QUESTION: My husband and I own all of our property together, and we don't really own all that much. Do we really need a will? Is the will our attorney up north prepared for us still good? I see that I can by forms to make my own will. Are these any good?
There are a lot of myths and misunderstandings about what a will accomplishes, who needs a will, and what a will does and doesn't do for you. I'll try to answer many of these questions and misunderstandings herein.
First, a will is nothing more than a document that directs the disposition of your assets and property upon your death, and directs the person or people who will make sure your final wishes are followed. Surprisingly, the basic legal requirements for a valid will are quite simple. These are:
- The will must be in writing;
- The will must be signed by the testator (meaning, you)
- The will must be signed in the presence of two witnesses who must also sign the will in the presence of the testator and in the presence of each other.
These are the basic requirements for a valid will, but by no means does it describe the many provisions which should be included in your will in order to make the transference of property and payment of debts proceed as smoothly as possible.
What happens if a Florida resident dies without a will? Under Florida law, their property passes "in accordance with law". This can mean several things.
First, where a contract such as a life insurance policy, an annuity or even some types of bank accounts name a specific beneficiary other than your estate, the person or people named as beneficiaries will receive the property by operation of contract most likely without the necessity for a will or probate. This is due to the fact that you made a contract with a third party during your life time, such as a life insurer, where you gave another person a potential interest in your property (i.e. the beneficiary) and the person holding your property (a life insurer technically holds the proceeds of your life insurance, though need not pay that money until and unless certain conditions are met) has also entered into that same contract whereby they have agreed to follow your instructions and to pay money to a specific person immediately upon your death.
Second, where you hold property as "joint tenants with right of survivorship" or as "tenants by the entirety" your interest in that property passes to the surviving joint owners or your spouse by operation of law, immediately upon your death.
Third, certain property qualifies as homestead property (sometimes this is called constitutional homestead, not to be confused with "homestead exemption" which is a property tax law, not a rule of inheritance). The home which you own and live in is the most common form of homestead. Homestead property passes in accordance with laws enacted by the state which comply with the constitutional treatment of homestead. In the absence of a will, such property will usually pass in whole or part to a surviving spouse, your children or in partial shares to each. Also, since most married couples own their homes "as tenants by the entireties", the method by which you took title will automatically cause the marital home to pass to the surviving spouse outright.(1)
Finally, where property doesn't pass by operation of contract, by virtue of the way its titled, or pursuant to constitutional homestead, another statute directs the disposition of property under what is called intestate succession, which is a fancy way of saying, without the benefit of a will.
Quite frankly, in many cases the presence of a will makes little difference to how a persons property will pass upon their death because of these various laws which direct the disposition of property when there is no will. However, if you don't obtain a will, whether or not your property passes as you wish is largely a matter of luck.
One very common myth with respect to wills is that they automatically save in estate taxes. As a general rule, this isn't true.
Federal estate tax laws are extremely liberal, and the vast majority of all estates are no longer subject to estate taxes in the first instance (though you'd never know that to hear the politicians talk while on the campaign stump). First, there is what is called the martial deduction. In theory, this means that your entire estate if left to your surviving spouse will pass without any taxes being imposed whatsoever. Hence, again in theory, if Bill Gates were to leave his entire estate to his wife, and assuming his wife survives him, she would pay no federal estate tax whatsoever.
Next there is what is called the unified credit. For those of you who have interest in such details, a unified credit works as follows. As we all know by filling out our annual tax returns, certain deductions or credits are automatically included in the tax form itself, depending on how you earn your income, whether or not you're married, and whether or not you have minor children or others that rely on you for support. If an accountant were told in advance how many dependents are in your household, by knowing the amount of money that the government allows you to deduct from your income for each such dependent, you could be told in advance how much money you could earn each year without having to pay any income tax. The same is true for estate taxes.
