One reason some people develop estate plans is to deal with possible estate taxes. The need for this kind of planning was reduced for most people when the estate tax exemption was increased to $11.58 million per person in 2018, but there are other important things you can accomplish with estate planning for your spouse and children (There is the possibility also that the exemption amount could be reduced — it was $5.4 million in 2017, $3.5 million in 2009, and $1 million in 2003. Although $1 million is a large amount, it is an asset amount many couples reach in their lifetimes if you include the value of a home and each spouse’s retirement account).
A common plan for couples is for the couple’s assets to go to the surviving spouse/partner if one of you dies. Often that’s what you’d want – for the assets to go to the survivor so that he or she is well taken care of, and for them to then do what’s best for the children.
One issue in Florida family law that can cause a problem is what is called “commingling” of assets. If your spouse receives assets when you pass away, later remarries and ends up putting any marital funds from the new marriage into the same account with the inherited money, all of the inherited funds can be then converted to marital funds. This could be fine in many circumstances – the surviving spouse continues providing for him or herself and the children, but a problem arises if the spouse then gets divorced. Half of these marital funds, including half of the inherited money can go to the new spouse as part of the divorce. This will be the default result under Florida law that can be difficult to avoid if the inherited funds have not been kept separate. It is a result that both spouses in doing their estate planning, and probably especially the surviving spouse at the time of a future divorce, would not want
One simple estate planning option is to leave assets (typically half of the assets a couple has acquired) to the surviving spouse in a trust. The trust can specify that the surviving spouse will have access to the funds for her and the children’s needs, but the assets will remain in the trust and not go to the new spouse in the event of a divorce, because the assets are treated as held by the trust, not the surviving spouse.
This kind of planning is referred to as asset protection, and provides this protection from other kinds of risks also, in addition to a future divorce. If your surviving spouse inherits assets when you pass away, and then causes an accident, or someone is injured at the home, or whatever mishaps might arise, inherited funds or other assets can be recovered by someone who gets a judgement against the surviving spouse. A homestead is protected from creditors, but many other assets are not. This same risk applies to other creditors – a medical bill, other debts, etc. They can seek to “execute” against inherited assets to recover a judgment by, for example, getting an order and levying against a bank account, garnishing wages, or having the sheriff seize an asset for a forced sale – basically like a foreclosure for a home, but a similar process for other assets.
When the surviving spouse passes away (we all do at some point), this same kind of protection can be built in for the children, rather than assets passing directly to the children.
Many families choose this kind of planning for the benefit of adult children where possible, even during a parent’s lifetime – to provide funds to the adult children in trust – which the adult children can then use to invest and create businesses, all held in the name of the trust to provide protection of the assets from creditors.
Funds in Trust for Young Children
If funds were to pass to children who are still minors or young adults, some parents would prefer, in addition to the asset protection reasons, to not have large sums go directly to a child when they, for example, turn 18 years old – but would rather have the funds managed by a trustee at least for a while, before they go the adult child outright. As discussed above, there also are asset protection reasons to have the assets remain in trust, even if the adult child at some point becomes the trustee of the trust. Under Florida law, if certain requirements are met, the adult child can be the sole trustee of the trust and have control over investing the funds in the trust, and access to the funds for their use based on what’s called an “ascertainable standard”, and the trust still preserves asset protection.
Guardian for Children
Another important element of estate and life planning for children, is planning for the care of the children in the event something happens to both parents. A difficult scenario is if something happens to both of you – you’re both killed or incapacitated, and law enforcement arrives at your home to check on the minor children, and the children are home with a baby-sitter, or even a family member. Difficult issues can arise as to who is authorized to care for the children. If there is no one local with established legal authority, state and local authorities can step in, or there can be disputes amount family members as to who should care for the child(ren). One approach is to name guardians in a Will, but it can take weeks or months to get an order from a Court confirming the guardian or guardians named in a Will.
There is a simple procedure under Florida Statues, called establishing a “Pre-Need Guardian”, which establishes who should care for your children in the event something happens to you. The end product is a writing signed by both parents and filed with the Court with a Certified copy to you, that can be kept at home. This is important also if you need to name a temporary local guardian, if the person you ultimately want to care for your children lives out of town. There is more about this issue of appointing a pre-need guardian for children at this page on my website.