Trusts

Here’s the big picture: A trust is an incredibly valuable and versatile tool to accomplish many of your estate and business planning objectives. Basically, you create a separate legal entity that owns and administers property for the benefit of certain beneficiaries. One or more trustees are appointed to administer the trust pursuant to the document’s precise instructions. They must adhere to the instructions at the risk of being held personally liable. That’s why trustees are called fiduciaries, because they are subject to a higher standard of care in exercising their duties. Because trusts are separate legal entities, they do not “die” like people do. In fact, they can last up to 360 years in Florida! Since they can own virtually any type of property for a very long time without interruption, trusts ensure a smooth transition of family and/or business assets or wealth to subsequent generations. All the while the creator can still retain a fair amount of control over the property far beyond the time of death.

 

 

Trusts can also prove to be extremely valuable if employed in connection with estate and gift tax reduction strategies. Tax rates having been higher than 50% in the past and future rates are far from certain. Failure to plan can result in the United States Treasury receiving a large amount of your assets instead of your family.

 

However, most relevant to everyone is how helpful they are in avoiding probate and avoiding guardianship, which as you now know, can be very time consuming, expensive, not private and dangerously unpredictable. After learning about all of these benefits coupled with the peace of mind of knowing that your assets will be preserved and protected for generations, I hope you see how valuable they are to mostly everyone.

 

I’m sure it won’t surprise you that there are many types of trusts, with each having unique advantages and disadvantages. Some are excellent for simple family planning. Others are useful for estate and gift tax planning. Still others can be used for current and deferred charitable giving. Finally, trusts are excellent vehicles to integrate into an asset protection plan, thereby taking advantage of both estate planning and asset protection techniques simultaneously.

 

Given how powerful trusts can be, you have to ensure that they are carefully drafted. Remember, small mistakes often have dangerously large consequences. We strongly advise you to retain the services of an attorney that focuses, exclusively, on wills and trusts, and avoid do-it-yourself products and services at all costs.

 

Different types of trusts include, but are not limited to: revocable living trusts (also known as inter vivos trusts, or intervivos trusts, living trusts, revocable trusts or lifetime trusts), discretionary trusts, irrevocable trusts, testamentary trusts, grantor trusts, defective grantor trusts, family trusts, business trusts, voting trusts, dynasty trusts, charitable trusts, charitable lead trusts, charitable remainder trusts, special needs trusts, land trusts, pot trusts and general partner trusts.

 

You should retain the services of a trust attorney, trust and estate attorney, wills and trusts attorney, estate planning attorney or an attorney that focuses on trust law. The administration of a trust is often called trust administration. Trustees are generally entitled to be paid reasonable fees and it’s important to draft trusts with protective clauses (such as appointing a “Trust Protector”) as a cautionary measure to ensure that trustees do not behave improperly. Trust accounts should be monitored to ensure that trust funds are administered efficiently and effectively for the benefit of its beneficiaries.

POWER OF ATTORNEY
“Power of Attorney” is a document that gives the right to someone you trust to take action on your behalf with respect to your financial and administrative affairs. The appointed attorney-in-fact may take affirmative action on your behalf. Florida used to allow springing powers of attorney, which rendered the designated attorney-in-fact powerless until the principal was determined to lack capacity. Unfortunately, Florida no longer permits springing power of attorneys (thank banking lobbyists) so you should exercise caution in choosing who you wish to appoint. Why? Because they have the power to take action on your behalf from the moment it’s executed. Nevertheless, a power of attorney is an essential document in a carefully crafted estate plan.

 

 

HEALTH CARE SURROGATE
A “Health Care Surrogate” A/K/A “Health Care Proxy” designates another person to make health care decisions on your behalf in the event that you are unable to make them yourself. It’s like a health care power of attorney. Again, you need to be cautious and choose someone you trust.

 

LIVING WILL
A living will does not appoint anyone. It simply expresses your wishes and desires with respect to keeping you alive artificially while in a persistent vegetative state. In this regard, think back to the sad case of Terri Shiavo, which touched the heart of all Americans. She didn’t express her wishes by executing a simple living will. As a result, her husband and family fought over the decision while she remained in a persistent vegetative state for years.

