I.          INTRODUCTION

 A.        [§1.1]   Definition Of “Estate Planning”

 A definition for “estate planning” cannot be found in the Florida Statutes or case law. Nevertheless, a large number of lawyers and non­lawyers in Florida devote all or a substantial percentage of their time to this field.

 The term “estate” can be defined, with the specific meaning depen­dent on the modifying words used in connection with it. For example, “probate estate” means the property of a decedent that is subject to adminis­tra­tion, F.S. 731.201(12), generally property owned solely by the decedent that has not been given away before death.

 On the other hand, “gross estate” is defined under the Internal Revenue Code as all property in which the decedent had an interest at the time of the decedent's death. IRC §2033. The definition of “estate” contained in the Code is closer to the definition being sought but is still not inclusive.

 The “estate” that is the subject of this manual includes not only the client's gross estate, but also the gross estates of the client's spouse, relatives, and other beneficiaries. Assets that might not be included in the client's gross estate for federal estate tax purposes, such as irrevocable trusts that the client created but in which the client retained no interest, or irrevocable trusts created by others in which the client has only an income interest, also are included.

 In addition, the term “estate” is not limited to the property in which the client or the objects of the client's bounty had an interest at the time of their death. Not only does estate planning involve the transfer of assets at death, but also the accumulation and expenditure of assets during lifetime. The effect of inflation or deflation on these assets and the income from these assets also must be considered. Therefore, the “estate” consists of property in which the client and the client's beneficiaries have an interest at the time the plan is implemented, minus property expended, plus property accumu­lated before death, adjusted for the effect of inflation or deflation.

 Planning estates, as defined above, involves the process of ensuring the clients' financial well-being by making certain that their estates are preserved and managed and the clients and their beneficiaries are protected according to their intentions, both while they are living and after they die.

  

II.        RECENT DEVELOPMENTS IN ESTATE PLANNING

 A.        [§1.3]   American Assembly Recommendations

 On December 2–4, 1976, the Real Property, Probate and Trust Law Section of the American Bar Association and the American Assembly of Columbia University sponsored a meeting at the law school of Emory University on “Death, Taxes and Family Property.” The meeting followed an ad hoc modification of Standard American Assembly Procedures. Partici­pants considered a number of crucial questions in the estate planning and probate areas and issued findings and policy recommendations that were published and circulated by the American Bar Association. See Death, Taxes and Family Property in Essays and American Assembly Report (West Pub. Co. 1977).

 In its findings under the topic “Estate Services For the Public,” the final report issued by the American Assembly stated at 188–189:

     The public should be offered greater variety and effi­ciency and more choices in estate planning services (including identification and coordination of probate and non-probate assets) and services connected with the administration of estates.

     In addition, there is a need for more public education about estate planning, and this should be provided by the Bar and others competent in the field. Better public under­standing would also be promoted by uniformity of state laws of succession.

     Estate planning. In particular, it is desirable that readily available options in statutory or other form be developed to permit the simplified and inexpensive creation of both trust and non-trust dispositions by will in a manner analogous to but more diverse than present legislation concerning gifts to minors.

      The bar is urged to make estate planning services more widely available by providing them at reasonable cost through the use of group legal services, pre-paid legal insurance, increased technology and similar means.

      In addition, accepted definitions of “practice of law” should be re-examined carefully and seriously, looking to the possible performance by non-lawyers of some functions that have been classified traditionally as practice of law, with appropriate safeguards, particularly in connection with the drawing of wills.

 Although not necessarily initiated by the members of the bar, many of the recommendations of the American Assembly have become a reality over the last 20 years.

 B.        [§1.4]   Probate Avoidance

 The self-administered revocable living trust agreement (“living trust”) initially became popular largely as a result of a book published in 1965 by Norman F. Dacey entitled How to Avoid Probate. Mr. Dacey was a non­lawyer, a financial consultant, trustee, writer, and lecturer on various estate planning subjects. As of 1976 when the above Assembly Report was written, Mr. Dacey had sold approximately one million copies of his book. See Dacey v. Connecticut Bar Association, 368 A.2d 125 (Conn. 1976).

 Attorneys initially resisted the concept of living trusts, citing numerous problems such as a client's inability to properly fund the trust and keep adequate records. Instead, attorneys promoted wills or fully admin­istered trust agreements with corporate fiduciaries.

 Nevertheless, the popularity of living trusts continued to spread, fueled by seminars conducted primarily by nonlawyers. Estate planning was included in these seminars for two reasons. First, discussion of living trusts generated interest in other products. Second, many of the nonlawyers began to draft living trusts for compensation.

