Articles Posted in Opening an Estate

MORE MONEY, MORE PROBLEMS? 6 DO’S AND DONT’S OF ESTATE PLANNING AND INTELLECTUAL PROPERTY

At the end of last year it seemed as if every day there was a new report of a celebrity dying unexpectedly. As fans around the world mourned the death of some of Hollywood’s most iconic figures, reports of their estate planning, or lack thereof, also filled the headlines.

Prince: Intestacy and streaming music rights collide

Ademption: When devises are actually not part of the estate

Many unexpected things can happen in the period between the execution of a will and the death. For example, a decedent may devise the family house in Key West to her granddaughter. Several years after executing the will, the decedent gets into financial troubles and sells the Key West house. With other matters on her mind, the decedent never gets to adjust the will and passes away. Does the granddaughter still have a right to the house? Does she get money instead? Does she get anything at all?

The legal term describing a situation when a particular asset devised in the will is not part of the estate is ademption by extinction. The Florida statutes cover ademption in Section 732.606 for specific devises, and Section 732.605 for securities. Ademption is not uncommon. The decedent may have owned the asset and later sold it, or could have never owned it all. The situation would be different if the grandmother gave the granddaughter the Key West house as a gift before passing away. In that situation, the granddaughter’s devise would have been satisfied during the grandmother’s lifetime. Accordingly, this legal concept is called ademption by satisfaction and is not discussed in this blog post.

Estate Planning: Income Tax Strategies

            Law firms have had to take a spike in income tax rates, a decline in the estate tax rate, and an increasing annual estate tax exemption threshold into account in devising estate planning strategies. There has been a decreasing gap between the income tax rates and estate tax rates: estate tax has moved to a maximum rate of 40% and a $5.45 million exclusion in 2016, from a 55% percent tax rate and a $675,000 exclusion in 2001; the maximum tax rate on ordinary income is 39.6%, up from a low of 35 percent in 2003; the maximum long-term capital gains tax rate increased to 20% from 15% in that same time frame. Furthermore, in 2013 an additional 3.8% surtax was added for net investment of individuals, estates, and trusts over statutory threshold amounts in certain cases. While these numbers might make you think that estate planning is only necessary for the super wealthy, financial planners advise that it is not. Taxes are just one consideration of estate planning: it is critical to plan for an orderly transfer of assets or for other circumstances such as incapacitation.

The capital gains tax rate – the long-term rate of 20% plus the 3.8% surtax – is significant because it affects the basis of assets. When a decedent dies, her beneficiaries get the benefit of a step-up in basis, which is appreciated assets held in the decedent’s estate are readjusted to fair market value at the time of inheritance. Through this mechanism, the beneficiary receives an income tax advantage because she is not liable for the capital gains tax on any appreciation that occurs up to the point she inherits the asset.

The importance of a Semicolon – Does property partially used as primary residence and partially for business purposes qualify as Homestead?

Does property partially used as primary residence and partially for business purposes qualify as homestead under Article X, Section 4 of the Florida Constitution? Surprisingly, the answer apparently rests on a semicolon.

This question was addressed in 2003 by the Florida Court of Appeal for the First District in Davis v. Davis, 864 So. 2d 458 (Fla. 1st DCA 2003). The facts of this case are as follows: Mr. Horace Davis lived with his wife Carolyn on a contiguous piece of property measuring less than 160 acres outside of municipality in an unincorporated portion of Nassau County. The property included the couple’s residence and on a portion separate from the residence, Mr. Davis operated a mobile home park generating profit through rent. Mr. Davis died in 2000 having written a will.

Is Investing Homestead Sale Proceeds Okay?

Florida Constitution provides protection from forced sale to homestead property from most creditors. Art. X, § 4, Fla. Const. The protection covers not only the physical homestead property but also the proceeds from the sale of the homestead, provided the proceeds are reinvested in another homestead property. In a scenario where you invest the homestead sale money in securities and then buy another homestead with it, does the money retain homestead protection?

The Florida Supreme Court answered this question in the affirmative in a recent 2016 decision JBK Assocs. v. Sill Bros., 191 So. 3d 879 (Fla. 2016). In that case, JBK Associates, Inc. (“JBK”) obtained a final judgment against Mr. Sill for $740,487.22.  Mr. Sill had consequently opened a brokerage account with Wels Fargo and deposited the sale proceeds from the marital home of Mr. Sill and his ex-wife. The account was titled “FL Homestead Account” and was split into three sub-accounts, one containing cash and two containing mutual funds and unit investment trusts.

