MORE MONEY, MORE PROBLEMS? 6 DO’S AND DONT’S OF ESTATE PLANNING AND INTELLECTUAL PROPERTY
At the end of last year it seemed as if every day there was a new report of a celebrity dying unexpectedly. As fans around the world mourned the death of some of Hollywood’s most iconic figures, reports of their estate planning, or lack thereof, also filled the headlines.
Prince: Intestacy and streaming music rights collide
Estate Planning: Income Tax Strategies
Law firms have had to take a spike in income tax rates, a decline in the estate tax rate, and an increasing annual estate tax exemption threshold into account in devising estate planning strategies. There has been a decreasing gap between the income tax rates and estate tax rates: estate tax has moved to a maximum rate of 40% and a $5.45 million exclusion in 2016, from a 55% percent tax rate and a $675,000 exclusion in 2001; the maximum tax rate on ordinary income is 39.6%, up from a low of 35 percent in 2003; the maximum long-term capital gains tax rate increased to 20% from 15% in that same time frame. Furthermore, in 2013 an additional 3.8% surtax was added for net investment of individuals, estates, and trusts over statutory threshold amounts in certain cases. While these numbers might make you think that estate planning is only necessary for the super wealthy, financial planners advise that it is not. Taxes are just one consideration of estate planning: it is critical to plan for an orderly transfer of assets or for other circumstances such as incapacitation.
The capital gains tax rate – the long-term rate of 20% plus the 3.8% surtax – is significant because it affects the basis of assets. When a decedent dies, her beneficiaries get the benefit of a step-up in basis, which is appreciated assets held in the decedent’s estate are readjusted to fair market value at the time of inheritance. Through this mechanism, the beneficiary receives an income tax advantage because she is not liable for the capital gains tax on any appreciation that occurs up to the point she inherits the asset.
Florida: A Safe Haven for Surviving Spouses in Probate
Marriage is one of the most sacred and respected institutions in our society. Both state and federal governments provide benefits to encourage marriage with beneficial incentives. Florida provides several benefits for surviving spouses as illustrated in Florida’s Constitution and Probate Code. This article reviews some of those benefits but is not an exhaustive list.
First, surviving spouses receive protection under Florida’s Homestead Exemption. The Florida Constitution prohibits a decedent from freely devising his or her homestead, when the decedent is survived by a spouse or minor child. Art. X, § 4 (c), Fla. Const. However, the decedent can devise a homestead to his surviving spouse if there is no minor child. § 732.4015 (1), Fla. Stat. (2010). If a decedent tries to devise a homestead to someone other than a surviving spouse or minor child under a will, then the homestead property will be transferred to the decedent’s surviving spouse and the decedent’s descendants, with the surviving spouse receiving a life estate in the homestead and the descendants receiving a remainder, per stirpes at the decedent’s death.§ 732.401 (1), Fla. Stat. (2012). Alternatively, “the surviving spouse may elect to take an undivided one-half interest in the homestead as a tenant in common, with the remaining undivided one-half interest vesting in the decedent’s descendants in being at the time of the decedent’s death, per stirpes.” § 732.401 (2), Fla. Stat. (2012). To receive the homestead exemption, “an individual must have an ownership interest in a residence that gives the individual the right to use and occupy it as his or her place of abode.” In re Alexander, 346 B.R. 546, 551 (Bankr. M.D. Fla. 2006).
Gun Trusts: Background Check Loophole Eliminated
A gun trust is a legal device that makes it easier to handle firearms after the gun owner’s death. These trusts are used for guns that are regulated by federal laws: the National Firearms Act of 1934 (NFA) and a revision of the NFA, Title II of the Gun Control Act of 1968. Gun trusts must take into account both federal and state weapons laws. Some of the weapons regulated by the NFA include silencers, machine guns, grenades, short-barreled shotguns, and short-barreled rifles. These weapons already have some regulations in place, including requiring its serial number to be registered with the Federal Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF).
Although there are restrictions in place, the NFA allowed the making or transferring of a firearm without a background check through a gun trust. The Attorney General, on January 4, 2016, signed a regulatory rule to close up this dangerous loophole: Machineguns, Destructive Devices and Certain Other Firearms; Background Checks for Responsible Persons of a Trust or Legal Entity With Respect To Making or Transferring a Firearm. This rule, also known as ATF Final Rule 41F (the “Rule”), will have a huge impact on the use of trusts in the sharing and in the acquisition of weapons regulated by the NFA. It seeks to ensure that proper identification and background checks apply equally to legal entities, trusts, and individuals. The rule became effective on July 13, 2016, 180 days after its signing. However, the Rule is not retroactive, and as such, pending applications will not be affected.
The Hunt for Tom Clancy’s Estate Comes to an End
Popular author Tom Clancy wrote many iconic novels, and the story of his estate battle sounds like it comes straight out of a book. The author, who died at the age of 66 of heart failure, left an estate valued at $82 million. This $82 million estate includes an ownership interest in the Baltimore Orioles baseball team worth $65 million, a working World War II tank, a mansion on Chesapeake Bay and over $10 million in business interests from his novels and movie adaptations.