 

These documents will generally be included in a properly crafted estate plan.

WHAT IS PROBATE?
Here’s the big picture: probate, which is sometimes referred to as probate court, probate proceedings or probate law, is the legal process through which a deceased person’s affairs are formally settled. First, an attorney must be retained to open up an estate with the court. A person is then appointed to administer the estate, who is often called a Personal Representative or Executor. The Personal Representative works with the attorney and is responsible for overseeing the entire process, beginning with locating a validly executed will. The Personal Representative must then identify and gather all the deceased person’s assets, file an inventory with the court and notify the deceased’s creditors of the pending estate. It’s a lot of work. Next, assets are then pooled together and used to satisfy creditors’ claims. Finally, the balance of assets are ultimately distributed to the proper beneficiaries. It is important that you realize that your state designates your beneficiaries if you fail to decide. That’s what happens in most states, including New York and Florida.

 

 

WHY SHOULD YOU CARE ABOUT PROBATE?
There is nothing wrong with having to go through probate. You just need to understand that it has consequences to your family. Let’s start with an analogy:

 

Probate is like the airport. It’s time consuming. You have to arrive 2 hours early and even short flights manage to eat up your entire day. Once you arrive, you go through an invasive security screening, which is unpleasant for everyone. When you finally are cleared, you want a snack and a drink. Unfortunately, you’re going to have to pay twice as much as usual for just about everything. Finally, you sit in your seat and take a deep breath right? Wrong. You wait to board the plane with the uncertainty of knowing that at any moment your plane can be delayed, and even worse, cancelled. This process can be aggravated exponentially if you have connecting flights. At the end of the day, we know that we don’t have to fly, but we choose to do so anyway because it’s faster.

 

Like the airport, probate is time consuming. The process is extremely lengthy to begin with, and in our turbulent economic times, it shouldn’t surprise you that there are substantially less clerks, case managers and court staff. Depending on the complexity of the estate, it could last for years. It’s also expensive. You can expect to incur court costs and ongoing attorneys’ fees. Some attorneys charge for their billable time while others charge a percentage of the estate. You also need to understand that you can expect significantly higher fees if you own real property in another state. I equate the hassle of connecting flights with having to open an ancillary probate in another state. Likewise, probate is unpredictable and it is not private. Many people will see your will, including attorneys, judges and staff. Like the airport, probate is not the only way and certainly isn’t the fastest way. In fact, there are far better alternatives available to you right now, which can avoid the entire hassle.

 

EMOTIONAL TOLL
Often overlooked is that probate is emotionally draining. It’s hard enough to grieve a loved one’s passing. Having to immerse yourself in their business and affairs further amplifies the emotional toll on your family.

 

COMPLETELY AVOIDABLE
Last, but not least, one of my clients relayed to me his thoughts at a recent funeral. He said to himself, “you left me with a mess”. Knowing it’s completely avoidable, I couldn’t agree more. As you will learn in the crash course on wills, a will takes effect only upon death and does not avoid probate. You will learn from the trust video that you don’t need to wait until you’ve passed away to carry out your wishes, and properly utilizing a trust can avoid probate. In fact, with careful planning and execution, you can: 1) easily achieve all of your wishes during life; 2) reduce if not eliminate the need for probate; and 3) prevent unwanted and unnecessary litigation later. Doing a cost/benefit analysis will reveal that you’ll spend a lot more money going through probate than avoiding it.

 

(Sometimes people refer to going through probate as probating a will, probating, going through probate, probation and probate service.)

WHY YOU NEED AN ATTORNEY:
Here’s the big picture: Whether you are starting a business or operating an existing one, if you’re serious about being successful, you need to have an attorney looking out for your best interests.

