I’ve relocated to Florida…

I’ve either recently or since last updating my estate planning documents, moved to or am considering moving to Florida.

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Changes to Your Estate Plan Necessary When You Become a Florida Resident

Many people move to Florida or establish residency here not only for the sunshine but also to minimize their tax burden. When you move to Florida, it’s wise to consider an update to your estate plan.

Florida residency offers several advantages. Since Florida does not have a state income tax, the tax on unearned income that may have occurred in the former home state is saved. Further, with the Save Our Homes property tax assessment caps, one can achieve tremendous property tax savings over time.

When folks declare Florida residency, I am frequently asked whether one should update their estate planning documents when declaring they make such a declaration. I often hear something along these lines of, “My Illinois attorney prepared my trust, and when I told him we were becoming Florida residents he told me my trust is just fine.” When I challenge what they understood to be their attorney’s advice, sometimes I’ll hear “Well his law partner is also licensed in Florida, and they both said I’m fine.”

I believe this is bad advice. Allow me to explain.

Each state has different laws that apply to estate planning documents, including wills, trusts, durable powers of attorney, health care surrogates and living wills. While the federal transfer (estate and gift) tax systems apply to everyone in the United States, some states have a death tax. Florida does not.

More importantly, for those that have created Revocable Trusts in northern jurisdictions and own a Florida home, unintended consequence might arise if the estate plan is not updated. This is due to Florida’s descent and devise laws surrounding Florida homestead. This can be explained by example.

Assume that Bob and Sue bought a home on Sanibel many years ago. When they purchased the home, it was a vacation property, and their Chicago attorney advised them to put the home in Sue’s Revocable Living Trust. The attorney explained that Bob and Sue should balance their estates for federal estate tax purposes by putting some assets in Bob’s trust and some assets in Sue’s. Since no one knows who is going to die first, by placing the home in Sue’s trust they have used its value against Sue’s federal estate tax exemption should she predecease Bob.

Fast forward several years. Bob and Sue have retired from their occupations and have declared themselves Florida residents. They make application to treat their home as Florida homestead. Bob and Sue are quite pleased that the Save Our Homes property tax assessment cap will finally apply to their Sanibel residence.

Bob and Sue also better update their Revocable Trust documents. Recall that if Sue dies first, her trust assets will first be “funded” into a credit shelter or family trust to be used against her estate tax exemption. Assume that the credit shelter trust is held solely for Bob for the rest of his life.

Florida homestead descent and devise law says that if you are survived by a spouse, absent any nuptial agreement waiving certain rights, you must devise the home outright in fee simple to your spouse. If you do not, then your will or trust contains what is known as an “invalid devise.” In that event, your spouse receives a “life estate” interest in the home, and the children of the deceased receive a present “remainder” interest.

Despite the fact that Sue’s trust says the home would be funded into a credit shelter trust held for Bob, Florida law treats this as an invalid devise. It therefore does not matter whether Bob is the primary beneficiary of Sue’s trust. So Sue’s children receive a present remainder interest and Bob receives a life estate. Again, this occurs despite any contrary intent expressed in Sue’s documents.

Bob is consequently responsible for the taxes, expenses and upkeep of the home. If Bob wants to sell the home, however, the children must agree with Bob and must sign any listing agreements, contracts to sell or deeds. Further, the children are entitled to part of the proceeds of the sale of the home.

If Sue and Bob are in a second marriage, only Sue’s children receive a remainder interest. Not Bob’s. Again, this is the case despite any contrary intention in Sue’s will or trust.

Furthermore, if Sue’s children get divorced, have creditor issues or other problems, those problems may cloud the title to the residence.

This can all be avoided through proper planning with Florida documents.

This is only one example of how Florida law is different. Our laws surrounding the administration of trusts, the apportionment of taxes and expenses after one dies, durable power of attorney, health care surrogate and living will laws are all different than other states.

It’s been a while since my last update and my family and/or financials may have changed…

It’s been 3 or more years since my estate planning documents were drafted and put into effect, making them obsolete and it’s possible my family and/or financial situations have changed.

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Five Reasons Baby Boomers Need to Update Their Estate Plans

I was born at the tail end of the baby boomer generation – which is said to include all those born between 1946 and 1964. We’ve been a royal pain-in-the-rear generation – first swelling the ranks of classrooms causing the construction of new schools, and then making college admissions hyper-competitive, afterwards increasing the demand for first home purchases and so on.

We even created a baby-boomlet of our own progeny in the 1980s and 1990s.

Now the oldest baby boomers are beginning to retire – while most remain in the prime of our working careers. We’re expected to put a strain on the Social Security and Medicare programs, and many haven’t saved enough for retirement. There are a number of reasons for that, from overconsumption to stock market and housing crashes to believing the mirage of never-ending youth.

And that last item – the mirage of never-ending youth – is also what traps those who haven’t looked at their estate plan in quite some time. When baby boomers arrive at my office, they generally produce existing wills that call for guardianships for their children (who are now grown adults themselves) and name long-deceased parents as executors and trustees.

Which brings me to today’s topic – the top five reasons that baby boomers need to update their estate plans.