The Hunt for Tom Clancy’s Estate Comes to an End

Popular author Tom Clancy wrote many iconic novels, and the story of his estate battle sounds like it comes straight out of a book. The author, who died at the age of 66 of heart failure, left an estate valued at $82 million. This $82 million estate includes an ownership interest in the Baltimore Orioles baseball team worth $65 million, a working World War II tank, a mansion on Chesapeake Bay and over $10 million in business interests from his novels and movie adaptations.

According to the original will, Clancy left his Chesapeake Bay home and other properties, along with any of his joint bank or investment accounts to his wife Alexandra. Clancy also left a portion of the residue of the estate to the Hopkin’s Wilmer Eye Institute, which he had previously given a $2 million donation in 2005. The rest of his estate was to be divided between a series of trusts. The 2007 will originally provided for three trusts and divided the rest of the estate as follows: one-third for Alexandra, one third for Alexandra to use while she was alive and then passing to their daughter, and one-third to be divided among his four children from his previous marriage.

Possibility of the Effect of Marijuana on Estate Planning

In the 2014 legislative session, the Florida Legislature passed the Compassionate Medical Cannabis Act of 2014, which authorizes certain physicians to prescribe low-THC cannabis for use by specified patients.  Nearly two years later, due to legal challenges, Floridians still have not been able to receive this medical treatment.  However, because the law may become effective in the near future, certain questions must be addressed, particularly questions regarding the intersection of marijuana use and testamentary capacity.

One of the legal prerequisites for making a will in Florida is that the maker (the testator) must have testamentary capacity, that is, a sound mind.  Insofar as lack of testamentary capacity is one of the grounds frequently used to challenge the making and execution of a last will and testament, the testator’s testamentary capacity may be called into question if he or she had been prescribed medical marijuana and had, in fact, taken medical marijuana during any aspect of the preparation or execution of the subject will.

Trust Protectors: An Extra Layer of Protection

Traditionally, a trust has three main participants, a settlor, a trustee, and one or more beneficiaries.  A settlor creates and/or contributes property to the trust.  A trustee manages and holds the property in the trust for the benefit of other people who are said to have a “beneficial interest” in the trust.  Beneficiaries are the people who have those beneficial interests.  For example, a father, acting as a settlor, might create a trust, naming his wife as the trustee, to distribute money for the benefit of their children, who are the beneficiaries of the trust.  However, a fourth participant has increasingly been used in trusts: the trust protector.

Historically, trust protectors were mainly used in offshore trusts and rarely in domestic trusts.  A trust protector acts as an extra layer of protection for the settlor.  A trust protector is customarily appointed to supervise the trust and ensure that the settlor’s intent is effectuated.  A trust protector may have the power to modify terms of a trust to ensure that the settlor’s intent is carried out.

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

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

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

Florida Statute 731.103(3) creates a presumption of death if a person is missing for five years. Once this happens, the person’s estate can be probated and their assets can be distributed. However one does not always have to wait for five years to pass. With enough circumstantial evidence, a person can be presumed dead before the five years is up. In an interesting Florida case involving a West Palm Beach family, the West Palm Beach Court of Appeals dealt directly with this issue.

In the mid 1990’s a wife attempted to have the court declare her husband deceased before he was missing for five years. The lower courts said that the courts could not do so until five years had passed. On appeal the court found that the wife had presented enough circumstantial evidence to allow the court to declare the husband deceased and allow for probate of his assets.

Her husband had been a crew-member of the cruise ship, Club Royale. As Hurricane Erin approached on August 2, 1995, the captain of the ship took it out of port and tried to ride the hurricane out in the open sea off the coast of Cape Canaveral. In the hurricane, the ship capsized and sank. The United States Coast Guard conducted an extensive search by aircraft and surface vessels to search for survivors for four days. It combed over 41,000 nautical miles of open-ocean and found eight crewmen alive on two separate life rafts. It recovered the body of a ninth crew-member on a third raft. Eventually the Coast Guard located 27 of the 30 life rafts from the ship. It found no trace of the husband or the Captain of the ship.
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