Articles Posted in Types of Trusts

Estate planning 101 from the late Tony Hsieh, CEO of Zappos

            Tony Hsieh was the CEO of Zappos for over twenty years before retiring and taking up a series of different business ventures. Zappos is an online retailer that deals specifically with shoes and clothing on an international sale. Hsieh was an early investor, and then CEO, for this online clothing empire. On November 27, 2020, Tony Hsieh succumbed to his injuries resulting from a house fire at his residence, leaving behind assets worth over $700,000,000. Quite a large sum.

Like many celebrities who have passed away with large estates, including Aretha Franklin and Prince, Hsieh did not leave an estate plan in the unfortunate eventuality of his death.  Having no plan in place governing his wishes, Mr. Hsieh’s family is now left in the unenviable position of having to deal with the administration of Mr. Hsieh’s estate and the claims of many individuals seeking a potion of same.  At least ten individuals have submitted claims for a portion of Mr. Hsieh’s estate, seeking more than $130,000,000. Many of these claims concern different specific devises listed on thousands of yellow Post-It notes. Some Post-It notes are about particular items such as artwork and furniture, while others concern ownership interests in Mr. Hsieh’s business ventures.

How can a single parent avoid homestead to protect a minor child?

            Florida homestead laws are complex, confusing, and enormously important for homeowners with or without an estate plan. Florida homestead law applies to three categories: (1) creditor protection against reaching a primary residence, (2) property tax exemptions and limitations on annual property value increases, and (3) restrictions on how a homeowner may devise property if there is a surviving spouse or a minor child.

Under this third category, Article X, Section 4(c) of the Florida Constitution states that a homestead property cannot be devised if the owner is survived by a spouse or minor child, except to the spouse if there is no minor child. This section only pertains to devises, or post-death transfers of property. A homeowner is free to mortgage, gift, sell, or deed the property freely while the homeowner is still living. If the homestead is jointly owned by both spouses, then the property can be freely transferred as long as both spouses join on the conveyance.

Est. of Pounds v. Miller & Jacobs, P.A., No. 4D21-1362, 2022 WL 39211 (Fla. 4th DCA 2022).

If a will does not specify who should serve as personal representative of an estate, parties can fight over this position through litigation. But what happens if one person obtains a settlement on behalf of an estate, and then another person is appointed as personal representative? The court answered this question in Estate of Pounds v. Miller & Jacobs, P.A., No. 4D21-1362, 2022 WL 39211 (Fla. 4th DCA 2022), giving us insight into why these situations are problematic and why good estate plans need to be carefully drafted.

The decedent died in a motorcycle accident, leaving behind his minor child as the sole heir of the estate. The child’s mother and the decedent’s mother both showed interest in serving as personal representative of the estate, which comes with certain perks, such as earning a personal representative fee, and responsibilities, including distributing estate property. The child’s mother was not married to the decedent.

What to do with 23 and me?

Recent years have seen the rise in ancestry services such as Ancestry.com and 23 and Me. After performing a simple DNA swab, these services provide the subscriber with hereditary and genealogical information that can unlock family history, medical information, and perhaps even long-lost relatives. While these services provide substantial value for our personal lives, they may be problematic in the world of estate planning.

To illustrate, consider the following hypothetical. A man donates to a fertility clinic when he is 20 years old. Many years later, the man is happily married with three adult children. The man then creates a will that reads in part as follows: “I hereby leave my personal savings account, valued at $1,000,000, to my biological children to be divided equally.” This language creates a class gift to a particular class of people, his children, as opposed to naming specific individuals to benefit. While the man’s three children are included in this class gift, as was intended, so too is a fourth biological child resulting from the man’s fertility clinic donation years prior, whom the man never knew existed. Genetic information services can have both intended and unintended consequences, as the three children will find out if the fourth child identifies his father through an ancestry service and later seeks a distribution from the man’s estate under the class gift in the will.

Can an Irrevocable Trust be Changed? Trust Decanting under Florida Law

You do not have to be a Sommelier to be familiar with the concept of decanting wine. “Decanting”, the pouring of wine from its original bottle into a different vessel – is a technique utilized for two contemporaneous purposes: to separate the wine from any sediment that has formed it its original container, and to aerate the wine to enrich its flavors. It may be surprising, however, to learn that a similar legal concept exists for Trusts, and is valuable for similar circumstances.

As its name suggests, “Trust Decanting” is when a trustee creates a new trust, moving all the assets from the initial trust into the second trust, to either correct a mistake or unintended result—the hypothetical “sediment” that the initial trust may have incurred, or to strengthen the original purpose of the trust.

Can an Irrevocable Trust be Changed? Trust Decanting under Florida Law

You do not have to be a Sommelier to be familiar with the concept of decanting wine. “Decanting”- the pouring of wine from its original bottle into a different vessel- is a technique utilized for two contemporaneous purposes; two separate the wine from any sediment that has formed it its original container, and to aerate the wine to enrich its flavors. It may be surprising, however, to learn that a similar legal concept exists for trusts, and is valuable for similar circumstances. As its name suggests, “trust decanting” is when a trustee creates a new trust, moving all the assets from the initial trust into the second trust, to either correct a mistake or unintended result- the hypothetical “sediment” that the initial trust may have incurred, or to strengthen the original purpose of the trust.

Under Florida law, the power to decant a trust is granted to any trustee other than the settlor or beneficiary who has the power to invade the trust principal; called an “authorized trustee.”[1] Following a 2018 revision to Florida’s trust decanting statute, there are now three distinct ways in which a trustee may decant;[2]

Guardianship: Don’t Believe Everything You Watch on Netflix

Netflix’s new sensationalist movie “I Care a Lot,” released this past February 19, 2021, might have you thinking that being a guardian may be the path to wealth and easy money. Although a scammer making a living by successfully requesting the courts to appoint her as the guardian of elderly people she falsely claims cannot take care of themselves makes for a captivating story, fortunately this is far from the reality of guardianship practice.

Guardians are appointed by the court to care for and manage the property of people who cannot do it for themselves, such as individuals with a chronic mental illness, dementia, traumatic brain injury, or orphaned children. But the first thing to keep in mind is that, before a guardian is appointed, the allegedly incapacitated person has to be declared incapacitated by a court of law. This process involves the evaluation by one or more mental health professionals and/or physicians. Thus, unlike the movie, simply alleging a person cannot care for him or herself will not be sufficient. Once the person is deemed incapacitated, some or all of his or her legal rights are removed, and the guardian is charged with the responsibility to exercise those rights on behalf of the incapacitated person, who is legally referred to as “the ward.”

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.

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