South Florida Estate Planning Law : Florida Estate Planning Lawyer & Attorney : David Shulman Law Firm : South FL Wills & Trusts

One of the cool things about having a blog is looking at "the stats."  The stats are the internal analytics of the blog, where I can see how many people have visited, what articles they read, and if they came here from Google or another search engine, what terms they were searching for.  It's always nice to see that people are looking for certain topics, and I hope that my post answers their question.  Of course, I also hope that if they are in Fort Lauderdale, Broward County, or elsewhere in South Florida, that they'll consider hiring me as their attorney too.

Recently though, I have seen a lot of people coming to my blog with using the search term "Florida Estate Tax" or some variant thereof.  I can only assume that they want to know if you die in Florida, what is the estate tax, and how much they'll have to pay.

I'd like to put their mind at ease and say that for anyone dying after 2004, there is no estate tax in Florida.

(If that was your question, you don't have to read any further.  If you'd like a little bit of an explanation, read on).

There used to be a Florida estate tax.  The way it worked, is the Florida Estate Tax was known as a "pick up tax."  That is because the Federal Estate tax allowed a tax credit as opposed to a deduction for any state death taxes.  The Florida Estate Tax was equal to the maximum amount of the Federal Estate Tax's death credit.  Economically, this resulted in a decedent's estate paying no more in taxes -- just some of it went to the state of Florida instead of the federal government.

As part of the gradual estate tax repeal, the state death tax credit was turned to a deduction.  Because there is no more state death credit, there is no more Florida estate tax.  Could that change in the future?  Possibly.  We'll have to wait and see.  

Note:  This just means that there is no State of Florida estate tax.  The Federal Estate tax still applies.

• Email This
• Print
• Comments
• Trackbacks

I am getting a lot of questions from clients and friends about what the status is of the estate tax. Additionally, a lot of people coming to my blog from Google are searching for answers also.

First, some review.

There are two important components to remember when discussing the estate tax -- the exemption, which is the amount of property that an individual may transfer at death before the tax kicks in, and the rate, which is when an individual has a gross estate that is larger than the exemption, the amount (percentage) that the property over the exemption is taxed at.

In 2001, the Republicans tried to repeal the estate tax (which at the time had an exemption of $675,000 and a rate of 55%), but because of budget and reconciliation rules they couldn't really do it. So they did it over 10 years. The exemption gradually went up and the rate gradually went down. 

In 2009, the exemption is now up to $3.5 million -- meaning that anyone that wishes to pass on less than three and a half million is not subject to the estate tax (and a married couple that engages in proper estate planning can have an exemption of $7 mil), and the rate is 45%.

In 2010 as the law now stands, there is no estate tax at all. That means that you can transfer an unlimited amount at your death, and not have it subject to the estate tax. The gift tax exemption is still $1,000,000, so you can't give it all away while you're alive.

In 2011, as the law now stands, the estate tax kicks back in and the exemption goes down to $1,000,000 and the rate goes up to 55%. Before the housing crash, a $1,000,000 exemption really wasn't that high.

So estate planners are calling next year "Throw Momma from the Train" year, because of the enormous possibility of having one year without any estate tax.

It's important to realize that the gross estate, includes all of your assets, including not just cash in the bank, but your home, your stocks and bonds, your 401(k), any life insurance you own on your life, and even certain property that you thought you gave away.

If there is going to be an estate tax, 99% of Americans only care about the exemption. Make the exemption high enough, and it won't apply to them. On the other hand, that 1%, the super rich, don't care at all about the exemption. Does it matter for Michael Jackson's estate whether the exemption is $1 million, or $3.5 million or $10 million? His estate will still be subject to tax at 45% on a significant amount of money.

So if you accept the fact that there is going to be an estate tax, there are different lobbies involved now. There is the lobby of the super-rich who wants to lower the rate down as much as possible (I've heard 15%), and then there is the lobby for less wealthy interests who are in favor of raising the exemption up as high as possible, say $15 or $20 million and does not care so much about the rate.

So that's where we are.  January 1, 2010 is approaching fast, and there are a number of bills kicking around Congress right now. Ignoring the unrealistic "let's just repeal the whole thing" bills, almost all of the bills do the same thing*. 

They punt.

Instead of fixing the long term problem, they all extend the 2009 numbers for one more year, so that Congress can deal with it sometime next year, which is an election year.  We won't have a situation where people will die with no estate tax at all, but the problem isn't fixed either.
 

*The various bills have different tweaks involving things such as "portability" and banning valuation discounts for family limited partnerships, but that's less important than the overall picture.

