It’s the New Year and everyone has their list of resolutions that probably won’t be followed for more than a month or two.
From the estate planning perspective, that is enough time to review and ensure that your estate planning house is in order, if you take these four estate planning actions.
1 – Review Titling of Your Assets
How your assets are titled is critically important for estate planning purposes, but is also critically important for lifetime asset protection and control purposes. First, it’s important to realize that only those assets titled to you individually will require probate. Jointly title property can avoid probate at the first death, but will be subject to probate at the surviving joint owner’s death. Only assets that are titled to your trust will escape probate entirely.
Even with jointly owned property, there can be very significant differences. Owning an asset (bank account, brokerage account, real estate or otherwise) with someone other than your spouse must be titled to the joint owners either as “joint tenants with right of survivorship” (“jtros”) or as “tenants in common.” There are significant differences between the two forms of ownership. Joint tenants with right of survivorship dictates that upon the death of one of the co-owners the remaining co-owners become the owners of the decedent’s share of the asset. The decedent’s share is not controlled by the decedent’s will or trust – it automatically, by operation of law, passes to the surviving co-owner(s) at the moment of the decedent’s death. You can’t change that. Owning asset as tenants in common means that each of the co-owners owns a divisible proportionate interest in the asset. The co-owner in a tenants in common status can control the lifetime sale or transfer of that co-owner’s share, without the concurrence or participation by other co-owners. Similarly, upon the death of one co-owner of an asset owned as tenants in common, the decedent’s will controls the disposition of that interest upon death.
During your lifetime, any asset you own jointly with someone other than your spouse is subject to attachment or execution by a judgment creditor. An ownership interest pursuant to joint tenancy with right of survivorship is subject to creditor’s claims to include the “beneficial” interest of the owner. An ownership interest as tenants in common subjects the individual co-owner’s proportionate share to creditors’ claims. In either event, there is no effective asset protection for those forms of ownership.
An individual can own property with their spouse as “tenants by the entirety,” in addition to ownership as a joint tenant with rights of survivorship or as tenants in common. Tenancy by the entirety offers a much higher level of asset protection from either spouse’s individual creditors. Ownership as tenants by the entirety provides that ownership is by the “marital unit” rather than the individual husband and wife. Pursuant to Florida law, a creditor of one spouse cannot seize an asset owned as tenants by the entirety. A creditor must have a judgment against both husband and wife before the creditor can seize the ownership interest of such property to satisfy the judgment.
Some financial institutions do not offer their customers the option of tenancy by the entirety, and others only offer that form of ownership if it is specifically requested. The benefits of such ownership should be seriously considered and a review of all assets owned by husband and wife should be conducted to determine whether such ownership is tenants by the entirety, joint tenants with right of survivorship, or tenants in common.
Effective and efficient protection and transfer of your assets during lifetime and at death depend on proper titling to achieve your individual desires. So take the time to review how all of your assets are titled.
2 – Review Beneficiary Designations
You have the legal right to designate the beneficiary or beneficiaries of your life insurance policies, your retirement plans and IRAs, your annuities, and even your bank and brokerage accounts, including your stocks and bonds. Some of the most disheartening, and often financially ruinous situations arise when beneficiary designations are out-dated or otherwise made to the wrong person. Beneficiary designations cannot be changed after your death, so the beneficiary or beneficiaries that are designated at the time of your death will receive the value of the life insurance policy, retirement plan or other assets.
Most often, and often the most egregious issues with improper beneficiary designations, arise out of the failure to change a beneficiary designation when one or more of the designated beneficiaries dies before the account holder, or after a divorce. Numerous times a year we uncover situations where a divorced spouse is named as the beneficiary and that designation is not changed during, or even after, the divorce. Your ex-spouse is not going to play nice and turn over the life insurance or retirement plan proceeds to your other family members, or your new spouse; and there is nothing that can be done after your death to change the beneficiary.
Another frequent issue that arises with beneficiary designation is the failure to name “contingent” or secondary beneficiaries who you want to receive the asset if the primary beneficiary is deceased at the time of your death. The disposition of the proceeds where your designated beneficiary dies before you, depends in large part upon the different contractual terms of the life insurance policy, retirement plan or other asset. Sometimes the proceeds will go to the named beneficiaries’ probate estate; sometimes to the named beneficiaries’ heirs at law; sometimes to your probate estate, or to your heirs at law. A careful reading of the actual contract terms is necessary to determine what will happen if there are no named beneficiaries who survive you.
Reviewing your beneficiary designations is probably one of the most important things you can do regularly to ensure that you have the proper person(s) named (rather than your ex-spouse, or deceased parent).
3 – Review Your Will or Trust
Take a few minutes and review your will or your trust. The most important part is to determine whether the people you have named as your fiduciaries (personal representative, executor, successor trustee), continue to be those that you want to trust with handling your estate when you are gone. Make sure the people named are alive and willing to serve in the fiduciary capacity to which you have appointed them. Remove and replace those who don’t want to serve, who you don’t want to serve, or who can not longer properly serve because of age, infirmity, geographical location, or other reasons.
The other most important part of the will or trust to review is the distributions provisions. Who will receive your assets, and on what terms. Just as often happens with beneficiary designations, you have named your former spouse, or other beneficiaries who are now deceased. You will want to remove any named beneficiary who you no longer want to receive your assets, or who are no longer alive to receive your assets. Again, as in the discussion of beneficiary designations above, ensure that there are contingent beneficiaries to receive your assets if the primary beneficiaries predecease you.
You will also want to ensure that there are provisions that govern the management and distribution of assets in the event one or more beneficiaries are incapacitated or are minor children.
The few minutes it takes to review these documents will provide you with significant peace of mind that everything is still the way you want it to be, or give you the opportunity to make it the way you want it to be.
4 – Review Your Advance Directives and Your Durable Power of Attorney
The designation of health care surrogate tells your physicians from whom they should take direction in the event you cannot communicate with your physicians regarding your medical treatment. It actually may be the most important document out of all of those discussed in this post because it deals with critical decisions that must be made for you when you can’t make them yourself. If you don’t name the person you trust to make such decisions, other family members, perhaps those you do not trust as much, may step in to fill that role.
The living will is the document that allows you to express your own desires with respect to life support in the event your are in a vegetative state or otherwise will not recover from your condition. A living will can also allow you to describe those circumstances in which you do want to have life support provided.
You should also review your durable power of attorney. The Florida law concerning durable powers of attorney was significantly changed in 2011. If your durable power of attorney was signed prior to October 1, 2011, you should consider obtaining a new one that complies with the “new” statute. The durable powers of attorney signed under the 2011 law contain protections that were not available prior to 2011, and provide a means for enforcing third parties to honor durable powers of attorney in Florida.
It’s the New Year. It’s a great time to do a quick review of your estate planning documents, how your assets are titled, and how you have designated your beneficiaries for your life insurance policies, retirement plans and other assets. The peace of mind you will get from conducting that review, and updating as necessary, will make this year one of your most productive ever.