CORONAVIRUS UPDATE: What We Are Doing to Protect Our Clients

Articles Posted in Estate Tax

Bernie’s “For the 99.5% Act”: Is It Time to Start Thinking about Tax Planning?

For the year 2021, each individual has $11,700,000.00 of estate tax credit (or $23,400,000.00 for married couples), otherwise known as the “applicable exclusion amount.” For estates that exceed the applicable exclusion amount, the tax rate is up to 40.00% of the amount in excess of the applicable exclusion amount. The current estate tax credit is scheduled to maintain that level, indexed for inflation, until December 31, 2025, at which point the applicable exclusion amount will be reduced to approximately $6,000,000.00 ($12,000,000.00 for married couples).  However, since the Biden administration proposed major estate tax reform, there has been much discussion about whether the estate tax credit will be reduced earlier.

On March 25, 2021, Senator Bernie Sanders introduced the “For the 99.5% Act,” which proposed, among others, the following tax reforms:

Larry King’s Handwritten Will Ordeal

The recent passing of the broadcasting legend, Larry King, has resulted in his family not only mourning him but also fighting amongst themselves over his true last wishes. Larry, together with his wife, Shawn Southwick King, had executed estate planning documents in 2015, where he named her the personal representative of his estate. However, the couple faced some difficulties and Larry filed for divorce in August 2019. Just two months later, he executed a new handwritten will, leaving his entire estate valued at $2 million dollars to his five children. Two witnesses also signed their names to the hand-written will.

Larry’s eldest son, Larry King Jr., submitted the 2019 will to the court and has petitioned to be appointed the temporary administrator of Larry’s estate. However, Shawn has filed an objection to the 2019 will, claiming that the will is invalid and that Larry King Jr. exerted undue influence over his father towards the end of his life, and insisting that the 2015 will is the valid one.

2021 Biden Administration Proposed Tax Changes: Will My Estate Be Subject to Estate Tax?

Over the course of the last several decades, the federal estate tax credit has increased to the point that only very high net-worth individuals and families need to concern themselves with estate tax planning. For the year 2021, the “applicable exclusion amount” is $11,700,000.00 per individual (23,400,000.00 for married couples). The gift tax exclusion amount is the same, that is, each individual may give $11,700,000.00 during their lifetime without incurring any gift tax. If the sum of lifetime gifts and assets transferred at death is greater than the applicable exclusion amount, then such transfers will be taxed at a rate as high as 40%.

However, the Biden administration has proposed a reduction of the applicable exclusion amount to $3,500,000.00 per person for estates, $1,000,000.00 for lifetime gifts, and increase the tax rate to up to 45%. Such a change is made more likely by the fact that, in January, the Democratic party has consolidated power in both branches of the U.S. Congress. Last year, there was even fear that, if such a change came in to effect at any time during 2021, congress could make the change retroactive to January 1, 2020, prompting many families to make gifts before the end of the year to ensure their use of the current applicable exclusion amounts.

I Made an Irrevocable Trust a Long Time Ago: Can I Change it Now?

People make irrevocable trusts for many reasons, one major reason being tax planning. In order to make a completed gift for tax reasons, a donor has to part with control over the gifted asset, and making a gift to a trust that is irrevocable is one of the ways this can be accomplished. But that if your circumstances change, or tax laws change, and you would like to modify or terminate an irrevocable trust? Can a trust still be modified if it is irrevocable?

The answer is yes, if certain conditions are met. Florida statutes specifically allow for modification of irrevocable trusts in certain circumstances. For instance, by court order (Fla. Stat. § 736.0410), to modify tax provisions (Fla. Stat. § 736.04114), or where the trustee and all beneficiaries unanimously agree (Fla. Stat. § 736.0412), just to name a few. But there are certain situations where none of the Florida statutes apply. For instance, a modification under Fla. Stat. § 736.0412 by agreement of trustees and beneficiaries can only be accomplished if the settlor has passed away and only with respect to a trust that was made irrevocable after January 1, 2001. That leaves some situations that are not covered by the Florida statute.

Needs Based Government Assistance and Special Needs Trusts

It is never too early to start Medicaid planning. The goal is to focus on paying for long-term medical care and protecting your assets. By planning for Medicaid to pay for an amount of long-term care, it allows seniors to pass on their wealth while still maintaining long term medical care. With careful planning and the assistance of an attorney, you may be able to receive needs-based government benefits without having to deplete your assets, and ensure that and your children will be able to receive such government assistance if needed.

