Florida Probate Litigation Lawyer Blog

Planning for a Loved One with a Disability: Special Needs Trusts

February 5, 2013 | by Bart Chepenik

A special-needs trust, also known as a supplemental-needs trust or a disability trust, is a trust established for an individual with a disability who qualifies for government benefits from that disability, in order to provide income supplemental to the government benefits without rendering the individual ineligible for the benefits. Special-needs trusts are an important tool because, once a person has a certain amount of assets, he or she will become ineligible for his or her government benefits. However, a friend or relative of a disabled individual, or that individual him or herself, may want to ensure that there is sufficient income available in order to maintain a certain quality of life. A relative of an individual with special needs may also be interested in establishing a special-needs trust because the monetary costs of that person’s care can be high, particularly on an extended or long-term basis.
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Can settling your probate case provide you with a tax break?

January 29, 2013 | by Bart Chepenik

With estate tax rates that could reach 55 percent in 2013 along with a falling exemption, it is not surprising that taxpayers will look for every way possible to reduce their tax burden, and one potential way of accomplishing this is with deductions. Typically, after an estate is valued, it is entitled to certain deductions from its value. For example, if an estate was valued at $ 20 million and the estate was entitled to 3 million dollars of deductions, the taxable estate would only be $ 17 million. The most common deductions are the charitable deduction and the administrative expense deduction. Generally, when a sum of money is paid by an estate, it is considered deductible if it is supported by adequate consideration and not attributable to the testator’s testamentary intent, i.e., the testator must not have intended to give anything away and some type of service must be provided for the estate). I.R.C. 2053(c)(1)(A). Thus, distributions to beneficiaries are usually not deductible. In Estate of Bates v. Comm’r, the Tax Court disallowed a deduction by the estate because the deduction related to a settlement from a claim brought by a beneficiary. Decedent had a longstanding and extremely close relationship with the claimant, expressly provided that he would receive estate assets, and memorialized her testamentary intent. In addition, the court resolved the amount of estate assets that the claimant was entitled to receive, and the settlement payment was paid in full satisfaction of any claim relating to the estate.
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How the New Investment Income Surtax Affects Estates and Trusts

January 23, 2013 | by Bart Chepenik

In order to finance the Patient Protection and Affordable Care Act, Congress has imposed a new 3.8% surtax on certain passive income starting in 2013. Typically, passive income includes interest, dividends, rents, royalties, capital gains, and other payments in which the investor does not actively participate in management. The surtax applies to home sales if the profit from a home sale is more than $250,000 ($500,000 for a married couple). For estates and trusts, the 3.8% surtax will be imposed on the lesser of (1) the undistributed net investment income of a trust or estate, or (2) the amount by which adjusted gross income exceeds the top inflation-adjusted bracket for estate and trust income, which is expected to be approximately $12,000 in 2013. The surtax applies to individuals who receive distributions of net passive income from trusts and estates. These rules do apply differently to grantor trusts because the income from grantor trusts passes directly through to the grantor’s tax return.
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Self-Settled Trusts and Using Multiple Jurisdictions to Protect Your Assets

January 15, 2013 | by Bart Chepenik

In the past few years, a number of states, such as Nevada, Alaska, and South Dakota, have enacted legislation that permits the use of self-settled or “asset-protection” trusts. Basically, these trusts allow a person to be the beneficiary as well as the grantor in a trust. As the name implies, these trusts are usually implemented to legally shield debtors from claims by creditors, or at the very least, to provide a deterrent against creditor claims. However, given public policy concerns, these trusts may have a hard time being respected by courts and actually providing asset protection. Critics note that domestic trusts are still domestic. Consequently, judgments in other states must be honored by the state in which the trust is located and a trustee can potentially be compelled to give up the trust’s assets as a result of such a judgment. Classically, this has not been much of a concern for these trusts’ foreign counterparts. Judgments rendered by U.S. courts have little to no weight in foreign jurisdictions. As a result, a creditor would have to separately pursue a claim and obtain a judgment in the foreign jurisdiction, which usually has highly unfavorable creditor laws, if it wants to reach the assets of a foreign trust. This makes it not only extremely difficult, but also expensive and time consuming, to obtain a judgment to get the assets in a foreign trust.
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Deathbed Marriages

January 9, 2013 | by Bart Chepenik

It is well known that many wealthy individuals come to sunny Florida to retire. Unfortunately, Florida also has its fair share of people looking to take advantage of Florida’s wealthy, elderly population. For example, it is not uncommon for a younger man or woman to marry a high net worth individual whose life expectancy is nearing its end. This type of marriage is commonly referred to as a “deathbed marriage.” In Florida, people used to be able to enter into valid marriages while one spouse was literally on their deathbed with only minutes to live. Luckily, a change in the law has opened the door to challenge this type of marriage.

