Articles Posted in Estate Planning and Documents

The Case
The Supreme Court of the United States recently overturned the Defense of Marriage Act when it found the act to be unconstitutional in United States v. Windsor. The following provides the background of that historic and monumental decision.

In 1996, after Hawaii state court seemed likely to permit same-sex marriage, The House of Representatives felt it necessary to “defend the institution of traditional heterosexual marriage” in light of “the orchestrated legal assault being waged against traditional heterosexual marriage by gay rights groups and their lawyers.” H.R. Report 104-664 “Defense of Marriage Act,” 104th Congress. The result was the Defense of Marriage Act (“DOMA”). Section 2 of the Act established that states were not required to give effect to same sex relationships treated as marriage in other states, and Section 3 defined marriage as “only a legal union between one man and one woman as husband and wife.” DOMA was applied not only at the state level, but also the federal level. The result was that same-sex spouses could not benefit from over 1,100 federal benefits, even if they were legally married under state laws. One of the federal benefits that was denied to same-sex couples was the spousal estate tax exemption.
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Same-sex marriage has been a hotly debated topic lately, especially because the United States Supreme Court recently ruled on the subject in two separate cases. Because same-sex marriage is not allowed in a majority of states or under federal law, same-sex couples were until recently deprived of many of the privileges and benefits that married couples receive. One area in which same-sex couples who are unable to marry were disadvantaged is taxes.
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Estate planning for married couples offers many advantages. Married couples are able to file a joint Federal Income Tax return which can lead to an overall savings. There is also a Federal Estate and Gift Tax marital deduction for passing property to a surviving spouse. This deduction allows the transfer taxation to be deferred until the surviving spouse passes the property – either during life or through a testamentary transfer. A surviving spouse can also use the remainder of a deceased spouse’s allowable exclusion (which is $5.25 million per person as of January, 2013). There is also a spousal rollover option for individual retirement accounts that allows a surviving spouse to treat the deceased spouse’s IRA account as his or her own. Without this, the IRA becomes payable over the life expectancy of the oldest beneficiary of the account. Married couples can also own real property as a tenancy by the entireties. This is a joint form of ownership that has a right of survivorship. There is also an elective share available to the surviving spouse and entitlement to social security benefits.
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On February 26, 2013, Lorraine Bayless collapsed in the dining room of Glenwood Gardens, the independent living facility in California where she resided. The staff refused to perform CPR on Ms. Bayless, despite pleas from the 911 operator. As the 911 operator predicted would happen when a nurse on duty refused to administer CPR because it was against the policies of Glenwood Gardens, Ms. Bayless died before the ambulance arrived. The facility’s policy is that in the event of a health emergency, the facility will immediately call for emergency medical personnel for assistance and wait for the assistance to arrive. Fortunately for the independent living facility, Ms. Bayless had signed a Do Not Resuscitate form, and the family does not wish to pursue any potential claims that they might have against the facility. The family has said that it knew the policy of Glenwood Gardens and is at peace.
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All states have their own constitutions and state laws. Because of this, states may have different provisions for how people are allowed to pass on their property at death. It is important to be aware of the laws of the state where you live, and also any states where you own property. Many non-Floridians purchase property in Florida and later retire and move to that property. However, those people may have done their estate plans in other states and not updated them after moving. This can create problems if the estate plan is not in compliance with Florida laws.
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The IRS released a 1.2% interest rate under IRC § 7520 for June, which determines the present value of an annuity, an interest for life or term of years, or a remainder or reversionary interest. Rev. Rul. 2013-12 tbl. 5. With interests rates at an all-time low, charitable donors are able to bequest their assets to their beneficiaries without having to worry about federal estate or generation transfer taxes by using a charitable lead trust.

Charitable lead trusts should be used to enhance charitable giving, reduce current gift taxes and estate taxes owed at death, and to transfer assets to a younger generation as part of an overall estate plan. Charitable lead trusts pay an income interest to a charity for a specified period of time with the remainder reverting to a non-charitable beneficiary. Donors who already make annual charitable gifts will find a charitable lead trust an efficient way to transfer substantial assets to family members while maintaining the donor’s regular charitable gifts.
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The odds of winning the recent Power Ball jackpot were somewhere around 1 in 175 million. While the chances of hitting that $575 million dollar jackpot were absurdly low, the odds of winning a smaller jackpot are much less daunting. If you are one of the lucky to hit a lottery jackpot, do not get lost in the excitement. The money is not yours free and clear. All lottery winnings constitute income under the Internal Revenue Code, and, therefore, come with tax implications. Have no doubt, lottery winnings are taxable income, and Uncle Sam needs to get his taste of the action. Lottery winnings are taxed at a marginal rate of 35% to the winner or winners. There can also be gift taxes associated with sharing the winnings with friends, family members, or a group that purchased the winning ticket. Thus, with the excitement of hitting the jackpot, comes the necessity for planning.

How you claim your lottery prize can make a difference. Do you want to take the annuity? Or the lump sum? Do you want to claim the prize personally? Or set up a trust? Or set up a business entity like a limited liability partnership? What happens when there is a group who contributed to the winning ticket?
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In order to finance the Patient Protection and Affordable Care Act, Congress has imposed a new 3.8% surtax on certain passive income starting in 2013. Typically, passive income includes interest, dividends, rents, royalties, capital gains, and other payments in which the investor does not actively participate in management. The surtax applies to home sales if the profit from a home sale is more than $250,000 ($500,000 for a married couple). For estates and trusts, the 3.8% surtax will be imposed on the lesser of (1) the undistributed net investment income of a trust or estate, or (2) the amount by which adjusted gross income exceeds the top inflation-adjusted bracket for estate and trust income, which is expected to be approximately $12,000 in 2013. The surtax applies to individuals who receive distributions of net passive income from trusts and estates. These rules do apply differently to grantor trusts because the income from grantor trusts passes directly through to the grantor’s tax return.
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Many individuals execute wills before their death, leaving certain gifts to their family members, friends, and other individuals. From time to time, however, certain individuals named in a will (i.e., “devisees”) predecease (i.e., die before) the person leaving them the gift. If a new will is not executed, a question arises concerning who should then be entitled to that property. Before the modern Florida statutes, under common law, if a specific or general devise (i.e., a gift in a will of either specific property or a particular amount of money/stock, respectively) lapsed because the beneficiary predeceased the testator, the gift went to the residuary of the estate, meaning that it would become part of the general estate and would go to the remaining living heirs.

Disagreeing with the common law, many state legislatures drafted statutes which reversed or otherwise altered the common law rule. Florida is among the states that have chosen to deviate from the common law rule by adopting an “antilapse statute.” Under the Florida Antilapse Statute, when a particular devisee predeceases the testator, the gift to the devisee does not fall into the residue of the estate or pass to the heirs of the testator by intestacy. Instead, the gift descends to the issue of the predeceased devisee. Specifically, Florida Statute § 732.603(1) provides as follows: “Unless a contrary intent appears in the will, if a devisee who is a grandparent, or a descendant of a grandparent, of the testator: (a) is dead at the time of the execution of the will; (b) fails to survive the testator; or (c) is required by the will or by operation of law to be treated as having predeceased the testator, a substitute gift is created in the devisee’s surviving descendants who take [in equal shares] the property to which the devisee would have been entitled had the devisee survived the testator.”
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