Creating life estates in real property, including homestead real property, whether voluntary or involuntary, can assist in, among other things,  estate and long term care planning as well as probate avoidance.  Typically, life estates are created by deed or by a defective testamentary conveyance or distribution of homestead real property.  If a client has an interest in a life estate as the life tenant or remainderman, you will likely have run into the following questions:

• Who pays the light bill?
• Who pays for the new roof?
• Who makes the mortgage and tax payments?

Although there is not always an easy answer to some of these questions, the Florida Trust Code does provide some guidance, as it relates to the life tenant and the remainderman’s interest and their respective obligations.  See, Sections 738.801, 738.701 and 738.702, Florida Statutes.

To assist in responding to this question, the following is a letter our office utilizes to try to resolve general issues and conflicts as to liability and responsibility for payment because of the creation of a life estate interest in real property.  As with any form, this letter is revised to deal with specific issues.  I take no pride in authorship, and certainly would enjoy any comments Section Members have if they believe the letter can be improved.

Dear _______:

This letter discusses the typical liability and responsibility of a life estate tenant.  As you are aware, [deceased]  provided you with a life estate in [his/her] primary residence at the time of [his/her] death or [a life estate was created and you are the life tenant]

Florida law imposes various rights and obligations upon a life tenant (i.e., you) and the remaindermen (i.e., those who will receive the property after your death or your abandonment of the property).   Florida law makes the interest portion (i.e., your portion as the life tenant) responsible for ordinary repairs, recurring expenses and taxes as well as the payment of insurance on the subject property.

All of this is subject to change if there is an agreement between or among the life tenant and the remaindermen; however, such agreement should be in writing and recorded so there are no problems should the property be sold and costs and expenses are to be apportioned.

In the event a mortgage encumbers the property, you will see that Section 738.702(1)(c), Florida Statutes, includes the payment of principal of a mortgage on the life estate as the obligation of the remaindermen and Section 738.701(3), Florida Statutes, makes the interest portion an expense of the life tenant.

If we can provide you with further or more specific information regarding any particular expenses, please advise and we will be happy to do so.  Should you wish a copy of these provisions of Florida law, we will be happy to provide them.

Please call with any questions or comments.  It is our pleasure to be of service.

If you have any questions or comments regarding this issue, please feel free to contact me at rmorgan@flfirm.com or directly at 904-268-7227.

(or Why the Will is Not Always the Best Way)

When people hear the term “estate planning,” they usually think it means some complicated set of documents that have tax ramifications. This could not be further from the truth with respect to the majority of U.S. citizens.

An “estate plan” is a written expression, be it a will, a trust or both, that specifies how you want your assets managed and distributed after your death and even during your life. If you have any property and intend to leave it to someone after you are gone, you need an estate plan. An estate plan can be as simple as a will; or, it can be more complicated and include trusts.

Whether you are married or single, if you want to leave property to a loved one, a charity or to any other person (i.e., a beneficiary), it is important you have at least a will. A “simple will” is typically defined as one that leaves property to each spouse (assuming a marriage) and after the surviving spouse dies (if the person is single, then upon that person’s death), all property is transferred to children or other family members. Most people have simple wills as their primary estate planning tool. In most situations, a simple will is the easiest and best form of planning to transfer property at a person’s death.

However, if a person suffers from a condition, such as a dementia, including Alzheimer’s, and this condition could cause the need for long term care and/or obtaining governmental or insurance benefits , a simple will may not be the best alternative. The following example illustrates my point.

Assume a husband learns his wife is diagnosed with a dementia condition (in this example, a child could be the one diagnosed instead with the same results). The wife is prescribed medication (which, but for insurance or government benefits, would probably bankrupt the couple). The couple has children. The couple has a will indicating that upon the first spouse to decease, the surviving spouse obtains all the marital assets, and, then, after both spouses decease, the assets go to their children. This “simple” will works assuming the wife deceases first. If, on the other hand, the husband deceases first, and if he leaves everything to his wife in his will, the wife could lose long-term care benefits from the government or other entitlement programs merely because of this inheritance. This could be financially devastating. Under Florida law you cannot just disinherit a spouse to solve this problem.

If you find you have a situation where a person is diagnosed with a condition that could have long term implications and also may require the use of expensive medicines, rather than using a simple will and leaving property outright to that person, the use of a Special Needs Trust might be the best way to ensure not only that a person receives the assets you want them to receive, but also assure continued benefits and insurance coverage so a person does not become financially devastated merely because they receive an inheritance. Use of an Special Needs Trust allows property to transfer to the person to whom you want it to go, but should prevent loss of any government or insurance benefits.

