Articles Posted in Estate Planning and Documents

As Florida lottery ticket sales increase so do the dreams of winning. Scratch-off ticket sales for the week ending March 4, 2012 in Florida, exceeded $60 million, the highest level of sales achieved since the Florida Lottery launched its first ticket in 1988. Some winners plan ahead by attempting to minimize the taxes they will have to pay if they make gifts to family members from lottery proceeds.

Lottery winners may form an entity owned by multiple family members, allowing those family members to share directly in the lottery winnings. Lottery proceeds can be paid directly to the entity. This is all fine if there was in fact a real and binding arrangement to share the proceeds. However, if there was not, the IRS considers this a gift and will impose a tax in the value of the proceeds that the family member receives as a result of the winnings.

Family members are obligated to pay gift taxes depending if the family agreements were in fact pre-existing arrangements or are only a product of post-lottery planning. Some have criticized these arrangements saying there is a “lottery winnings” exception to federal gift taxes that gives a free pass to the sharing of the winnings among family members.
A recent Tax Court case warns that there is no such lottery exception and that the IRS will scrutinize such lottery sharing arrangements and asserts gift taxes when appropriate.
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Florida is famous for its unique attributes. The state is known for having plenty of sunshine, ocean breezes and its “snowbirds”, or its senior citizen residents who return to Florida every winter to take advantage of all the Sunshine State has to offer. Florida has retained the highest percentage of senior residents in the country, with 17.3 percent of citizens older than age 65 in 2010. From 1990 to 2000, Palm Beach County’s 65-plus population grew 25 percent while Broward County saw a 1.4 percent increase in its senior population. Miami-Dade County saw a 17 percent increase in 65-and-older residents in the past 10 years. And while some Broward and Palm Beach cities now have fewer senior residents than before, many still retain vibrant retirement communities, which boost their 65-plus-population percentage high above the 13 percent national average. In Tamarac, where 38 percent of the population was 65 or older in 2000, seniors continued to make up 28 percent of the population in 2010. In Palm Beach County, seniors made up well over 50 percent of the population in the small communities of Briny Breezes, South Palm Beach and Highland Beach.

Senior citizens have their own unique needs when it comes to financial planning and protection of assets. Every senior should aim to utilize the variety of planning devices are available that will allow them to save taxes and protect assets. These devices include trusts, family limited partnerships (FLPs), and limited liability companies (LLCs).

Some concerns senior citizens have are the same concerns as the general population. For example, they, like others, want to save on taxes. They want to pay the IRS the least amount of federal income tax possible. If they decide to give gifts, they want to minimize the transfer taxes involved. The elderly, like others, want to protect their assets from creditors. If they are involved in a business, they may want to shield themselves from the effects of judgments against the business.

However, some concerns are unique to seniors. For example some elderly individuals may face nursing home care and may worry how their Medicaid eligibility will be affected. The elderly may also be concerned about the probate process and may want to control the process to reduce the cost and publicity involved.

Recently, family limited partnerships (FLPs) and limited liability corporations (LLCs) have emerged as financial planning techniques people can use to protect assets from creditors, save taxes, and maintain control over their affairs. Family Limited Partnerships (commonly called FLPs) can facilitate moving wealth from one generation to another. Partners of an FLP are either General Partners (GP) or Limited Partners (LP). General Partners have the responsibility for managing the FLP and its assets. Limited Partners generally have just an economic interest in the FLP. Limited Partners have no ability to control, direct, or otherwise influence the operations of the FLP. They can neither buy additional assets, nor sell existing assets, and they cannot act on the Partnership’s behalf. So why would setting up an FLP ever benefit a senior citizen who wishes to transfer money to a family member? First, FLPs allow one family member, typically the GP, to move assets to other family members (often children who are LPs), while still retaining control over the assets. Because the LPs have no rights of control, they cannot liquidate their partnership interest. The General Partner decides the timing and amounts of distributions. That is, a distribution cannot be made to one partner (GP or LP) unless all partners receive their pro rata portion of any disbursements. Secondly, when calculating the fair market value of a transfer for tax purposes, the transferred money is typically valued less than if the money transfer had been in cash. The interest in a FLP is not liquid and therefore the interest holder may not receive a distribution until sometime in the near (or distant) future. Thus, the fair market value for transfer tax purposes is usually less than the interest transferred.
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Miami-Dade, Broward and West Palm Beach counties are home to some of the finest art in the country. Alongside the many fine art galleries located in South Florida there are private art collectors and individuals who own valuable and sometimes extensive collections. These collections make up part of their estate and careful consideration should be given as to the distribution of these pieces. An experienced estate planner can help you decide when and to whom the art should be gifted.

