Florida Probate, Trust & Estate Blog

Statute of Limitations to Challenge Trust Administration

Jeffrey Skatoff — Sun, 13 May 2012 12:31:14 -0500

Because of the volume of trust activity in Florida, the Florida legislature has gone to great lengths to protect the beneficiaries of trusts from trustees not doing their jobs properly. Under Florida law, trustees are required to provide an accounting to the beneficiaries of the trust on an annual basis. When a trust is administered by a family member or other person not in the trust business, it is rare to see compliance with the requirement to fully and properly account annually. What happens when a beneficiary wakes up after years or decades of the trustee's noncompliance with the annual accounting rule?

The trustee's first line of defense is the statute of limitations - that the beneficiary took too long to complain about the maladministration of the trust, barring the complaint as untimely. The Third District Court of Appeals, in Taplin v. Taplin (3D10-2919 2012) has recently clarified how the statutes of limitation operate with respect to claims based on breach of trust when there has been no accounting.

Andrew Taplin was the beneficiary of a trust set up by his grandfather, Sol Taplin. Andrew's father, Martin Taplin, and a second individual were the trustees. Apparently over a 25 year period, no annual trust accountings were provided. Andrew sued on a number of grounds, including the failure to provide accountings, and breach of trust.

The trustees claimed that the action was late, under two separate statute of limitations, the "Six Month" statute of limitation and the "Four Year" statute of limitations. Both were set forth in Section 737.307 of the Florida Trust Code (now set forth at Section 736.1008).

737.307 Limitations on proceedings against trustees after beneficiary receives account.

—Unless previously barred by adjudication, consent, or limitations, an action against a trustee for breach of trust is barred for any beneficiary who has received a final, annual, or periodic account or other statement fully disclosing the matter unless a proceeding to assert the claim is commenced within 6 months after receipt of the final, annual, or periodic account or statement. In any event, and notwithstanding lack of full disclosure, all claims against a trustee who has issued a final account or statement received by the beneficiary and has informed the beneficiary of the location and availability of records for his examination are barred as provided in chapter 95. A beneficiary has received a final account or statement if, being an adult, it is received by him or if, being a minor or disabled person, it is received by his representative as described in s. 731.303.

The Court explained that the first sentence imposes a short, six-month limitation period for bringing an action for breach of trust. "For the six-month limitation period to apply, there must have been given an account or statement which fully discloses the matter."

The Court explained that the second sentence imposes a four-year limitation period for bringing an action if the beneficiary has a received a final account or statement and the trustee has informed the beneficiary of the location and availability of records.

The Court did not need to elaborate on the type of accounting or statement that would be sufficient to trigger commencement of the four year statute of limitation, but not sufficient to trigger the commencement of the six month statute of limitation.

The trustees also attempted to defend themselves by arguing for the application of the general statute of limitations applicable to intentional torts, Section 95.11(3)(o), which provides as follows.

95.11 Limitations other than for the recovery of real property -- Actions other than for recovery of real property shall be commenced as follows:

. . . .

(3) WITHIN FOUR YEARS. —

. . . .

(o) An action for assault, battery, false arrest, malicious prosecution, malicious interference, false imprisonment, or any other intentional tort . . . .

The Court went through the legislative history of this section and that of the specific statute of limitation for trusts, and concluded as follows:

Absent fulfillment by a trustee of the two conditions set forth in the second sentence of section 737.307 of the Florida Statutes, the common law remains in full force and effect with respect to actions brought by a beneficiary against a trustee of a trust. To hold otherwise, as the trustees would have us do in this case, would be contrary to the express language of the law provided to us by the Legislature. See Butler v. State, 838 So. 2d 554, 556 (Fla. 2003)("It is presumed that statutes are passed with the knowledge of existing statutes, so courts must favor a construction that gives effect to both statutes rather than construe one statute as being meaningless or repealed by implication.").

Although the Court did not clarify the level of disclosure needed to trigger the six month statute of limitation, the best course of action for trustees is to issue to each beneficiary an annual accounting that complies with the requirement for trust accountings under Florida law, as set forth in Section 736.08135 of the Florida Trust Code:

736.08135 Trust accountings.—
(1) A trust accounting must be a reasonably understandable report from the date of the last accounting or, if none, from the date on which the trustee became accountable, that adequately discloses the information required in subsection (2).
(2)(a) The accounting must begin with a statement identifying the trust, the trustee furnishing the accounting, and the time period covered by the accounting.
(b) The accounting must show all cash and property transactions and all significant transactions affecting administration during the accounting period, including compensation paid to the trustee and the trustee’s agents. Gains and losses realized during the accounting period and all receipts and disbursements must be shown.
(c) To the extent feasible, the accounting must identify and value trust assets on hand at the close of the accounting period. For each asset or class of assets reasonably capable of valuation, the accounting shall contain two values, the asset acquisition value or carrying value and the estimated current value. The accounting must identify each known noncontingent liability with an estimated current amount of the liability if known.
(d) To the extent feasible, the accounting must show significant transactions that do not affect the amount for which the trustee is accountable, including name changes in investment holdings, adjustments to carrying value, a change of custodial institutions, and stock splits.
(e) The accounting must reflect the allocation of receipts, disbursements, accruals, or allowances between income and principal when the allocation affects the interest of any beneficiary of the trust.
(f) The trustee shall include in the final accounting a plan of distribution for any undistributed assets shown on the final accounting.
(3) This section applies to all trust accountings rendered for any accounting periods beginning on or after January 1, 2003.

Bank Accounts: Tenancy by the Entirety v. Joint Tenancy with Right of Survivorship

Anya Kudszus — Thu, 23 Feb 2012 17:55:30 -0500

Whether or not a married couple establishes a bank account as a tenancy by the entirety account or as a joint tenancy with right of survivorship account is critically important, as demonstrated by Wexler v. Rich,--So.3d--, No. 4D10-4437 (Fla. 4^th DCA February 22, 2012).

Under Florida law, if a bank account is a tenancy by the entirety account, one spouse may not transfer money from the account without the consent of the other spouse. Beal Bank, SSB v. Almand & Assocs., 780 So. 2d 45, 53 n.8 (Fla. 2001). If a bank account is joint tenancy with right of survivorship, either joint owner can transfer funds out, and a “joint owner’s withdrawal of funds from a joint bank account terminates the ‘joint tenancy nature of the [funds] and severs the right of survivorship as to the funds withdrawn.” Sitomer v. Orlan, 660 So. 2d 1111, 1114 (Fla. 4^th DCA 1995).

In Wexler v. Rich, Donald Rich (deceased) opened two bank accounts in his name. Several months later, both accounts were converted into multi-party accounts with his spouse, Miriam. The bank’s forms to open the new accounts contained options for “Ownership of Account,” two of which were “Multiple-Party Account” and “Multiple-Party Account – Tenancy by the Entireties.” The bank employee assisting Miriam and Donald checked the “Multiple-Party Account” option, and selected “Multiple-Party Account with Right of Survivorship” for the beneficiary designation. The bank employee selected the “Multiple-Party Account” option because Miriam and Donald did not request a tenancy by the entireties account. The bank employee did not discuss a tenancy by entireties form of ownership with Miriam and Donald. Miriam and Donald reviewed the agreements with the bank employee for accuracy and then each signed each form at the bottom.

After the new accounts were established, Donald took the money from the two accounts and put it into a new account in Donald’s name alone. Donald then transferred ownership of the new account into the name of his revocable trust. After Donald’s death, Miriam insisted that she was entitled to the funds from the two accounts jointly titled with her deceased husband. The Florida probate court agreed with her, as summed up by the appellate court’s opinion:

Relying on Beal Bank, SSB v. Almand & Assocs., 780 So. 2d 45 (Fla. 2001), the circuit judge held that Miriam was entitled to recover $210,956.10, because the Bank United accounts were tenancies by the entirety, entitling Miriam to assert a claim over the funds in the possession of the revocable trust. The trial judge found that there was “no express disclaimer of the tenancy by the entirety designation” under Beal Bank, because “there was no discussion of options, no mention of the choices one would have when opening this account and no initials placed next to the form of ownership selected” by Miriam and Rich “to express what they knowingly intended.”

