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Estate planning in Florida is a challenging but important process, especially for individuals with a high-net-worth. Not only are there a number of unique nuances surrounding estate planning, it is regulated by an often complicated set of laws and regulations that are difficult to navigate. In addition to this, these laws and regulations are constantly being amended, changed or updated, which makes the process exceedingly difficult for those who do not regularly deal with estate planning. Because of this, many individuals seek the assistance of attorneys specializing in Florida estate planning to ensure their estate is properly handled.

There are many different factors to consider during the process of estate planning. This involves the navigation of tax laws and tax liabilities, with the purpose of finding the lowest tax options available to ensure the family receives as much of an individual’s estate as possible. Covered under this process is the protection of inheritances for heirs, minimization of any estate taxes, ensuring the estate doesn’t go through probate and appointing the best trustee possible. Exercising diligence and consulting with lawyers who have expertise in this process will ensure that your estate is in the best legal position possible and your family’s future is secure.

Choosing Trustees

The first and arguably most important step in this process is the selection of the ideal trustee. This is an individual or organization that is appointed to oversee and make decisions surrounding the estate. Trustees have a lot of power over an estate and its administration and should be selected carefully. Unfortunately, even professional trustees sometimes do not have the best interests of estate in mind, and make recommendations based on what will be the most profitable or beneficial for them. This can sometimes lead to disputes among trustees and beneficiaries of the estate.

In order to avoid this situation, it is strongly encouraged to seek out a trustee who will actively work for the best interests of the estate. Today, there are many options available to research the trustee, read their reviews and find out more about their performance for other clients. Once an individual has narrowed down a handful of trustees, it is advisable to have questions ready to ensure that everyone is on the same page in regards to the estate planning goals.

Minimizing Tax Liabilities

Generally speaking, the purpose of estate planning is to ensure that the hard earned savings a person has accumulated throughout their life are passed down to their children, grandchildren and other family members. Retirement money also comes out of this savings, and individuals rely upon this money to fund the golden years of their lives. However, there are often significant tax liabilities that are applicable to the estates of high-net-worth individuals and if the correct decisions are not made, these taxes can seriously deplete the estate.

During the process of planning out an estate, every type of tax scenario should be considered. This includes four main taxes types: income taxes, gift taxes, estate taxes and generation skipping taxes. When income taxes are excluded from this, the remaining three types of taxes are referred to collectively as wealth transfer taxes. For each of the taxes within that group, federal taxes are 40% of whatever value is being measured. There is no estate tax in Florida as of 2004, so Florida residents need to only be concerned with Federal estate taxes.

Gift and Estate Unified Credit Taxes

Since the Tax Cuts and Jobs Act was passed in 2017, the exemption for combined gift and estate taxes has been increased every year. This combination is referred to as a unified credit. For 2021, the exemption for unified credits is $11.7 million per individual and $23.4 million for married couples. Anything above that is taxed at approximately 40% of its value.

There is an allowance of $15,000 per year per person for gifts, with no limit on the number of individual recipients. Any amount over this $15,000 limit for an individual is subject to a gift tax however. For example, if an individual were to give $50,000 to a relative, the first $15,000 is considered an annual exclusion gift that is tax exempt and the rest of the $35,000 would be subject to gift taxes.

The same basic structure applies for estate taxes, except that the $11.7 million exemption for 2021 is reduced by the value of the gifts given throughout an individual’s lifetime. For example, if a person were to have given $1.5 million worth of gifts using the lifetime gift tax exemption, then their estate tax exemption would be $10.2 million. Any amount over this adjusted exemption would be subject to standard estate taxes.

Generation-Skipping Taxes

When property is given to grandchildren or great-grandchildren, it is taxed with what is known as generation-skipping taxes. Like the rest of the taxes previously discussed, these taxes are based on approximately 40% of the value of the gift(s) with an exemption for up to $11.7 million. The purpose of this tax is so that the creators of a trust, known as grantors, don’t bypass the proceeding generation in order to avoid their tax obligations.