 As a result, the living trust has become a major dispositive instru­ment used in estate planning. For a discussion of living trusts see “Straight Talk About Living Trusts” on this website.

 Because of the increased use of living trusts in Florida, the Florida Legislature made changes to F.S. Chapter 737 in 1993 that, in essence, attempted to make the post-death administration of a living trust similar to the administration of a probate estate. In particular, F.S. 737.621 regarding rules of construction mirrors F.S. 732.6005 of the Probate Code; F.S. 737.622 regarding changes in securities, accessions, and nonademption mirrors F.S. 732.605 of the Probate Code; F.S. 737.623 regarding construc­tion of generic terms duplicates F.S. 732.608 of the Probate Code; F.S. 737.624 regarding the “per stirpes” presumption mirrors F.S. 732.611 of the Probate Code; F.S. 737.625, the “killer statute,” is derived from F.S. 732.802 of the Probate Code; and F.S. 737.627 regarding costs and attorneys' fees mirrors F.S. 733.106 of the Probate Code. The 1993 Legislature also enacted a notice requirement for the post-death administration of revocable trusts that were included in the gross estate of a grantor. In particular, F.S. 737.3057 provided that the trustee of such a trust was required to publish notice to creditors, giving creditors of a grantor the opportunity to file claims with the trustee of the living trust if no probate administration of the grantor's estate was required.

 This publication of notice to creditors was viewed as an attempt by the legislature to require the “probate” of revocable living trusts. In addition, no statutory procedure was provided in the statute for objection to claims. Therefore, the 1995 Legislature repealed this publication of notice to creditors requirement effective October 1, 1995. Thereafter, F.S. 737.308 requires trustees of revocable living trusts that are includable in the grantor's gross estate to file a “notice of trust” with the court of the county in which the grantor resided at the time of death and the court having jurisdiction of the grantor's estate.

 In addition, legislative changes in 1993 and 1995 made it clear that a revocable living trust is required to pay administration expenses, debts, and taxes of the decedent, if the probate estate is insufficient. F.S. 737.3054, which was enacted in 1995 in the wake of the repeal of F.S. 737.3056, pro­vides that this insufficiency would be measured after specific bequests and statutory allowances.

 The 1995 Legislature also enacted F.S. 737.2041, which prescribes a presumed reasonable attorney's fee for services rendered to a revocable living trust included in a grantor's estate during the “initial” post-death adminis­tra­tion of the trust. This statute was retroactively modified by the 1997 Legislature. Unlike the administration of a decedent's estate, there is no requirement that a trustee hire an attorney to assist in the initial post-death administration of a living trust. If the trustee retains an attorney to render legal services in connection with the initial administration of the trust, the attorney is entitled to reasonable compensation for the services. The trustee and the attorney may agree to the amount of compensation, but that agreement is not binding on the beneficiaries of the trust unless they consent to be bound. In the absence of an agreement between the trustee and the attorney, "presumed reasonable" compensation for “ordinary” services is generally three quarters of the fee allowed the attorney for a personal representative (see §1.7). The fees for extraordinary services mirror the fees for the personal representative's attorney (see §1.7). Court proceedings to determine compensation, if required, are a part of the trust administration process, and the costs, including fees for the trustee's attorney, must be determined by the court and paid from the trust assets unless the fee request was unreasonable. The attorney's fee provision for trusts applies to grantors dying on or after July 1, 1995.

 Next, F.S. 737.111(1) provides that the testamentary aspects of revo­cable living trusts are invalid unless the trusts are “executed . . . with the formalities required for the execution of a will.” This provision applies to all trusts executed after September 30, 1995.  

Therefore, even though the 1995 Florida Legislature eliminated the publication of notice to creditors, which some argued required the “probate” of revocable living trusts, additional provisions were enacted that in many ways make the post-death administration of a probate estate and a revocable living trust similar. In addition, the elimination of the “notice to creditor” provision will require most prudent fiduciaries to open a probate to resolve creditors' claims. On the other hand, a trustee is not required to hire an attorney to assist in the post-death administration of a trust. If an attorney is hired, the trustee may negotiate the scope of services and the fee. In addition, there is a reduction in the presumed reasonable attorneys' fees for the initial post-death trust administration from the probate fee described in §1.7. Consequently, it seems likely that revocable living trusts will continue to grow in popularity with clients and estate planners.

C.        [§1.5]   Nonlawyer Competition

The Unlicensed Practice of Law Committee of The Florida Bar has attempted to restrict estate planning in Florida to licensed attorneys in Florida. On August 1, 1991, The Florida Bar Standing Committee on the Unlicensed Practice of Law issued a proposed advisory opinion on the following question submitted by American Family Living Trusts:

Whether it constitutes the unlicensed practice of law for a corporation or other nonlawyer to draft living trusts and related documents for another where the information to be included in the living trust is gathered by nonlawyer agents of the corporation or by the nonlawyer and the completed documents are reviewed by a member of The Florida Bar prior to execution?

