Florida Probate Litigation Lawyer Blog

The Impact of FATCA on Foreign Trusts and Estates

October 22, 2012 | by Bart Chepenik

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).
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Trust Decanting

October 15, 2012 | by Bart Chepenik

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.
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Pet Trusts

October 5, 2012 | by Bart Chepenik

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.

Dependent Relative Revocation

September 30, 2012 | by Bart Chepenik

As people progress through different stages of their lives, their beliefs and objectives sometimes fluctuate and change. One situation in which an individual may change his or her mind is when writing a will. People often change their minds about whom to devise or bequest their property. But, what causes people to change their minds? What if someone revokes their will based on a mistaken assumption of law or fact? Is the new will effective? Does the old will get revived if the new will is ineffective?

Over the years, courts have wrestled with such questions and, resultantly, have come up with the doctrine of dependent relative revocation (“DRR”). Essentially, the courts have decided that if a testator claims to revoke his will, and he or she does so based on a mistaken assumption of law or fact, the revocation is invalid if the testator would not have revoked the initial will had he known the truth. Once it is clear to the court that the revocation of the prior will was based upon the validity of the new will, the court will apply DRR. The doctrine creates a “rebuttable presumption that the testator would have preferred to revive his earlier . . . bequests rather than let the property go by intestacy.” In re Estate of Pratt, 88 So. 2d 499, 501 (Fla. 1956).
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Non-Citizen Spouses and Estate Planning

September 24, 2012 | by Bart Chepenik

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.
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Handwritten Wills

September 19, 2012 | by Bart Chepenik

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.”
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Automatic Nullification of Certain Non-Probate Assets after Divorce

September 15, 2012 | by Bart Chepenik

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.
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Trust Modification by Beneficiaries

September 10, 2012 | by Bart Chepenik

A recent Florida Case…

Florida statutes allow for the modification of trust documents when the beneficiaries and trustees enter into a settlement agreement. The proposed changes have to further the grantor’s intent, meet the best interests of the beneficiaries or stem from another appropriate reason. But what if the trust specifically prohibits the proposed changes? Then, only in unique circumstances the will the court modify the trust as allowed by Fla. Stat. s. 736.0414 if the trust instrument forbids such changes.

For example, in a very recent Miami-Dade County District Court of Appeals decision, the Court decided it would not approve a settlement agreement entered into between the co-trustees (the two adult daughters of the settlors) and the corporate trustee. The settlement agreement would have allowed the corporate trustee of the trust to resign, release it from liability, and replace it with a corporate custodian to hold the trust’s securities and cash. A fourth co-trustee appealed the trial court decision which allowed the modification. The fourth co-trustee relied on language from the trust which provided: “If the corporate Trustee fails or ceases to serve, the remaining individual Trustees or Trustee shall choose a successor corporate Trustee, so that there shall always be a corporate Trustee after the Settlor ceases to serve.”

Furthermore, a later paragraph of the same trust provided: “[T]o the extent permitted by law, I prohibit a court from modifying the terms of this Trust Agreement under Florida Statutes s. 737.4031(2) or any statute of similar import.” Section 737.4031 of the Florida Statutes (2002), which is currently found in section 736.04113 of the Florida Statutes, allowed for the judicial modification of a trust under certain circumstances.
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Damages in Conversion and Tortious Interference with Inheritance Cases: Proving ‘Millions’ Not Enough

September 4, 2012 | by Bart Chepenik

The law provides remedies for the potential beneficiaries of a decedent who has his or her last wishes interfered with prior to death. However, proving a case, even where liability is clear, can be troublesome for a lawyer unfamiliar with probate law. Under Florida law, a prima facie case for both conversion and tortious interference with expected inheritance requires the plaintiff(s) to prove damages in order for there to be a recovery.

In a recent Florida Third District Court of Appeal case, Saewitz v. Saewitz, 79 So. 3d 831 (Fla. 3d DCA 2012), two daughters brought suit against their stepmother for the manipulative acts she committed during their father’s dying days. At the trial level, the daughters called several witnesses to prove damages, including their father’s accountant. During the accountant’s testimony, he stated that the value of the assets that the stepmother interfered with was “over a million dollars” and “in the millions.” Two other witnesses, including the stepmother, indicated that value of the assets was over a million dollars. Despite multiple witnesses giving testimony about the value of the assets in question, none were able to give a better estimate than “over a million dollars.”

The daughters argued that they were unable to ascertain a more specific value of the assets because they never received, even though they had requested, documents related to the value of the decedent’s assets. The Third DCA stated that this was the fault of the counsel of the daughters for acquiescing to the non-production of documents. The appellate court noted that there are legal avenues, such as a motion to compel, that are in place to force production of these documents. Judge Shepherd, author the Third DCA opinion, also noted that the daughters never subpoenaed the decedent’s accountant for records that would show the value of the assets. Finally, the court noted that the daughters were aware of each asset, and thus, could have retained experts to calculate the value of each asset. The court went on to state that the daughters’ counsel was not the “but for” cause of the daughters’ failure to present a prima facie case to the jury, even if the lawyers violated some legal or ethical obligation to their clients.
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Securing a Safe Deposit Box After A Relative Passes

August 27, 2012 | by Bart Chepenik

Financial institutions in Miami-Dade, West Palm Beach and Broward County all follow certain rules pertaining to a decedent’s (or a person who has passed away) safe-deposit box. The first important issue to be aware of is that if two or more people leased the safety deposit box the co-lessee may still have access to the contents of the safe-deposit box even if the bank knows the other co-lessee has passed. If this is the case, it may be difficult to know what exactly was in the safe-deposit box at the time a person passed.

One way to secure the assets of the safe deposit box is to make an inventory as soon as possible. An inventory will list and describe all of the assets in the safe deposit box. For the inventory to comply with Florida Statutes §655.937, the inventory must be made in the presence of and signed by at least two people including an employee of the institution where the box is located and the personal representative or the personal representative’s attorney.

There are several people who may gain access to a safe-deposit box after the person who leased it has passed away. If the institution that leases the box has a satisfactory proof of death, then that institution must permit the spouse, parent, adult descendant, or named personal representative in a will to open and examine the safe deposit box. For everyone’s protection, this inspection must be done in front of an officer of the institution. Some Florida institutions may have stricter requirements than others for the identification of people authorized to open a safe-deposit box. It is important to read the safe-deposit box’s lease agreement. If the court has named an authorized person, that person is able to examine the contents of the safe deposit box.