Irrevocable Trusts

Single parents and estate planning issues

May 13, 2022 | by Chepenik Trushin LLP

How can a single parent avoid homestead to protect a minor child?

Florida homestead laws are complex, confusing, and enormously important for homeowners with or without an estate plan. Florida homestead law applies to three categories: (1) creditor protection against reaching a primary residence, (2) property tax exemptions and limitations on annual property value increases, and (3) restrictions on how a homeowner may devise property if there is a surviving spouse or a minor child.

Under this third category, Article X, Section 4(c) of the Florida Constitution states that a homestead property cannot be devised if the owner is survived by a spouse or minor child, except to the spouse if there is no minor child. This section only pertains to devises, or post-death transfers of property. A homeowner is free to mortgage, gift, sell, or deed the property freely while the homeowner is still living. If the homestead is jointly owned by both spouses, then the property can be freely transferred as long as both spouses join on the conveyance.

Estate planning, trusts and genealogical services, what you need to know.

February 28, 2022 | by Chepenik Trushin LLP

What to do with 23 and me?

Recent years have seen the rise in ancestry services such as Ancestry.com and 23 and Me. After performing a simple DNA swab, these services provide the subscriber with hereditary and genealogical information that can unlock family history, medical information, and perhaps even long-lost relatives. While these services provide substantial value for our personal lives, they may be problematic in the world of estate planning.

To illustrate, consider the following hypothetical. A man donates to a fertility clinic when he is 20 years old. Many years later, the man is happily married with three adult children. The man then creates a will that reads in part as follows: “I hereby leave my personal savings account, valued at $1,000,000, to my biological children to be divided equally.” This language creates a class gift to a particular class of people, his children, as opposed to naming specific individuals to benefit. While the man’s three children are included in this class gift, as was intended, so too is a fourth biological child resulting from the man’s fertility clinic donation years prior, whom the man never knew existed. Genetic information services can have both intended and unintended consequences, as the three children will find out if the fourth child identifies his father through an ancestry service and later seeks a distribution from the man’s estate under the class gift in the will.

Trust Decanting in Florida

December 23, 2021 | by Chepenik Trushin LLP

Can an Irrevocable Trust be Changed? Trust Decanting under Florida Law

You do not have to be a Sommelier to be familiar with the concept of decanting wine. “Decanting”, the pouring of wine from its original bottle into a different vessel – is a technique utilized for two contemporaneous purposes: to separate the wine from any sediment that has formed it its original container, and to aerate the wine to enrich its flavors. It may be surprising, however, to learn that a similar legal concept exists for Trusts, and is valuable for similar circumstances.

As its name suggests, “Trust Decanting” is when a trustee creates a new trust, moving all the assets from the initial trust into the second trust, to either correct a mistake or unintended result—the hypothetical “sediment” that the initial trust may have incurred, or to strengthen the original purpose of the trust.

“Step-Up in Basis”, a tax law, is it fading away? What you need to know in 2021-2022

June 9, 2021 | by Chepenik Trushin LLP

Biden’s Tax Proposal and the “Step-Up in Basis”: What it Means for Your Estate Plan or Trust

A commonly utilized tax law in estate planning considerations, known as the “step up in basis,” may be in jeopardy. The “step-up,” derived from section 1014 of the Internal Revenue Code, gets applied to the cost basis of property when it is transferred upon death of the transferor. This mechanism has been a beneficial way to minimize the capital gains tax of one’s heirs, especially for property that has greatly appreciated over time. For example, if someone buys a home for $100,000 dollars, and fifty years later the owner sells the home at a time when the home has appreciated in value to $1,000,000, there would be a capital gain of $900,000, to which a long-term capital gains tax rate of 20.00% is applied. However, if the owner dies owning the home, and the home is transferred upon the homeowner’s death at a time when the home has appreciated in value to $100,000, the step up in basis converts the original cost basis to the fair market value of the transferred property at the time of the homeowner’s death. Thus, if the persons inheriting the property were to immediately sell it for $1,000,000, there would be zero capital gain, because the basis is equivalent to the sale price. The step-up in basis has allowed for taxpayers to save tremendous amounts of money on capital gains tax. Note that, although it is often referred to as a “step-up” in basis, it could be a “step-down” if the value of the property a the time of death is less than what the owner purchased it for.

However, the Biden Administration has proposed to eliminate the step-up in basis. In short, this means that heirs will have to pay capital gains tax on inherited assets based upon the cost basis of the donor’s purchase price. According to Biden’s proposed tax plan, there would still be an exemption for capital gains on the first $1,000,000 of capital gains ($2,000,000 for married couples), but gains above the $1,000,000 ($2,000,000 for married couples) will not receive step-up in basis treatment.

Irrevocable Trusts, Revocable Trusts – A guide to understanding in Florida laws

January 15, 2021 | by Chepenik Trushin LLP

I Made an Irrevocable Trust a Long Time Ago: Can I Change it Now?

People make irrevocable trusts for many reasons, one major reason being tax planning. In order to make a completed gift for tax reasons, a donor has to part with control over the gifted asset, and making a gift to a trust that is irrevocable is one of the ways this can be accomplished. But that if your circumstances change, or tax laws change, and you would like to modify or terminate an irrevocable trust? Can a trust still be modified if it is irrevocable?

The answer is yes, if certain conditions are met. Florida statutes specifically allow for modification of irrevocable trusts in certain circumstances. For instance, by court order (Fla. Stat. § 736.0410), to modify tax provisions (Fla. Stat. § 736.04114), or where the trustee and all beneficiaries unanimously agree (Fla. Stat. § 736.0412), just to name a few. But there are certain situations where none of the Florida statutes apply. For instance, a modification under Fla. Stat. § 736.0412 by agreement of trustees and beneficiaries can only be accomplished if the settlor has passed away and only with respect to a trust that was made irrevocable after January 1, 2001. That leaves some situations that are not covered by the Florida statute.