Deathbed marriages are a common way for unscrupulous individuals to take advantage of the elderly. The younger spouses of the newly deceased have the right to the decedent’s homestead and anywhere from thirty percent to one hundred percent of the decedent’s estate under the Florida elective share statute, or intestacy, statute. It used to be that heirs could not challenge the validity of deathbed marriages. Under Florida law, marriages even minutes before death were valid and other potential heirs had no standing to challenge them. However, Florida Statute Section 732.805 drastically changed this. Most notably, the statute gives a decedent’s heirs standing to challenge a deathbed marriage.
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The New Risk of Being an Executor: Watch Out for Unpaid Taxes

January 2, 2013 | by Bart Chepenik

Usually when an executor is appointed to administer an estate, he or she does not think that the liabilities of the estate could actually become their own. However, in U.S. v. David A. Tyler and Louis J. Ruch, a federal judge ruled that an executor can be held liable for the unpaid federal income taxes of an estate. In Tyler, the executor of an estate conveyed real property to the son of the decedent. The son was also one of the executors of the estate. The estate had a large unpaid income tax liability at the time of the real property conveyance. The son, who was aware of the unpaid income tax, sold the real estate and claimed to have lost the proceeds in the stock market. As a result, the Internal Revenue Service found itself trying to get blood from a stone because real estate conveyance essentially drained the estate. Tax liens are not extinguished by death and do stay attached to an estate’s property. Interestingly though, the Internal Revenue Service found recourse not in the Internal Revenue Code, but under Title 31 of the United States Code in Tyler. Under 31 USC 3713(b), the fiduciary in charge of assets is liable for unpaid claims of the government if (1) the fiduciary distributed assets, (2) the distribution rendered the estate insolvent, and (3) the fiduciary had actual or constructive knowledge of the liability before the distribution took place. Clearly, this underscores the importance of executors being properly advised when distributing assets of an estate.
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Acquisition of Property by Minors

December 24, 2012 | by Bart Chepenik

In their wills, many parents choose to leave property to their children. Others may give their children certain property while they are still living. Children may also have an interest in property as a result of a trust set up by one or both of their parents. But, what if these children are still minors? Is it legal for a parent or natural guardian to transfer property to minors? Who is authorized to make decisions with regard to that property? Can the minors themselves make decisions to alter or sell the property?

Generally, “[t]he fact that a person is a minor does not prevent him from acquiring and holding title to property.” Watkins v. Watkins, 123 Fla. 267 (1936). However, complications often arise out of a minor owning real or personal property or having some other property interest transferred to him or her, such as having to pay property taxes on real estate. In this circumstance, the natural guardian of the child will have to assist the child. When the aggregate sum of the property does not exceed $15,000, the natural guardian(s) of a minor may “(a) settle and consummate a settlement of any claim or cause of action accruing to any of their minor children for damages to the person or property of any minor children; (b) collect, receive, manage, and dispose of the proceeds of any settlement; (c) collect, receive, manage, and dispose of any real or personal property distributed from an estate or trust; (d) collect, receive, manage, and dispose of and make elections regarding the proceeds from a life insurance policy or annuity contract payable to, or otherwise accruing to, the benefit of the child; and (e) collect, receive, manage, dispose of, and make elections regarding the proceeds of any benefit plan . . . of which the minor is a beneficiary, participant, or owner.” Fla. Stat. § 744.301(2). However, when the amount of the property exceeds $15,000, the rights of the natural guardians are limited and subject to review and permission of the court. Until the minor reaches the legal age of majority, he or she is under a type of “disability” because she lacks the capacity to enter into binding contracts. However, if the minor does not want to sell the property or does not need to sell the property, he or she may choose to hang on to the property until he or she reaches the age of majority.
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Florida’s Antilapse Statute

December 17, 2012 | by Bart Chepenik

Many individuals execute wills before their death, leaving certain gifts to their family members, friends, and other individuals. From time to time, however, certain individuals named in a will (i.e., “devisees”) predecease (i.e., die before) the person leaving them the gift. If a new will is not executed, a question arises concerning who should then be entitled to that property. Before the modern Florida statutes, under common law, if a specific or general devise (i.e., a gift in a will of either specific property or a particular amount of money/stock, respectively) lapsed because the beneficiary predeceased the testator, the gift went to the residuary of the estate, meaning that it would become part of the general estate and would go to the remaining living heirs.