 

 

At any stage of your business, you want to ensure that your business and marketing plan have a chance to blossom. You want to maximize your chances of success, so you don’t want to walk directly into a lawsuit. Most notably, in today’s digital world, your intellectual property may be your most valuable asset, so you want to protect it. It goes without saying that you want to form the most appropriate business entity (LLC, LLP, LP, corporation) for your business, legal, tax and accounting needs. You will also need to know how to operate the business so as to avoid losing the protection of the entity you’ve chosen. One of the most important and often overlooked areas of planning involves the agreement that governs the entity. These usually consist of the bylaws, operating agreement and partnership agreement. These documents are ultra important because they provide for all aspects of the business’s operations, including management and operations, ownership, liabilities, restrictions on transferring interests, income tax treatment, allocations of profits and losses among owners, and each partner’s rights and obligations. I’m sure your business will involve leveraging the strengths of key players or teammates to achieve your vision. It’s a good idea to memorialize the businesses’ goals, operational parameters and everyone’s rights and responsibilities so everyone starts and remains on the same page. You’ll need agreements that prevent partners from soliciting, competing, and disclosing company confidences. Ultimately, the business will face new concerns, which include employees, contracts and litigation.

 

• Intellectual Property
• Formation and operation
• Governing Documents
• Partnership Agreements
• Shareholder Agreements
• Agreements preventing competition and solicitation, preserving confidentiality
• Employee Agreements
• Contracts
• Litigation

 

You may want to form a business entity for your start-up (startup) for reasons relating to raising money, limiting personal liability of owners, ensuring centralized management, continuing beyond the life of the owners, for tax or accounting reasons or for estate and gift tax planning reasons. You may simply want to convert your existing business into a more appropriate entity. A general partnership and sole proprietorship are not business entities. Other types of business entities include, but are not limited to, limited liability company (LLC), limited partnership (LP), limited liability partnership (LLP), limited liability limited partnership (LLLP), corporation, s-corporation (also known as sub-chapter s corporations) and trusts. Each has its own advantages and disadvantages relating to business, tax, accounting and operations, so you need to understand your alternatives so you can choose the entity that is a better fit for your business. Contact a business planning attorney to ensure that you form or convert to the most appropriate business entity to satisfy your needs.

WHAT YOU DON’T KNOW CAN HURT YOUR FAMILY – DON’T WAIT UNTIL IT’S TOO LATE
Here’s the big picture: “Don’t run with scissors.” Everyone has heard this saying before. If you’re like me in kindergarten, you probably heard it more than once. Its message is simple, and it’s relevant to you because you probably own a lot of assets or “Property”. As you know from the Probate video, the term “Property” includes everything you can possibly own, now and in the future. Some of these assets have the potential to harm someone or something in some way, either actively or passively. Unfortunately, if that happens, you’re probably on the hook unless you planned ahead. Forming a business entity, such as a LLC, LP, LLP or corporation, even an irrevocable trust, does limit your personal liability in some ways, but leaves you extremely vulnerable in other ways. If you knee-jerked into an S-Corporation because your accountant thought it was a good idea, you should be very afraid because you’re holding giant scissors and running in the dark. S-corporations and certain LLCs can be taken away from you very quickly and easily.

 

 

Fortunately, you can protect yourself, your family, your business and your assets. Asset protection planning involves taking advantage of debtor friendly laws, especially in Florida, in order to minimize your exposure to personal liability. I’m talking about maximizing your use of assets that are deemed “off limits” to creditors. It also includes covering all your bases, such that you and your properties are both isolated and insulated from each other. An effective plan also requires using the combination of several business entities and trusts. Because you may be covered by your insurance, I’m pleased to share with you that asset protection planning is NOT necessary for everyone. But if you’re serious about protecting your assets, you need an asset protection plan.

 

THINK DEFENSIVELY – REMEMBER, THE BEST DEFENSE IS A GOOD OFFENSE
We can communicate your issues and options without the legalese and colorful technical language. You work hard for your money and property and there’s a lot of people that will take it away from you if given the opportunity. We help you protect your hard-earned assets from lawyers, creditors, foreclosure deficiencies, former or current spouses, children, relatives, and people searching for deep pockets. You need to think and act defensively to protect your family and your family’s assets. Utilize proven strategies to shelter and shield the assets of your family and business.

