Preserve Your Assets for Your Beneficiaries

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Martella Law Firm

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Jun 20, 2024

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Florida - Sarasota, Bradenton & Charlotte Counties

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Anyone who has gone through the gauntlet of law school classes or who has had a lot of dealings with attorneys, knows that the most classic and common answer to what would appear to be a straight forward legal question is: it depends. This response is true when it comes to a discussion as to whether or not life insurance proceeds and 401-K Retirement Plans are exempt from attachment by your creditors.

First, let’s take a look at life insurance proceeds. Under Fla. Stat. §222.13, if a person is residing in the state of Florida at the time of their death, the proceeds of the policy are deemed exclusively for the benefit of the beneficiaries of the insurance policy as designated in the policy and the insurance proceeds are exempt “from the claims of creditors of the insured.” Therefore, if someone owes $5,000 to credit card companies at the time of their death, the credit card companies cannot attach or seek to obtain in any way the proceeds of those insurance policies and those proceeds go directly to the beneficiaries.

However, that is not the end of the analysis. The statute further provides that if the named beneficiary in the policy is the insured (i.e. the decedent) or the estate of the insured, or his or her executors or administrators, then the insurance proceeds become part of the insured’s estate, and would be subject to distribution according to the laws governing the distribution of estates which would include the payment to creditors of the decedent prior to distribution to beneficiaries under the estate. Therefore, for estate planning purposes, if you have significant liabilities, you should consult with an estate planning attorney to review your life insurance policies to make sure that they name a beneficiary outside of your estate, so the proceeds go to the people you wish to receive the funds and not your creditors upon your death.

Another exception to the rule of life insurance policies being exempt is with regard to the beneficiary’s creditors. While one might assume that since there is an exemption for life insurance proceeds the exemption protects the proceeds are exempt from all creditors. However, the exemption is limited to creditors of the insured, namely the person who took out the policy and is not exempt from creditors of the beneficiary. Therefore, if you have a life insurance policy for your daughter, and she owes a lot of money to credit cards or hospitals, and she were to receive $100,000 worth of life insurance proceeds upon your death, that $100,000 of proceeds could be subject to attachment and levy by her creditors.

As difficult as it is, we encourage family members to be frank with their parents if they anticipate receiving an inheritance and are presently in a difficult financial position. If you are a parent looking to leave funds to a child or other relative, and you do not want your funds to go to pay off their creditors, you need to have a direct and honest discussion with them concerning their financial position. Likewise, if you know your parents are going to leave you substantial funds and you are in way over your head and maybe even possibly considering filing bankruptcy, you need to have a frank discussion with them regarding your financial position so that they are not mislead and their hard earned assets go to pay off your creditors.

A second issue that comes up is whether or not 401-K’s are exempt from creditors upon a person’s death. Under Fla. Stat. §222.21 it provides that a fund or account that meets Internal Revenue Code requirements (which is beyond the scope of this article) is exempt from all claims of creditors of the owner, beneficiary or participant of the fund or account. This is a great advantage and benefit to individuals who may have to face a foreclosure since it allows them to maintain their retirement accounts (if they have not drained them in an effort to avoid bankruptcy) and provide them with a financial basis to get a new start if necessary.

The issue that arose over the past couple of years was whether or not a qualified 401-K that was inherited was also exempt. The courts across the country were split on this issue. Some courts limited the exemption to just the owner’s creditors while others said also the beneficiary of the proceeds receive the same protections from creditors. However, just as with life insurance policies, the issue became whether the beneficiary was also protected from the beneficiaries creditors upon receipt of the 401-K.

Fortunately, this question was answered outside of the courts by the legislature amending Fla. Stat. §222.21 last year. Specifically, the Florida legislature added language to paragraph (2)(c) and provided that the fund or account is “exempt from claims of creditors of the owner, beneficiary, or participant” in that is does not cease to be exempt after the owner’s death by reason of a direct transfer or eligible rollover.

Specifically, the legislature further noted “this paragraph is intended to clarify existing law, is remedial in nature, and shall have retroactive application to all inherited individual retirement accounts without regard to the date an account was created.” This is example of one of the key roles of a legislature to clarify existing law when courts conflict in their interpretation of an existing statute.

In summary, since in the new economy it is not unusual for you to have family members going through difficult situations, it is important to discuss these issues not only with them but with your estate planning attorney to make sure that your hard earned assets go to your intended family members and not their creditors.

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The Three Biggest Estate Planning Myths

