Who is on your team?

When I meet a new client, I like to ask who her advisors are – accountant, insurance agent and financial advisor. Why? Because that’s who makes up that client’s team. Teams can work wonders for clients, which reminds me of a song from a show my girls watched a long time ago:

Here are some reasons I like teamwork:

  • Advisors know a lot about their clients. Sometimes clients don’t share enough information for me to give good advice.
  • Advisors are trained differently. That results in different ideas and/or perspectives that get better and more customized solutions for our clients.
  • We can learn from each other, which benefits current and future clients. I surely do not know everything, so I am happy to learn something new from others!
  • Planning will be coordinated. What good is a Trust that is intended to hold life insurance if the insurance beneficiary form is not updated?

By the way, you are welcome for the song – I hope that you are signing it all day!  🙂








Do you own assets with someone?

A very important part of the estate planning process involves titling of assets. Sometimes we will get lulled into a false sense of security that our planning will go as we intend because we “have a Will.” Believe me, I am glad when clients come in with a Will already in place. However, that is not the end of the story.

Wills govern assets that are subject to probate. Probate assets are individually owned assets with no beneficiary designation. They can also include jointly owned assets. Yes, that’s right – a jointly owned asset can pass through probate. But how?

I remember talking with someone who was encouraged to meet us through the nudging of their financial advisor. This individual told me that they really did not need to meet. After all, they had already done their planning and set up their accounts correctly. My first thought was why did their advisor, who is a really good advisor, want to waste all of our time with a meeting? I figured that could not have been the case, so we started to talk.

This individual was single and decided to add their children to their accounts. As they told me this, I knew exactly why the advisor suggested a meeting. Having children as “owners” on accounts is not ideal for liability reasons, but that is not the point of this blog post. It turns out that the accounts simply read “Father, son and daughter” on the title and nothing more.

Under Florida law, if two unmarried individuals own an account together, it is presumed to be owned as “tenants in common.” This means that when one individual dies, the account passes under that individual’s Last Will (and NOT to the other owner). This is PROBATE, which most of our clients want to avoid. This type of ownership can be corrected by adding “joint tenants with right of survivorship” or JTWROS after the names. Some financial institutions will do this automatically, some will not.

Florida law flips the presumption of titling if an account is owned by husband and wife. This would have survivorship applied automatically. If a married couple wanted to titling to be tenants in common, then the titling would need to state that.
Besides the titling of an account, one needs to consider if a beneficiary should be designated. Frankly, I usually would prefer to have a beneficiary on an account rather than a joint owner, especially if that owner/beneficiary is an adult child. A child would not be able to access the account during his parent’s lifetime, but would receive the account outside probate at death. This might avoid a child dipping into the till at the wrong time.

Of course, all of this is dependent on a person’s unique circumstances and should suggest that a thorough review of both estate planning documents AND titling be considered to make sure that your plan works as designed.

Income – In or Out?

Did you ever wonder why the trusts in your estate plan for your children mandate a distribution of income when your children reach a certain age, such as 18 or 21? Most lawyers do not discuss this provision with their clients, although this planning can have significant consequences for your family.

The idea of distributing the income from a trust is rather old fashioned, but has been included for many years for several reasons. Assets in Florida cannot vest in a minor, so starting mandatory distributions or income or principal of a trust before your child reaches age 18 would require those distributions to be held in a guardianship. Until age 18, your child’s guardian could use those distributions for your child’s benefit after obtaining Court approval. Once your child attains the age of majority, he or she can use the guardianship funds for any purpose without any restrictions.

Distributions of income are usually mandated in trusts because it is generally viewed as by lawyers and accountants as “tax efficient.” At your death, irrevocable trusts created for your children become separate taxpayers. As a result, it is generally necessary for a tax return to be filed for those trusts in any year in which they have income. Generally, if income remains with the trust (e.g., income is not distributed during any year), the trust pays tax on that income. The top income tax bracket for irrevocable trusts retaining income kicks in at $12,500. This top tax bracket is 37%!

If a beneficiary of an irrevocable trust receives the trust income, in many cases the trust is not responsible for the income tax. Instead, the beneficiary pays the tax, presumably at a lower tax rate. Accordingly, it is very common for an irrevocable trust to distributed income to a child when he or she reaches the ages of 18 or 21, with the thought that a child would not likely be in the top tax bracket of 37% at such a young age.

A better reason to distribute income to a child may be that it serves as a “trial run” for larger distributions at later ages. In other words, distributions of relatively small amounts from the trust can be made at a younger age so that a child will have an opportunity to learn and grow prior to the receipt of mandatory distributions of principal, which typically occur at a much later age, such as 40 years old.

Naturally, a child in his or her early twenties is not likely to have much financial savvy, so distributions of income can allow that child to make mistakes, without losing all of the assets of the trust that you worked so hard to save for his or her benefit.

The next time you review your trust agreement, look at the provisions for your children and find out if the trust requires a payment of income at some age, such as 21. Depending upon your family’s unique situation, that age may be too young for a child to receive income, especially if your trust assets are significant. In that event, adjusting the age for distribution to a later age, such as 30, or having no mandatory distributions may be more beneficial. Perhaps, it may be worthwhile to give your children’s trustee discretion on making distributions of income and principal to your children.