 

Please understand that it is important to protect yourself before you get sued, and even before you have reason to believe you may get sued. For this reason, advanced planning is important so its’ critical to start planning now. Like insurance, asset protection planning after-the-fact does you no good. Invest in defense!

WHAT IS A WILL?
Here’s the big picture: a “Last Will and Testament” or a “Will” is a legal document that expresses your postmortem wishes. It appoints a personal representative or executor to in probate. It designates a guardian of the person and property of minor children. It usually covers burial instructions, funeral expenses and estate tax apportionment. However, it is most commonly understood to govern the transfer of a deceased person’s property to his/her designated beneficiaries. The term “Property” includes everything you can possibly own, such as cash, stocks, bonds, houses, vehicles, jewelry, artwork, business interests, and even future interests-think Michael Jackson. His estate will be open for a very long time. In other words, property is everything you own, both now and in the future.

 

 

WHY IS A WILL IMPORTANT?
Regardless of how much money or assets you have, you have an estate so you should have a will. Here’s why: First and foremost, mostly everyone can have one. In Florida, you only need to be 18 years old (or an emancipated minor) and have what’s called, “mental capacity”. Second, you have the freedom to choose your beneficiaries. If you don’t have a will, your home state will, among other things, choose your beneficiaries for you. This can be problematic if you have children or are divorced and especially if you have children from other marriages. Third, there are different types of wills. A properly drafted will can preserve and protect your beneficiaries’ interests in their inheritance, both from themselves, if financially irresponsible, and from their present and future creditors. If your family is going to inherit assets from you, you might as well protect them. Otherwise, you’re going to make outright gifts which are dangerous. Lastly, the combination of a will and other planning tools like a trust will better serve your family’s long-term goals.

 

ARE WILLS ENOUGH?
I’m going to assume that your family’s long-term goals are to 1) preserve and protect your family’s assets for future generations; and 2) and minimize needless emotional drain and administrative hassle in the transition from one generation to the next. With that in mind, relying on a will alone is not enough. There are too many things that can go wrong, and even if things go right, there’s better alternatives for you and your family. What can go wrong? Well, the failure to take advantage of life-time gifts and other estate planning tools can result in needless taxes. It can even result in the loss of the very assets that you plan to give to your family. Additionally, having a will doesn’t avoid the world of probate. Watch the video on probate to learn why that’s so important. Contrary to what you may think, the determination of whether a will is valid occurs in probate AFTER death rather than at the time it’s executed. You could be walking around for years with a false sense of peace of mind. Remember, small mistakes and omissions can have disastrous consequences to you and your family. Failure to comply with the necessary formalities renders a will invalid, and an invalid will is no will at all. Again, that brings us back to your home state choosing your beneficiaries for you, which can have devastating and priceless effects. Lastly, probate provides both an invitation and a convenient venue for a will contest. Sadly, you can expect that invitation to be accepted if there are questionable circumstances surrounding the will execution or if a beneficiary is disappointed with his/her inheritance. In either case, it’s wasteful and avoidable.

 

SHOULD I DO IT MYSELF?
All this is especially true when it comes to “Do It Yourself” products. I have a degree in computer information science and I’m also in the software business so I understand how these systems work. Unfortunately, algorithms cannot represent your best interests. In fact, they don’t. That’s why you have to sign a disclaimer that you haven’t received legal advice. “Do It Yourself” products are terrible ideas for clients because you and your family’s circumstances do not fit squarely into an algorithm. Your family is special, and you want to ensure your documents are validly executed, accurately reflect your wishes and are tailored to meet your particular needs and goals. “Do It Yourself” products at best should be characterized as only temporary solutions.

 

SO THEN WHAT?
Having a will is like having enough gas, but not having the right car. You might get to where you’re going, but it may not be the quickest or most pleasant journey. There are better ways to get there, which include using trusts.

 

(Often times, people refer to executing a last will and testament as making a will, willing, making a devise or devising, bequeathing or giving, and receiving under a will as inheriting. Please note that drafting a will usually includes language indicating that the new will revokes all prior wills and codicils. A codicil is an amendment to a will, which can be simple or complex).