Five Estate Planning Mistakes to Avoid
Updated: Jun 29, 2021
Estate planning is not just for the wealthy. Everyone has an estate – whether it is a modest $100,000 condo or millions of dollars – and therefore everyone needs an “estate plan” of some sort. However, just because one has a Will or Revocable Trust does that mean the estate plan is in order. In fact, five common and easy-to-avoid mistakes often plague estate plans.
Void Executor Appointments
An Executor is the individual designated in a Will to have responsibility for handling the estate. Florida law provides that an Executor must either be a Florida resident or a close relative. Stated another way, a close friend who lives in another state cannot be an Executor.
Also, a convicted felon (even a spouse) may not be an Executor – even if the crime was a “youthful,” non-dangerous felony committed decades ago.
In short, an Executor provision which designates of an out-of-state friend or felon as the Executor simply is not valid.
Accidental Gift of the Home to the Children
Florida is extremely protective of the homestead. In the case of an estate, Florida law provides that the only valid bequest of a married person’s home is outright to the surviving spouse and that any other bequest of the home is invalid and illegal. I call this the “Daniel Boone rule” – a man’s home must pass to his wife.
If a Will violates the Daniel Boone rule, then by statute the surviving spouse and children automatically become co-owners of the home. This split ownership situation can create significant problems.
For example, after a long and distinguished career in law enforcement in North Carolina, Mr. Taylor retires to Florida and marries his second wife, Thelma Lou. Mr. Taylor’s Will bequeaths his home to his son, Opie, from his first marriage. Unfortunately, this bequest violates the Daniel Boone rule. Therefore, at Mr. Taylor’s death, Thelma Lou and Opie will become co-owners of the home.
The good news is that, while a husband and wife are both living, the impact of Daniel Boone rule can be eliminated with proper planning.
Jointly Owned Assets By-Pass the Will
Most estate assets pass at death under a Will. However, jointly owned assets pass directly to the surviving joint owner. In some cases, this may result in one particular heir receiving an “extra” inheritance.
For example, Mr. MacMurray has 3 sons, Robbie, Chip and Ernie. Chip lives in Naples and is a joint owner on Mr. MacMurray’s account so that he may help pay Mr. MacMurray’s bills. At Mr. MacMurray’s death, Chip will inherit the entire account because he is the surviving joint owner – and this amount is not deducted against Chip’s one-third share under Mr. MacMurray’s Will.
Tax Mistakes by Seasonal Residents
Florida provides many tax benefits for residents – including no income tax or death tax. However, for the seasonal resident, it is critical that Florida be established as the state of “tax residence” to reap Florida’s tax benefits.
Not surprisingly, many northern states that charge state income and death taxes are not quick to agree that a person who lives part year in Florida and part year in the northern state is a Florida tax resident. If the northern state can show that the northern state, and not Florida, is the state tax residence, then the northern state can tax the person’s entire income and estate.
With northern state budgets stretched thin, states are adopting aggressive auditing practices for persons who claim Florida tax residency. For the seasonal resident, the prudent option is to retain a qualified CPA or attorney to help secure Florida tax residency.
IRA and Life Insurance Mistakes
A common misunderstanding is that IRA and life insurance funds pass at death under a Will. This is not the case. Instead, at death, the IRA or insurance company examines the beneficiary form and pays the funds to the person named as the beneficiary. And sometimes this is not the intended heir.
For example, Mrs. Cleaver, a widow, has designated her 2 sons, Wallace and Theodore, as beneficiaries of her $1 million IRA using the standard beneficiary form for the Haskell investment company. Next Theodore accidentally dies during a dangerous prank at the hands of friend Eddie and, Mrs. Cleaver, in her grief, forgets to update her IRA beneficiary form.
Who will inherit Theodore’s 1/2 of the IRA when Mrs. Cleaver dies? It may be Theodore’s children, Wallace, Theodore’s wife, or even Mrs. Cleaver’s probate estate. The problem is that we don’t know the answer until we read the “fine print” of the beneficiary form.
Also, the IRA should not designate the “Estate” or the “Revocable Trust” as the beneficiary because this may greatly increase the income tax liability and the annual withdrawal requirement for the heirs.
Fortunately, many IRA and insurance issues can be corrected with proper planning.
Plan for Your Future
The Law Office of Robert H. Eardley, P.A. was founded to provide a broad spectrum of personalized trusts and estates legal counsel to the greater Southwest Florida community. Our legal team has decades of experience as well as the highest professional ratings to bring you comprehensive legal services tailored to meet your unique needs. Contact our Naples office today.
Robert H. Eardley, Esq., is Board Certified by the Florida Bar as a Wills, Trusts and Estates specialist, holds a Master of Laws (LL.M.) degree in Estate Planning, and practices law in Naples. He may be reached by telephone at (239) 591-6776 or by visiting the firm’s website at www.swflorida-law.com/contact.