Simple wills work; there is no wrong way to transfer your property. However, there are ways you can transfer property by merely adding additional “bells and whistles,” such as a Special Needs Trust, that can ensure your intent on how you want your property transferred is followed, and prevent financial devastation merely because you wish to leave property to your spouse or other loved one.

Robert M. Morgan - born Richmond, Virginia, 1959. Partner in Charge of the Estate Planning and Elder Law Department of Ford, Bowlus, Duss, Morgan, Kenney, Safer & Hampton, P.A., Jacksonville, Florida. Undergraduate degree from Arizona State University and Juris Doctor from Mississippi College, with Distinction. Author of numerous articles and seminars on real property, probate and estate planning issues. Member Florida, Tennessee and Jacksonville Bar Associations; served as chairperson of the Probate and Trust Law Section of the Jacksonville Bar, and is an active member of the Elder Law Section of Florida Bar and the AARP Legal Services Network. Member National Academy of Elder Law Attorneys and Academy of Florida Elder Law Attorneys and the Northeast Florida Estate Planning Council and Adjunct Professor of Law, Florida Coastal School of Law. Practice areas include elder law, estate planning and probate, real estate, corporate and business law. He can be reached at (904) 268-7227 or rmorgan@flfirm.com.

The firm practices in the areas of Estate Planning (including Elder law); Commercial and Residential Real Estate; Corporate and Business and Contract law; Litigation; and Probate and Guardianships.

Because the population is aging, it is imperative basic legal planning be understood and utilized to assist not only yourself, but also loved ones. This includes planning for you, your parents, your relatives, as well as children or others who may have special needs or who may need planning to qualify for certain types of governmental entitlements, such as Medicaid, to pay for long term care. The following is a general discussion of topics and issues which should be considered and utilized:

1. BASIC DOCUMENTS

A. Lifetime Documents

(I) Durable Power of Attorney

A durable power of attorney is a document which allows a person to name another to act for them. The “durable” nature of the document means that so long as certain legal formalities are satisfied, even if a person becomes “incapacitated” as defined by law, the person named in the power can still act for a person when they are unable to act for themselves.

Durable powers should have, at a minimum, language including the right for a person to assist with the sale and transfer of real estate, banks or financial institutions, cashing and depositing checks or other funds or moneys, assisting in making any gifts or distributions of a person’s assets and authorizing the filing of tax returns and to deal with the INTERNAL REVENUE SERVICE and the government for applying to obtain government entitlements, such as Medicaid.

(ii) Health Care Surrogate Designation

Florida law allows for powers of attorney to include the right for a person to make decisions regarding a person’s healthcare. This decision making ability should be included not only in a durable power of attorney, but also in another document. This document is referred to as a health care surrogate designation (“Health Care Surrogate”). The Health Care Surrogate is given the right to make medical decisions. This is very important when dealing with someone who is not married or when a spouse is not available to provide consent. This form should be given to a primary care physician and become part of your medical file, especially if someone is hospitalized.

(iii) Living Will

This is a document which allows a person, when they are on their “death bed” to state they do not wish to have life prolonging procedures (i.e., tubes and ventilators) utilized when death is imminent. This is a right to die document. This document permits someone to make decisions about terminating certain types of medical procedures.

B. Wills & Trusts

(i) Will

A will is a document which permits the maker to designate where his property should go upon his death. When a person dies owning assets in his own name, the property will pass according to the terms of the person’s will and through a process known as, “probate.” Probate requires court intervention.

Florida law establishes by statute a probate fee. This fee is approximately 3% of the probate estate. In other words, the use of a will could cause the necessity of a probate. Probate in Florida is not necessarily bad; however, it can be time consuming and because of the statutory fee, it can be expensive. For example, a person with an estate of $300,000 (this is easily obtainable by merely having a house and some minimal savings), would have a probate fee of in excess of $9,000.00. Wills can be classified as simple or complicated.

(ii) Trusts

A trust can be either revocable or irrevocable. Most trusts are revocable. This means they can be amended or changed at any time during a person’s life, just like a will. The person who creates a trust is known as the, “ Settlor.” The person who assists the Settlor of the trust in managing their property is known as a, “Trustee.” TYPICALLY, THE SETTLOR AND THE TRUSTEE ARE THE SAME PERSON.

The beneficiaries of a trust (during the Settlor’s life the Settlor is usually the beneficiary, too) are those who are entitled to the benefits and property of a trust. By merely having a revocable trust, you do not incur additional expense or income tax liability. You file the same 1040 tax return that you file as you would without a trust.

