(Guest Post) Why You Need to Update Your Estate Plan After Winning Your Personal Injury Law Suit
This post comes to you from my friend and colleague, Blakely Moore. Blakely is an estate planning attorney in Gainesville, FL. His practice focusses on wills, trusts, and probates.
If Landon Stinson represents you in a personal injury claim, you are undoubtedly in good hands. But if you win your case or get a settlement, you should strongly consider updating your estate plan. Otherwise, you just might lose a good portion of that money after death instead of passing it on to your loved ones.
The number one way to spend money after death is to have a large probate estate. A probate estate is made up of almost everything solely in your name when you die. Is there a bank account in your name alone with no beneficiary listed? That account will be part of your probate. Do you own land in your name alone? That land will likely be part of your probate. A good rule of thumb is that assets in your name alone with no designated beneficiaries will likely be probate assets.
Large probate estates are expensive. Personal representatives and attorneys tend to be paid from the probate estate, and their fees often go up when the estate is larger. Many attorneys charge a percentage of the estate as their fee. I have seen attorneys make six-figure fees from probates because the estate was so large. These expenses are the main reason that probate needs to be avoided.
So, what happens if you win a big law suit and then let that money go through probate? The probable result is that a probate attorney is going to take a cut of that money. You might think the money is going to your family, but you are unknowingly leaving money to a lawyer too.
This problem can be entirely avoided with a good estate plan. A good estate plan avoids probate and minimizes (or eliminates) the assets that make up the probate estate. This is a big reason that people speak with estate planning attorneys; to keep their assets out of probate.
Disinherit Uncle Sam
If you get a great settlement, you are hopefully going to invest some of that money. Most investments are capital assets, meaning that if the assets increase in value, you will pay capital gains tax when you sell the asset. However, some married couples might be able to avoid paying capital gains through the use of a community property trust.
A community property trust is an estate planning tool exclusively for married couples. Everything put into the trust becomes community property, which means that when one of the spouses die, the other spouse gets all the capital gains wiped out for every asset in the trust. This is huge for some couples. And there is no limit to the amount of capital gains you can eliminate.
If you are married with capital assets and do not look into a community property trust, then you are potentially paying money to the IRS that you never had to pay. Put differently, you are making Uncle Same a beneficiary of your estate. To avoid this, talk to a good estate planner.
Protect Your Home
Landon loves to represent tenants who make claims against landlords. If you are one of those clients, you might decide to use some of your settlement money to buy a home. If you do, consider talking to an estate planning attorney first.
Florida homestead laws are complex and difficult to understand. One of those laws states that people with a spouse or minor child are not allowed to devise the homestead to whomever they want. For example, if you own a home in your own name and you have a spouse and minor children, then your home will be split between them after you pass away, whether you like it or not. Even if you leave your home to your spouse in your will, your spouse will not get the home.
Thankfully, there are ways around this law. You can use deeds to bypass the law entirely. But you must be careful when changing the title to your home. Enlist the help of an attorney.
Blakely S. Moore is an estate planning attorney in Gainesville, FL. His practice focusses on wills, trusts, and probates.