According to the original will, Clancy left his Chesapeake Bay home and other properties, along with any of his joint bank or investment accounts to his wife Alexandra. Clancy also left a portion of the residue of the estate to the Hopkin’s Wilmer Eye Institute, which he had previously given a $2 million donation in 2005. The rest of his estate was to be divided between a series of trusts. The 2007 will originally provided for three trusts and divided the rest of the estate as follows: one-third for Alexandra, one third for Alexandra to use while she was alive and then passing to their daughter, and one-third to be divided among his four children from his previous marriage.
Estate Planning for Young Professionals: Don’t Wait to Start Planning
Discussing one’s death can be an awkward and uncomfortable experience at any age. It is a topic that most individuals avoid at all costs, especially young adults, as if the mere discussion of one’s future demise will somehow bring it about. While it may not be pleasant dinner conversation, discussions of what will and should happen in the event of death should take place sooner rather than later.
Most young professionals do not feel a sense of urgency when it comes to estate planning, and believe that they have all of the time in the world. Many young professionals also do not have much of an estate to speak of, maybe some bank accounts, some property if they are lucky, and likely a lot of student debt. Many individuals with few assets do not see the need for any type of estate plan. However, such an outlook is shortsighted and fails to take into account assets that will be acquired in the future. Early estate planning can protect the estate an individual does have, maximize the value and income of both their current and future assets, and also ensure seamless transfer of assets to loved ones in the event of death.
When a Trustee Goes Bad: Removal of a Trustee
Trustees play a critical role in trust administration. Settlors, or creators of the trust, give trustees legal title and management authority over the settlor’s property for the benefit of the beneficiaries. An unruly trustee could improperly deplete the trust property and leave nothing for the beneficiaries. Florida recognizes the importance of the trustee’s role and has numerous statutes regulating trustees and protecting beneficiaries. The provisions include, but are not limited to:
Trust Protectors: An Extra Layer of Protection
Traditionally, a trust has three main participants, a settlor, a trustee, and one or more beneficiaries. A settlor creates and/or contributes property to the trust. A trustee manages and holds the property in the trust for the benefit of other people who are said to have a “beneficial interest” in the trust. Beneficiaries are the people who have those beneficial interests. For example, a father, acting as a settlor, might create a trust, naming his wife as the trustee, to distribute money for the benefit of their children, who are the beneficiaries of the trust. However, a fourth participant has increasingly been used in trusts: the trust protector.
Historically, trust protectors were mainly used in offshore trusts and rarely in domestic trusts. A trust protector acts as an extra layer of protection for the settlor. A trust protector is customarily appointed to supervise the trust and ensure that the settlor’s intent is effectuated. A trust protector may have the power to modify terms of a trust to ensure that the settlor’s intent is carried out.
Many people, especially the large elderly population in South Florida, are targeted by various entities offering assistance and guidance in estate and financial planning. The sale of living trusts is a profitable business, and salespeople will target elderly individuals in need of financial planning. These salespeople will hold seminars, provide free food, and lecture attendees on the benefits of living trusts. However, there is an abundance of important information about living trusts that these salespeople will not tell you. It is important to be aware of your options, because living trusts are not the right financial or estate planning tool for everyone.
A living trust, like a will, is a legal document that allows you to direct what happens to your property after your death. Living trusts are revocable. This means the creator of the trust can change or cancel provisions of the trust. There are three key players with regard to living trusts: (1) the creator of the trust (the grantor); (2) the person or entity that manages the assets in the trust (the trustee); and (3) the person or persons who receive the distributions or property from the trust (the beneficiary). Often, a person will create a living trust and make himself or herself the trustee and the beneficiary for as long as he or she is alive. Living trusts are especially beneficial to people who designate beneficiaries with special needs, people who own property in more than one state, and people who are worried that they may become disabled and subject to undue influence. People will also utilize living trusts because they are not subject to probate, or the court proceeding which administers the assets of the deceased person, which can be extensive and costly to the estate.
Planning for the future care of a special needs beneficiary, especially if that beneficiary is your child, can be difficult and overwhelming. There are many facets to consider, chief among them: upon what assets will the special needs individual rely after you have passed if you have been his or her main source of support (and especially if the special needs individual suffers from a disability that prevents him or her from working)?
Consider this: leaving your assets to a special needs beneficiary outright can cause his or her means-tested government benefits to be terminated or decreased. For instance, in Florida, disabled individuals receiving Supplemental Security Income cannot have more than $2,000.00 in assets. Thus, although you intend to provide for your special needs beneficiary, you may cause unintentional harm by devising your assets to him or her outright, thereby severing means-tested benefits, such as Medicaid and Supplemental Security Income. Continue Reading
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