The primary benefits of a trust are:

1. Avoidance of probate and the time and expense involved in the procedure;

2. Privacy - what goes on with a trust is between family and is not made public, as the trust is not typically filed with the Court;

3. Management - when a person becomes incapacitated or otherwise does not feel he can manage or maintain his assets, he can choose a successor trustee to watch over them, thereby making sure his assets are not depleted or otherwise wasted;

4. Guardianships - a guardianship is a proceeding which is necessary when a person does not have a trust or a durable power of attorney and they become “incapacitated,” as defined by law. This procedure can cost thousands of dollars to implement and require annual accountings and other documentation to be placed in the public records.

Guardianships should be unnecessary when trusts are involved because if a person becomes incapacitated, the trust allows for a successor trustee to take over the affairs of the trust.

MEDICAID - Paying for Long-Term Care

A. Terminology

The following are the basic terms you should be aware of whenever dealing with Medicaid issues:

1. DCF - The Florida Department of Children & Families. This is the state organization where you apply for Medicaid benefits.

2. Institutionalized spouse - This is a term used for the applicant, the person needing nursing home or long term care and Medicaid benefits.

3. Community spouse - This is the person who is married to an applicant for Medicaid benefits who does not require nursing or long term home care.

4. Medicaid ICP Program - This is the state program which provides benefits for nursing home and long term care in an institutionalized setting.

B. What is Medicaid

Medicaid is a governmental entitlement program under the umbrella of the Social Security Administration. The states administer the program. It is the only program paying for nursing home and long term care. Medicaid is a needs based entitlement. If your “countable” resources exceed a certain amount, then you cannot obtain Medicaid benefits. On the other hand, if your “countable” resources do not exceed a certain amount, you may obtain Medicaid benefits.

C. Qualification Rules

In Florida, the general rule is the Applicant (Institutionalized Spouse) applying for Medicaid ICP (Institutionalized Care Program ) (i.e., nursing home care) cannot have more than $2,000 in “countable” assets or resources. In addition, Florida is one of a minority of states that imposes an income cap on an Applicant. This means that during calendar year 2006 any person applying for Medicaid cannot have more than $1809 in gross monthly income to qualify for Medicaid. However, be aware that the income cap can be dealt with, and benefits obtained, by utilizing an irrevocable Qualified Income-only Trust (“QIT”). In addition, if an Applicant is married, their spouse (known as the Community Spouse) cannot have “countable” resources exceeding $100,000 in 2007 at the time of application. This is known as the CSRA (Community Spouse Resource Allowance). There is no income cap imposed on the Community Spouse; this means the Applicant’s spouse may receive as much income as he or she can without causing the Applicant to lose benefits. If both the husband and wife are applying jointly for Medicaid benefits, then together they cannot have more than $3,000 in countable assets and their joint monthly income cannot exceed $3,618; provided, however, if the income cap is exceeded, a QIT can solve this problem.

D. Planning Techniques

There are many ways to plan for Medicaid eligibility. For example, basic planning for a married couple where one spouse requires nursing home care could allow for the Applicant to transfer all of their assets to the other spouse (the Community Spouse), as transfers between spouses do not impose any penalty.1 However, be aware that any transfers that are made as gifts to anyone other than a spouse, if over $3,300 in any month, will impose a period of ineligibility (i.e., a penalty period).2 A period of ineligibility is the number of months a person would be prohibited from applying for Medicaid, even if they would otherwise be eligible. The penalty “look back” period is 60 months (5 years). This period of ineligibility was established because of the state not wanting individuals to obtain Medicaid benefits by gratuitously transferring their assets to make themselves “poor” so they can then obtain Medicaid benefits.

Another basic planning technique for Medicaid planning and qualification is called “spend down.” This means an Applicant or their spouse can take assets (i.e., money) which would be countable and use them for the purpose of making them exempt assets. For example, a Medicaid Applicant can take assets and put them into their primary residence (i.e., homestead) by improving the home. The home is exempt and therefore any moneys put into the home are considered exempt. You can also purchase prepaid irrevocable burial plans, a car, certain annuities, pay relatives to care for you under a Personal Services Contract, and other types of investments for the Medicaid Applicant or spouse. This spending down of assets provides not only a benefit for the Medicaid Applicant and spouse, but also allows a person to apply for Medicaid quicker.

IV CONCLUSION

Please feel free to contact an attorney who practices in the areas of elder law and estate planning. They can be a great resource and assist with what alternatives and techniques are available for anyone having to plan not only someone’s estate, but also having to deal with issues involving those of us who are growing older and need assistance. If you have any questions regarding this outline or any of the material I have discussed, you can contact me directly at 904-268-7227. I can also be e-mailed at rmorgan@flfirm.com.