Planning for Incapacitation

Sometimes unforeseen and unfortunate events occur where an individual becomes incapacitated. This includes things such as accidents, illness or just general aging that occurs throughout an individual’s lifetime. These events have the potential to dwindle or completely drain an inheritance that was intended to be given to a family member. In order to prevent this, it is important to ensure the estate is structured to:

  • Ensure care is provided for dependents
  • Have a trustee appointed to administer the estate
  • Ensure the correct and orderly management of property
  • Leave specific instructions as to end-of-life treatment if a permanent vegetative state occurs

In order to set up this structure, there are certain steps that must be completed. The first of these steps is the appointment of a durable power of attorney (POA). This allows the agent to take control of legal and financial matters, in addition to any other matters involving property if an individual were to become incapacitated. Specifically, the POA gives an agent the power to manage an individual’s bank accounts, buy or sell their property, manage their other assets and open their mail.

The second step in this process is the completion of healthcare power of attorney (HCPA). This allows an agent to determine medical treatment, long-term care and determine specific courses of treatment, as well as the selection of doctors, physicians and hospitals. In addition to this, it is wise for an individual to appoint a Health Insurance Portability and Accountability Act (HIPAA) release agent to release their medical information as required during their medical treatment. Having a HCPA ensures your healthcare decisions are made in your best interest while also not unnecessarily financially depleting your estate.

The last step in this process is the setting up of a living will, revocable trust and a guardianship declaration. Living wills contain certain medical aspects that are vital in the case of incapacitation. These are the indication of whether or not the individual wants feeding tubes removed, as well as whether they want treatment to stop for natural death in certain situations. Revocable trusts should be created in order to appoint a successor trustee in case the primary trustee becomes incapacitated. Finally, guardianship declarations should be drawn up to determine who will be responsible for the care of any minor children in the event an individual becomes incapacitated.

Living Trusts and Avoiding Probate

It is common for estate attorneys to direct their clients towards traditional wills, despite that being a poor choice for the majority of their clients. The reason why this occurs is because these attorneys stand to benefit more from a traditional will structure than a living trust. It is advisable to stay away from any estate planning attorneys who push you towards a traditional will. Typically these attorneys will try to dissuade individuals from living trusts by claiming that they are more expensive and unnecessary. However this is generally false, especially for high-net-worth individuals planning their estate in Florida.

While living trusts are more expensive up front, they pay dividends in the long run. Having a living trust gives the option to avoid having the estate going through the probate process, because most of the assets of the estate are no longer in the individual’s name. This can save a large amount of money in legal fees and taxes, as well as a significant amount of time for all parties involved. Even though the entire estate is not in the individuals name, they still retain control over their assets while they’re alive. The appointed successor takes over the estate’s assets when the individual is either incapacitated or passes away, which is how probate is avoided.

There are other advantages of living trusts in addition to avoiding probate. If the living trust is set up as a revocable trust, then it can be amended, modified or revoked at any point in time. Revocable trusts qualify as grantor trusts, which allow the moving of assets in and out of the trust without tax penalties. This is of great benefit for those whose assets are in a regular state of flux or who have uncertainties about what will ultimately be included in the estate.

Some individuals have concerns about how their beneficiaries will act with their inherited assets. This is a valid concern, and living trusts give the option to set limitations as to how those assets can be used. For instance, an individual could set a limitation that their assets passed on to their beneficiaries only be used for educational purposes, or to fund the purchase of housing. In addition to these limitations, there is also the option to appoint an independent trustee who will have the ability to approve or deny all distributions to beneficiaries.

As a last note on living trusts, it is important to specially design the trust to prevent assets from being improperly distributed or even distributed to the wrong individuals. This entails setting up the trust in a way that keeps assets in the trusts name and only distributes those assets to the proper heirs after the individual passes. This prevents spouses from transferring any assets to their children from previous marriages, as well as preventing them from transferring assets to a new spouse. In addition, it will also protect heirs from creditors or bankruptcy.

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