Often art collectors wish to gift art to their children or members of their family. Art collectors should consider several factors when deciding to do this. The first consideration is that a 28% income tax rate is locked in for the children who receive the art and there are significant expenses for appraisals and the risk of a gift tax audit. Also the giver should consider if the art is something that the children are even interested in receiving. Children’s tastes may be different than the parents, and the children might not appreciate the gift as much as the parents hope. Also, if grandchildren live in the house, there may be a risk of damage to the art!

Sometimes the best and simplest plans when dealing with fine art in an estate is to consider giving the art to public charity. Generally speaking, the art owner gets an income tax deduction for the full value of the art, without ever having to recognize the gain. There are 4 major issues:
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For same sex couples, having effective estate planning documents and correctly titled property is very important. Without documents expressing the wishes of the couple, there may be undesirable results in the event of a death or serious illness of a partner. If the couple’s wills are not executed properly, upon one partner’s death, property may pass intestate to a relative rather than to the surviving partner. Without a health care surrogate document, if one partner is sick in a hospital the other partner may not have rights to make important decisions for them. The current laws of Florida do not recognize same sex marriages so same sex couples living in South Florida have little protection outside of legal documents that their property and assets will pass to the surviving partner in the event of a death. There are many same sex couples living in Miami Beach, Ft. Lauderdale, Wilton Manors and other South Florida communities who can benefit from a comprehensive estate plan. It is important that same sex couples seek out the assistance of an experienced attorney to make sure their deeds, wills, trusts and powers of attorney are airtight and will carry out each person’s wishes in the event of death or serious illness. In this evolving area of law, same sex couples should have peace of mind that their post death wishes are secure.

An important step for same sex couples to take is to make sure their property is titled properly. Couples can hold property as joint tenants with rights of survivorship. This allows the property to pass to the surviving partner without the property having to go through the probate process. A same sex couple might believe their properties are titled correctly, but unfortunately sometimes deeds are titled incorrectly by mistake. If a deed is incorrect the property may be held only as tenants in common, meaning the property would not pass automatically upon death, but it would be subject to probate.
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What if an accident or illness made it impossible to manage your financial affairs? Would your loved ones have to go to the Dade County or Broward County courthouse to get the authority to handle your affairs? No one likes to consider such grim possibilities, but the truth is that almost every family will eventually face this kind of difficulty. Durable powers of attorney can certainly make life easier for you and your family if times get tough.

The living will is an important estate planning tool. Because this form of “will” is used while an individual is still alive (but no longer able to make decisions) it is dubbed the “living will.” The purpose of a living will is to allow you to make decisions about life support and directs others to implement your desires in that regard. Doctors in all parts of Florida, including Miami-Dade County and Broward County are familiar with these documents. In some cases a living will may forbid the use of various kinds of burdensome medical treatment. A living will can be very specific or very general. More specific living wills may include information regarding an individual’s desire for such services such as pain relief, antibiotics, hydration, feeding, and the use of ventilators or cardiopulmonary resuscitation. Living wills may need regular updating to ensure that the correct course of action can be chosen.

Living wills are needed because advances in medicine allow doctors to prolong and sustain life although the person will not recover from a persistent vegetative state. Some people would not desire to remain in that state while others would. The living will allows you to make the decision of whether life-prolonging medical or surgical procedures are to be continued, or withheld or withdrawn, as well as when artificial feeding and fluids are to be used or withheld. It allows you to express your wishes prior to being incapacitated. Your physicians or health care providers are directed by the living will to follow your instructions. You may change the living will prior to becoming incapacitated.
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In addition to utilizing a trust to provide for your family, you can also create a trust to benefit a charitable organization. To qualify as a charitable trust, the benefiting party must be a charity pursuant to section 501(c)(3) of the Internal Revenue Code. Naturally, such entity must operate solely for religious, educational, and other charitable purposes whereby zero net earnings of the entity benefit any private shareholder or individual. Because donations to charitable organizations are tax deductible, a charitable trust serves as an easy way to provide for a charitable cause and achieve tax benefits.

