Articles Posted in Types of Trusts

Legal Capacity and Estate Planning – How to Safeguard a Will from Future Litigation or Contests

When a loved one grows older, ages and declines, their caretakers’ ever growing to-do list can become overwhelming. After dealing with the basic, everyday needs of an aging family member, it may sometimes be easy to overlook the fact that your loved one does not have a valid will.  By not addressing this issue, the task of handling final affairs and estate distribution after their death becomes increasingly more difficult. If you are responsible for someone who is at risk for developing Alzheimer’s, dementia, or any other disease that can affect their mental capacity, it is important that you consult with an estate planning lawyer who can ensure that a proper will is drafted in accordance with the laws of the state of Florida.

Florida courts have held that a will can be properly admitted to probate if the testator was competent at the time the will was executed.  Jervis v. Tucker, 82 So.3d 126 (FL 4th DCA 2002).  A testator will be found to have been competent if they possessed the ability to “mentally understand in a general way the nature and extent of the property to be disposed of, and the testator’s relation to those who would naturally claim a substantial benefit from the will, as well as a general understanding of the practical effect of the will as executed.” American Red Cross v. Estate of Haynsworth, 708 So.2d 602, 605 (FL 3rd DCA 1998). Florida courts will apply these standards and also evaluate the facts specific to a particular case in order to determine if a testator was of “sound mind” when they created the will. Estate planning lawyers play an important role in this process and have the responsibility of ensuring that the testator is legally competent at the time the will is created.

FLORIDA CHARITABLE TRUSTS: ALTERNATIVE BENEFICIARIES AND CY PRES DOCTRINE

Due to applicable tax exemptions and tax deductions, Charitable trusts are a great tool for preserving the value of your property intended for charitable purposes and for reducing taxes payable by your remaining estate (intended for purposes other than charitable ones). Naturally, the main goal when setting up a charitable trust will be the fulfillment of the philanthropic objective of your choice. While the law comes to aid with mechanisms to fill in the blank spaces in the will or trust agreement, well-meant but poorly executed provisions in the documents may defend these mechanisms and obstruct the desired purpose.

Charitable purposes may include relief of poverty; advancement of arts, sciences, education, or religion; promotion of health, governmental, or municipal purposes. Fla. Stat. 736.0405(1).  This list is, of course, non-exhaustive. A specific charitable purpose and beneficiary organization will usually be designated in the document. Even if it is not, the court will select one or more charitable purposes or beneficiaries that will be consistent with the settlor’s original intent, at least to the extent it can be ascertained. Fla. Stat. 736.0405(2). But what if the agreement names a purpose and a beneficiary, but the beneficiary does not exist? Or exists at the time the agreement is made, but ceases to exist before it is supposed to take the bequest? Or what if the stated purpose is impossible to fulfill? In those situations the cy pres doctrine applies to help execute the bequest in accordance with the general spirit of the will or trust agreement.

WILLS, TRUSTS, and ARBITRATION AGREEMENTS

In previous blog posts, we have shown how wills and trusts are favored vehicles when protecting someone’s assets. Perhaps one of the purposes of a well-drafted will or trust is to avoid hearing the judge’s gavel when knowing who gets what part of the inheritance. Unfortunately, contentions amongst the parties may well exist. The good news is that since 2007, parties have another alternative to resolve disputes that arise out of a will or a trust. Florida Law provides the option for parties to have a clause in their will or trust requiring arbitration. See Fla. Stat. § 731.401.

Arbitration, is a private (not state-sponsored) method of resolving disputes. Arbitration is not to be confused with mediation: While mediators help the parties in finding a solution, arbitrators decide a dispute.

IRREVOCABLE SPENDTHRIFT TRUSTS

Trusts are popular estate planning instruments that may bring many benefits both during lifetime and in the case of death. Some common reasons for setting up a trust include the avoidance of costs and time consumption of probate proceedings, property management for those who cannot or do not wish to manage the property themselves, continuance of property management after death or during disability, and saving of taxes and protection of the assets against the claims of creditors. However, there are several types of trusts and not all of them provide these benefits to the same extent.