 The Standing Committee first gave examples of how nonlawyer com­panies solicited living trusts through licensed insurance agents, brokers, and securities dealers by conducting seminars, giving in-home presentations, and advertising. As a result of these seminars, the nonlawyers sold other products such as deferred annuities, life insurance, long-term care, disability insurance, and investments.

 Next, examples of public abuse were cited. Thereafter, the Standing Committee concluded that all five steps involved in the creation of a living trust, including gathering necessary information, assembling the document, reviewing it with the client, executing it properly, and funding the trust agreement, constituted the practice of law under the authority of In re The Florida Bar, 215 So.2d 613 (Fla. 1968), 34 A.L.R.3d 1298; and State ex rel. The Florida Bar v. Sperry, 140 So.2d 587 (Fla. 1962), rev'd on other grounds 373 U.S. 379.

 On December 24, 1992, the Florida Supreme Court ruled in The Florida Bar re Advisory Opinion — Nonlawyer Preparation of Living Trusts, 613 So.2d 426 (Fla. 1993), that the assembly, drafting, execution, and funding of a living trust, as well as the determination of the client's need for a living trust and the type of trust most appropriate for the client, constitute the practice of law.  As a result of this opinion, the Unlicensed Practice of Law Committee has been successful in enjoining non-lawyers from creating living trust and performing other estate planning functions.  See The Florida Bar v. America Senior Citizens Alliance, Inc., et al, 689 So.2d 255 (Fla. 1997).

 The American Assembly Report mentioned in §1.3 noted the “need for more public education about estate planning, and this should be provided by the bar and others competent in the field.” Estate Services for the Public, at 188. The report also stated at 189 that “[a]ccepted definitions of `practice of law' should be re-examined carefully and seriously, looking to the possible performance by non-lawyers of some functions that have been classified traditionally as practice of law, with appropriate safeguards, particularly in connection with the drafting of wills.”

 Therefore, members of the bar should educate the public about the advantages of using an attorney and the disadvantages of using a nonlawyer to perform estate planning functions.

 D.        [§1.6]   Estate Planning Specialization

 In 1986 estate planning and probate became an area of certification. The area was redesignated as wills, trusts, and estates in 1993. See Sub­chapter 6-7 of the Rules Regulating The Florida Bar.

 To become a certified wills, trusts, and estates lawyer, an applicant must (1) have been engaged in the practice of law for at least five years; (2) demonstrate substantial involvement in the practice of estate planning, planning for incapacity, administration of estates and trusts, fiduciary and transfer taxation, probate and trust law, estates and trust litigation, and homestead law during the five years immediately preceding application, including devoting at least 40% of practice to those matters during each of the two years immediately preceding application; (3) submit to peer review; and (4) complete not less than 90 hours of continuing legal education in the three-year period immediately prior to application. Rule 6-7.3. Recertification is required every five years. Rule 6-7.4.

 E.         [§1.7]   Attorney Compensation

 The criteria for setting fees for estate planning services are outlined in Rule 4-1.5 of the Rules Regulating The Florida Bar.

 The former practice of charging nominal fees for estate planning services and treating estate planning as a “loss leader” for future estate administration fees appeared to be passé in view of the Florida Supreme Court's decision in In re Estate of Platt, 586 So.2d 328 (Fla. 1991). Platt made it clear that in the absence of an agreement with the beneficiaries regarding estate administration services, the billing for these services on the basis of a percentage of the estate assets is not an acceptable practice. Therefore, it appeared that attorneys would begin charging a reasonable fee for the estate planning services provided and look to that fee as the sole basis for compensation, with no anticipation of an extraordinary probate fee at the client's death.

In the 1993 legislative session F.S. 733.6171 was enacted to address the Platt decision. The statute provided that, absent agreement among the attorney, the personal representative, and the persons bearing the impact of the fee, “reasonable compensation” for normal services performed by the attorney for the personal representative was to consist of the sum of two parts. The first part compensated the attorney's responsibility and was an amount equal to 2% of the inventory value of the estate and the income earned thereon, plus 1% of the balance of the gross estate if the estate was required to file an estate tax return. The second part compensated the professional time expended and was an amount equal to the product of the number of hours reasonably expended times a reasonable hourly rate. F.S. 733.6171(3).

