Frequently Asked Questions
Generally, a Last Will and Testament provides for the distribution of certain assets at the time of death through a court process called probate. A Will cannot, however, govern the disposition of assets that pass outside the probate estate (such as certain joint property, life insurance, retirement plans, and employee death benefits) unless those assets are payable to the estate.
Wills can be of various degrees of complexity and can be utilized to achieve a wide range of family and tax objectives. Perhaps more important, though, is that a Will can be used to designate a guardian for any minor or disabled children.
A Revocable Trust is an agreement among parties in which a trustee is responsible for managing assets during a lifetime, and thereafter a successor trustee is charged with honoring the trust maker’s wishes, which can be modified by him or her at any time. This is quite similar to the job of an executor under the Last Will and Testament, although a trustee is not under the direct supervision of a probate court, meaning that the administration of a trust can be accomplished in an expeditious fashion and at a reduced cost.
Wills and Revocable Trusts are used for different purposes. They are similar in that they both allow you to designate exactly how you want your assets and other personal property to be distributed to your beneficiaries after you die. The primary difference between a Will and a Revocable Trust is that a Will requires a probate proceeding. A Revocable Trust is administered outside the probate court after death.
If your individually owned assets are more than $75,000, then a Revocable Trust is probably worth consideration. A Revocable Trust can:
- Reduce the cost of estate administration (probate).
- Reduce the need for a Guardian if you are incompetent.
- Keep your wishes private.
A durable power of attorney is a document that gives another person the authority to manage your financial affairs even after you become incapacitated.
A power of attorney for healthcare designates a surrogate to make healthcare decisions for medical treatment whether death is imminent or not. A living will is a statement to the health provider that you do not want heroic or extraordinary means to be used to keep you alive if you have no brain activity or are suffering from a terminal condition. Living wills are often used in conjunction with powers of attorney for healthcare to address all medical decisions.
If you already have an estate plan, it should not be considered permanent. Your circumstances, as well as your desires, will likely change over time. Therefore, estate plans should be reviewed every three to five years, and any important changes in your life demand immediate review. These changes include birth, death, marriage, divorce, or disability of you or a beneficiary; substantial changes in the net worth of you or a beneficiary; and changes in tax law.
Estate and Trust Administration
If you do not have a Will or a Revocable Trust and have not used other estate planning techniques, upon death, your assets will pass according to the laws of the state which has jurisdiction over your assets. The “State plan,” also referred to as dying intestate, may not provide for those you desire to obtain your assets.
Simply stated, probate is the legal process of establishing the validity of a Last Will and Testament, and settling an estate. Probate requires the appointment of a personal representative, whose duties include marshaling one’s assets, paying one’s legally enforceable debts, and distributing the remaining assets in accordance with a decedent’s wishes. The personal representative acts under the direction and supervision of a probate court.
The probate process may take up to one year to complete, although, in certain instances, the process can require more than two years to complete. Unfortunately, this process may result in significant legal expense and related costs as well as a delay in the distribution of one’s assets to those who may have an immediate need for funds. Moreover, an individual, acting as personal representative, will be required to perform many functions during the probate administration, which are not only time consuming, but will likely also interfere with the mourning process.
The Florida Probate Rules require completion of the probate within 12 months of initiation. However, uncomplicated probates with few debts and no disputes among beneficiaries can be concluded in as little as six months. Complicated probates, including those with creditor claims, tax concerns, or family disputes can last for years.
When most people think of “probate,” they are thinking of a process called Formal Administration. This process is required for those estates exceeding $75,000 in value or in instances for which a decedent’s creditors have not been adequately provided.
In a Formal Administration, a personal representative is appointed by a court to collect a decedent’s assets, address any outstanding liabilities and report all matters to a court prior to distributing any remaining assets to the estate’s beneficiaries.
The process of Summary Administration is available when an estate is less than $75,000 (assuming all creditors have been properly addressed) or when the death occurred more than two years prior to initiation. Rather than appointing a personal representative and requiring the steps of a Formal Administration, a court in a Summary Administration will direct the immediate disposition of a decedent’s assets to the estate’s beneficiaries.