Its human nature to put off what we IMAGINE will be a difficult experience or if it is something that we just dont want to think about.  In my over 30 years of experience, I have found that MOST PEOPLE, including lawyers, think of estate planning as something that they can do later. Unfortunately for many, later often becomes too late. Some of the thoughts that may have crossed your mind are that: Im going to live for a long time and Ill get around to it next year; or Id rather spend my money right now on a new ultra HDTV, and I can wait to do estate planning at another time.  Well in this article, I am going to debunk the THREE BIGGEST MYTHS that may be preventing you from moving forward with your estate plan and why the best time to do it is RIGHT NOW, no matter your age.MYTH #1- PUTTING TOGETHER AN ESTATE PLAN IS TOO TIME CONSUMING AND EXPENSIVE.            Nothing could be further from the truth when it comes to putting together an Estate Plan when working with the Martella Law Firm.  First, when it comes to convenience, I offer an initial consultation via Zoom or phone so you can do the initial meeting to learn about your options in the comfort of your living room, in your shorts and a t-shirt if you like, while sipping a cool beverage.  I also offer a traditional in-person consultation if you prefer to meet face to face.  I will then send you draft documents to review via e-mail so again there is no need to leave the comfort of your home.  Finally, when it comes to the signing of the documents, that is the only time you would have to come to my office.  Even then, if you are in a hospital or other medical facility where you cannot leave, we will come to you.  Therefore, the excuse that its too hard is a fallacy.  As far as expense is concerned, first, the initial consultation is complimentary.  Accordingly, you can get all your questions about putting an estate plan together answered for FREE, at no obligation to you, and learn how a proper plan can not only protect your family, but also save them money if you are sick or after you are gone.  Additionally, an estate plan for an individual starts at only $1,200 at my firm, and I offer payment plans as well, so you can have an estate plan over a few months for probably much less than what you are spending each month on dining out.  Also, 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documents make life easier for you and your loved ones.  If you dont have these documents in place, then you may have to go to court to be appointed your family members guardian which can be quite time consuming and expensive.  Believe me, from my personal experience, this is the last thing you want to deal with when your parent or spouse is suffering from a severe medical condition.  I cant tell you how many times I have received a call from a frantic spouse telling me their other half just had a stroke and they need a power of attorney.  Well, if the other spouse is not competent, its too late for the creation of that document and the only option is to apply to be a guardian, even for something as simple as the selling of their house or getting access to a bank account to pay the household bills.  As you can see, your net worth is irrelevant when it comes to deciding whether you need an estate plan.MYTH #3- I DONT NEED A LAST WILL & TESTAMENT BECAUSE EVERYTHING WILL GO TO MY 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Local Services By This Author

Martella Law Firm

Long Term Care Planning 18245 Paulson Drive, Port Charlotte, Florida, 33954

At Martella Law, we are dedicated to helping families prepare for when "life happens." We assist individuals and couples in transferring their hard-earned assets to loved ones and navigating end-of-life challenges for themselves and their parents.Areas of PracticeEstate PlanningWe offer solutions for those looking to protect their most important assets, namely their loved ones. Learn moreProbate ServicesWe help heirs navigate the court-supervised process of identifying and gathering the assets of a deceased person to transfer to beneficiaries. Learn moreMedicaid PlanningWe focus on the primary financial considerations and requirements to qualify for Medicaid payments for nursing home care. Learn moreTrust AdministrationTrust administration ensures your assets are passed without needing to pursue the probate process for assets properly placed in a trust. Learn moreSmall Business ConsultingFrom helping you decide what type of entity you should be to ensuring your documents are in place, we assist budding entrepreneurs in pursuing the "American Dream." Learn moreMeet Mark MartellaMy passion lies in educating the public about the truth concerning proper estate planning to protect individuals and their families. I'm here to prepare you for when "life happens!"Contact UsI offer a complimentary, confidential consultation in person, or via Zoom or phone if that is more convenient. I am even willing to go to someones home or medical facility for a consult and document signing if they are unable to travel due to physical limitations.Please call Tara at my Port Charlotte office at 941-867-6865. I am conveniently located at: 18245 Paulson Drive, Port Charlotte, FL 33954

Martella Law Firm

Estate Planning 18245 Paulson Drive, Port Charlotte, Florida, 33954

At Martella Law, we are dedicated to helping families prepare for when "life happens." We assist individuals and couples in transferring their hard-earned assets to loved ones and navigating end-of-life challenges for themselves and their parents.Areas of PracticeEstate PlanningWe offer solutions for those looking to protect their most important assets, namely their loved ones. Learn moreProbate ServicesWe help heirs navigate the court-supervised process of identifying and gathering the assets of a deceased person to transfer to beneficiaries. Learn moreMedicaid PlanningWe focus on the primary financial considerations and requirements to qualify for Medicaid payments for nursing home care. Learn moreTrust AdministrationTrust administration ensures your assets are passed without needing to pursue the probate process for assets properly placed in a trust. Learn moreSmall Business ConsultingFrom helping you decide what type of entity you should be to ensuring your documents are in place, we assist budding entrepreneurs in pursuing the "American Dream." Learn moreMeet Mark MartellaMy passion lies in educating the public about the truth concerning proper estate planning to protect individuals and their families. I'm here to prepare you for when "life happens!"Contact UsI offer a complimentary, confidential consultation in person, or via Zoom or phone if that is more convenient. I am even willing to go to someones home or medical facility for a consult and document signing if they are unable to travel due to physical limitations.Please call Tara at my Port Charlotte office at 941-867-6865.I am conveniently located at:18245 Paulson Drive,Port Charlotte, FL 33954

Martella Law P.A.

Probate 18245 Paulson Drive, Port Charlotte, Florida, 33954

At Martella Law, we are dedicated to helping families prepare for when "life happens." We assist individuals and couples in transferring their hard-earned assets to loved ones and navigating end-of-life challenges for themselves and their parents.Areas of PracticeEstate PlanningWe offer solutions for those looking to protect their most important assets, namely their loved ones. Learn moreProbate ServicesWe help heirs navigate the court-supervised process of identifying and gathering the assets of a deceased person to transfer to beneficiaries. Learn moreMedicaid PlanningWe focus on the primary financial considerations and requirements to qualify for Medicaid payments for nursing home care. Learn moreTrust AdministrationTrust administration ensures your assets are passed without needing to pursue the probate process for assets properly placed in a trust. Learn moreSmall Business ConsultingFrom helping you decide what type of entity you should be to ensuring your documents are in place, we assist budding entrepreneurs in pursuing the "American Dream." Learn moreMeet Mark MartellaMy passion lies in educating the public about the truth concerning proper estate planning to protect individuals and their families. I'm here to prepare you for when "life happens!"Contact UsI offer a complimentary, confidential consultation in person, or via Zoom or phone if that is more convenient. I am even willing to go to someones home or medical facility for a consult and document signing if they are unable to travel due to physical limitations.Please call Tara at my Port Charlotte office at 941-867-6865. I am conveniently located at: 18245 Paulson Drive, Port Charlotte, FL 33954