ROBERT M. MORGAN - BIOGRAPHY

Robert M. Morgan - born Richmond, Virginia, 1959. Partner in Charge of the Estate Planning and Elder Law Department of Ford, Bowlus, Duss, Morgan, Kenney, Safer & Hampton, P.A., Jacksonville, Florida. Undergraduate degree from Arizona State University and Juris Doctor from Mississippi College, with Distinction. Author of numerous articles and seminars on real property, probate and estate planning issues. Member Florida, Tennessee and Jacksonville Bar Associations; served as chairperson of the Probate and Trust Law Section of the Jacksonville Bar, and is an active member of the Elder Law Section of Florida Bar and the AARP Legal Services Network. Member National Academy of Elder Law Attorneys and Academy of Florida Elder Law Attorneys and the Northeast Florida Estate Planning Council and Adjunct Professor of Law, Florida Coastal School of Law. Practice areas include elder law, estate planning and probate, real estate, corporate and business law. Email rmorgan@flfirm.com

1. Locate Will, Trust or any other separate writing or dispositive document transferring property on death.
2. Notify Social Security Administration.
3. Notify any pension, retirement account, 401K, IRA administrator, etc. of death and steps necessary to obtain survivor benefits.
4. Notify life insurance company and obtain beneficiary claim and proof of death forms.
5. Obtain certified copies of death certificates, including copies without cause of death.
6. Notify annuity companies and former employers regarding death and any residual benefits, including insurance benefits for surviving spouse or other dependent family members.
7. Confirm health insurance coverage to determine whether adequate insurance/ medicare supplements, including Medicaid Plan D prescription plan.
8. File final income tax return.
9. Determine if an estate tax return must be filed at both the State and Federal levels.
10. Inventory assets of the decedent that were in the name of the decedent alone. Any assets that are joint or have a beneficiary designation should avoid probate and should not require probate.

WHAT IS A WILL?

A Will is a declaration of an individual’s wishes as to the disposition of his property after death. Revocable during the individual’s lifetime, a Will is not operative until death, and is applicable to the situation that exists at death. In Florida, the Will must be in writing, not under duress, and made by a mentally and legally competent person. The will must be properly executed in accordance with Florida statutes to be valid.

WHAT IS A LIVING WILL?

A Living Will is a document signed by an individual, stating his/her desires if he/she become unable to make health care decisions for themselves. It is provided for in the Florida statutes as a declaration against life prolonging procedures. Basically this is a statement that you don’t want to be kept alive on machines or by tubes during a period which you are unable to make that decision for yourself and in which case the doctor has determined that you are not going to recover from that circumstance. It is important that a Living Will be executed concerning the intent of the person now incapacitated, and unable to speak for themselves.

WHAT IS A TRUST AGREEMENT?

A trust agreement can be either a separate writing or a part of a Last Will and Testament. The purpose of a trust is to appoint a trustee of your choosing to oversee assets for and on behalf of the trust beneficiary. A trustee also distributes the assets. Generally trusts are used for minor children and handicapped individuals. The trust agreement has guidelines that the trustee is to follow in administering the trust in a prudent manner.

If there is no trust agreement the court will name a guardian and the child will get his or her money upon reaching the age of majority, which in most states is 18.

WHAT IS A LIVING TRUST?

A living trust, also known as a revocable trust, is a term sometimes used for the same documents. A Living Trust or revocable trust takes effect in one’s lifetime as opposed to a testamentary trust which takes effect in a Will after death. The advantage of a living trust is that it can provide money management during the client’s lifetime, and particularly during any period of incompetency. It could also provide a provision for distribution of assets or continued money management after death and is therefore, a Will substitute. If used properly, it can assist in avoiding probate.

WHAT IS A TESTAMENTARY TRUST?

A Will can include a trust provision. This is known as a testamentary trust. It only becomes effective upon death of the testator.

FLORIDA’S LAWS ON INTESTACY:

Without a valid will the following will occur: The surviving spouse gets $60,000, plus ½ to her and the rest to all of his children equally, assuming they are all mutual children. If any of the children are not hers, she loses the $60,000 and receives only half of the estate. If there are no children, it all goes to the spouse. If there are no children and no spouse, then it goes to the father and mother equally, or to whomever is still living, by statute.

CAN I LEAVE MONEY TO A MINOR?

Florida law only allows a minor to inherit property having a value less then $15,000. If there is more than $15,000, which would include insurance policy benefits or assets distributed under a Will, then it is necessary to have a legal guardianship established with the court. This is a time consuming process, and must carry on until the child reaches the age of 18. A trust and properly executed Will can eliminate the complications at the time of death and, also provide a better administration during the minority of the child.