The revocable trust is the most flexible one as the creator (settlor) can at modify the terms of the trust or completely revoke it at any time. See Fla. Stat. § 736.0602. However, the assets transferred into such trust are still considered personal assets of the settlor and accordingly, can be reached by his or her creditors. See Fla. Stat. § 736.0505(1)(a). Therefore, the revocable trust is not an ideal solution for asset protection purposes. Upon death of the settlor, this trust becomes irrevocable, meaning that the rules for asset distribution can no longer be changed. It is also possible to make a trust irrevocable from the outset and to afford protection against creditors by adding a spendthrift provision. See Fla. Stat. § 736.0502.

IRREVOCABLE SPENDTHRIFT TRUSTS

Trusts are popular estate planning instruments that may bring many benefits both during lifetime and in the case of death. Some common reasons for setting up a trust include the avoidance of costs and time consumption of probate proceedings, property management for those who cannot or do not wish to manage the property themselves, continuance of property management after death or during disability, and saving of taxes and protection of the assets against the claims of creditors. However, there are several types of trusts and not all of them provide these benefits to the same extent.

The revocable trust is the most flexible one as the creator (settlor) can at modify the terms of the trust or completely revoke it at any time. See Fla. Stat. § 736.0602. However, the assets transferred into such trust are still considered personal assets of the settlor and accordingly, can be reached by his or her creditors. See Fla. Stat. § 736.0505(1)(a). Therefore, the revocable trust is not an ideal solution for asset protection purposes. Upon death of the settlor, this trust becomes irrevocable, meaning that the rules for asset distribution can no longer be changed. It is also possible to make a trust irrevocable from the outset and to afford protection against creditors by adding a spendthrift provision. See Fla. Stat. § 736.0502.

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

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.

Florida: A Safe Haven for Surviving Spouses in Probate

          Marriage is one of the most sacred and respected institutions in our society.  Both state and federal governments provide benefits to encourage marriage with beneficial incentives. Florida provides several benefits for surviving spouses as illustrated in Florida’s Constitution and Probate Code. This article reviews some of those benefits but is not an exhaustive list.

First, surviving spouses receive protection under Florida’s Homestead Exemption.  The Florida Constitution prohibits a decedent from freely devising his or her homestead, when the decedent is survived by a spouse or minor child. Art. X, § 4 (c), Fla. Const.  However, the decedent can devise a homestead to his surviving spouse if there is no minor child. § 732.4015 (1), Fla. Stat. (2010).  If a decedent tries to devise a homestead to someone other than a surviving spouse or minor child under a will, then the homestead property will be transferred to the decedent’s surviving spouse and the decedent’s descendants, with the surviving spouse receiving a life estate in the homestead and the descendants receiving a remainder, per stirpes at the decedent’s death.§ 732.401 (1), Fla. Stat. (2012).  Alternatively, “the surviving spouse may elect to take an undivided one-half interest in the homestead as a tenant in common, with the remaining undivided one-half interest vesting in the decedent’s descendants in being at the time of the decedent’s death, per stirpes.”  § 732.401 (2), Fla. Stat. (2012).  To receive the homestead exemption, “an individual must have an ownership interest in a residence that gives the individual the right to use and occupy it as his or her place of abode.”  In re Alexander, 346 B.R. 546, 551 (Bankr. M.D. Fla. 2006).

Gun Trusts: Background Check Loophole Eliminated

A gun trust is a legal device that makes it easier to handle firearms after the gun owner’s death. These trusts are used for guns that are regulated by federal laws: the National Firearms Act of 1934 (NFA) and a revision of the NFA, Title II of the Gun Control Act of 1968. Gun trusts must take into account both federal and state weapons laws. Some of the weapons regulated by the NFA include silencers, machine guns, grenades, short-barreled shotguns, and short-barreled rifles. These weapons already have some regulations in place, including requiring its serial number to be registered with the Federal Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF).

Although there are restrictions in place, the NFA allowed the making or transferring of a firearm without a background check through a gun trust. The Attorney General, on January 4, 2016, signed a regulatory rule to close up this dangerous loophole: Machineguns, Destructive Devices and Certain Other Firearms; Background Checks for Responsible Persons of a Trust or Legal Entity With Respect To Making or Transferring a Firearm. This rule, also known as ATF Final Rule 41F (the “Rule”), will have a huge impact on the use of trusts in the sharing and in the acquisition of weapons regulated by the NFA. It seeks to ensure that proper identification and background checks apply equally to legal entities, trusts, and individuals. The rule became effective on July 13, 2016, 180 days after its signing. However, the Rule is not retroactive, and as such, pending applications will not be affected.

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.