The appellate court disagreed and reversed the Florida probate court. First, relying on Beal Bank, the appellate court found that Miriam and Donald expressly disclaimed the tenancy by the entireties account status. The Florida Supreme Court in Beal Bank has identified two ways of disclaiming a tenancy by the entireties account status, one being an express statement that tenancy by the entireties was not intended, and two being:

[I]f the financial institution affirmatively provides the depositors with the option on the signature card to select a tenancy by the entireties among other options, and the depositors expressly select another form of ownership option of either a joint tenancy with right of survivorship or a tenancy in common.

Miriam and Donald disclaimed the tenancy by entireties account status in the second express way, because the account opening document provided by the bank contained the option of tenancy by the entireties, but Miriam and Donald expressly chose another option.

Second, the appellate court found that the bank employee had no duty to discuss or explain account ownership options with Miriam and her husband, stating that: “Only a handful of attorneys in Florida are able to describe the differences between a tenancy by the entireties bank account and a joint account with right of survivorship.” The bank only had to provide the account ownership options, not the explanation or assistance to make a considered choice.

The key point to take away from Wexler v. Rich is that if you and your spouse are creating a joint account, make sure you are informed about the difference between a tenancy by the entireties account and a joint tenancy with right of survivorship account. The bank does not have to explain it or even discuss the difference between the types of accounts with you. The Florida probate court will look to the account opening card to determine the nature of the account. The account opening form determined Miriam’s fate, because the Miriam and Donald were provided the option of choosing to establish a tenancy by the entireties account, but expressly selected another option. If a tenancy by the entireties option had not been provided on the account opening form, a presumption would have arisen that the bank account was held as a tenancy by the entireties account.

The appellate court also commented on the applicability of an amendment to Florida Statute section 655.79(1) (2009), which became effective on October 1, 2008. The 2008 amendment provides that “[a]ny deposit or account made in the name of two persons who are husband and wife shall be considered a tenancy by the entirety unless otherwise specified in writing.” Although the application of section 655.79(1) was not argued in Wexler, the appellate court noted that if section 655.79(1) were to apply, the:

[S]igned account agreements containing the option of a tenancy by the entireties and designating the accounts as “Multiple-Party Account[s] with Right of Survivorship” would satisfy the statutory requirement that an alternative form of account ownership be ‘specified in writing.’

Formal Notice in Florida Probate

Jeffrey Skatoff — Tue, 24 Jan 2012 18:16:31 -0500

In Florida probate administration, the probate rules permit the use of "Formal Notice" to notify beneficiaries and other interested persons of a specific action or request that has been made to the probate court. When an interested person petitions the Florida probate court, the interested person send the formal notice to all persons who may be effected by what is being requested. The persons receiving the formal notice then have 20 days from the receipt of the formal notice to respond to the court if there is disagreement of objection to what is being requested.

Formal notice is sent, according to the Florida Probate Code, via certified mail to each interested person. This is unlike how most relief is sought in most courts, where normally a summons must be formally served on the persons effected by litigation.

Examples of relief requested from a Florida probate court for which formal notice needs to be served, or may be served, include the following:

Petition for Administration
Petition to Construe Will
Petition to Probate Lost Will
Petition to Determine Beneficiaries
Petition to Remove Personal Representative
Petition to Surcharge Personal Representative
Petition to Cancel a Devise
Petition to Revoke Probate of Will

Even though, in most jurisdictions in Florida, the probate court hears both probate and trust disputes, the formal notice rules apply only in probate matters. Trust proceedings must be initiated and served through the normal Florida Rules of Civil Procedure.

How NOT to Administer a Trust in Florida - Guidance from a Florida Appellate Court

Jeffrey Skatoff — Mon, 16 Jan 2012 11:53:48 -0500

A Florida probate court and the appellate court have dealt with a number of problems regarding the administration of a trust managed by JP Morgan Chase. The case has been extensively litigated, and the appellate court has recently issued its third opinion on the matter, in the case of Siegel v. JP Morgan Chase, (Fla. Dist. Ct. App. 4th Dist., Oct. 19, 2011). The facts of the case, according to the appellate court, included the following

The settlor of the trust, Dorothy H. Rautbord, established a trust to benefit her for her life, with the remainder to be distributed to her children who survived her, including her sons. The trust permitted the trustee to pay from income and principal, so much “as the Trustee, in its sole discretion, shall deem appropriate or advisable for the support, maintenance, health, comfort or general welfare of the Settlor [Rautbord].”

The trust reserved for Ms. Rautbord the power to amend, modify, or revoke the trust, and excluded a power of attorney holder from exercising these powers.

JP Morgan Chase Bank was the trustee. After Ms. Rautbord became incapacitated, the holder of the power of attorney made large withdrawals from the principal of the trust by signing “revocation” letters, which the trustee honored. The trustee issued checks for many gifts and also spent “considerable” amounts for Ms. Rautbord’s general welfare.

The woman holding a power of attorney used the power of attorney to make gifts from the trust to dozens of people, including the JP Morgan employee in charge of administering the trust.

The settlor passed away. The remaindermen of the trust (those who were to receive what was left in the trust after the death of the settlor), sued because of the gifts and other amounts of alleged excessive distributions.

This decision dealt primarily with the standing of the remainder beneficiaries to challenge the distributions that were made during the life of the settlor. The court ruled that, under New York law, the remainder beneficiaries had standing to pursue their case. Rather than stopping at the standing issue, however, the court made a number of other rulings that are important for trustees administering trusts, especially when the trustee is faced with demands from another person holding a power of attorney.

On the gifting issue, the Court dealt directly with the inconsistencies between the language of the trust instrument and the power of attorney.

The trial court found that the trustee had the power to pay gifts from the trust, because the power of attorney contained a specific power of the attorney-in-fact to make gifts. Because the gifts were within that broad power, the trustee acted appropriately in making expenditures for such gifts as requested or directed by Novak. The gifts were part of a long history of generosity on behalf of the settlor, and they were “appropriate or advisable for the support, maintenance, health, comfort, or general welfare of Ms. Rautbord.” The court was incorrect in its interpretation of the trust instrument.

The trust agreement gives no power to the trustee to make gifts. The trustee does have the power to invade the principal for the welfare of the settlor. Specifically, the trustee had the power to disburse income and principal “for the support, maintenance, health, comfort, or general welfare of the Settlor.” The power of attorney, on the other hand, gives the attorney the power to gift as follows:

To make any gift, either outright or in trust, to any individual (including my Attorney-in-Fact) or any charitable organization, provided that any such gift either (i) shall be reasonably consistent with any pattern of my giving or with my estate plan or (ii) shall not exceed the annual exclusion available from time to time for federal gift tax purposes.(Emphasis added).

Significantly, the power of attorney also prohibited the attorney-in-fact from invading the principal of the trust by stating that the attorney in fact was not granted the power “[t]o amend, modify or revoke, in whole or in part, or withdraw any of the principal of, any trust over which I have reserved or have been granted such power .…”. The trust agreement specifically provided that the power of amendment, modification, and revocation were personal to the settlor and could not b e exercised by her attorney-in-fact. Thus, the power of attorney specifically prohibited the attorney-in-fact from exercising the power Mrs. Rautbord reserved to herself to revoke the trust. The Siegels claim that the attorney-in-fact attempted to do just that by signing letters of partial revocation to the Trustee to withdraw principal. The trial court’s ruling on standing prevented this issue from being litigated.

Despite the lack of power of the trustee to make gifts, the trustee made gifts and permitted Novak to withdraw principal to pay other gifts. The trustee had no authority to make gifts itself. We can find no legal support which holds that gifts to others can constitute payments for the “comfort or general welfare” of the beneficiary of a trust. Nevertheless, such a finding must be based upon a factual record, which the trial court did not have in concluding otherwise.

