Articles Posted in Estate Planning and Documents

People generally know that the purpose of a will is to facilitate the orderly distribution of assets after a person’s death. Therefore, it logically flows that assets that expire upon death do not need to be handled by a will. They expire. However, the concept of ownership has changed drastically over the past decade. Digital media, social media, and the internet in general have changed how people think they own things and how they actually own things. Would you be surprised to know that you don’t actually own the album you just bought from iTunes? You do not own it in the same way as the CD you bought from a music store. Your rights are limited when you are buying things online. You are buying the digital rights to use a file rather than buying the actual file. Today, most digital licenses are individually owned, non-transferrable, and expire on death. Good examples of these are email accounts, such as Gmail, social media accounts, such as Facebook, and media accounts, such as iTunes and Amazon. Ownership has changed from owning a physical, tangible object to owning a license for use of something with limited rights. You do not have a CD to play wherever you want anymore; you have a digital file that can only be played on certain devices. Usually devices that are made by the company you bought the file from – such as Apple limiting the use of its media files to its products. At the end of the day, you still paid the same amount of money for a digital album as you would have for a tangible CD. So, how is it fair that these licenses expire on death and are non-transferrable? Shouldn’t these files still be considered an asset? And shouldn’t there be a way to protect them?

The operative word in a lot of these digital user agreements is is “individually.” Files you buy on iTunes are owned individually, cannot be transferred, and expire on death. So, you spend thousands of dollars on a digital music collection and instead of being able to bequeath your prized collection of CDs to your favorite grandchild, you lose your collection when you die. Read the user agreements for digital media and see for yourself. However, there are ways to solve this problem. One solution is owning the files by an entity other than an individual. What about digital assets owned by a business or a trust?
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As technology continues to develop, its impact is seen in many areas of law. In today’s world, natural conception is not the only way to conceive a child. Often times, a parent may choose to have a child through in-vitro fertilization, even after their significant other has passed. However, under common law, a posthumously-conceived child (a child conceived after the death of the father) is always considered a non-marital child because marriage ends at the death of one of the partners. Specifically, under Florida law, “a child conceived from the eggs or sperm of a person or persons who died before the transfer of their eggs, sperm, or pre-embryos to a woman’s body shall not be eligible for a claim against the decedent’s estate unless the child has been provided for by the decedent’s will.” Fla. Stat. § 742.17. This statute means that a posthumously-conceived child may not state a claim against his father’s estate, unless that child is deliberately named in the father’s will.

In a recent United States Supreme Court opinion, Astrue v. Capato, a mother conceived and gave birth to twins after the father had passed away from esophageal cancer. The Capatos naturally conceived one son, but the couple wanted that son to have siblings. Before Mr. Capato entered chemotherapy, he had his semen frozen because the doctors explained that the chemotherapy could force him to become infertile. A few months before he died, Mr. Capato executed a will that named the son he had with Ms. Capato and two children from a previous marriage as beneficiaries. The will failed to mention his unborn children as beneficiaries. After her husband’s death, Ms. Capato began receiving in-vitro fertilization treatments, using her husband’s previously frozen sperm. The process was successful, and eventually, she gave birth to twins.
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There are many instances in which a trust can be terminated, e.g., when the trust ceases to be economically efficient to administer or when the trust has been created as a result of fraud, duress, or undue influence. Recently, in Florida, more individuals have been creating revocable trusts. Floridians often choose this type of trust to avoid probate and to keep their private affairs out of the public eye in a probate proceeding. But when is a trust revocable? Who can revoke the trust? What steps must be taken and procedures followed to ensure that the trust is revocable?

One of the key distinguishing features of a revocable trust, as opposed to an irrevocable trust, is control. A settlor has control not just to revoke the trust, but to alter the trust as well. For example, the settlor of a revocable trust may add or remove beneficiaries of the trust during the settlor’s life and may also change the property that is owned by the trust. A major downside of this control is that the trust’s assets are easier for creditors of the settlor or of the beneficiaries to reach. Whereas, with regard to an irrevocable trust, the settlor does not have control once the trust is established, but the assets of the trust are better protected from the settlor’s creditors, and, depending on how the trust is structured, those assets may also be better protected from creditors of the beneficiaries.
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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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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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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.

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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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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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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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Fifty-four million Americans suffer a disability. In Florida, 6.2% of children five to fifteen years old have a disability and 4.3% of Miami- Dade County children age five to fifteen have a disability. For parents of those children a stand-alone special needs trust can be a useful tool to ensure their child receives the care they need. The trust provides the family peace of mind their child will have the resources he or she needs even after the parents have passed. Special needs trusts are frequently used to receive an inheritance or personal injury settlement proceeds on behalf of a disabled person or is founded from the proceeds of compensation for criminal injuries, litigation or insurance settlements.

There are a number of reasons that a parent of a child who has a disability might consider using a separate stand-alone special needs trust. The tax consequences of establishing such a trust depend on whether it is revocable or irrevocable. If your family lives in Miami-Dade County, Broward County or West Palm Beach County the stand-alone special needs trust will be governed by Florida Statutes Chapter 376. You should seek the assistance of an experience attorney to be sure the trust complies with Florida laws.

A separate trust should make the process of obtaining approval of the agencies administering the Medicaid and Social Security Income programs easier and quicker. Because a stand-alone special needs trust is designed to benefit only the child who has a disability, the trust provisions should deal only with that child. This makes it less likely that the trust will contain language that causes the trust assets to be countable resources to the beneficiary for Medicaid eligibility purposes than would be the case if the trust also contained assets of the parent, or included the parent’s other children as beneficiaries.

Secondly, a stand-alone special needs trust affords parents a way to keep their estate plan private from governmental agencies. If the parents’ living trust contains information about the value of their estate and is used to hold funds for the child who has a disability, that document must be presented to the reviewing government agencies. Using a stand-alone special trust means the parents only need to disclose what assets are in that trust to the government agencies.
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