  1. Relationships Change – Just as I mentioned above, your old wills, trusts and power of attorney documents might name people to serve in posts such as personal representative, trustee and health care surrogate who you may have lost touch with or who are no longer close to us. While attorneys in northern jurisdictions often name themselves as trustee of their clients’ trusts, you may now be a Florida resident or that attorney may have long since retired. It’s time to take a fresh look at who you have named to conduct your affairs for you in the event of your disability or death. Also, we may now be in a different relationship or marriage than we found ourselves in when we first prepared our estate plan. Blended families typical of second marriages require a thoughtful, detailed plan to prevent problems between a surviving spouse and step-relations;
  2. Children Grow Up – Your will drawn twenty years or more ago may have contemplated making distributions for your young children that are now fully grown with kids of their own. Your adult children may also be some of the best candidates to serve as your personal representative under you will or as your trustee under your trust. You may also want to protect the inheritance you leave your grown children from adult issues such as divorce or lawsuits;
  3. Your Health – While none of us like to admit it, age usually presents more health issues to deal with. You want to make sure that your health care surrogate documents are up to date, as well as your living will that designates what you want to have happen should you end up on life support with no hope of recovery. None of us wants to be the next Terri Schiavo, so it is important that your health care documents are up to date with today’s law and with your intent;
  4. Your Stuff – It’s probably time to review your assets and how your estate plan provides for you, in the event of your disability, and your loved ones after your death. In our youth our main assets probably consisted of a home, term life insurance and maybe a few investments. As we enter middle-age we may no longer have term life insurance (instead we may have whole or universal life policies that contain cash value), and we may have larger investment accounts as well as IRA and 401(k) accounts. As the types and amounts of assets that we own changes, it is important that our estate plan change with them. An estate plan built around a young family with term life insurance should look drastically different than an estate plan for someone in the prime of their working career or who is nearing retirement;
  5. Your Legacy – Finally, many of us like to consider what kind of legacy we leave behind. It might include a charitable legacy with institutions or causes near and dear to our hearts, or it might mean how we want our progeny to carry on with the wealth that we’ve accumulated. Perhaps we’re concerned that we’ll take away the incentive to lead a productive life, or we may want our wealth to be used for certain activities we find beneficial – such as education or health care.

There’s a lot to consider. Make it a priority to dust off the will or trust that you’ve neglected for so long, and use these five points to write down what concerns you the most about your own planning. Then take that to your attorney to provide a framework for your discussions and plans.

Don't Write in the Margins

While attending law school, I used to take a yellow highlighter and pen, writing in the margins of my textbooks to annotate what I viewed as the important passages related to that day’s assignment.When a professor called on me in class, I found these highlights and marginalia invaluable.

Many of us are used to taking notes in the margins of written papers. My wife jots down adjustments and additions on her recipe cards. My retired law partner, John Sheppard, writes down his thoughts in the margins of biblical passages.

Nevertheless, I’m here to warn you against putting anything in the margins of your estate planning documents. From time to time, I see wills or trusts that have crossed-out provisions with handwritten changes in the margins.While some may think that this is an easy (and inexpensive) way to amend or change provisions in your legal documents, those handwritten changes usually cause more problems than they solve.

A few years ago, a client tried to amend her documents by making handwritten changes. She deleted some beneficiaries, reduced some of the gifts to other beneficiaries and added new beneficiaries that didn’t appear in the typed provisions of her documents.

She had also taken the time to initial next to the changes, and, in one change, went so far as to have someone notarize the page. We didn’t know what she intended to do.

When she died, these handwritten changes were discovered. The trustee of her trust wasn’t sure what to do with these handwritten changes, especially since many of them were witnessed and at least one appeared to be notarized.

Florida law is clear on how to change a will or a trust. In order for a codicil to a will or an amendment to a trust to be valid, it must be signed by the testator at the end of the document and two witnesses must also witness the testator’s signature in the presence of the testator and in the presence of each other.

As an example, assume that Denise signs a will in the presence of William. William signs as a witness and then goes home. Denise then takes the will to Beatrice – her neighbor across the street – and tells her that “this is my signature on the will.” Beatrice signs the will as Denise’s second witness.This is not a valid will. While Denise’s will was signed by two witnesses in Denise’s presence, the document was not witnessed by William and Beatrice in each other’s presence.

Returning to the story about the lady who wrote changes in her trust – once those handwritten notations were discovered, the beneficiaries hired lawyers to determine whether these notations changed the original provisions. After several thousands of dollars in legal fees and about a year’s worth of depositions and court hearings, the court ruled that the handwritten notations had no legal significance because they were not signed with the legal formalities required by Florida law.

The moral of this story is not to make handwritten changes in your legal documents. If you want to amend your will or your trust, you should have a separate document that is signed and witnessed in accordance with the law.

In order to admit the will into probate without the testimony of the witnesses, it is also necessary that the signatures of the testator and the witnesses be “self-proofed.”In other words, the signatures should be notarized with special language found in the statutes. That language requires that the notary be a person who is not one of the witnesses and that the notary acknowledges that the testator signed in the presence of the witnesses who signed in the presence of the testator and of each other.

If a proper self-proof does not appear at the end of a will, then it will be difficult, time consuming and more expensive to admit the will into probate.Since each state’s self-proof statutory language is different, it makes sense to update your documents to comply with the state law in which you currently reside so as not to cause headaches for your loved ones.

This is one of the many reasons why an attorney will tell you to update your legal documents when you move from one state to another. While the documents remain valid so long as they were signed with the formalities that the state in which they were created requires, that doesn’t mean that the documents will be simple or easy to administer upon your death.

So don’t write in the margins of your will or trust. Instead, get a valid amendment in compliance with the state law where you currently reside.For more information for about Florida’s laws and residency requirements, consult my website, and request your free copy of The Florida Residency & Estate Planning Guide.

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