On the issue of the alleged excessive nature of the distributions that were made, including “lavish” birthday parties, airline tickets for friends, and similar items, the Court ruled as follows.

The trust instrument gives the trustee authority to “pay to or apply for the benefit of the Settlor, at any time or from time to time, so much or all of the net income and principal thereof as the trustee, in its sole discretion, shall deem appropriate or advisable for the support, maintenance, health, comfort or general welfare of the Settlor.” Under New York law, even though the trustee has th e sole discretion to determine the appropriateness of expenditures, it does not foreclose all inquiry by a court of the proper use of such discretion. See In re Lyons’ Estate, 13 Misc.2d 287, 176 N.Y.S.2d 769 (N.Y. Sur. 1958). “[T]he court has the responsibility to ensure that the trustees do not abuse their discretion. Accordingly, the court has the authority to correct abuses in the exercise of absolute discretion that are arbitrary or the result of bad faith.” In re Goodman, 7 Misc.3d 893, 901, 790 N.Y.S.2d 837 (N.Y. Sur. 2005). Where distributions fall within a class of expenditures authorized by the trust, a trustee must still act reasonably and with good faith in carrying out the terms of the trust.

Lesson Learned: When the trustee of a trust makes gifts to persons other than the remainder beneficiaries of the trust, don't be surprised when those remainder beneficiaries challenge such gifts and sue the trustee.

Surviving Spouse in Florida Probate - Current Law

Jeffrey Skatoff — Mon, 16 Jan 2012 11:20:33 -0500

Surviving Spouses in Florida receive certain entitlements in a Florida probate administration, including a minimum percentage of the estate (elective share), rights to a Florida homestead, support during the probate administration, and other benefits.

Marital Agreements (Prenuptial and Postnuptial Agreements)

· MARITAL AGREEMENTS. Martial Agreements which are often referred to as prenuptial agreements, ante-nuptial agreements, and post-nuptial agreements, can waive or create rights upon the death of a spouse. It is imperative to have a lawyer review these agreements who is familiar with the probate process to properly any rights you may have at death or as a surviving spouse. It is also important to have these documents properly reviewed by experienced probate lawyers to ensure any death time provisions are properly addressed prior to signing any of these agreements. Many of the rights of a surviving spouse can be waived or increased in properly drafted agreements.

· TIMELINE TO FILE A CREDITOR CLAIM. If a surviving spouse of a Florida decedent has a Marital Agreement, it is imperative that his or her attorney file a protective creditor claim to preserve these contract rights of the surviving spouse, within the three months of the filing the Notice of Publication to Creditors or thirty days from the date of service of a known creditor, even if the surviving spouse is the personal representative. A common mistake of probate lawyers in handling marital agreements is the failure to file such a creditor claim. There is no harm in filing a protective claim, and often filing a protective creditor claim results in the payment of benefits to a surviving spouse which may otherwise be lost. The Florida Supreme Court has even ruled that filing such a claim is necessary to enforce a surviving spouse’s right under a marital agreement. Spohr v. Berryman, 589 So. 2d 225 (Fla. 1991). The consequence of failing to timely file a creditor claim for a spouse with rights under a marital agreement can be severe, and a spouse may potentially lose all benefits of the marital agreement if the proper procedures are not followed.

Spouse Dies Without a Will (Intestacy)

· INTESTATE. If a person dies without a Will he or she is considered to die intestate.

· INTESTATE SHARE. If a spouse dies without a Will, the surviving spouse receives an intestate share. (If a couple is separated at the time of death, the surviving spouse is not barred from inheriting).

· SHARE OF SURVIVING SPOUSE - NO CHILDREN OR ALL CHILDREN OF SURVIVOR. If the only survivor is a surviving spouse, or if all the lineal descendants are also lineal descendants of the surviving spouse, then the surviving spouse receives the entire estate of the decedent. This rule applies only for spouses passing away on or after October 1, 2011. Under prior Florida law, if the deceased spouse had children, the surviving spouse received only one-half of the estate, or one-half of the estate plus $60,000 if all of the children were of the marriage.

· SHARE OF SURVIVING SPOUSE IF THERE ARE SURVIVING CHILDREN FROM DECEDENT BUT NOT OF THE SURVIVING SPOUSE. If there are children of the decedent who are not children of the surviving spouse, then the surviving spouse receives one-half of the intestate estate.

Spouse Dies With a Will, But Will Created Prior to the Marriage

· PRETERMITTED SPOUSE. If a person makes a Will and then marries a person not provided for in the Will, the surviving spouse is called a pretermitted spouse. Under Florida law, a pretermitted spouse, is entitled to receive a share of the estate as if the decedent died intestate, unless the will clearly provides to the contrary. (It is unusual for a will to name a person as a potential future spouse and fix that person’s inheritance in the will. If the will does this, the surviving spouse can consider whether he or she would be better off with the elective share.)

· PRETERMITTED SPOUSE WITH A WILL AND NO DESCENDANTS. If there are no lineal descendants and only a pretermitted spouse, under Florida law, the pretermitted spouse receives the entire estate notwithstanding that a Will may leave assets to other heirs of the decedent.

Primary Residence in Florida - The Law of Florida Homestead

· HOMESTEAD RIGHTS. If a spouse passed away and owned a residence in Florida, and lived in the residence, the Florida residence likely is treated as Florida homestead property. Article X Section 4(c) of the Florida Constitution limits who can receive homestead property upon the death of an owner if he or she is survived by a spouse or a minor child. A surviving spouse is entitled to no less than a life estate in any property used as a homestead by the surviving spouse in Florida.

· DEADLINE TO FILE FOR HOMESTEAD ELECTION AS TENANT IN COMMON. If a surviving spouse is left a life estate, he or she has six months from the decedent’s date of death to make an election under Florida Statutes Section 723.401 to take one-half interest in the Homestead as a tenant in common. This is a very important election, because in Florida, owning a life estate can often be more costly to maintain than the benefit is worth, given the high cost of ownership of real estate in Florida as a result of property taxes, insurance, and homeowner association dues. By making the election a spouse can force the sale of the property and receive 50% of the sales proceeds. Homestead rights are protected by the Florida Constitution and are in addition to any elective share, family allowance, or exempt property rights. The deadline for making this election is unusual, because it apparently applies whether or not a Florida probate estate has been opened. Therefore, a surviving spouse should seek legal advice within the six month period.

· EXCEPTION FOR JOINTLY OWNED PROPERTY. If a husband and wife own the homestead property together as husband and wife, the property passes automatically to the surviving spouse, and the rules regarding who receives homestead property do not apply.

Elective Share or Election Against a Will

· ELECTIVE SHARE. Under Florida probate law, a Surviving Spouse has a right to a 30% elective share of the estate of the deceased spouse valued as of the date of death. Florida Statutes Section 732.2035 is an all encompassing statute that includes in the elective estate the following items: Probate estate, pay on death (POD), transfer on death and similar accounts, jointly owned accounts or securities based on the amount the decedent could withdraw, jointly owned real estate, ½ of tenants by the entirety property, certain revocable transfers, including revocable living trusts, retained life estates and income interests, most retirement benefits, cash value of life insurance immediately prior to the death of the decedent, most gifts one year prior to death, and property transferred in satisfaction of the elective share prior to death. While debts of the decedent reduce the elective share, expenses of administration do not reduce the value of the elective share. The value of the elective share is initially satisfied from assets that have already passed to the surviving spouse, next from the probate estate, and finally from other assets included in the elective estate. This means that other family members who have received bank accounts as a result of joint titling or pay on death designations may have to turn over such accounts to the surviving spouse.

