Articles Posted in Estate Planning and Documents

There are many instances in which a trust can be terminated, e.g., when the trust ceases to be economically efficient to administer or when the trust has been created as a result of fraud, duress, or undue influence. Recently, in Florida, more individuals have been creating revocable trusts. Floridians often choose this type of trust to avoid probate and to keep their private affairs out of the public eye in a probate proceeding. But when is a trust revocable? Who can revoke the trust? What steps must be taken and procedures followed to ensure that the trust is revocable?

One of the key distinguishing features of a revocable trust, as opposed to an irrevocable trust, is control. A settlor has control not just to revoke the trust, but to alter the trust as well. For example, the settlor of a revocable trust may add or remove beneficiaries of the trust during the settlor’s life and may also change the property that is owned by the trust. A major downside of this control is that the trust’s assets are easier for creditors of the settlor or of the beneficiaries to reach. Whereas, with regard to an irrevocable trust, the settlor does not have control once the trust is established, but the assets of the trust are better protected from the settlor’s creditors, and, depending on how the trust is structured, those assets may also be better protected from creditors of the beneficiaries.
Continue Reading

In 2010, congress passed the Foreign Account Tax Compliance Act (“FATCA”) after a series of high-profile tax evasion cases. The main purpose of FATCA is to force foreign financial institutions to comply with reporting requirements of the Internal Revenue Service and curb non-compliance. However, FATCA will have new reporting requirements for individuals, as well. Classically, any United States citizen with an interest in a foreign bank account was required to file an FBAR form disclosing their interest in any foreign bank account with their regular tax return. FATCA has broadened filing requirements “to all specified foreign financial assets” held by “specified individuals” with the implementation of section 6038D to the Internal Revenue Service. The new requirement seeks to ensure that the Internal Revenue Service has all potential information to prevent assets that could produce taxable income from being concealed in foreign jurisdictions. For section 6038D purposes, a specified individual is a United States citizen, a resident alien of the United States (as determined under section I.R.C. 7701(b) and §§301.7701(b)-1 through I.R.C 301.7701(b)-9), or a nonresident alien who has elected under section 6013(g) or (h) to be taxed as a United States resident. Under FATCA, specified individuals with a specified financial interest must file an information form (form 8938) with the Internal Revenue Service. Section 6038D may also apply, at the discretion of the Treasury Department, to domestic entities formed for the purpose of holding a specified foreign financial asset under I.R.C. 6038D(f).
Continue Reading

Trusts are an important tool of estate planning for many reasons, one of which is the tax benefits associated with holding assets in a trust. Trusts are routinely set up as a planning tool and contain various different provisions about how and when trust assets are distributed to the qualified beneficiaries of the trust. Trustees can have different ranges of power depending on the terms of the trust instrument, and the extent of the discretion afforded to the trustee dictates what they are able to do with the trust assets. Trustees with a discretionary power to distribute trust assets may do just that – distribute the assets to the qualified beneficiaries. Trustees with a special power of appointment have greater rights and can have the right to invade the principal of the trust. Giving a trustee a power of appointment, especially an absolute power of appointment, can allow the trustee to distribute assets in ways that can be extremely advantageous to the qualified beneficiaries.

Can a trustee of a trust distribute the principal of a trust to a new trust that may have different terms? The answer is yes, provided certain conditions are met. When a trustee with the discretion to distribute the principal of the trust uses that discretion to distribute the principal into a new trust, it is called “decanting the trust.” Trust decanting is a means of planning that helps beneficiaries retain the tax benefits of a trust. The reason decanting is allowed is that if the trustee, through his power of appointment, has the ability to distribute property to the beneficiaries or for their benefit, then that power of appointment should allow the trustee to distribute property into a second trust for the benefit of the qualified beneficiaries.
Continue Reading

When planning their estates, most people consider provisions that take into account their family and friends, but people often fail to make arrangements for loved ones that fall somewhere in between: their pets. Dogs, cats, horses, birds, reptiles, rodents, and amphibious friends can also be provided for in estate documents. Florida Statute 736.0408 allows individuals to create trusts specifically to care for animals that the owner predeceases. The statute specifically allows individuals to:

• Provide for the care of an animal or animals alive during the settlor’s lifetime;
• Appoint an individual to enforce the trust for the animal(s);
• Ensure that money set aside for the animal(s) will only be used for that purpose.