An estate tax return contains a credit for a set dollar amount to which a filer is entitled. Once the size of the estate has been determined, and the tax tables are consulted, you will determine that amount of federal estate tax owed for that size estate. Your next step then, is to subtract this unified credit from the tax liability you would otherwise owe. Therefore, because the amount of the credit in effect each year can be compared to the tax tables, one can determine what size of estate can be passed to anyone, not just your spouse, free of estate taxes.
The size of the unified credit has been increasing each year based upon laws which the congress enacted quite a few years ago. Even before President George Bush (the son) proposed his own estate tax changes, laws already in effect would eventually allow estates up to one million dollars to pass totally free of taxes.
Thus, to re-cap, there are two types of credits or exemptions. First is the marital deduction which allows your spouse to inherit your entire estate, regardless of size, free of federal estate tax. The second is the unified credit which allows anyone, not just your spouse, to eventually inherit an estate of up to one million dollars free of federal estate taxes. This is all true regardless of whether or not you have a will.
A recent tax law change promoted by the current President George Bush will eliminate all estate tax, regardless of who inherits the property and regardless of the size of the estate.(2) There's a catch, however. That portion of the present law which entirely eliminates estate taxes will only remain in effect for a single year, unless extended by a further act of congress. Therefore, since few if any of us know when we'll actually die, the old saying that nothings certain but death and taxes no longer applies. Unless we can be certain that we'll pass away in that single year when estate taxes are eliminated, today we can no longer claim that taxes and death are certain, but instead only death is certain! As for myself, I'll be very happy to live longer than the estate tax repeal and to have my heirs pay my estate taxes in return.
While I've stated that a will does not necessarily avoid any taxes, a will certainly can help avoid or minimize any estate tax liabilities. I err on the conservative side when advising my clients. Despite the various tax exemptions I've already described, I still tell them that if their gross estate value exceeds six hundred thousand dollars, they should consider tax planning. And remember, when calculating the value of your estate, you must take all potential assets into account, including life insurance proceeds payable upon your death. Estates that may not be taxable before payment of life insurance can easily fall prey to the tax man when life insurance is included in the equation. Therefore, if you have any doubt about whether your estate may be subject to estate taxes you should consult with your attorney or your accountant rather than simply assuming your estate will pass tax free. In addition, you should keep in mind that assets such as real estate, stocks and bonds typically increase in value over time and laws which allow for tax exemptions or credits at the present time can easily be repealed by a later congress.
What can a will accomplish? The answer is many things. One group that frequently neglects to obtain a will are those families with young children. Most of those who consult with me in order to prepare a will are elderly and their children have long since grown and started families of their own. For that younger group who are still raising children, I believe a will is even more important than the more elderly population. Should the parents of young children die without leaving a will, their wishes regarding who will obtain custody of their children may never be known. Because children under eighteen years of age cannot inherit more than a minimal amount of money or property, not only will an estate be required but a guardianship will also be required to manage those funds and property which the children inherit through their parents estate. While laws exist that delineate the power and authority of a court appointed guardian, these laws can be quite restrictive and therefore difficult to manage in the best interest of the children. In addition, once each child celebrates their eighteenth birthday, all property held by their guardian must be disbursed to them at once, unless they are suffering under a significant physical or mental disability.
With very little effort, a will can include provisions, including a trust, that expresses the parents wishes with respect to who will raise their children; it can appoint a trustee to manage the money and property which the children will inherit thereby avoiding the costly and cumbersome process of going through a court appointed guardian; the powers of the trustee can be restricted or expanded in comparison to the powers granted by statute; and the parent can set forth the age at which their children are to receive the balance of their inheritance thereby avoiding the possible problem with placing a large sum of money into the hands of a relatively immature eighteen year old, which is the age at which the law presumes one has reached the age of adulthood.
Such wills, while slightly more expensive than simple wills that merely name a personal representative and direct the disposition of property upon death, are still relatively inexpensive, often as little as a few hundred dollars.
Does a will avoid probate? The easy answer is no. A living trust can help avoid probate if written and funded properly and so long as the individual makes sure that the trust is fully funded throughout the balance of their life. The term fully funded means that all of a person's property is held in such a way that it passes automatically by operation of law or contract (examples of such assets are jointly held property and band accounts or life insurance in which a specific beneficiary is named) or is titled in the name of the trustee and not in the client's individual name.