The 1993 legislative changes to the attorneys' fees presumed reason­able in probate administration were criticized for being excessive. Therefore, the legislature again amended the statute regarding attorneys' fees for the personal representative's attorney in 1995. The 1995 version of F.S. 733.6171 provides for a sliding scale percentage fee, which is a “presumed reasonable fee” for ordinary services. The minimum fee is $1,500 for estates having a value of $40,000 or less, with a 3% fee for estates up to $1 million, which percentage reduces at various levels until it reaches 1% for all estates in excess of $10 million. This percentage is applied to the inventory value of probate assets and income earned by the estate during the administration. “Ordinary services” generally include those matters performed in an uncomplicated probate.

In addition, under the 1995 version of the statute, the attorney is entitled to compensation for “extraordinary services,” which is defined in seven broad categories beginning with involvement in will contests through most tax work and tax planning, and concluding with ancillary administra­tions. The preparation of a federal estate tax return is defined as an “extraordinary service” and carries with it a presumptively reasonable fee of .5% up to a value of $10 million, and .25% of the value of the gross estate in excess of $10 million.

If an objection to the attorney's fee is raised by an interested party, the burden remains on the attorney to establish by the greater weight of the evidence that the fee is reasonable. Upon petition of any interested party, the court may increase or decrease compensation and is required to consider nine factors set forth in the statute if a challenge is made. Attorneys' fees may be awarded by the court in compensation disputes unless the court finds the request for fees to be substantially unreasonable. The 1995 statute also requires that the final accounting disclose the amount and manner of deter­mining compensation for attorneys, unless disclosure is waived in writing and the waiver contains a statement that the waiving party has actual knowledge of the amount and manner of determining the compensation and that the waiving party has agreed to the compensation and intends to waive the right to petition the court to decrease the compensation. A general waiver of the final accounting and petition for discharge is not sufficient.

 Although general effective date of the Act that created these changes to the attorney's fee provisions (Ch. 95-401, Laws of Fla.) was July 1, 1995. The Florida Supreme court in Bitterman v. Bitterman, 714 So.2d 356 (Fla.1998) held that the law should not be retroactively since the right to recover attorney's fees accrued at the moment representation commenced.  Therefore, even if services were rendered by an attorney after July 1, 1995, the prior statute applied if the representation commenced before July 1, 1995.

By enacting the fee statute for the trustee's attorney referred to in §1.4, the legislature has reduced the probate avoidance benefits of creating a revocable living trust. Under the 1993 version of the attorney's fee statute, the “2% of inventory value” portion of the “attorney's responsibility” fee could be eliminated by avoiding probate. Under the 1995 version of the attorney's fee statute, the “presumed reasonable” attorney's fee for services rendered to a trustee is 75% of the presumed reasonable fee for services rendered to a personal representative.

 In addition, with the competition from other lawyers and nonlawyers performing estate planning services and drafting or providing estate planning documents, the attorney must make certain that the fee charged will not price the attorney “out of the market.” Several recent developments have assisted practitioners in providing competent estate planning services for a competi­tive fee.

 First, the sophistication of word processing systems and the develop­ment of “systems” approaches for the preparation of documents have sub­stantially reduced the amount of time necessary to draft complicated docu­ments, leaving the lawyer with more time to spend on planning the client's estate. Likewise, computer programs have been developed that assist the estate planning attorney in projecting estate taxes and liquidity needs, all adjusted for the effects of inflation or deflation. These programs reduce the time and drudgery previously associated with preparing projections.

 One area of the estate planning process that continues to consume an inordinate amount of time is related to implementation of the estate plan. See §1.26. In particular, re-registering assets to fund living trusts or dividing joint assets to fund credit-shelter trusts is a very time-consuming service and, when handled completely by the lawyer, will cause the fees to be unpre­dictable and noncompetitive. Although it is clear that supervising the implemen­ta­tion of an estate plan is an integral part of the estate planning process, it may be possible to delegate some of the responsibility for re-registering assets to the client and thereby reduce the attorney's fees.  For a discussion of issues involving funding a “Revocable Living Trust, see the article “Funding and Administrating Your Revocable Living Trust” on this website

Those who argue against this delegation approach claim that the client is not qualified to assist in the funding of a living trust agreement. On the other hand, one could argue that if the client is not capable of assisting in funding the living trust agreement, the client will not be able to make certain that future assets are purchased in the name of the trust and that the trust records are properly maintained. If a client is unable to perform these duties with adequate instructions, should the client be acting as his or her own trustee?

An attorney should continue to be responsible for re-registration of some assets that clearly involve complicated legal issues, such as deeding real estate to the name of a trust or naming a trust as the beneficiary of a retirement plan.  On the other hand, the client, with proper instructions from the attorney and the assistance of the client's broker or banker, should be capable of re-registering a brokerage account or a bank account in the name of the client's trust.