Disagreeing with the common law, many state legislatures drafted statutes which reversed or otherwise altered the common law rule. Florida is among the states that have chosen to deviate from the common law rule by adopting an “antilapse statute.” Under the Florida Antilapse Statute, when a particular devisee predeceases the testator, the gift to the devisee does not fall into the residue of the estate or pass to the heirs of the testator by intestacy. Instead, the gift descends to the issue of the predeceased devisee. Specifically, Florida Statute § 732.603(1) provides as follows: “Unless a contrary intent appears in the will, if a devisee who is a grandparent, or a descendant of a grandparent, of the testator: (a) is dead at the time of the execution of the will; (b) fails to survive the testator; or (c) is required by the will or by operation of law to be treated as having predeceased the testator, a substitute gift is created in the devisee’s surviving descendants who take [in equal shares] the property to which the devisee would have been entitled had the devisee survived the testator.”
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Serving as Personal Representative of an Estate: What is a “Reasonably Ascertainable” Creditor?

December 10, 2012 | by Bart Chepenik

When probating an estate (i.e., distributing a deceased person’s assets), a personal representative is responsible for seeing that the process is carried out in accordance with the deceased person’s wishes and state law. Some very common questions often arise in this context: What exactly are the duties of a personal representative? What steps is a personal representative required to take in order to properly fulfill those duties.

The Florida Probate Code dictates the rights, duties, and responsibilities of being a personal representative of an estate. One of the many obligations that comes with the role of personal representative is the duty to notify creditors of the death of a debtor. This gives creditors the opportunity to satisfy the debt from the estate. Once the creditors are notified, they have a certain period of time to file a claim against the estate. Florida Statute § 733.2121(3)(a) says that “[t]he personal representative shall promptly make a diligent search to determine the names and addresses of creditors of the decedent who are reasonably ascertainable, even if the claims are unmatured, contingent, or unliquidated, and shall promptly serve a copy of the notice on those creditors. Impracticable and extended searches are not required.” Depending on the type of creditor, the statute of limitations to file a claim is either two years from the notice for “readily ascertainable” creditors or within a three month window for creditors who are not “reasonably ascertainable.” What does all of this mean? When does a search go from reasonable to impracticable? What is “readily ascertainable”?
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The Digital Age and Wills, Social Media and Licenses After Death.

December 3, 2012 | by Bart Chepenik

People generally know that the purpose of a will is to facilitate the orderly distribution of assets after a person’s death. Therefore, it logically flows that assets that expire upon death do not need to be handled by a will. They expire. However, the concept of ownership has changed drastically over the past decade. Digital media, social media, and the internet in general have changed how people think they own things and how they actually own things. Would you be surprised to know that you don’t actually own the album you just bought from iTunes? You do not own it in the same way as the CD you bought from a music store. Your rights are limited when you are buying things online. You are buying the digital rights to use a file rather than buying the actual file. Today, most digital licenses are individually owned, non-transferrable, and expire on death. Good examples of these are email accounts, such as Gmail, social media accounts, such as Facebook, and media accounts, such as iTunes and Amazon. Ownership has changed from owning a physical, tangible object to owning a license for use of something with limited rights. You do not have a CD to play wherever you want anymore; you have a digital file that can only be played on certain devices. Usually devices that are made by the company you bought the file from – such as Apple limiting the use of its media files to its products. At the end of the day, you still paid the same amount of money for a digital album as you would have for a tangible CD. So, how is it fair that these licenses expire on death and are non-transferrable? Shouldn’t these files still be considered an asset? And shouldn’t there be a way to protect them?

The operative word in a lot of these digital user agreements is is “individually.” Files you buy on iTunes are owned individually, cannot be transferred, and expire on death. So, you spend thousands of dollars on a digital music collection and instead of being able to bequeath your prized collection of CDs to your favorite grandchild, you lose your collection when you die. Read the user agreements for digital media and see for yourself. However, there are ways to solve this problem. One solution is owning the files by an entity other than an individual. What about digital assets owned by a business or a trust?
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