· DEADLINE FOR FILING FOR THE ELECTIVE SHARE. The Elective share must be made within the earlier of 6 months from the service of a Notice of Administration on the surviving spouse or if no Notice of Administration is given within two years of the date of death of the decedent pursuant to Florida Statutes Section 732.2135; Florida Probate Rule 5.360. If a temporary election is made it must be withdrawn within 8 months from the decedent’s date of death or prior to the order for contribution. The personal representative shall serve all parties within 20 days of receipt of an Election to Take Elective Share along with a copy of the Election. An interested party then has 20 days of receipt of the Formal Notice to object.

Family Allowance

· FAMILY ALLOWANCE. In addition to Homestead rights and the right of elective share, a surviving spouse of a Florida decedent is entitled to a Family Allowance of up to $18,000 payable in lump sum or installments. The family allowance provides support for the decedent’s spouse and lineal heirs that the decedent was supporting, pursuant to Florida Statutes Section 732.403. The amount paid in the Family allowance cannot be offset against the share otherwise passing to the surviving spouse unless the Will provides otherwise. If a personal Representative is recalcitrant in paying the allowance after a petition is filed pursuant to Probate Rule 5.407, the estate may even be required to pay attorneys fees for the getting the allowance since a benefit has been provided by the estate.

· DEADLINE FOR FILING THE FAMILY ALLOWANCE. The Family Allowance can be filed at any time during the pendency of the administration of the estate.

Exempt Property

· EXEMPT PROPERTY. In addition to Homestead and Family Allowance, testate and intestate property, Elective Share, the surviving spouse of a decedent domiciled in Florida at the time of death is entitled to certain items of tangible personal property including household furniture and appliances up to $20,000 as of the date of death, two personal automobiles held in the decedent’s name and regularly used by the decedent or members of the decedent’s immediate family as personal automobiles under 15,000 pounds. This property is called Exempt Property under Florida Statutes section 732.404. Exempt property has an additional advantage of being exempt from all creditors of the estate except perfected security interests. However, property that is specifically bequeathed in a decedent’s will is not subject to the exemptions of Florida Statutes section 732.402. Furthermore, if Exempt property is specifically devised to a person who otherwise would receive the exempt property, one can petition the court to determine the property to be exempt, and therefore not subject creditors with non-perfected security interests under Florida Probate Rule 5.406. Furthermore, exempt property is excluded from the value of the estate before residuary, intestate, or pretermitted or elective shares are determined.

· DEADLINE FOR FILING FOR EXEMPT PROPERTY. An Exempt property petition must file a petition no later than either four months after the date of service of the Notice of Administration or the date that is 40 days after the date of termination of any proceedings involving the constructions, admission to probate, or validity of the Will or involving any other matter selecting part of the estate subject to Florida Statutes section 732.403.

Community Property

· COMMUNITY PROPERTY. A decedent’s surviving spouse is entitled to one-half of all community property acquired during the marriage, and this is not an elective estate, and is not subject to testamentary distribution under the decedent’s estate. While Florida does not recognize community property as a property ownership form for its residents, it will respect community property acquired while such person was a resident of a community property state and continually held as community property.

· DEADLINE FOR FILING FOR COMMUNITY PROPERTY. Florida Statutes sections 732.221 and 732.233 allow a surviving spouse or a beneficiary to perfect title in Community Property by order of the Probate Court or by an instrument executed by the personal representative or the beneficiaries with approval by the Probate Court. The personal representative has no requirement to search for community property, unless the surviving spouse, beneficiary or a creditor files a written demand to the personal representative within three months of the filing of a Notice of Administration on the surviving spouse or such beneficiary. A creditor has three months from first publication of the notice to creditors to make a written demand.

Social Security Death Benefit

· SOCIAL SECURITY DEATH BENEFIT. Applying for a Social Security lump sum death benefit (currently $255) must be filed within 2 years of the date of death.

· SOCIAL SECURITY BENEFITS FOR A SURVIVING SPOUSE. It is also important to ensure you receive any and all payments you may be entitled to as a surviving spouse from Social Security.

Requirement to File a Known Will

· FILE A KNOWN WILL. A known Will must be filed with the court within 10 days of the decedent’s death. Florida Statutes section 732.901. A surviving spouse also has a right to a copy of the Will.

Court Documents

· COURT DOCUMENTS. A surviving spouse is entitled to all the documents filed with the court in their spouse’s probate proceedings. This includes the Petition for Administration, Letters of Administration, Notice to Creditors, Petition for Administration, Inventory, Final Accounting, Order for discharge, and any and all other pleadings regarding the estate.

Notes from Heckerling - Pressing the "Do Over" Button: Strategies for Modifying Wills and Trusts after Formation

Craig Dreyer — Mon, 16 Jan 2012 09:59:39 -0500

Title: Pressing the “Do Over” Button: Strategies for Modifying Wills and Trusts after Formation

Presenter: Joshua S. Rubenstein

Mr. Rubenstein opened his presentation discussing a few current events that weren’t expected such as the European debt crisis, the Asian spring, and the Yankees failing to reach the World Series. He noted that you cannot anticipate all changes and issues that may arise in the future. Clients often make bad decisions regarding their estate plans, and lawyers sometimes make mistakes. In addition, people are living longer than ever before which raises the question, so how long does a person have to wait to inherit? There is an increase in litigation, and trust beneficiaries often few trusts negatively. Mr. Rubenstein divided the presentation into four different sections in discussing how to address some of these issues: I) Tax Considerations Underlying Modifications: Income and Transfer Taxes, II) Retroactive Modifications, III) Prospective Modifications, and IV) Special Considerations with Respect to Litigation Settlements.

I) Tax Considerations

In describing the tax consideration’s underlying modifications, he noted the current low income tax rates, which he only expects to increase. Historically income tax rates are as high as 90% for the top rates as opposed to the current 35-40% income tax rates and 15-28% capital gains rates. He also discussed the various forms of taxation for different entities and how gifts, legacies and distributions from estate/and or trusts are generally tax exempt, except for income in respect of a decedent, distributable net Income, and gifts to employees. The most common deductions are charitable, businesses, and administration expenses which are all subject to substantial limitations. He also noted many states and municipalities impose income tax rates, while eight states levy no income tax.

Furthermore, transfer taxes have been at 55% for the last several decades, and historically have been as high as 90%, although today we are at 35%. The deductions on the transfer tax side include the marital deduction, charitable deduction, debts/claims, administration expenses, and exclusions. These deductions can often be claimed on the estate tax return, income tax return, or a decedent’s final Income tax return. He noted that the true cost of estate tax repeal did not take into account the shifting of deductions. This increased the cost of estate tax repeal significantly. All states impose an estate tax or inheritance tax, but due to the current federal credit many states effectively do not impose an estate tax. Gift taxes are levied by two states, Connecticut and Tennessee. Most GST taxes mirror the federal credit. As all these taxes increase, the importance of their effect on trust and will modifications increase as well.

II) Retroactive Modification

Reformation proceedings are statutorily allowed in certain circumstances. Today a charitable gift can be modified if it would otherwise be disqualified as a charitable split interest trust. In addition, a trust can be modified to correct errors that would otherwise disqualify the trust form being GST exempt. Finally, a qualified domestic trust (QDOT) can be modified to allow it to qualify for the marital deduction (oddly the same is not available for a QTIP trust). There is also 9100 relief for botched elections, but this has had mixed results with QTIP elections. In discussing the effectiveness of retroactive modification, he noted the IRS will generally not respect them due to Commissioner v. Estate of Bosch, 387 US 456 (1967), which provided in the absence of a determination by the state’s highest court, only “proper regard,” not finality, should be given to interpretations by state courts, provided it was entered by a court in a bona fide adversary proceeding.

He noted that if there is a genuine ambiguity, IRS is more likely to respect a construction proceeding than a reformation proceeding. He noted that tax allocation provisions often have problems and can result in significant rewriting of a will, since tax provisions can often dramatically shift who receives assets or may disinherit someone entirely. Disclaimers are also beneficial to resolve problems of disqualifying dispositions and people can also disclaim powers. In addition, a person may be able to disclaim a tax apportionment clause resulting in a significant shifting of property. He also noted that people should keep in mind the non-qualified disclaimer as it may be available to solve problems, although it may be subject gift tax.