Attorneys will be required to charge extra­ordinary fees if they are responsible for every aspect of the estate planning process. If the fee quotation is too high or unpredictable, many clients will forgo estate planning altogether or resort to the services of nonlawyers to perform estate planning services and draft or provide “self-help” estate planning documents. Therefore, it may be better to allow the client to per­form the ministerial, nonlegal aspects of information gathering and asset re-registration so that the lawyer can handle, and charge for, the legal aspects of the estate planning process. Otherwise, the entire process might be handled by the client or nonlawyers because of the potential size of the attorney's fee.

 III.       ESTATE PLANNING PROCESS

 A.        [§1.8]   Systematic Approach

 Estate planning for a particular client can be simple or complex, depending on the nature of the estate, the client's personal and family background, and the objectives. Nevertheless, an experienced estate planner will approach each client in the same way and make an independent determi­nation as to the relative complexity of the situation.

 An estate planner should never trust the client to determine the complexity of the estate plan needed. Most estate planners have encountered clients who express the desire to have a simple will drafted (usually before the initial office conference and during the discussion of the estimated fees). After the estate planner has asked the proper questions, however, it often becomes clear that the situation is complex and a simple will would not meet the client's objectives.

 On the other hand, many clients tend to overcomplicate their situa­tion. For example, a client who has recently read an article about so-called Crummey trusts may ask to have one drawn. Upon further reflection, the estate planner might find that the client desires to have the insurance paid to an only child, and a transfer of the ownership of the policy to that child will meet the client's objectives without the complexity and cost of a trust.

 Therefore, it is necessary and advisable to develop a procedure for interviewing the client and to follow this procedure in every case. Some find it helpful to use an estate planning checklist and client information list to make certain that each client is asked the proper questions.

 B.        [§1.9]   Quantifying The “Estate”

 The first step in developing the plan is to quantify the estate. The estate that a planner is dealing with is defined in §1.1.

 It often is helpful to ask a client to compile financial and personal information before an initial meeting. This gives the client an opportunity to review records, gather documents, review life insurance and retirement plan designations, and do much of the groundwork in advance of the initial meeting. In this way, valuable professional time can be saved and more time can be expended on the other steps in the estate planning process.

 Before planning begins, the estate planner must develop a complete understanding of the client's estate. First, a list and values of all of the assets in the estate must be obtained. This includes not only the assets of the client, but also the assets of the client's beneficiaries. In addition, assets that are not owned by the client but that are producing income for the client must be listed.

 It is especially important to determine who owns the assets, because the form of ownership determines the disposition of those assets. The estate planner should not always rely on the client to determine the ownership of assets. Many times a client views assets as owned individually or one half by the client and one half by the client's spouse when, in fact, the assets are owned in a tenancy by the entireties. In addition, many clients will assume that the beneficiary of their life insurance policies or retirement plans is their current spouse when, in fact, a spouse from a first marriage or their estate may be named.

 It is important, therefore, for the estate planner to review the documents of title and beneficiary designations to make certain that the ownership of the “estate” is known. If the estate planner is forced to rely on the representation of the client, a disclaimer such as “value and ownership of assets provided by client; estate planner did not independently verify” should be forwarded to the client to reduce the risk of liability if the goals of the estate plan are not achieved because of incorrect information.

 After determining the size and nature of the estate, the lawyer must determine its liabilities. In addition to mortgages encumbering property and promissory notes, accrued income tax liability also should be calculated. Especially important is the accrued income tax liability associated with retirement plan distributions.

 After ascertaining the size of the estate and the liabilities, the lawyer must gather all relevant information on the client's beneficiaries. If the client is married, the planner should obtain all necessary information about the client's spouse. If the client is divorced, the lawyer needs to ascertain the terms of the divorce or any separation agreement. In addition, if generation-skipping is a possibility, information must be collected regarding the client's children and grandchildren and the size of their respective estates.

 The estate planner must ascertain whether gifts have been made and whether gift tax returns have been filed. If so, these gift tax returns should be reviewed.

Because the size of a person's estate constantly is changing due to the effect of living expenses, income, and changes in the value of assets, these various factors need to be projected. In addition, the attorney should factor the effect of inflation into the estate based on the life expectancies of the client and beneficiaries. Although many of these calculations can be done manually, computer programs are available to do much of this type of fore­casting.

C.        [§1.10] Determining Objectives

Once the size of the potential estate has been ascertained, the attorney should determine the client's objectives. This determination should be made as objectively as possible, without imposing the estate planner's preferences on the client.

