Episode 19: Estate Planning and Your Property — Make a Will Month Edition

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Ah, April. To some, it’s the start of baseball season, while to others, it means tax season and frantic filings. At Rocket Lawyer, it means it’s National Make a Will month, and we’re celebrating by spreading the word, and making it easier for people to make their wills online. And this month, it’s free! To help you start thinking about what to include in your will, we talked to Florida-based estate planning attorney David Shulman — the blogger behind one of LexisNexis’ Top 25 Estate, Probate and Elder Law Blogs —  about the  issues that he sees in his practice.

00:00 Introductions. This week Charley and Juli are talking about Make a Will month over at Rocket Lawyer, as well as a variety of other legal issues in the news, and even non-legal issues like the start of baseball season. We quickly cover some of the top stories from our Legally Easy blog, including the Wal-Mart lawsuit that could become the largest class action suit in US history, and the Barry Bonds perjury trial in San Francisco.

09:03 We interview David Shulman, a Florida-based attorney who specializes in estate planning, asset protection, trusts and estates, probate administration, guardianship, tax planning, and basically everything you need to draw up a comprehensive estate plan.

10:30 Jumping right in, we ask what kind of property can you include in a will? Is there anything that you can’t pass on through a will? Generally you can include anything and everything, but certain assets you have come with specific beneficiary designations, such as a 401(k) or IRA or life insurance policy. This means that these assets will be passed on directly to the beneficiary you designated without going through your will. Everything else passes through your will, unless you put it in a trust.

11:09 Can you — or should you — create a separate list of personal property so that you can just just change individual items as they enter and leave your possession rather than having to change your entire will? In some states, yes, you can. In the simplest of situations, you could just say “I leave everything to my spouse, and if he or she dies, then I give everything to my children equally.” But if you want to make sure that Sally gets your great grandmother’s ring and that Bobby gets your collection of baseball cards, you can leave a list specifying the ownership of these items so that your children don’t fight over them later. Some states, like Florida, allow you to state in your will that you may leave a list of personal property elsewhere; this list is less formal than a will and doesn’t have to be signed, and you can update it as needed.

12:27 What if there’s someone who you want to disinherit, like an estranged relative or an ex-spouse? You can include in your will who you want your assets to go to, and by omission, anyone else is excluded. If you want to leave property to your sons Andy and Brad, but not your son Chris, you may wish to state that explicitly so as to remove any ambiguity (someone may think that you accidentally forgot to include Chris’ name). After a divorce, you usually don’t have to specifically exclude your ex-spouse: in many states, if your will says “I give everything to my wife” and then you get divorces, she’s no longer your wife and so no longer entitled. It’s a good idea though to change your estate planning documents after a divorce, just to keep them current. It’s important to be aware that many divorce settlements make explicit provisions that if one person dies they have to leave certain things to the ex-spouse.

14:25 Switching gears to real estate… A home is often the biggest asset or the biggest debt that people have, so what happens to your home if you don’t have a will? Unfortunately, there’s no set answer, it varies from state to state. The first question you have to ask is “do you co-own this home with someone?” If you own the property jointly, then no matter what the will says, the home instantly goes to the other person upon the death of the first person. You don’t need a will for this to happen. In fact, you can own any property as joint tenants with rights of survivorship: bank accounts, second homes, rental property…

In Florida, there are unique rules surrounding your homestead (the legal term for your home, basically wherever you live or make your primary residence or domicile). With your home, if you’re married and you have minor children, the homestead automatically goes to your spouse and children, and you can’t will it away to anyone else; the state designates how your home is going to pass to your heirs as a public interest law (apparently it’s to prevent someone from leaving their house to a lover or third party and thus kick out their family).

16:36 How explicit do you have to be in your will with regard to property? Can you just say “I leave my house to my husband” or do you need to detail the lot information? David says that it’s always a good idea to detail your property in your will, since the more detailed you are the less likely there will be grounds for probate litigation over the terms. For example, if you own multiple properties to multiple people but don’t specify exactly which ones, there could be potential for confusion.

17: 43 Does the homestead rule, where your home automatically goes to your spouse and children, protect your family home against creditors? It depends on the state and on the type of debt. The homestead law in Florida is very advantageous for those who are in debt, which is why so many debtors move to Florida (*ahem* O.J. Simpson *ahem*). In Florida, If you owe other, non-home related debts like credit card and medical bills, then those creditors cannot take your home to settle those debts. However, a mortgage does carry on with your house after you die.

19:06 Charley tries to throw David a curveball by asking about trusts. If you put your house into a trust, do the homestead laws still apply to the house? In Florida, yes, the homestead laws still apply, and you can’t will-away or trust-away your home if you have a spouse and minor children who live there with you (the rules are different if you’re not married or your children are all grown up). These rules are fairly unique to Florida so you might want to check with your state to see what you can do with your property. Besides your house, any other property you put in your trust, the rules of the trust apply and not the will.

20:44 We talk a bit about the difference between a revocable trust and an irrevocable trust. You can use both types of trusts to avoid probate. For most properties, you’ll want to use an revocable trust, as irrevocable trusts are really only used for special circumstances such as tax planning, medicaid planning and for gifting large sums to children. The danger with irrevocable trusts is that once you place the property in the trust it is no longer yours, you’re essentially giving it away and you can’t change the rules of the trust, so you have to be very careful at the outset. This is why you want to appoint someone else as a trustee to manage the money that you give to your children in an irrevocable trust, so that they make sure the money is used according to the rules you set out.

22:59 Following up on the homestead law and debts, while your house is safe from creditors, are the objects inside equally immune? Some property is exempt like your most basic furniture and furnishings, but more exotic property like an art collection is not exempt from creditors.

23:34 We all know that houses fluctuate in value. What are the potential pitfalls for survivors who inherit a house that has significantly increased or decreased in value, so the estate is suddenly worth way more than expected or way less than expected? According to David, it all comes down to what they want to do with the house. If the house is saddled with debt and they don’t want to live in it or keep it anyway, people often do a deed and lure foreclosure and let the bank have the house. If the house is worth more than expected, your heirs can sell it and keep the profit, but they’ll have to pay taxes on it; if they decide to stay, they’ll also have to contend with property taxes. If your heirs intend to live in a mortgaged house after you pass on, they will be responsible for paying the mortgage even though they’re not personally liable on it. David adds to the picture by telling us about the housing situation in Florida.

25:42 One last thing to mention is that David’s blog, www.sofloridaestateplanning.com, was voted one of the top 25 estate, probate and elder law blogs of 2011! We highly recommend you check him out. You can also visit his profile on Rocket Lawyer and contact him that way.

26:34 Rocket Docket time! It’s not quite a legal issue (or is it), but do you think Barry Bonds belongs in the baseball hall of fame? Would the outcome of his trial affect your opinion? Let us know what you think by voting on our Facebook poll. You can also talk to us through the comments section on our blogs, or via twitter. And don’t forget to make your will!

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• The Top 5 Excuses for Not Making a Will, and Why They Don’t Work (press.rocketlawyer.com)
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• Who Needs a Will? 5 Reasons It Might Be You (press.rocketlawyer.com)