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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.

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:

Do I Need to Amend My Trust Because of the Secure Act?

Last month, in our last blog, we addressed the basics of the Setting Every Community Up for Retirement Enhancement Act of 2019 (the “SECURE Act’) and how retirement plan beneficiary designations will be impacted for individuals who die in or after 2020. But what if you already set up an estate plan with a trust as beneficiary of your retirement account? Do you need to amend your trust or your beneficiary designation form as a result of the passage of the SECURE Act?

The answer is that it depends on whether the trust is an “accumulation” trust or a “conduit” trust and how you want such retirement accounts to be treated. Generally, in an accumulation trust, assets payable to the trust are to be distributed in the trustee’s discretion. A conduit trust, on the other hand, generally requires that assets must be distributed to the beneficiary – in other words, the trust simply acts as a conduit to deliver the assets to the beneficiary, and the assets cannot stay (that is, cannot accumulate) in the trust. It is possible to draft the trust as an accumulation trust with respect to all assets except retirement accounts, just as it is possible to draft a conduit trust that requires only outright distributions of retirement accounts (leaving the remainder of the funds at the trustee’s discretion).

What if Your Beneficiaries Predecease You?

When preparing a will, people assume that the beneficiaries that they name will outlive them. Unfortunately, testator’s live beyond the life of their beneficiaries all the time. What happens to the gift left for someone who is now deceased?

The original common law understanding was that if a beneficiary predeceases the testator, the specific gift to that beneficiary would “lapse,” and therefore fall back into the residuary estate of the testator. However, in some instances, Florida “Anti-Lapse statutes” may change this result. In Florida, barring any contrary intent appearing in the will, if the devise is to the testator’s grandparent or any descendant of a grandparent, and the devisee predeceases the testator, the devise passes onto the devisee’s surviving descendants. Thus, a lapse is avoided when the specific gift is to the testator’s grandparents or descendant of grandparents. However, a devise to anyone who is not a grandparent or descendant of a grandparent would still lapse if that devisee predeceased the testator, unless a contrary intent appeared in the will.

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.

Is it a Gift or a Loan? Your intention matters for your Estate Planning

Have you ever given your child money to help them with school or a car or rent? How about loaning money to a friend? Is the intention to give a gift or a loan? How these transactions affect your estate planning may not be your first thought, but a good estate planner will take these transactions into account.

A transaction is a gift under section 2512(b) of the Code whenever there is a transfer for less than adequate and full consideration. If you never expect the other person to pay you back, then the transfer was a gift. At this stage it is important to remember that a gift should be properly reported on a gift tax return. Now what if you have made a large gift to one of your children during your lifetime, but you would like to treat your children equally upon your death? You may wish to acknowledge in your will or trust the gift you made to your child during your lifetime as an advancement of that child’s share. This would reduce your child’s share by that amount and give that same amount to your other children.

Seeking Paternity in Probate: Are You Out of Time?

When an estate enters probate and is being distributed, the distribution is usually between family members. Family members can include spouse, children from the marriage, parent, adopted child, aunt, cousin, etc. If there are issues or questions about the status of these individuals, they are usually litigated after the estate holder passes. But what if you are a child born out-of-wedlock? What status do you have and what rights do you have to the estate?

Under Fla. Stat. § 732.103, any children from the marriage are automatically deemed heirs of the estate, and entitled to a share of the intestate estate. But out-of-wedlock children have to establish paternity if they want to share in the distribution of the estate. But do these individuals have the opportunity to litigate the paternity after the father has passed? The opportunity is there, but it is subject to a statute of limitations under Fla. Stat. § 95.11(3)(b). The statute imposes a four year limitation for paternity actions generally, starting from the date the individual turns eighteen.

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