In particular, an estate planner should not necessarily assume that a client's primary objective is to reduce or eliminate estate taxes or to pass the maximum to the client's descendants. A client might very well have other legitimate objectives in mind.

For example, a client with a young spouse and children from a prior marriage who are near the same age as the spouse may be willing to incur estate taxes so that these children will be able to enjoy their inheritance before the death of the spouse. Likewise, a couple may be more interested in enjoying their assets than placing a portion of them in trust with the associated restrictions to avoid taxation on the survivor's death.

 D.        Explaining Restrictions And Alternatives

 1.    [§1.11]  Restrictions

 Once the client's goals and aspirations have been ascertained, it is the estate planner's duty to advise the client of any laws that can affect these objectives. For example, a client may want to pass his or her entire estate to the children with nothing to the surviving spouse. In this situation, the estate planner has a duty to advise the client of the homestead laws and the elective share, which may affect this objective. Likewise, the client may want to give his or her entire estate to the spouse and, on the spouse's death, have the estate pass to the children. Not only must the loss of the unified credit equivalent be mentioned if the estate is taxable, but also the possibility of a subsequent marriage by the spouse should be discussed. In light of legal restric­tions, a client may very well change previously stated objectives.

 Although transmission of wealth on death is usually on the client's mind when estate planning is contemplated, the lawyer also should remind clients to consider planning for disability. Although most clients do not want to consider disability, the attorney should point out that a disability, either short-term or long-term, is a real possibility that must be considered in the planning of an estate.

 With the client's estate and objectives in mind, the various tools that the estate planner has available should be explained. These are discussed briefly in §§1.12–1.19.

 2.    [§1.12]  Gifts

 At this point in the estate planning process, the planner should have a feel for the “comfort level” of the client and, therefore, will know whether a suggestion of gifts is appropriate. Lifetime gifts to loved ones and charities are appropriate only in situations in which the donor has enough assets to satisfy other estate planning goals for the remainder of his or her lifetime.

 The advantages of lifetime gifts to loved ones and charities should be explained. In addition to the tax ramifications, the lawyer should cover the practical benefits of lifetime gifts.

 For example, gifts to family members place property in the hands of beneficiaries at a time when they may need it most. In particular, lifetime gifts to young adults at the time that they are purchasing a home or paying for educational expenses of their children may be appreciated more than bequests at death to older children who have already built estates of their own.

 Likewise, lifetime gifts to charity, as opposed to bequests to charity at death, have practical benefits. If the gifts are made during the donor's lifetime, the donor will be alive to receive recognition by the charitable organization and other attendant benefits.

3.    [§1.13]  Living Trusts

As discussed in §1.4, many clients may be seeking the services of an estate planner specifically to create a living trust. On the other hand, many clients know little or nothing about a living trust or have received inaccurate information. Therefore, the advantages and the disadvantages of living trusts should be explained in detail. The relative merits of living trusts are discussed in detail in the article “Straight Talk About Living Trust” on this website.

A discussion of living trusts as a probate avoidance device is neces­sary in most situations because of the enactment of F.S. 733.6171, discussed in §1.7. This discussion is especially appropriate when formulating plans for elderly widows and widowers, regardless of the size of their estates, and when planning for married couples whose combined estates exceed the unified credit equivalent. Of course, other situations also may warrant discussing this device. In these situations, however, both probate avoidance and disability planning should be covered.

In addition to revocable living trusts, the use of irrevocable living trusts may be appropriate.

4.    [§1.14]  Wills

It goes without saying that the creation of a last will and testament should be part of the estate planning discussion. If a revocable living trust is used by the client, a “pour-over” will is appropriate. If a living trust is not selected, the will becomes the sole dispository instrument on death.

The attorney should discuss intended burial arrangements with the client. Burial instructions can be included in the will, although many attorneys counsel their clients to leave burial instructions with close family members in case the will is not available immediately after death. In addi­tion, if the client desires to be cremated, cremation should be specifically mentioned to protect the personal representative. F.S. 732.804.

The intended disposition of tangible personal property should be discussed. The client may prefer to make references to gifts of specific items to specific individuals. On the other hand, a separate writing pursuant to F.S. 732.515 can be used so that items can be added or deleted at the conven­ience of the client without redrafting the will. Clients may want their tangible personal property distributed equally among a class of people. The selection process for this equal distribution should be discussed along with a method for resolving conflicts among the class members.

The exercise or nonexercise of powers of appointment should be dis­cussed. For a discussion of powers of appointment, see Chapter 11 of this manual.