Litigation settlements also provide opportunities to rewrite documents. Probate contests can substantially rewrite wills from bequests in trust to outright distributions. Elective share contests can also rewrite wills, but will often result in an increase or decrease in taxes; and contests involving conflicting agreements, the agreement often trumps the Will. Examples of agreements that may trump a Will include: separation agreements, prenuptial agreements, shareholder and partnership agreements, pledges and contracts to make wills.

III) Prospective Modifications

Decanting is the often used to change trust terms. He noted three main basis for decanting are: (i) the trust instrument, (ii) common law, and (iii) state statute. As for the statutes, he noted many new changes to statutes allow decanting in most all situations in a state such as New York. He discussed various reasons for decanting such as: to correct drafting errors, modify trust provisions, improve administration or managements, address changed circumstance, remove unworkable restrictions, change provisions relating to trust powers and succession, achieve tax savings, change trust situs, combine or divide trusts, and GST planning. He also noted notice 2011-101 which the IRS has issued to look into the various impacts of decanting. Often modification of trust documents can be done pursuant to the trust’s terms. Resignation of disqualified fiduciaries can resolve the reciprocal trust doctrine. Trust splitting can also resolve GST or S corporation taxes, and partial QTIP elections. In addition, he noted some states allow parties to amend irrevocable trusts if the grantor is alive and all parties are adult and competent.

IV) Litigation Settlements

A fiduciary being sued should always look to ways to benefit the beneficiaries in the litigation by taking the opportunity to improve the document provisions. He noted that special consideration must be given to marital and charitable deductions in litigation settlements. For a marital deduction to be valid, under state law, an interest must pass form the decedent, property must be included in the gross estate, property must pass to the surviving spouse, and it cannot be a terminable interest, unless statutorily exempted. Similarly a charitable interest to be allowable under state law, must pass form decedent, must be included in the gross estate, must pass to charity, and the contest must be bona fide.

The tax treatment of settlements can often dramatically change results. If the marital deduction is lost, this can increase taxes and perhaps penalties and interest. The charitable deduction can also do the same. Also the values on interests cannot change considerably otherwise you can have gift tax consequences. It should also be noted that section IRC 102(a) exempts gifts and inheritances except for income from gifts and inheritances, gain on conversion or deemed conversion, and compensation for damages or services. Legal fees are also deductible by a fiduciary on the estate or trust return and a beneficiaries fees are generally not deductible by an estate or trust, except for probate contests and construction proceeding. These may or may not be deductible by the beneficiary. If the estate pays the beneficiary’s legal fees there may be a possible deduction that helps resolve the litigation.

Mr. Rubenstein reminded us to think outside of the box and be creative. Consider the following strategies that can be employed to achieve substantial tax savings when modifying governing instruments as part of litigation: (i) Careful consideration of all claims should be reviewed to ensure proper consideration is given to each claim; (ii) enhance tax advantaged trusts such as credit shelter trusts or trusts not in the gross estate, estate tax deferred trust such as marital, and GST exempt trusts; (iii) consider possible benefits of exercising a right of contribution, transfer of debt to lower generations, discounting long term notes, consider deducting payments to charity, buy back assets from charity, characterizing transfers as gifts versus loans, and consider unitrust conversion options.

Florida Personal Representatives and Trustees Statutorily Protected by Attorney-Client Privilege

Anya Kudszus — Thu, 12 Jan 2012 09:02:19 -0500

The attorney-client privilege is the oldest confidential communication privilege in the Florida common law and is codified by statute and contained in the Florida Evidence Code, section 90.502, Florida Statutes (2011). The attorney-client privilege protects the contents of confidential communications made in the rendition of legal services and has as its purpose to "encourage full and frank communication between attorneys and their clients and thereby promote broader public interests in the observance of law and administration of justice." American Tobacco v. State, 697 So.2d 1249, 1252 (Fla. 4th DCA 1997) (quoting Haines v. Liggett Group, Inc., 975 F.2d 81 (3d Cir.1992)).

But until recently, only the Florida common law extended the attorney-client privilege to Florida personal representatives and Florida trustees involved in probate and trust litigation. This meant that personal representatives and trustees would have to look to Florida case law to determine whether communications with their attorneys were privileged and protected from beneficiaries challenging their actions. Florida common law recognizes that a Florida personal representative or a Florida trustee generally holds the attorney-client privilege, but also directs that when a beneficiary attempts to gain access to privileged information during litigation concerning the probate or trust, the court must decide whose interests the attorney really represents — the fiduciary's or the beneficiary's. See Jacob v. Barton, 877 So. 2d 935 (Fla. 2d DCA 2004) (recognizing that beneficiary might be the “real party” in interest for whom attorney performs the work thus entitling beneficiary in Florida probate or trust litigation to otherwise privileged information).

As of June 21, 2011, Florida trustees and Florida personal representatives have the added protection of Fla. Stat. § 90.5021, which addresses the “fiduciary attorney-client privilege” and explicitly extends the attorney-client privilege to a personal representative and trustee in probate and trust proceedings. Fla. Stat. § 90.5021 states that:

(1) For the purpose of this section, a client acts as a fiduciary when serving as a personal representative or a trustee as defined in ss. 731.201 and 736.0103...

(2) A communication between a lawyer and a client acting as a fiduciary is privileged and protected from disclosure under s. 90.502 to the same extent as if the client were not acting as a fiduciary. In applying s. 90.502 to a communication under this section, only the person or entity acting as a fiduciary is considered a client of the lawyer.”

So, while a beneficiary can still attempt to obtain communications between a Florida personal representative or a Florida trustee and their attorney during probate or trust litigation, Florida personal representatives and trustees have the added protection of section 90.5021 to rely on to protect privileged communications with their attorneys.

New Rule Effective January 1, 2012 Clarifies What Orders Can Be Appealed in Probate and Guardianship Litigation

Anya Kudszus — Fri, 30 Dec 2011 14:25:41 -0500

Florida Rule of Appellate Procedure 9.110(a)(2) currently governs what orders can be appealed in probate and guardianship litigation and authorizes appeals of "orders entered in probate and guardianship matters that finally determine a right or obligation of an interested person as defined by the Florida Probate Code."

Determining if a right or obligation of an interested person has been finally determined is often a confusing undertaking and has been the subject of much debate by attorneys and jurists. See In re Estate of Bierman, 587 So. 2d 1163 (Fla. 4th DCA 1991).

However, on January 1, 2012, a new Florida Rule of Appellate Procedure – Rule 9.170 – will govern appeals in probate and guardianship litigation. Rule 9.170 provides detailed guidance as to whether or not an order is one that finally determines a right or obligation of an interested person, listing 24 types of appealable orders in probate and guardianship matters.

Pursuant to Rule 9.170(b) orders that finally determine a right or obligation include, but are not limited to, orders that:

(1) determine a petition or motion to revoke letters of administration or letters of guardianship;

(2) determine a petition or motion to revoke probate of a will;

(3) determine a petition for probate of a lost or destroyed will;

(4) grant or deny a petition for administration pursuant to section 733.2123, Florida Statutes;

(5) grant heirship, succession, entitlement, or determine the persons to whom distribution should be made;

(6) remove or refuse to remove a fiduciary;

(7) refuse to appoint a personal representative or guardian;

(8) determine a petition or motion to determine incapacity or to remove rights of an alleged incapacitated person or ward;

(9) determine a motion or petition to restore capacity or rights of a ward;

(10) determine a petition to approve the settlement of minors' claims;

(11) determine apportionment or contribution of estate taxes;

(12) determine an estate's interest in any property;

(13) determine exempt property, family allowance, or the homestead status of real property;

(14) authorize or confirm a sale of real or personal property by a personal representative;

(15) make distributions to any beneficiary;

(16) determine amount and order contribution in satisfaction of elective share;

(17) determine a motion or petition for enlargement of time to file a claim against an estate;

(18) determine a motion or petition to strike an objection to a claim against an estate;

(19) determine a motion or petition to extend the time to file an objection to a claim against an estate;

(20) determine a motion or petition to enlarge the time to file an independent action on a claim filed against an estate;

(21) settle an account of a personal representative, guardian, or other fiduciary;

(22) discharge a fiduciary or the fiduciary's surety;

(23) award attorneys' fees or costs; or

(24) approve a settlement agreement on any of the matters listed above in (1)-(23) or authorizing a compromise pursuant to section 733.708, Florida Statutes.