Continue Reading

What legal issues will you face if you are married to a noncitizen or planning on leaving part of your estate to a noncitizen? The answer to this question is not as easy as one might think. Noncitizens do not necessarily escape the United States’ estate tax, nor do they always qualify for some of the deductions given to US citizens.

The imposition of the estate tax on noncitizens is largely dependent on where the noncitizen is domiciled. There is an estate tax levied on the worldwide net estate of domiciled noncitizens. In contrast, the estate tax is only levied on the US property of non-domiciled noncitizens. Therefore, a crucial issue is determining whether or not a noncitizen is considered domiciled. Domicile is generally determined by whether a person is living in the United States and whether that person has the intent to remain in the country. Intent is a subjective judgment based on weighing the individual facts of a situation. Residency does not necessarily mean domicile, nor is it a requirement of domicile for estate tax purposes. This means a US vacation home left to a non-domiciled noncitizen would be includable in their gross estate. Property is not limited to real property in this scenario, but can also include things such as stock in a US corporation and even certain assets.
Continue Reading

Approximately fifty-five percent of Americans die without a will-that is, they die intestate. This is not a major concern if the person who died did not have taxable assets or only had one child from one marriage. However, the complexities of life carry on into probate. There can be many interested parties when it comes to probating an estate, and it is highly likely those parties will make competing claims to the deceased’s assets. There can be no survivors, children from multiple relationships, minor children, ex-spouses, other family members, and assets that have no right of survivorship. A person can hold assets in many ways. They can hold assets in their entirety, they can hold assets jointly (in joint tenancy), or they can hold a specific interest in an asset (such as a life estate).

So what happens when someone dies and there are assets and no will? In Florida, there is intestate succession. This is a portion of the Florida Probate Code that prescribes how assets pass when they are not included in a will. Sections 732.101 to 732.111 of the Florida Probate Code dictate how assets are transferred if someone dies intestate. There are provisions about surviving spouses, debts of the estate, children, minor children and more.

There are many reasons a person may not have a will, or, at least, not have a valid will. Two of the most common reasons are the cost of having a will prepared and a person creating their own will that, unbeknownst to them, is not valid under Florida law. Today, with the myriad of self-help legal forms on the internet and do it yourself books, inevitably, there are numerous people creating what they mistakenly believe to be a valid “will.”
Continue Reading

As of July 1, 2012, Florida enacted Florida Statutes Section 732.703. This statute automatically nullifies the designation of a spouse as a beneficiary on certain non-probate assets upon divorce. The general purpose of the law is to expand the already automatic revocation of a spouse designation on a will or revocable trust after a divorce. Florida Statutes Section 732.703 generally applies to life insurance policies, qualified annuities, IRAs and pay-on-death accounts. It passes the asset as if the former spouse predeceased the decedent. The law lays out specific means for determining the proper beneficiary in situations where the law applies.

Take heed, however, because Florida Statutes Section 732.703 does not apply to all non-probate assets. The automatic nullification is not all encompassing, and there are many non-probate assets that will not get this special treatment. Finally, the law removes banks and insurances companies from liability if a former spouse improperly cashes a payout check. Now, you must directly sue the former spouse and cannot sue the bank or the insurance company for issuing or cashing the check.
Continue Reading

Fifty-four million Americans suffer a disability. In Florida, 6.2% of children five to fifteen years old have a disability and 4.3% of Miami- Dade County children age five to fifteen have a disability. For parents of those children a stand-alone special needs trust can be a useful tool to ensure their child receives the care they need. The trust provides the family peace of mind their child will have the resources he or she needs even after the parents have passed. Special needs trusts are frequently used to receive an inheritance or personal injury settlement proceeds on behalf of a disabled person or is founded from the proceeds of compensation for criminal injuries, litigation or insurance settlements.