The disposition of the residuary of the estate also should be deter­mined. If a living trust has been created, the dispositive provisions normally are included in the trust agreement, and the residuary clause of the will provides that any assets in the “probate estate” (see §1.1 for definition) are to “pour over” into the living trust. On the other hand, if a living trust is not created, the will disposes of the residuary of the estate. The disposition of the residuary of the estate can be outright, or testamentary trusts can be created.

In discussing the disposition of the residuary of the estate, it may be appropriate to explore other specific areas such as generation skipping, charitable planning, trust for minor and nonresident alien issues.

It also is important to discuss the source of payment of income, estate (both federal and state), and generation-skipping taxes.

The selection of a fiduciary also should be considered and the ulti­mate designation made in the will. The powers the fiduciary will have to administer the estate or any testamentary trusts should be explored.

If the client has minor children, a preneed guardian should be con­sidered. Although the court is not obligated to follow this written declaration, it creates a rebuttable presumption of qualification. F.S. 744.3046. The client should be encouraged to discuss this designation with the proposed guardians of the person and the property to determine if they are willing to accept the duties of guardian.

5.    [§1.15]  Property Passing Outside Of Probate And Living Trust Agreement

 The lawyer should discuss with the client the implications of holding jointly owned property.

 The disposition of contractual property, such as life insurance and pension and profit-sharing plans, should be reviewed.

 6.    [§1.16]  Homestead Property

 The treatment of homestead property under Florida law also should be reviewed.

 7.    [§1.17]   Elective Share

Prior to October 1, 2002, the effective date of the new elective share statute F.S. 732.201 - 732.2155, it was relatively simple to avoid application of the elective share by placing the ownership of property outside of the probate estate.  Under the new elective share law, the surviving spouse has a right to share in the "elective estate", which consists of the descendant's probate estate, property passing by survivorship, fractional interests in property, revocable or discretionary trust, cash surrender value of life insurance, retirement plans, and transfer within a year of death.  Therefore, discussion of pre-marital and post-marital agreements may be appropriate 

8.   [§1.18]      Durable Power of Attorney

 The advantages of executing a durable power of attorney should be explored with the client. It is important to determine not only who will hold this power of attorney, but also what powers the attorney-in-fact will have. It also may be appropriate to discuss who will have custody of the power of attorney to avoid a premature exercise.

9.  [§1.19]      Living Will

 Discontinuing life-prolonging procedures when an individual has no chance of recovering is an important aspect of preserving the estate. Therefore, the creation of a living will should be discussed as part of the estate planning process.

 10. [§1.20]    Health Care Surrogate

 Although a durable power of attorney can contain a power to make health care decisions, it may be desirable to have someone other than the attorney-in-fact make these decisions. In addition, it may be desirable to list in detail those types of decisions that can be made. Therefore, the desig­nation of a health care surrogate should be reviewed.

E.         Consulting With Other Professionals

1.    [§1.21]    Lawyer As Team Leader

 Estate planning involves the creation of legal documents and the inter­pretation of statutes and laws that affect the transfer of assets during life and at death. Therefore, the lawyer should coordinate the estate planning process.

 On the other hand, estate planning is, in many cases, a team effort involving the client and other nonlegal professionals. Although the lawyer should be the captain of the estate planning team, the lawyer should not hesitate to consult with other professionals.

 2.    [§1.22]    Accountant

 In many situations, a client's accountant may be the individual who initiates the estate planning process. By preparing annual income tax returns and financial statements, the accountant is in a unique position to estimate the size of the client's estate, the amount of the client's income, and the need for estate planning. Accountants are especially useful in valuing estate assets for gift and estate tax purposes.

 3.    [§1.23]    Insurance Agent

 It is very difficult for a lawyer to be familiar with all of the insurance products available to satisfy a client's need for liquidity in the case of premature death. Therefore, the life insurance agent can be an invaluable member of the estate planning team. An insurance advisor also can be in a position to initiate estate planning discussions because clients may recognize the need to purchase insurance but often do not understand the ramifications of beneficiary designations.

 4.    [§1.24]    Trust Officer

 A corporate fiduciary has a unique opportunity to initiate estate planning discussions through contact with commercial bank customers, contact with a client's family developed through years of acting as a fiduciary, or other new business development activities. A corporate fiduciary can provide custody and investment advisory services during a client's life. In addition, a corporate fiduciary can provide estate settlement services. Finally, a corporate fiduciary can act as successor trustee to a self-administered living trust or as trustee of a testamentary trust on the client's death to provide custodial investment and discretionary invasion services on a professional basis.