With the implementation of Rule 9.170, it will be easier to determine — and less subject to debate — whether or not an order is appealable in probate and guardianship matters. Keep in mind that the list in Rule 9.170(b) is not exhaustive, and therefore orders not listed could still qualify as appealable orders that finally determine a right or obligation of an interested person.

Life Insurance Trusts with Crummey Powers and New Case Law

Craig Dreyer — Mon, 10 Oct 2011 18:13:43 -0500

Many clients have or are considering using an irrevocable life insurance trust to minimize estate taxes. Assets properly held in irrevocable trust are not subject to estate tax. Annual gifts can be made to the trust to pay life insurance premiums, subject to beneficiaries’ rights of withdrawal of such assets, known as a “Crummey” withdrawal right.

Most life insurance trusts are drafted to give the beneficiaries the right to withdraw the asset put into the trust. This is intended to ensure the gift qualifies for the annual gift tax exclusion amount as codified in Internal Revenue Code section 2503(b). (The annual exclusion amount is currently $13,000 per person per year.) This withdrawal power is known as a “Crummey” power after the seminal case on the subject Crummey v. Commissioner, 397 F.2d 88 (9th Cir 1968).

Best practice, is to gift the insurance premium amount into the trust and have the trustee give to the beneficiaries a notice or right to withdraw, known as a crummey letter or crummey notice. But, what happens when the premiums are paid straight to the insurance company and no crummey notice or crummey withdrawal power is sent?

In the recent Tax Court case of Estate of Turner v. Comm'r, T.C. Memo. 2011-209 (Aug. 30, 2011), the IRS challenged the availability of the annual exclusion for amounts used to pay policy premiums directly, among other items. The IRS asserted two arguments to prevent the policy premium payments from being treated as annual exclusion gifts:

First, since premium payments were not made to the trust, the beneficiaries had no meaningful rights to withdraw such amounts and therefore it was not a present interest gift qualifying for the annual exclusion amount.
Second, since the beneficiaries did not receive notice of the gifts, they did not know of their legal right to demand distributions and the gifts should not qualify as a present interest gift available for the annual gift tax exclusion.

In a monumental victory for the taxpayer, the Tax Court held that both IRS arguments had no impact on the annual exclusion for gift tax purposes. First, it provided that since the trust allowed for withdrawals for direct or indirect distributions, the manner of payment of the premium was not determinative as to whether the gift qualified for the annual exclusion. Secondly, the Tax Court determined the lack of any crummey notice or crummey withdrawal right for the gift did not affect the beneficiary’s legal right to demand a withdrawal.

While it is still advisable clients follow best practices in the funding of life insurance trusts, this case does provide some comfort in circumstances where such advice is not followed (although it should be noted the terms of your trust may change the result). Furthermore, the IRS and other courts have not conceded to this interpretation, so clients not implementing best practices do so at their own peril. If you need any advice on an estate planning or tax issue, please contact Jeffrey Skatoff or Craig Dreyer at (561) 842-4868.

Life Insurance Trusts with Crummey Powers and New Case Law

Craig Dreyer — Mon, 10 Oct 2011 18:13:43 -0500

Most life insurance trusts are drafted to give the beneficiaries the right to withdraw the asset put into the trust. This is intended to ensure the gift qualifies for the annual gift tax exclusion amount as codified in Internal Revenue Code section 2503(b). (The annual gift exclusion amount is currently $13,000 per person per year.) This withdrawal power is known as a “Crummey” power after the seminal case on the subject Crummey v. Commissioner, 397 F.2d 88 (9th Cir 1968).

First, since premium payments were not made to the trust, the beneficiaries had no meaningful rights to withdraw such amounts and therefore it was not a present interest gift qualifying for the annual exclusion amount.
Second, since the beneficiaries did not receive notice of the gifts, they did not know of their legal right to demand distributions and the gifts should not qualify as a present interest gift available for the annual gift tax exclusion.

Reformation of a Will to Correct Mistakes

Craig Dreyer — Mon, 10 Oct 2011 17:55:50 -0500

In a dramatic change from previous law, the Florida Legislature has enacted Florida Statute section 732.615 to allow the reformation of a will. Previously under Florida probate law, a trust could be reformed for a mistake of fact or law, but a will could not. The new statute allowing the modification of wills is effective as of July 1, 2011 and reads as follows:

732.615 Reformation to correct mistakes.—Upon application of any interested person, the court may reform the terms of a will, even if unambiguous, to conform the terms to the testator's intent if it is proved by clear and convincing evidence that both the accomplishment of the testator's intent and the terms of the will were affected by a mistake of fact or law, whether in expression or inducement. In determining the testator's original intent, the court may consider evidence relevant to the testator's intent even though the evidence contradicts an apparent plain meaning of the will.

Previously, if a will was ambiguous, a Florida court could allow a reformation since the primary intent was to ascertain the intent of the testator. However, in some circumstances a mistake did not involve ambiguity, but instead involved a mistake of fact or law. One such example is where a bequest was for $10,000 instead of $100,000. In such cases, courts were previously barred from introducing evidence to determine the true intent of the testator, even if it was obvious what the testator’s true intent was from evidence other than the will.

New Florida Statute section 732.615 will give support for beneficiaries who were deprived of an inheritance or part of an inheritance under a will when it was clear from other evidence that the decedent’s intent was not properly reflected in the will. If you have any questions, or we can help you with an estate planning or probate matter, please contact Craig Dreyer or Jeffrey Skatoff at (561) 842-4868.

Florida's New Power of Attorney Statute

Craig Dreyer — Wed, 05 Oct 2011 10:19:59 -0500

On May 4, 2011, the Florida Legislature passed Senate Bill 670, which revises the power of attorney statute, Florida Statutes Chapter 709. Effective, as of October 1, 2011, power of attorneys will be subject to new rules. A power of attorney is a written instrument to which an individual (the “principal”) grants power to another (the “agent”) to act on behalf of the principal. Florida recently revised its power of attorney statute to more closely conform to the Uniform Power of Attorney Act enacted by many other states. After October 1, 2011 (the “Effective Date), the following rules will apply to any powers of attorney executed in Florida.

Execution Requirements. A Power of Attorney must be executed by the principal and two subscribing witnesses, and be acknowledged by the principal before a notary public.

Elimination of Springing Powers. Springing power of attorneys are no longer permitted if they are signed after September 30, 2011.

Co-Agents. Under the prior law, if two people were named in a Power of Attorney, concurrence of both agents were required to act. Conversely after the Effective Date, any time there is more than one agent, each agent may exercise the power independently unless the power of attorney indicates otherwise.

Revocation. Executing a new power of attorney will not revoke a previous power of attorney unless it specifically states that it does.

Specified Powers of Agent. Under the new law, each agent must be specified specific duties under a Power of Attorney. No longer can a drafter be generic by giving the agent all powers of the principal. In addition, certain specific powers in a power of attorney must also be specifically signed or initialed next to each enumerated power to be effective. Examples of these specific powers that must be signed or initialed include:

· creating an intervivos trust;

· amend, modify, revoke or terminate any trust created by or on behalf of the principal (provided the trust provides for amendment, modification, revocation or termination);

· to make gifts (annual gift tax exclusion amount unless trust specifies otherwise);

· create or change survivorship rights;

· create or change beneficiary designations;

· waive a principals right to be a beneficiary of a joint and survivor annuity, including survivor benefit under a retirement plan;

· disclaim property and powers of appointment.

