is the “revocable trust”, designed to own your property while you are alive and providing for how you wish your property to be distributed upon your death (similar to the Last Will and Testament). It also provides for continuity of management of your assets if you become incapacitated. The revocable trust is designed to avoid the probate process, which is the court supervised process by which your property is transferred to your beneficiaries upon your death. A revocable trust also provides the added benefit of giving you the ability to restrict or place rules on the spending of your money after your death. You can “rule from the grave.”

Estate Planning Tools Used To Assist In Tax Planning

Tools that are used to assist in tax planning are:

Beneficiary designation forms
Payable on death forms
Irrevocable life insurance trusts
Grantor retained annuity trusts
Intentionally defective grantor trusts
And more…

Can Gifting Be Used As An Estate Planning Tool? What Important Gifting Taxes Should I Be Aware Of?

Gifting is often used in estate planning to reduce the size of a taxable estate. However, there’s a common misconception out there that you cannot gift more than $16,000 per year to any person or you will have to pay a gift tax.

The actual truth is that you can gift as much as you want to an individual up to the estate tax exemption amount (the threshold amount that you can gift without incurring gift or estate tax), which in 2022, is $12.06 million. So long as you do not have more than the threshold amount at the time of your death, you will never have to pay gift or estate tax. However, if during any single year you gift more than $16,000 to a person, you must file a gift tax return even though you do not have to pay any tax. Once you pass the $12.06 million threshold, the estate and gift tax applies and the highest rate of such tax is 40% of the gift or transfer at death.

If you are approaching the estate tax threshold, you can utilize various gifting options, such as creating gifting trusts, in combination with life insurance trusts and other types of mechanisms to minimize the amount of your estate that would be lost to the IRS. Using a combination of advanced estate planning techniques helps reduce (and often even eliminates) the gift and estate tax liability that would otherwise be owed by your estate. For example, you may use a life insurance irrevocable trust and pay the premiums each year for the life insurance policy. Your estate size is reduced annually by the amount of the premiums and the life insurance proceeds paid to your beneficiaries are not taxable. There are many methods that can be applied depending on your unique situation.

What Is A Will? Is It Enough On Its Own For Estate Planning Needs?

A Will is a testamentary document that takes effect only upon your death. It governs how you want your property to pass after you die. One of the primary downsides of the Will is that it has to undergo the probate process which can be costly and time consuming. There is a law in Florida that if your estate has a total value of $75,000 or more, an attorney must be hired to help administer your estate through the probate court. The law also provides that the attorney hired to assist your family with the probate process is presumptively entitled to 3% of the total probate estate! This renders the probate process quite expensive in many cases.

In addition, it is often not enough to have just a Will because a Will does not take care of your finances or health while you are alive. Therefore, the other estate planning documents described above (Designation of Health Care Surrogate, HIPAA Release, Living Will, Declaration of Preneed Guardian, and Durable Power of Attorney) are essential to a proper estate plan. If you have a proper estate plan in place, you get to choose those people who oversee your health care and your finances if you’re unable to do so for yourself.

What Happens During The Administration Of A Trust And Is An Attorney Needed?

A revocable trust becomes irrevocable upon the death of the person who creates it. The Trustee (the manager and administrator of the trust) will have to “administer” the trust in accordance with the directions the grantor wrote in the trust. Administration refers to managing the trust accounts, making distributions to beneficiaries, paying taxes (if any), and other similar duties. It is similar to the probate process, but it is entirely private – no court oversight is required. Accordingly, trust administration does not take as much time as a probate administration. While an attorney is not required by law for trust administration, it is often a good idea to hire an attorney to help because it involves the management of assets and fiduciary duties to the beneficiaries that could easily be overlooked and broken. The Trustee can be liable to the beneficiaries for any mistakes the Trustee makes. However, the process of trust administration is often preferable to a probate administration, which is why the creation of a revocable trust is usually recommended.