 F.         [§1.25]    Setting Goals

 Once a client's estate and objectives have been determined and alter­na­tives have been explored, it is the job of the estate planning professional to help the client establish reasonable goals that can be accomplished legally and practically through proper planning. For example, income for retirement may be provided by establishing a qualified or nonqualified retirement plan. Liquidity for payment of the living expenses and educational expenses of the next-of-kin of a client who dies prematurely can be achieved through life insurance. Liquidity to meet financial obligations and taxes can be achieved through creating shareholders' agreements, purchasing insurance, or drafting to take advantage of tax deferral provisions in the Internal Revenue Code.

 Tax deferral can be achieved through the use of the marital deduc­tion, and minimization of taxes can be achieved through full use of the annual exclusion, the unified credit, and the generation-skipping exemption.

 The needs of minor beneficiaries can be met by the use of trusts. Likewise, probate avoidance and disability planning can be achieved through the use of living trusts, living wills, and powers of attorney.

 G.        [§1.26]    Communicating Plan

 Once the goals have been set, the lawyer should outline the proposed plan to the client. In a simple estate plan, this may be done orally at the initial client interview. In more complex situations, the plan should be communicated in writing. The details depend on the complexity of the situa­tion and the fee arrangement made with the client.

 Ideally, the existing situation should first be summarized. If the client submitted a questionnaire, this questionnaire, as edited by the estate planner after a review of the applicable documents of title and beneficiary desig­na­tions, can be used. This summary enables the client to have an accurate picture of his or her personal and financial situations at the time the plan was prepared.

Next, the recommended plan should be outlined, with any alter­natives mentioned and explained. Because many clients have problems understanding legalese, it is instructive to the client to have the plan explained in “plain English.”

The attorney should prepare an analysis of the tax implications of the plan and liquidity needs of the estate. The attorney should calculate the taxes and liquidity requirements under the existing asset registration and dispositive provisions, the proposed asset registration and dispositive provisions, and any alternatives. Computer programs can provide such analyses and comparison capabilities. Finally, any caveats should be included in the written communication of the plan. For example, if the client decides to forgo estate or generation-skipping tax savings to achieve other objectives, this decision should be documented to avoid problems with a forgetful client and the client's intended beneficiaries. In addition, if multiple clients are involved, any potential conflicts of interest should be disclosed and discussed.

 H.        [§1.27]    Implementing Plan

 Once the goals have been set and the estate plan has been detailed, it is the obligation of the estate planner to make certain that the plan is implemented. Normally, legal documents need to be drafted. These docu­ments can include a will, a revocable living trust, an irrevocable trust, a living will, a power of attorney, designation of a health care surrogate, and deeds. Other documents may be involved, such as beneficiary designations and asset transfer documents.

 Whether the attorney becomes involved in the performance of non­legal functions is certainly subject to debate. See §1.7. Some attorneys argue that every step in implementing an estate plan should be accomplished by the attorney, even if some of the tasks involve functions that are arguably nonlegal, such as re-registering assets or changing beneficiary designations.

 Needless to say, the attorney is responsible for communicating with the client and advising what should be done and how to do it. The attorney should take responsibility for all legal functions in the implementation of the plan. If the attorney does not take responsibility for performing nonlegal functions, this should be clearly communicated to the client in writing.

 If the client fails to follow the attorney's advice or decides not to implement the plan, this also should be discussed in writing with the client.

 I.          [§1.28]    Reviewing Plan

 Each time the law affecting a client's estate plan changes materially, the attorney should advise the client of these changes. It also is advisable to suggest periodic reviews of the plan, even if the law has not changed, so that the client can take any financial or personal changes into account.

 Simple plans may need to be reviewed once every five years or so, while more complex plans may warrant more frequent reviews. These follow-ups are a source of goodwill and a reminder to the client why a conscientious attorney was selected to plan the estate in the first place. Reviews also may serve as an excellent source of new business.

__________________________________________________________________________________________

Prepared 1989; revised Oct. 1991, July 1992, Nov. 1994 (retyped Dec. 1997), Sept. 1998, revised March 2003

by E. Steven Lauer, Esquire

E. Steven Lauer, P.A.

3426 Ocean Drive; P.O. Box 3343

Vero Beach, FL  32964-3343

Tel:  (772) 234-4200; Fax (772) 234-4249

Reproduction or other use of this Article without the express written consent of E. Steven Lauer, Esquire, is experssly prohibited. 

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All rights reserved. This document is intended to convey to you the principal characteristics involved with estate planning as they apply to common situations. For this reason we have deliberately simplified technical aspects of the law in the interest of clear communication. Under no circumstances should you or your other advisors rely solely on the contents of this document for technical advice nor should you reach any decisions with respect to this topic without further discussion and consultation with your attorney.