Specified Powers Prohibited. Agents are specifically precluded from performing the following acts under a power of attorney:

· to perform duties under contract that require personal services of the principal;

· to make any affidavit as to the personal knowledge of the principal;

· to vote in any public election on behalf of the principal;

· to execute or revoke any will or codicil for the principal; or

· to exercise powers and authority granted to the principal as trustee or as court-appointed fiduciary.

In addition, if an agent is not an ancestor, spouse or descendant of the principal, such agent cannot exercise any authority or grant an interest in the principal’s property to an agent or to an individual to whom the agent owes a legal obligation of support, unless the instrument states otherwise. Furthermore, the agent’s ability to make gifts is limited to the annual exclusion amount unless the instrument provides otherwise.

With the revisions to the power of attorney statute, it is an excellent time to update your estate planning documents. Please contact Jeffrey Skatoff or Craig Dreyer if you are interested in setting up or revising your estate plan.

Florida Will Contest Seminar

Jeffrey Skatoff — Wed, 31 Aug 2011 11:11:12 -0500

The firm prepared a Florida will contest guide, to provide information about Florida will contests in probate. The Florida Will Contest Outline can be viewed here.

Florida's New Intestate Share for Surviving Spouses

Jeffrey Skatoff — Mon, 29 Aug 2011 12:19:50 -0500

Florida has made an important change in its inheritance law for surviving spouses. In the absence of a will, under current Florida law, an existing spouse of a deceased Florida resident is entitled to $60,000 plus 50% of the decedent’s estate if all the decedent’s children are also children of the existing spouse. However, effective October 1, 2011, Florida law has been amended so that, if all of the decedent’s children are also children of the surviving spouse, the surviving spouse is entitled to 100% of the estate.

If the deceased Florida resident has at least one child with a person other than the surviving spouse, and there is no will, the law is unchanged. The surviving spouse receives half of the estate, and the children of the deceased person share the other half of the estate. (Grandchildren take the place of a parent who has previously passed away.)

The change in law is intended to reflect the way in which most estate plans are constructed when there is a will. For married couples with children only of the marriage, the spouses do typically leave their entire estates to each other. By changing the Florida law of intestacy to better reflect how most estate plans operate, there will be more conformity of estates whether or not there is a will.

New Probate Fight Song from Pistol Annies

Jeffrey Skatoff — Mon, 29 Aug 2011 11:43:38 -0500

The country music supergroup, the Pistol Annies, just released a new album, titled Hell on Heels, with a song titled "Family Feud," which describes how a typical probate dispute gets started. Here are the lyrics:

Fine china stacked by the kitchen sink
Aunt Tammies in there claiming all the diamond rings
Uncle Bobbs holding up the TV set
The only thing they are grieving over
Is what they ain't gonna get
She's only been in the ground a day or two
I'm glad Mama ain't around to watch this family fued
[ Lyrics from: http://www.lyricsfreak.com/p/pistol+annies/family+feud_20979109.html ]
Great gran daddy's shotgun started it all
She wasn't even cold
Before they ripped it off the wall
Wondas fighting Angie over antique quilts
Nobody even waited for the reading of the will
If Daddy was here he'd beat us black and blue
I'm glad mama aint around to watch this family fued

I'm watching it all go down in shame
Wish the whole house ould go up in flames
Who gives a damn about a cedar chest
When we just laid her soul to rest
She's only been in the ground a day or two
I'm glad Mama ain't around to watch this family fued

She's probably rolling over in her grave
'Cause the good lord giveth and the family taketh away

You can listen to the song here. For inheritance funding.

New Florida Homestead Law for Surviving Spouse

Jeffrey Skatoff — Tue, 10 May 2011 07:48:09 -0500

Florida Homestead laws have long been a trap for the unwary due to the unique and specialized nature of Florida Homestead laws. To further complicate the matter, Fla. Stat. § 732.401 was revised effective October 1, 2010. This revision changed the rules for spouses and descendants receiving Homestead property at death.

Article X Section 4(c) of the Florida Constitution limits who can receive Homestead property upon the death of an owner if he or she is survived by a spouse or a minor child. The revision to Fla. Stat. § 732.401 allows the surviving spouse to make an election, within six months from the date of death, to take a one-half interest as a tenant in common in the Homestead property instead of a life estate.

A one-half tenant in common interest gives the surviving spouse an ownership interest in the Homestead, which allows the surviving spouse to bring a partition action to sell the property. If the property is sold, the surviving spouse will generally receive one-half of the proceeds of any sale. Prior to the enactment of the revised Florida Homestead statute, if the Homestead was not devised in a way that was permitted by Florida law, the surviving spouse automatically received a life estate in the Homestead property and any minor children received a vested remainder in the property. The life estate interest could not be partitioned, which required the surviving spouse and children of the deceased to negotiate a sale of the Homestead. If there was no agreement, the property could not be sold.

These arcane rules strained many family relationships especially, in second marriages. In these situations, the Florida Principal and Income Act governs the allocation of expenses between the life estate and vested remainder interest. The surviving spouse is generally responsible for any interest payments on the mortgage, property taxes, property insurance and repairs and the children are generally responsible for principal mortgage payments on the residence and any substantial capital expenditures.

To add another complicating factor, if the surviving spouse ever wanted to downsize, the surviving spouse had to negotiate with the children to allow a sale and they would have to determine a value for her life estate. While many see the new statute as a beneficial change, it is also important to note that it is to the detriment of the decedent’s minor children in many cases. A very elderly widow will receive one-half of the Homestead, rather than a life estate which may have zero value. The real winners in some situations will be the surviving spouse's children from an earlier marriage.

Therefore, this revised statute requires additional planning at the forefront to take into consideration this new contingency, and adds an additional issue to consider during the estate administration process. It is also important to note that the revised statute also approves of new planning techniques available to those with special needs children and with other unique planning objectives.

Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010

Jeffrey Skatoff — Sun, 19 Dec 2010 20:23:54 -0500

On December 17, 2010, President Obama signed the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (the 2010 Act). The 2010 Act provides for extension of the Bush tax cuts from 2001 and 2003 until 2012, as well as a variety of other tax reductions. Here are the some of the highlights.

Reductions in Individual Income Tax Rates

Temporarily extend the 10% bracket. Under current law, the 10% individual income tax bracket expires at the end of 2010. Upon expiration, the lowest tax rate will be 15%. This 2010 Act extends the 10% individual income tax bracket for an additional two years, through 2012.

Temporarily extend the 25%, 28%, 33%, and 35% brackets. Under current law, the 25%, 28%, 33%, and 35% individual income tax brackets expire at the end of 2010. Upon expiration, the rates become 28%, 31%, 36%, and 39.6% respectively. This 2010 Act extends the 25%, 28%, 33%, and 35% individual income tax brackets for an additional two years, through 2012.

Temporarily repeal the Personal Exemption Phase-out. Personal exemptions allow a certain amount per person to be exempt from tax. Due to the Personal Exemption Phase-out (“PEP”), the exemptions are phased out for taxpayers with AGI above a certain level. The EGTRRA repealed PEP for 2010. The 2010 Act extends the repeal of PEP for an additional two years, through 2012.

Temporarily repeal the itemized deduction limitation. Generally, taxpayers itemize deductions if the total deductions are more than the standard deduction amount. Since 1991, the amount of itemized deductions that a taxpayer may claim has been reduced, to the extent the taxpayer’s AGI is above a certain amount. This limitation is generally known as the “Pease limitation.” The EGTRRA repealed the Pease limitation on itemized deductions for 2010. The 2010 Act extends the repeal of the Pease limitation for an additional two years, though 2012.

Capital Gains and Dividends

Temporarily extend the capital gains and dividend rates. Under current law, the capital gains and dividend rates for taxpayers below the 25% bracket is equal to zero percent. For those in the 25% bracket and above, the capital gains and dividend rates are currently 15%. These rates expire at the end of 2010. Upon expiration, the rates for capital gains become 10% and 20%, respectively, and dividends are subject to the ordinary income rates. This 2010 Act extends the current capital gains and dividends rates for all taxpayers for an additional two years, through 2012.