Florida law, as emulated in section 736.1210 of the Florida Probate Code, encourages the use of charitable trusts and works to preserve the intent of any individual that seeks to provide for a charitable beneficiary through a trust. This intent of the Florida legislature is carried out further by section 736.0405 of the Florida Probate Code, which states that if the trust itself does not name a specific charity as a beneficiary, a court may select a charitable purpose or beneficiary. Of course, the court must consider the settlor’s intent wherever applicable when determining which charity will benefit under the trust.

Instead of creating a trust solely for the benefit of a charitable organization, many individuals name charities as beneficiaries to the remainder of the trust’s assets after the interests of other beneficiaries have terminated. For example, a trust may provide for one’s children, during their lifetimes, with the residuary of the trust going to a charity upon the passing of the children. This form of a trust is considered a split interest trust, in that it serves a purpose in addition to providing for a charitable purpose. Trusts can also be created to benefit one or more private foundations as well.

In Florida, the intent of a settlor (the person who creates a trust) proves extremely important with respect to the handling of the trust’s assets. Florida Probate Code section 736.1101 states that “[t]he intent of the settlor as expressed in the terms of the trust controls the legal effect of the dispositions made in the trust.” Thus, according to Florida law, it is the intent “as expressed in the terms of the trust” that is the benchmark to follow. This can become an issue should any disputes arise regarding the rights of trust beneficiaries after the settlor has passed. Because the distribution of trust assets will follow the express terms of the trust itself, it is very important that the settlor clearly convey his or her intentions to the attorney who drafts the instrument. After all, once the settlor passes away, he or she can no longer amend the terms of the trust to more readily convey his or her intentions.

While the terms of a trust typically prevail over any requirement stated in the Florida Probate Code, there are a few exceptions whereby Florida law controls the construction of a trust. For instance, Florida Probate Code section 736.0105 requires that all trustees act “in good faith and in accordance with the terms and purposes of the trust and the interests of the beneficiaries.” Thus, any power that purports to allow a trustee to act in any manner, regardless of whether it is in good faith or not, will be disregarded. Moreover, section 736.0105 also states that a trust cannot have a purpose that is unlawful or contrary to public policy. The requirement for a trust to be in accordance with public policy supports section 736.1104 of the Code, which states that a beneficiary who intentionally kills the settlor of the trust is not entitled to any trust interest if said beneficiary is convicted of murder under a court of law.

The Florida Probate Code will also govern a trust’s provisions in lieu of the settlor’s intent in the event of the settlor’s divorce. Section 736.1104 of the Code states that, unless the trust provides otherwise, any provision of a revocable trust that affects the settlor’s spouse becomes void should the spouses divorce. Clearly, this section of the Code demonstrates another way in which Florida law will step in and modify the terms of the Trust. As a matter of public policy, these situations are reasonable and likely have the effect of carrying out the settlor’s intent once he or she has passed.

In Florida, “lineal descendant” or “descendant” is defined to mean “a person in any generational level down the applicable individual’s descending line.” Essentially, a descendant is a blood-relative of the deceased. Under Florida law, adopted children are also considered descendants for the purposes of Probate.

So what does this really mean? Suppose John, a resident of Fort Lauderdale, Florida, makes a will that simply states, “I leave everything I own to my lineal descendants.” Now, suppose John has two children from his previous marriage (related by blood), and his second wife, Jane, has two children from her previous marriage, neither of which John has adopted. This means, if John dies without modifying his will, John’s step-children receive nothing.

John’s step children will receive nothing because, under Florida law, a technical term, such as “descendant,” used in a Will, is accorded its legal definition unless obviously used by the deceased in a different sense. Additionally, in construing a will, the courts look to the intent of the deceased and try to give effect to the deceased’s wishes. In determining the intent of the deceased, the courts look to the wording of the will. If the will says the word “descendant,” and the word is not defined, the court will assume that the deceased intended “descendant” to have its ordinary legal meaning.