Estate Planning Basics

Michelle N. Shupe-Abbas, Esq.Master of Laws in TaxationPhone: (954) 507-7220www.shupedhawan.com

October 2016

Allow me to introduce myself

1. Originally from South Carolina, moved to Florida to attend law school. (Go Gamecocks!)

2. Obtained Master of Laws in Taxation from NYU.

3. Practicing since 2001.

4. Primary practice focused on Estate Planning, Wills and Trusts, Probate and Guardianship.

5. Opened my law firm in 2013 with a partner who practices immigration and who can assist with business visas.

6. Consider myself a wealth manager.

What is an estate plan?An estate plan is a combination of legal documents that specify how you wish for your money and other assets to be distributed. A proper plan will make it easier for your loved ones to manage your affairs during a difficult time –whether it be due to incapacity or death.

Name a decision-maker should you become incapacitated.

Designate who will care for your minor children if you are unable to do so.

Minimize estate and gift taxes for larger estates.

Immediate transfer of money or other assets without the necessity of probate.

Designate a person to make health care decisions if you are unable.

Plan for college expenses.

Who needs an estate plan?Anyone over the age of 18!

Young and single persons will have simple planning needs, but planning should start young and contemplate the need for updates throughout life. Once a child turns 18, parents have no control over child’s affairs - medical or health.

It is essential for persons with children to have a plan to protect their children –no need for guardianship monitored by court, assets are protected until reach majority.

Older persons need to plan for Medicaid before they need to qualify. There is a 5 year lookback period for transfers so planning should start early.

What is included in an estate plan?An estate plan will vary somewhat from person to person, but a proper plan should include for most people:

1. Preneed guardian designation for self

2. Preneed guardian designation for minor children

3. Healthcare surrogate designation

4. Durable Power of Attorney

5. Living Will

6. Will

7. Trust (not everyone)

8. Review beneficiary designations and ownership for current assets

So what are all these documents?

Preneed Guardian Designation for self

If you become mentally or physically incapacitated and can no longer manage your financial affairs or make medical decisions, you will need a court appointed guardian.

You designate in advance who the guardian should be.

There is a guardian of the property who controls and manages the assets.

There is also a guardian of the person who controls and manages the medical needs.

Both can be the same person, known as a plenary guardian.

The court will first have to determine your incapacity. All preference is given to allowing a person to retain as many rights as possible.

Preneed Guardian Designation for minor children

Like a preneed guardian designation for yourself, a preneed guardian can be named for your children in the event of your death, incapacity, or receipt of a large settlement from court proceedings.

As a preneed guardian, there is the guardian of the property and guardian of the person. The same person can serve as both.

Inheritance, insurance proceeds, or legal settlement exceeding $15,000 will be placed into a guardianship overseen by the courts, natural parent can serve in this instance.

Healthcare Surrogate DesignationA healthcare surrogate is an adult who you designate in advance that will serve to make all your healthcare decisions for you should become incapacitated. It is also known as a Medical Power of Attorney.

Will only take effect if the doctors determine that you are unable to make medical decisions yourself.

You can provide instructions as to how you wish your medical treatment to be handled.

Default is next of kin in absence of designation.

Durable Power of AttorneyThere are several types of general powers of attorney, but an estate plan should have a durable power of attorney.

Names a person to manage your financial affairs in the event of your incapacity, whether temporary or permanent.

Powers can be broad and all encompassing or general.

Takes immediate effect upon official determination of incapacity.

Does not survive death, whether durable or non-durable.

Side note: a general power of attorney will not be effective upon and is terminated upon a determination of incapacity.

Living WillA living will states your wishes regarding artificial life support systems if you are determined to be terminally ill, comatose, your brain ceases function, or if you are beyond hope of recovery.

It discusses your desires with respect to artificial life support systems such as a respirator, heart machine, etc.

Also states your wishes about whether you wish to have food or water withheld if must be given through a feeding tube.

Remember the Terry Schiavo case? She didn’t have a Living Will. Everything could have been avoided.

WillA Will is a written declaration that specifies how you want your assets distributed and provides direction for management of your estate.

A person is named to manage the estate, known as a personal representative in Florida.

Provides direction on how taxes, debts, probate expenses, and other costs are handled by the personal representative.

Must be properly executed to be valid.

Can direct assets to be placed into a trust for intended beneficiaries (important if minor children!)

Without a Will, assets going to a minor child will end up in a guardianship managed and CONTROLLED by the court.

TrustA trustee is named to manage the trust assets. All assets can be held by a trust, including real property such as homestead. It can take effect during life or after death. Used to address tax planning, asset protection, and problematic heirs.

Why have a trust?

Assets go to beneficiaries immediately.

Not subject to probate administration – no court intervention.

Assets remain private and not made public record.

You can still maintain control with the most common type of trust, the revocable trust.

Types of Trusts1. Revocable Trust Can be revoked. Good to put assets into this type of trust so they pass outside of probate.