There are selected categories of people in Florida who may be eligible for Medicaid benefits, such as the elderly (age 65 and above), pregnant women, and people with certain disabilities. There are also a few other requirements to be eligible for Florida Medicaid, such as being a resident of the State of Florida, a U.S. national, citizen, permanent resident, or legal alien; having a financial situation that is considered low income or very low income; and owning assets below a certain threshold. If you are one of the selected categories of people who qualify for Medicaid, there is planning that can be done to help you meet the other requirements. However, there is a 5 year look-back rule regarding any uncompensated transfers that you make, so it is best to plan early and anticipate your future need.

Does My Will Control My Joint Property?

There are several different ways to hold real property with another individual in Florida. The three main ones are: 1) tenancy in common, 2) joint tenancy with a right of survivorship, and 3) tenancy by the entirety. The way co-ownership of real property is classified may have significant impacts on the disposition of an estate after one of the owners dies.

In Florida, the default classification of real estate ownership is known as tenancy in common. If a property title lists only the names of owners without specifying another classification, there is a presumption that the property is a tenancy in common (unless the individuals are married). Additionally, unless specifically stated otherwise, tenants in common own equal shares of the property. When a tenant in common dies, the real property passes according to that person’s estate plan. This type of ownership will ensure that the property will flow through the owner’s estate. However, unless this property is held by a mechanism that can avoid probate proceedings (e.g. a Revocable Trust), it must go through the time consuming, expensive and public probate process to transfer title to the heirs.

What Happens to My Estate Plan When I Divorce?

People often designate their spouse as a primary beneficiary in their will, trust, or beneficiary designation, but what happens in the case of divorce? Oftentimes, a person may neglect to update their testamentary plan following a divorce and leave their ex-spouse as a beneficiary. Thankfully, in Florida, several laws help automatically update a person’s estate plan upon divorce to avoid unintentionally bequeathing a gift to an ex-spouse.

Florida law provides that any provision of a will in favor of a divorced spouse treats that former spouse as if that spouse had already died. The controlling statute, Fla. Stat. § 732.507(2) states the following:

COVID-19 – Buying Life Insurance to protect your children, but what happens when you name them as the beneficiaries?

During these uncertain times, people are attempting to prepare for the worst. This is especially true for those who have minor children. The fear of getting infected with the virus, developing a serious illness that could potentially lead to death, and leaving their children unprotected is very real. Thus, individuals are opting to buy life insurance to make sure their children are taken care of in the event of their death.

But what happens when you die and your minor children are the beneficiaries under your life insurance policy? Since minors cannot legally manage property, the court will appoint a guardian to handle the money for the benefit of your children until they reach the age of majority—a guardianship proceeding. Alternatively, life insurance companies will sometimes ask you to name a custodian, which will create a custodianship account under the Florida Uniform Transfers to Minors Act (“UTMA”), also until the age of majority.

The Secure Act: Retirement Accounts and Your Estate Plan

Beginning on December 20, 2019, the Secure Act substantially changed the rules for designated beneficiaries of retirement plans, with wide raging implications for estate planning.

The old rule used to be that upon the death of a retirement account owner, the beneficiary of the plan would be able to take required minimum distributions based on that beneficiary’s life expectancy. This was beneficial especially for younger beneficiaries with long life expectancies who could “stretch” the payments over many years, allowing the assets to stay invested in the plan longer. It was also possible for beneficiaries to receive these stretch payments if a trust for their benefit was named as the beneficiary, as long as the trust qualified as a “see-through” trust. If no beneficiary was named, or if a non-see-through trust was named as beneficiary, the entire plan had to be distributed within 5 years of the date of death of the participant. Because many clients wish to leave their assets in trust for their children, much of the focus of estate planners up until this point had been drafting trusts so that they qualified as see-through trusts in order to avoid the 5-year rule.

I Already Have a Will; When Should I Update My Estate Planning Documents?

When someone executes a valid will, some people assume that if their wishes do not change, they should never have to revisit their estate plan. However, there are certain common events in life that should cause you to review or update your estate planning documents.

Marriage/Divorce: A surviving spouse is entitled to a percentage of a decedent’s estate, regardless of whether the decedent included the spouse in the decedent’s will. Interestingly, the amount that a surviving spouse is entitled to may vary depending on whether the will was executed before or after the marriage. If you execute a will and subsequently marry, the spouse will receive a share equal to what he or she would have had, had the testator died intestate. This typically amounts to either one-half of the estate (if there are children of the decedent who are not children of the surviving spouse), or the entire estate (if there are no surviving children, or if the surviving spouse and the decedent are the parents of the only surviving children). Fla. Stat, Sec. 732.301 and Sec. 732.102. In either case, this is more than the amount that a surviving spouse is entitled to under the “elective share” which is thirty percent (30%) of the decedent’s estate.

Super Lawyers
Florida Legal Elite 2018
Super Lawyers 10 Years
Super Lawyers 5 Years
Avvo Rating
AV Preeminent
Contact Information