Wills and Trusts are an Integral Part of the Florida Estate Planning Process
Wills allow people to state their preferences about how their estates should be handled after their deaths. A well-written will eases the transition for survivors by transferring property quickly and avoiding many tax burdens. Despite these advantages, many Americans do not have valid wills. While contemplating one’s mortality can be difficult, many people gain peace of mind by putting their affairs in order.
Wills vary from simple single-page documents to elaborate tomes, depending on the size of the estate and the preferences of the person making the will (the testator). Wills describe the estate, name the people who will receive specific property (the devisees) and can even provide special instructions about care of minor children, gifts to charity and formation of posthumous trusts. In each example, the formal legal rules for wills must be carefully followed to make the document effective.
Formal requirements for wills vary from state to state. Generally, the testator must be an adult of sound mind, meaning that the testator must be able to understand the full meaning of the document. Wills must be written. A testator must sign his or her own will, unless he or she is unable to do so, in which case the testator must direct another person to sign the will in the presence of witnesses. The signature must be witnessed and/or notarized, although in some jurisdictions a will handwritten by the testator — referred to as a holographic will — is deemed valid even if unwitnessed. A valid will remains in force until revoked or superseded by a subsequent valid will. Some changes may be made by amendment (codicil) without requiring a complete rewrite.
Various legal restrictions may prevent a testator from giving full effect to his or her wishes. Some laws prohibit disinheritance of a spouse or dependent children. A married person cannot completely disinherit a spouse without the spouse’s consent, which may be given in a prenuptial or post-nuptial agreement. In most jurisdictions, a surviving spouse has a right of election, which allows the spouse to take a legally-determined percentage (up to one-half) of the estate when he or she is dissatisfied with the will. While non-dependent children generally may be disinherited, this preference should be clearly stated in the will in order to avoid confusion and possible legal challenges.
Some property may not descend by will. For example, property owned in joint tenancy may only go to the surviving joint tenant. Also, pensions, bank accounts, insurance policies and similar contracts that name a beneficiary must go to the named beneficiary.
A will usually appoints a personal representative (or executor) to perform the specific wishes of the testator after he or she passes on. The personal representative need not be a relative, although testators typically choose a family member or close friend. The chosen representative should be apprised of his or her responsibilities before the testator dies to ensure he or she is willing to undertake these duties. The personal representative consolidates and manages the testator’s assets, collects any debts owed to the testator at death, sells property necessary to pay debts, taxes or expenses, and files all necessary court and tax documents for the estate.
A person who dies without a valid will or some alternative arrangements to distribute property may leave survivors facing a complicated, time-consuming and expensive legal process. When a person dies intestate, a probate court must step in to divide up the estate using legal defaults to give property to surviving relatives. The rules vary depending on whether the deceased was married and had children, and whether the spouse and children are alive. If the intestate individual has no surviving spouse, children, parents or grandchildren, the estate is divided between various other relatives. Intestacy may mean that the testator’s property goes to people who would never have been chosen — or who the testator did not even know. Additionally, state intestacy laws only recognize relatives, so close friends or charities that the deceased favored do not receive anything. If no relatives are found, the estate may go to the government in its entirety. Intestacy may also pose a heavy tax burden on estate assets.
Trusts are estate planning tools that can replace or augment wills, as well as help manage property during life. A trust manages the distribution of a person’s property by transferring its benefits and obligations to different people.
The basic concepts of trust creation are fairly simple. To create a trust, the property owner (the trustor, grantor or settlor) transfers legal ownership to a person or institution (the trustee) to manage that property for the benefit of another person (the beneficiary). The trustee often receives compensation for his or her management role. Trusts create a fiduciary relationship running from the trustee to the beneficiary, meaning that the trustee must act solely in the best interests of the beneficiary when dealing with the trust property. If a trustee does not live up to this duty, then the trustee is legally accountable to the beneficiary for any damage to his or her interests. The grantor may act as the trustee and retain ownership instead of transferring the property, but he or she still must act in a fiduciary capacity. A grantor may also be named as one of the beneficiaries of the trust. In any trust arrangement, however, the trust cannot become effective until the grantor transfers the property to the trustee.
Trusts fall into two broad categories: testamentary trusts and living trusts (also known as inter vivos trusts). A testamentary trust transfers property into the trust only after the death of the grantor. Because a trust allows the grantor to specify conditions for receipt of benefits, as well as to spread payment of benefits over a period of time instead of making a single gift, many people prefer to include a trust in their wills to reinforce their preferences and goals after death. The testamentary trust is not automatically created at death.
The terms of a testamentary trust are contained in the will of a decedent. Therefore, the transfer of property to the trust is made either during or at the end of the administration of the decedent’s estate, instead of by a direct transfer during life. While testamentary trusts are often used in conjunction with tax planning, they are most frequently used to control the disposition of property beyond the normal time for probate administration.
A living trust — or inter vivos trust — starts during the life of the grantor, but may be designed to continue after his or her death. This type of trust may help avoid probate if all assets subject to probate are transferred into the trust prior to death. A living trust may be revocable or irrevocable. The grantor of a revocable living trust can change or revoke the terms of the trust any time after the trust commences. The grantor of an irrevocable trust, on the other hand, permanently relinquishes the right to make changes after the trust is created. A revocable trust typically acts as a supplement to a will, or as a way to name a person to manage the grantor’s affairs should he or she become incapacitated. Even a revocable living trust usually specifies that it is irrevocable at the death of the grantor.
Funded irrevocable trusts transfer assets before death and, thus, avoid probate. However, revocable trusts are more popular as a means to avoid the probate process. If a person transfers all of his assets to a revocable trust, he or she owns no assets at death. Therefore, the assets do not have to be transferred through the probate process. Even though the grantor of the trust died, the trust did not die, so the trust assets do not have to be probated. However, trusts avoid probate only if all or most of the deceased person’s assets had been transferred to the trust while the person was alive. To allow for the possibility that some assets were not transferred, most revocable living trusts are accompanied by a “pour-over” will, which specifies that at death, all assets not owned by the trustee should be transferred to the trustee of the trust.
Although a grantor may name himself as trustee of a living trust during his lifetime, he should name a successor trustee to act when he is disabled or deceased. At the grantor’s death, the successor trustee must distribute the assets of the trust in accordance with the directions in the trust document. In many states, certain people must be notified at the death of the grantor.
Because trusts have important tax, governmental assistance, probate, and personal ramifications, an experienced estate-planning lawyer should be consulted.