Temporary Individual Alternative Minimum Tax (AMT) Relief

Two-year AMT patch. Currently, a taxpayer receives an exemption of $33,750 (individuals) and $45,000 (married filing jointly) under the AMT. Current law also does not allow nonrefundable personal credits against the AMT. The 2010 Act increases the exemption amounts for 2010 to $47,450 (individuals) and $72,450 (married filing jointly) and for 2011 to $48,450 (individuals) and $74,450 (married filing jointly). The 2010 Act also allows the nonrefundable personal credits against the AMT. The 2010 Act is effective for taxable years beginning after December 31, 2009.

Estate Tax Relief

Temporary estate, gift and generation skipping transfer tax relief. The EGTRRA phased-out the estate and generation-skipping transfer taxes so that they were fully repealed in 2010, and lowered the gift tax rate to 35 percent and increased the gift tax exemption to $1 million for 2010. The 2010 Act sets the exemption at $5 million per person and $10 million per couple and a top tax rate of 35 percent for the estate, gift, and generation skipping transfer taxes for two years, through 2012. The exemption amount is indexed beginning in 2012. The 2010 Act is effective January 1, 2010, but allows an election to choose no estate tax and modified carryover basis for estates arising on or after January 1, 2010 and before January 1, 2011. The 2010 Act sets a $5 million generation-skipping transfer tax exemption and zero percent rate for the 2010 year.

Portability of unused exemption. Under current law, couples have to do complicated estate planning to claim their entire exemption (currently $7 million for a couple). The 2010 Act allows the executor of a deceased spouse’s estate to transfer any unused exemption to the surviving spouse without such planning. The 2010 Act is effective for estates of decedents dying after December 31, 2010.

Reunification. Prior to the EGTRRA, the estate and gift taxes were unified, creating a single graduated rate schedule for both. That single lifetime exemption could be used for gifts and/or bequests. The EGTRRA decoupled these systems. The 2010 Act reunifies the estate and gift taxes. The 2010 Act is effective for gifts made after December 31, 2010.

Temporary Employee Payroll Tax Cut

Temporary reduction in employee-paid payroll taxes. Under current law employees pay a 6.2 percent Social Security tax on all wages earned up to $106,800 (in 2011) and self-employed individuals pay a 12.4 percent Social Security self-employment taxes of on all their self-employment income up to the same threshold. The 2010 Act provides a payroll/self-employment tax holiday during 2011 of two percentage points. This means employees will pay only 4.2 percent on wages and self-employment individuals will pay only 10.4 percent on self-employment income up to the threshold.

A complete explanation of the 2010 Act is available from the Joint Ways and Means Committee.

As a trust and estate attorney, the portability of the estate tax credit is the most significant feature of the new law. It allows the unused credit of the first spouse to die to be used in the estate of the second to die. This will severely limit the need for complex, tax-driven estate planning for those married couples with assets under $10 million. Instead, other considerations will be paramount, such as asset protection, income tax planning, and trust planning.

Income Tax Update - November, 2010

Jeffrey Skatoff — Sat, 27 Nov 2010 16:03:43 -0500

Without Congressional action between now and the end of the year, effective marginal income tax rates are set to soar. Between 2010 and 2013, the marginal tax rate on the highest earners will increase over 15%. For those in the highest brackets with qualified dividend and long term capital gain income, the marginal rate is set to increase an unbelievable 58% between 2010 and 2013.

Part of the increase is attributable to the phase out of the Bush-era tax cuts enacted 10 years ago. The remainder of the increase is based on the increase in taxes to pay for the new health care program enacted by the Obama administration.

No Bank Liability for Power of Attorney Use

Jeffrey Skatoff — Sat, 27 Nov 2010 14:56:37 -0500

Powers of attorney create enormous temptations for the power-holder to alter the principal's estate plan through the retitling of assets. In Beane v. Suntrust Banks, ___ So.3d ___ (Fla. 4th DCA November 10, 2010), a power-of-attorney holder did just that. The deceased had funds in Suntrust Bank in a Totten trust account, which named Frances Wallin as the beneficiary of the account, to be paid upon the deceased's passing. The deceased gave a general power of attorney to Deborah Lorenzo. The next day, Lorenzo withdrew all of the money from the Suntrust account, placing all of the money in a different account, in the name of a relative of Lorenzo.

After the passing of the deceased, the personal representative of her estate sued Suntrust for the value of the money in the account prior to Lorenzo's actions, alleging that the activity engaged in by Lorenzo was improper, and that Suntrust should not have allowed the improper transaction to have taken place. The personal representative relied primarily on Florida's power of attorney statute, which provides (Florida Statute Section 709.08(7)(b)):

an attorney in-fact may not "create, amend, modify, or revoke any document or other disposition effective at the principal's death or transfer assets to an existing trust created by the principal unless expressly authorized by the power of attorney."

The personal representative argued that the removing the funds from the Totten trust and placing the funds into another account in the name of another is a disposition effective at death, hoping to create liability on Suntrust for allowing the transaction to take place.

The Court disagreed. Because the owner of the Totten trust retained the unfettered ability to withdraw any or all of the funds, the attorney-in-fact retained the same authority as a result of the power of attorney. Because an owner of a Totten trust can withdraw from the account without constraint, the prospective Totten trust beneficiary cannot object to the depositor's withdrawal from the Totten trust.

The result makes a great deal of sense - no bank should be held liable when a power-of attorney holder simply removes funds from a bank account. The opinion does not address what liability the power-of-attorney holder and the recipient of the funds may have. Even though the power-of-attorney holder may have had the legal power to engage in the subject transaction, such transaction may have been a violation of her fiduciary duty that is owed to the principal (Florida Statute Section 709.08(8)):

Standard of Care - Except as otherwise provided in paragraph (4)(e), an attorney in fact is a fiduciary who must observe the standards of care applicable to trustees as described in Section 736.0901.

Inheritance Theft by Fiduciaries

Jeffrey Skatoff — Wed, 29 Sep 2010 10:59:45 -0500

Over past 12 months, we have handled a number of cases involving outright theft of fiduciary funds by personal representatives and trustees. In the case of a probate estate, unless the court has ordered the personal representative to post bond, the heirs of the estate have no recourse if funds are stolen, other than to obtain a judgment against the personal representative, which ends up likely as not collectable. Some jurisdictions in Florida, notably Miami, require all personal representatives to place estate funds in restricted depository accounts or to post bond. Most other jurisdictions in Florida, however, require neither from most personal representatives.

Beneficiaries of trusts have even less protection, because trusts are administered without court supervision, unless a court’s jurisdiction is invoked. Such jurisdiction is invoked in Florida by the filing of a trust complaint. Because trustees serve without bond and without restricted accounts, if a trustee steals funds, the beneficiaries are normally left without a recourse, other than to obtain a judgment against the trustee.

How can beneficiaries protect themselves? In a probate estate, heirs of the estate are allowed to seek information regarding how an estate is being administered, including getting access to bank account statements and other documents. If a personal representative does not comply with the requests for information, in Florida an heir can seek a court order from the probate judge requiring the turnover of the requested information. In my experience, these types of thefts occur over time rather than all at once, so diligence on the part of an heir can sometimes stop this theft soon after it starts.

In a trust case, information can be requested similar to that of a probate estate, but until a trust complaint has been filed, there is no judge to seek relief from. Therefore, a trust beneficiary would have to make requests for the information, and only when the information is not received, file a trust complaint and use the court’s powers to obtain the requested financial information.

If one is drafting a will or trust and wants to make sure that there is no wrongdoing, there are a few simple steps to take. The easiest step is to name a corporate fiduciary as the personal representative or trustee. Even if a rogue trust officer steals the funds, the deep pocket and insurance of the institution should be available to protect the heirs or beneficiaries. Another step is to require that personal representatives and trustees post bond.