A living trust should always be combined with a will just incase the client fails to fully fund the trust and thus ends up owning property which must go through probate at the time of their death.
Keep in mind that, just as with wills, a living trust does not necessarily avoid any estate taxes that would otherwise be owed. In order to avoid such taxes, the attorney must be told of all potential assets owned by the client or which may become part of her estate, such as life insurance, and the attorney must be hired for the specific task of estate tax planning. If you have or are interested in forming a trust, make sure to ask your attorney if he is qualified in the area of tax planning, and if your trust utilizes legitimate tax avoidance methods.
While I personally believe that living trusts are a valid and useful estate planning tool, they are perhaps "oversold". The draw backs to a living trust are (1) expense and (2) the client must make sure they remain fully funded throughout his or her lifetime. In my experience, a very large number of clients either do not fund the trust properly at the start, as where they choose to make these arrangements themselves rather than go through the expense of having their attorney's assistance, or as time goes on, purchase significant assets in their own name, rather in the name of the trust, thereby avoiding most of the benefits that the trust was intended to deliver.
Can I write my own will? The simple answer is yes. However, the costs of a simple will can be as low as one hundred dollars or slightly more, and it usually take very little time and effort to arrange for an attorney's assistance. Kits that claim to assist in the process can cost as much as one half the cost of hiring an attorney and if the resulting product is defective in any respect, the cost of correcting such errors once this home made will is admitted to probate can be many times what it would have cost to have an attorney prepare a proper will in the first instance. For better or worse, the law can be quite complex and confusing. In many cases, problems do not arise because of a wrong answer to a question but because the person performing the task didn't know enough about the subject to even ask the right question! Therefore, if you choose to prepare your own will, proceed at your own risk.
How long does probate last and how much does it cost? In most cases, probate is not all that difficult or time consuming. Where the estate does not include any real estate, and is valued at less than twenty five thousand dollars, "summary administration" can be utilized which takes days or at worst weeks, rather than months.
Where "formal probate" is required, certain notices must be filed, the decedents assets must be inventoried, taxes, bills of the decedent, and costs of the estate such as funeral bills must be paid, and some brief court hearings are necessary. Because of the waiting periods imposed by statute, most of which apply to the period of time you must give potential creditors to bring claims against the estate, formal administration usually takes between four and six months to complete. Of course, where complex tax issues exists, a challenge is raised by an excluded beneficiary or other potential problems arise, the time for administration can be longer. Most estates, however, are or should be completed in the time estimate I've provided herein.
Many people believe that attorney fees are based upon the value of the estate. I've most often heard people claim that the attorney charges five percent of the estate's value. Were this true, even a modest estate with a typical home, some savings and personal items could end up costing a tidy sum to administer.
PLEASE READ THE FOLLOWING
The foregoing discussion is intended to provide an understanding of some of the more common issues and questions that arises with regard to wills, trust and probate administration. It is not intended as a complete or exhaustive discussion of the subject, and should not be relied upon to provide specific legal advise to anyone. Instead, by providing this information, it is my intent that the public may be better informed so as to avoid reliance upon the claims and advise that often circulate and originate from those who have little or no training or knowledge in the law and on occasion may wish to mislead the public for the purpose of their own financial gain. It is my hope that those who read this article will be in a better position to communicate with a qualified attorney in order to properly express their needs and concerns with regard to the preparation of their will or estate plan. Under no circumstance should the information set forth herein be used as a substitute for a proper consultation with an attorney of your choice who can tailor her advise to your own unique circumstances and needs. Only by consulting with a qualified attorney who is a member in good standing of the Florida Bar can you be assured of obtaining the advise and peace of mind you deserve and need.
Should you have further questions or concerns but do not already have an attorney with whom you wish to consult, please feel free to contact me at
Allen R. Seaman
Main office in West Palm Beach, Florida