After 20 years of practice, I have noticed certain common myths and misconceptions about what people can do for a spouse or loved one and what documents permit for this purpose. Here are a few:

1. MYTH: I can do whatever I want for my spouse since I am married; I don’t need any documentation to act for my spouse.
   
   TRUTH: Under Florida law, the fact a person is married does not in and of itself provide the authority for one spouse to act for another. Spouses must have durable powers of attorney naming each other to act for them in the event one spouse is unable to act. For example, if one spouse needs to assist the other with applying for government entitlements or obtaining medical consent or treatment, a durable power of attorney, healthcare surrogate designation and a living will are documents each spouse should have for the other. Otherwise, a spouse is severely limited in their ability to act, unless the spouse goes to court and obtains an expensive guardianship.




2. MYTH: A living will and a living trust are the same document.

   TRUTH: A living will, as has been exhaustively discussed by the media during the Schiavo case, deals with end of life issues. Basically, a living will provides written proof of a person’s intent that they do not want extraordinary medical measures taken in the event they either are (a) terminally ill, (b) at the end of a terminal type of condition, and/or (c) in a persistent vegetative state. The Schiavo matter was made difficult because Florida does permit verbal living wills. Obviously, a written living will is better.A living trust is a document which may be utilized to assist in avoiding probate and can help minimize estate and other transfer tax liability at a person’s death. It has nothing to do with end of life issues and should not be confused with a living will.




3. MYTH: If I have a will there is no probate.

   TRUTH: When a person dies, they may leave their property by either using a will or a revocable trust. If no will or revocable trust is utilized to dispose of property at death, then state law (referred to as intestate succession) determines who receives your property.Under Florida law, if you have a will and a person deceases owning property in their name, there must be a probate. Will means probate. Probate is the process of determining if a will is valid, paying creditors from your assets and then distributing your property to your named beneficiaries or heirs. Using a revocable living trust is a way to avoid probate, because property is actually owned by the trust, rather than by a decedent.By statute, probate fees run approximately 3% of the value of the assets disposed of by a will. For example, if you have assets valuing $300,000.00 (and this is a gross asset figure; you do not subtract debts or mortgages which may be owed at time of death), then the fee to probate is approximately $9,000.00, plus costs.




4. MYTH: To obtain government benefits, you must be totally broke and you must sell your home.

   TRUTH: False! Under Florida law, you are not required to sell your primary residence, regardless of the value, to obtain certain benefits, including long term care benefits. Your primary residence (as well as other assets) is exempt from unsecured creditors claims up to one-half acre if the property is located within a city, and up to 160 contiguous acres if the property is located in an unincorporated area of the county. For example, if you live in an unincorporated area of a county (i.e., northern St. Johns County, Florida) even though you may have a Jacksonville post office address, as this is St. Johns County, it is not part of the actual City of Jacksonville and you are entitled to 160 acres of land protected from unsecured creditors claims.Other types of property are also permitted and you can still obtain government benefits.




5. MYTH: I cannot disinherit any of my children. I must at least leave them at least $1.00.
   
   TRUTH: In Florida, you can disinherit any or all of your children. You do not need to leave them anything. In fact, I am against leaving a child whom you wish to disinherit anything as doing so would make them a “interested person” providing them with rights under Florida law and making it easier for them to contest a will if they are excluded.

If you have any other questions you would like answered, please feel free to contact me as I will be happy to answer any of your questions. Please feel free to contact me directly at 904-268-7227 or by email, rmorgan@fjbd.com.

ROBERT M. MORGAN - BIOGRAPHY

Robert M. Morgan - born Richmond, Virginia, 1959. Partner in Charge of the Estate Planning and Elder Law Department of Ford, Bowlus, Duss, Morgan, Kenney, Safer & Hampton, P.A., Jacksonville, Florida. Undergraduate degree from Arizona State University and Juris Doctor from Mississippi College, with Distinction. Author of numerous articles and seminars on real property, probate and estate planning issues. Member Florida, Tennessee and Jacksonville Bar Associations; served as chairperson of the Probate and Trust Law Section of the Jacksonville Bar, and is an active member of the Elder Law Section of Florida Bar and the AARP Legal Services Network. Member National Academy of Elder Law Attorneys and Academy of Florida Elder Law Attorneys and the Northeast Florida Estate Planning Council and Adjunct Professor of Law, Florida Coastal School of Law. Practice areas include elder law, estate planning and probate, real estate, corporate and business law. Email rmorgan@flfirm.com