There are a number of reasons that a parent of a child who has a disability might consider using a separate stand-alone special needs trust. The tax consequences of establishing such a trust depend on whether it is revocable or irrevocable. If your family lives in Miami-Dade County, Broward County or West Palm Beach County the stand-alone special needs trust will be governed by Florida Statutes Chapter 376. You should seek the assistance of an experience attorney to be sure the trust complies with Florida laws.

A separate trust should make the process of obtaining approval of the agencies administering the Medicaid and Social Security Income programs easier and quicker. Because a stand-alone special needs trust is designed to benefit only the child who has a disability, the trust provisions should deal only with that child. This makes it less likely that the trust will contain language that causes the trust assets to be countable resources to the beneficiary for Medicaid eligibility purposes than would be the case if the trust also contained assets of the parent, or included the parent’s other children as beneficiaries.

Secondly, a stand-alone special needs trust affords parents a way to keep their estate plan private from governmental agencies. If the parents’ living trust contains information about the value of their estate and is used to hold funds for the child who has a disability, that document must be presented to the reviewing government agencies. Using a stand-alone special trust means the parents only need to disclose what assets are in that trust to the government agencies.
Continue Reading

Sometime before her death, a Florida resident living in Ormond Beach made a will using an “E-Z legal form”. She relied on the form and carefully listed the assets she wanted her sister to receive including her house, her IRA account, her life insurance proceeds and all of her bank accounts. The testator, the lady making the will, included all of her current assets and even included a contingency clause that the listed assets would go to her brother if her sister were to pass first. The will seemed simple enough to create and given her small estate and she had in fact disposed of all of her current assets. The testator thought she took care of unexpected events by naming her brother in the event her sister was not around. The will seemed straightforward and many residents of Miami-Dade, Broward, and West Palm Beach County might feel comfortable creating a similar will. They should not! This will, which seemed straightforward, was not. Sadly, this “E-Z legal form” will created a situation where her family members were forced to spend a lot of time and money to litigate against each other. It created greater headaches and legal fees for her family members after she had passed in 2011. She would have been well-advised hire an attorney to create the will to prevent such an unfortunate situation.

The issue in this recent court case was that the sister named in the will had in fact died first. The deceased sister left cash and land in Putnam County to the living sister. The living sister put the cash in a new bank account. The living sister never revised her original will to reflect this inheritance. As a result, there was a significant question as to whether the brother originally mentioned in the will was supposed to receive the newly inherited land and money or if these new assets should pass by intestate succession to the testator’s nieces. The family members spent a lot of time litigating, the case even reached the First District Court of Appeals in Florida. This court ultimately decided that the inheritance acquired after the will did pass to the nieces and the brother received only the property specifically described in the will.

We will never know whom the testator really wanted the property to go to, an argument can be made that since the nieces were never mentioned in the will that she had in fact wanted her brother to take everything. However, since the will contained no mechanism to dispose of the inheritance or any other property not mentioned in the will, those assets passed according to intestate laws. A good attorney would have included a residuary clause in the original will creating such a mechanism.

Florida is an ideal location for a beachside vacation home or condominium. Many northerners or “snowbirds” like to make their way south every winter and enjoy all that south Florida has to offer. Excellent restaurants and weather make Florida a primary location for vacation homes. Miami, Ft. Lauderdale, West Palm Beach and Boca Raton are some of South Florida most desirable cities. These vacation homes make up part of a person or couple’s estate plan. There are no rules on how a person may give their vacation home under a will. This flexibility can sometimes unfortunately lead to unintended disputes among family members.
If you own a vacation home either here or in another state (or country) it is wise to take some time and consider the following questions in deciding how to leave the property in the will. First, if you want to leave the property to a child or family member, consider first asking them if they want it. Often children may have their own preferences as to what they look for in a vacation home. Maybe they want something closer to their home or a location with more activities for their children. Secondly, consider how the family member may wish to use the property. Maybe the family may prefer the property as a rental then for their own personal use. Thirdly, consideration should be given as to how maintenance costs and other costs will be paid. Will they take to property free and clear of the mortgage or will they have to pay the mortgage?
Continue Reading