Making plans and talking with family about what will happen after we’re no longer with them can be as uncomfortable as contemplating their world without us. However, it can be more painful to know that avoiding difficult decisions and conversations all too often leads to permanent rifts in even the most loving families.
“In the estate planning field, we too frequently see a happy family situation until the death of one or both parents,” said attorney John Lopez, a shareholder of Norton, Hammersley, Lopez & Skokos. “The level of animosity among siblings post death can be very high. We see bitter disputes and sometimes legal battles, so when we sit down with a client, that is something we work to avoid.” Situations arise in families that clients never would have foreseen, which is why a carefully thought out estate plan with the assistance of experienced professionals who have helped many families can make the difference between harmonious or acrimonious relationships among family members in the future.
The first step to a congenial transition between generations is having an up-to-date estate plan in place with the proper ancillary documents for decision-making in case of disability or impairment. These documents help ensure an individual’s healthcare, end-of-life decisions, and distribution of assets are handled as he or she wishes. Minimally, these consist of a Will, trust or both, healthcare directives and the appointment of a surrogate to make decisions if the individual is incapable, and a power of attorney authorizing a designate to handle financial affairs, Lopez said. Larger, more complex estates may require additional planning for tax and other purposes.
For those who do no planning at all, the state of Florida spells out how the assets will be split. If someone is married, assets are divided between a surviving spouse and children in a set formula. “For later-in-life second marriages this can present special problems, which is why we recommend prenuptial agreements,” Lopez said. “Without a prenup or estate planning documents, spouses are automatically entitled to 30 percent of the estate and half the house or the right to remain in it for the rest of their lives even if the couple has been married only a short time. These issues need to be thought out and addressed, and a prenuptial agreement can let the couple delineate what they want to provide each other.”
As vital as these documents are, people often wait to address estate issues until there is some precipitating event. “These are not fun things to think about,” said attorney John Compton, a Norton Hammersley shareholder, “but it is difficult to think things through thoroughly when someone is heading to Australia for vacation or going into the hospital for a procedure or health crisis. We see this all too frequently.”
Rushing to get a Will in place can mean that vital considerations do not get addressed as they should. “A lot of our clients come from other states like New York or Ohio that are very aggressive in collecting state tax,” Compton said. “Often people still have interests in those states, a home or business and maybe their CPA or financial planner is there. Those states will try to claim them as residents for tax purposes. It is important to talk with an estate planning attorney about that, and if things are done in a rush, critical issues may be overlooked and be detrimental to their heirs.”
Similarly, in one common situation where an adult child cares for Mom and Dad in their last years, it is helpful to discuss whether that child will be paid or receive a larger share of the estate, or not, Lopez said. “It’s better to address those issues early on so children who will not be compensated can make their own decision and, if they will be compensated, that other siblings understand why that decision is being made. When that is not done, it can create a lot of ill will.”
So can appointing one sibling to administer an estate or trust on behalf of other siblings. That situation can be avoided by naming a corporate fiduciary at a bank or other financial institution, although some people resist the idea for fear the fiduciary will be inflexible or will change due to turnover, and they’ll be left with someone they don’t like. Others fear costs will be excessive.
“We recommend clients appoint a corporate fiduciary. It takes a lot of stress off families, and fiduciaries are insured, experienced professionals who understand the complicated rules of trust administration and keep up with ongoing changes through continuing education,” Compton said. “Even if an individual’s children are highly competent professionals, do they actually have the time to devote to administering a trust or estate? Costs today are often times compressed into a single fee that is only slightly higher than the fees most people are paying to invest their funds anyway, and as a precaution against being assigned a fiduciary a client doesn’t like, we give most trust beneficiaries the power to remove a trustee and name a new corporate fiduciary.” A corporate fiduciary from a large institution also has a host of expertise to call upon, for example, if farmland or other specialized assets are involved.
With recent changes providing for much higher exemptions, particularly between husband and wife, people also can be under the impression that they don’t even need a trust, but again, thinking through individual circumstances can help protect their heirs. “We’ve seen situations where clients left all of their money in a lump sum to their children who subsequently lost a significant amount through divorce, bad investments, lawsuits, creditor claims, and many other circumstances,” he said. “A trust could have protected them, and realistically, we tell clients if you have four children, statistically two of them will get divorced, and there are ways to plan around that.”
Likewise, with the proliferation of Internet document services, people can get the impression that creating a Will is a routine matter that can be handled with generic legal boilerplate. Unfortunately, as some have learned, saving a few dollars on the paperwork can be extremely costly for loved ones. “We had a situation where a wife did her own will on line, and there was a small glitch in the wording that caused a huge problem with the estate,” Lopez said. “It led to a battle among the surviving husband, an ex-husband, and the children, which created sizeable legal fees all because she wanted to save $500 or $1,000. I don’t think people realize how in depth we go when planning their estates. We talk with their accountants and financial planners. It’s a team approach.” Having a highly credentialed and experienced attorney helps assure that these issues are raised and addressed. For instance, both Lopez and Compton have Masters of Law in Taxation in addition to Juris Doctorates, and Lopez also is board certified in tax law and Wills, trusts and estates law by the Florida Bar.
Because life doesn’t remain static and nor does the law, estate documents rarely are “done” once and for all. “Of course, if there are changes in the law, we notify our clients,” Lopez said, “but it’s important to review documents every few years. People get married and divorced or children come along, and these changes need to be considered.” Even with all of the right plans in place, the individual still has a role in helping their loved ones retain strong bonds after they are gone through good communications. “People ask us if they should tell their children what they’ve done. We know these are tough issues to discuss, but when it gets swept under the rug, it can become a huge problem,” Lopez said. “It is an individual situation, but we think it is better they understand the reasons why the estate is set up in a certain way. That is much easier than having to deal with a possible shock when they learn the terms, and then are trying to guess the reasons why while they also are dealing with their own grief.”
Connect: Business & Tax Law Group: John Compton & E. John Lopez
Norton, Hammersley, Lopez & Skokos | 1819 Main Street, Sarasota, FL 34236 | 941-954-4691