2. Irrevocable Trust Cannot be revoked, but lose control of assets in trust. Good for keeping some assets outside of estate tax calculations,

3. Life Insurance Trust Can keep asset out of estate tax calculation if drafted properly and managed

properly.

Types of Trusts cont.4. Medicaid Trusts

Should be established as one gets closer to retirement to qualify for benefits and preserve wealth.

Needs to be done at least 5 years before Medicaid benefits will be required.

Only allowed homestead (up to certain value) and $2000 in “countable” assets or no Medicaid qualification.

The spouse gets credit for ½ of joint assets in these calculation up to certain amounts.

Review beneficiary designations and ownership for current assets1. Review of Stock, Life Insurance, Annuities, 401K and CDs

These types of assets should be reviewed to ensure a beneficiary(s) have been named or are consistent with current wishes.

Passes immediately outside of probate if named and will override anything in Will.

2. Assets held jointly with spouse or others

Anything held jointly will go to them outside of probate so long as the assets are titled correctly.

2. Bank account beneficiary designations and ownership

Joint account owners will go to them directly. Be careful who is named on an account for convenience purposes.

We see a lot of “neighbors” in Florida added to elderly accounts and the family loses.

How can you pass assets without a Will or Probate?

There are several ways you can pass assets outside of probate.

Hold bank or brokerage accounts jointly with your intended beneficiary.

Hold bank or brokerage accounts as payable on death (POD).

Hold real property jointly via deed.

Register vehicles jointly.

Name beneficiaries for retirement, insurance policies, and annuities.

Lifetime gifts, subject to annual exclusion amounts.

What happens if you do not plan? Assets will have to go through probate. A portion of the estate, typically 3% to 6% will go towards administration of

the estate. Assets will be tied up for 9 months to 2 years on average, or more for larger

estates. If no Will, all assets not transferring outside of probate will be distributed

according to Florida law, typically in the following order:(1) surviving spouse;(2) descendants (children, then grandchildren)(3) parentsand so on according to the Florida Statutes.

What is probate?Probate is the court process where the estate assets are collected and managed, debts are settled, taxes are paid, and assets distributed.

A person is named in the Will to manage the estate, known as the personal representative.

The court oversees the management of the estate and provides court orders necessary to transfer legal title to assets.

Typically takes 9 months to 2 years, longer for larger or contested estates.

Minimizing Estate and Transfer Taxes

Transfer wealth, not tax burdens! Current top tax rate is 40% of the total estate. Current estate tax exemption is $5.45 million, so couples get the benefit of

$10.9 million when planning. Lifetime gifts can pass without taxation: $14,000 per person, per beneficiary

so that’s $28,000 per married couple to each person they wish to gift. Use irrevocable trusts, such as life insurance trusts. The trust owns the policy

and annual amounts are put into the trust to pay for the insurance premium. The value of the life insurance is then excluded from the estate for purposes of estate tax.

So long as the fair market value of total assets are below the exclusion, then no estate tax consequences upon death.

Homestead ConsiderationsFlorida Statutes protects the spouse and minor children’s interest in the homestead from claims of creditors and forced sale.

Homestead election should be made to save on property taxes yearly.

Exempt the property from forced sale by estate creditors or creditors of any kind also while living.

It is important that a Will does not provide that estate assets can be sold to satisfy creditors, or the protection may be lost!

Title can be held by a revocable trust and the owners retain tax exemption and creditor protection status. Plus no transfer taxes due when moving the property to the trust.

College PlanningWhen applying for college financial aide, the child is often at the mercy of the parents assets. Certain assets can be taken out of the calculation if proper planning occurs enough in advance, which is typically done in conjunction with the person’s financial planning.

Investment property properly transferred to an LLC is generally excluded from assets.

Homestead is not included.

Retirement assets such as 401k, 403b, IRAs, SEP, SIMPLE, Keogh, profit sharing, pensions and Roth IRAS are not included.

All checking, savings, CDs, brokerage accounts, money market, investment real estate, stocks, bonds, mutual funds, ETFs, commodities, 529 savings and prepaid plans are included.

The Wealth Managers/Financial Planners Role in Estate Planning

The best financial plan will go out the window if the client does not also estate plan as well.

The goal is for the client’s wealth to grow, so you want to ensure this growth doesn’t go to taxes.

1. Ensure assets are held in Revocable Trusts.

2. Suggest Life Insurance Trusts.

3. College Planning – then when kids get out of college investments can change.

4. Review asset accounts for property legal ownership and proper beneficiary designations.

5. Make sure maximizing IRA contributions.

Now for the legal…

Disclaimer: The information you obtain from this presentation is not, nor is it intended to be, legal advice. Every case is different and must be judged on its own merits. You should consult an attorney for advice regarding your specific situation. Your review or use of this information, or contacting us, does not create an attorney-client relationship.

Any questions?Feel free to contact me anytime if you have any questions.

Michelle N. Shupe-Abbas, Esq.

(954) 507-7220 michelle@shupedhawan.com

*Office located in downtown Fort Lauderdale close to the courthouse.

To download this presentation: http://www.shupedhawan.com/estateplanningresources/