Assets held in a Revocable Trust are not subject to probate. A few of the advantages of avoiding probate are:
- Expedited Distribution – A Revocable Trust allows assets to be distributed to your beneficiaries as quickly as the Agreement instructs, without the delays of probate.
- Expense Reduction – The expenses of probate, including legal fees and court costs, are avoided for all assets held in a Revocable Trust at the time of death.
- Privacy and Confidentiality – When a Will is admitted into probate, all of its provisions become a matter of public record. A Revocable Trust is a private arrangement, and its terms are not made public at death. Your assets and intentions are known only to your trustee and beneficiaries.
Business Planning encompasses all stages along a business’ lifecycle from the formation (entity selection and management structure) through the succession of interests (intra-family transitions and third-party transactions). Business Planning also includes meaningful and routine dialogue with business owners to address various agreements to promote and support the continued success of one’s business.
Legal entities, such as Corporations and Limited Liability Companies (LLC), are often used to provide protection from personal liability. Without them, creditors may sue the owner personally and reach personal assets to satisfy judgments. Generally, if a legal entity is established and properly maintained, creditors are unable to reach these assets.
Other reasons to use a business entity include creating a professional image and affording yourself certain tax advantages available to sole proprietors.
An S-Corporation is a general corporation (C-Corporation) that has elected a special tax status with the IRS after the corporation has been formed. When a general corporation makes a profit, it pays a federal corporate income tax on the profit. If the company also declares a dividend, the shareholders must report the dividend as personal income and pay more taxes. S-Corporations avoid this “double taxation” (once at the corporate level and again at the personal level) because all income or loss is reported only once on the personal tax returns of the shareholders.
For many small businesses, the S-Corporation offers the best of both worlds, combining the tax advantages of a sole proprietorship or partnership with the limited liability and enduring life of a corporate structure. Additionally, the K-1 income of an S-Corporation is not considered “earned income” and is therefore not subject to payroll taxes.
An LLC is an unincorporated entity formed by one or more persons by entering into an operating agreement and filing articles of organization with the State of Florida. Members of an LLC are protected from the LLC’s obligations and from the liabilities of the other members. This type of liability protection is similar to the liability protection available to the shareholders of a corporation. An LLC may be managed by its members (owners) or by selected managers. If one person creates the LLC, it may be treated as a “disregarded entity” for tax purposes, meaning that all of the LLC’s income and deductions are reported directly on that person’s individual tax return. LLCs formed by two or more people may be taxed as a partnership or a corporation.
A registered agent provides a registered address for the receipt of service of process in the event of a lawsuit and as a local contact for the Secretary of State and other government agencies.
Buy-sell agreements may be used with any type of business entity to define the rights and responsibilities of owners upon the happening of different events such as death or disability of an owner or dissolution of the business entity. Buy-sell agreements are sometimes referred to as shareholder agreements for corporations, operating agreements for limited liability companies, and partnership agreements for partnerships. These agreements establish value and payment terms for a buy-out of an owner and generally restrict one’s right to sell one’s interests to a third party. These agreements can also describe management responsibilities, voting rights, and distribution standards.
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If you have any questions regarding how we can help you, please give us a call. We would be delighted to talk to you.
Joshua T. Keleske, Attorney and Counselor at Law
Based in Tampa, Florida, we proudly serve families throughout the Tampa Bay area, including Apollo Beach, Beach Park, Bloomingdale, Brandon, Brooksville, Carrollwood, Clearwater, Dade City, Dunedin, Hyde Park, Lakeland, Land o’ Lakes, Largo, Lutz, New Port Richey, Northdale, Odessa, Oldsmar, Plant City, Riverview, Ruskin, Seminole, St. Petersburg, South Tampa, Tarpon Springs, Valrico, Wesley Chapel, Westchase, Zephyrhills and other communities in Hillsborough County, Pinellas County, Pasco County, and Polk County.