• Email This
• Print
• Comments
• Trackbacks

 It turns out that yesterday was a bad day for the IRS.  Not only did they lose an important gift tax valuation case, but they also lost a very large Family Limited Partnership case in Federal District Court.

I do not think that the facts of Keller vs. United States are very interesting, but the amount sure is.  The plaintiff's initial claim for refund was $40,455,332!!  The final amount hasn't been settled yet, but if anything, it's going to be even larger than that.

Link to Case.

• Email This
• Print
• Comments
• Trackbacks

Yesterday, the Tax Court issued its decision in the case of Pierre v. Commissioner, 133 T.C. No. 2 (2009) which was a resounding defeat for the IRS.  In a Federal Gift Tax matter, the IRS tried, and failed to argue that because of the check the box regulations, when a taxpayer makes a transfer of an interest in a single member limited liability company, the entity should be disregarded and the transfer should be treated as a transfer of the underlying assets.

The Tax Court ruled that although the classification of an entity for federal tax purposes is governed by the check the box rules, state law applies in determining what is actually gifted.  This ruling is important because it provides a road map of another way for estate planning practitioners to generate valuation discounts for their wealthier clients.

Link to Case

• Email This
• Print
• Comments
• Trackbacks

In my previous post, I discussed some of the minor changes to the Florida Probate Code enacted by the Legislature this year. In this post, I will discuss one of the major changes, and that is to the Elective Share rules. The Elective Share rules are based upon the old English common law rules of dower and curtesy. In short, the rules provide that if you are married, you are not allowed to disinherit your spouse. If you leave your spouse out of your will and give everything to your children or your mistress, or, if you leave your husband something but he is unhappy with it, then in Florida the surviving spouse has the right to take what's known as an elective share. When people first hear about this they are often outraged. "It's my money and I should be able to leave it to whoever I want to!" they say. But the legislature decided that the state has a fundamental interest in protecting poor old widows (and in rarer cases widowers) from being kicked out on the street by the vengeful children of their recently deceased spouse (this is also the reason behind the Homestead rules of devise and decent.)

The amount of the elective share is 30%. Not too long ago it was fairly easy for estate planners to avoid the elective share by certain transfers, life insurance purchases, and pay on death accounts, so that the deceased spouse did not own any property that would be subject to the elective estate upon their death. Then, the Florida legislature changed the rules to create what is known as the "elective estate." The elective estate includes the decedent's probate estate, interest in transfer on death accounts, the cash surrender value of his life insurance, and even property given away by him during the one year period preceding his death.

Once the elective share is determined, by adding up all of the property comprising the elective estate (and subtracting any allowable deductions), the surviving spouse is entitled to 30% of that. But the next question is how is that paid? If the elective estate is comprised of life insurance going to Son A and an IRA account where daughter B is the beneficiary, and property given to C before the decedent died, how is the elective share satisfied? Or to put it in laymen's terms "who get's screwed?"

The Legislature substantially amended Section 732.2075, "Sources from which elective share payable; abatement" by providing that if certain property passing to the surviving spouse automatically does not satisfy the elective share, then the unsatisfied balance shall be "allocated entirely to one class of direct recipients of the remaining elective estate and apportioned among those recipients, and if the elective share amount is not fully satisified, to the next class of direct recipients," in a certain order, until the elective share is satisfied.

In the next post, I will discuss the various classes from which the elective share is satisfied, and the new rules regarding disclaimers.

• Email This
• Print
• Comments (2)
• Trackbacks

The Florida Legislature has made a number of tweaks, some major, mostly minor, to the Florida Probate Code in 2009.  My summary of the minor revisions are below. The statute went into effect on July 1, 2009. First, the minor changes.

1. In Section 731.201, the term "Incompetent" has been changed to "Incapacitated" (and the definition revised) and the term "Minor" has been added.  Additionally, whenever "incompetent" previously appeared in the Code, that term has been changed to incapacitated. 
2. Section 732.108 had been clarified to provide that Chapter 95 concerning adverse possession and the limitation of the claims of certain heirs in an adverse possession case, is not applicable with regards to determining whether a child born out of wedlock can inherit from its father or father's relatives.
3. Section 735.203 is amended to provide that when filing a Petition for Summary Administration (which is an abbreviated probate process for estates that are worth less than $75,000), if the Trustee of a Trust that is a beneficiary of the estate signs on to the Petition, then each Qualified Beneficiary of the Trust shall be served formal notice of the petition, unless joinder or consent is obtained from the Beneficiary..  This is actually an important provision.  Some courts, before issuing an order of summary administration were requiring the consent of all qualified beneficiaries, and some were not.  This amendment clarifies that if the Trustee/Petitioner is unable to obtain all of the Qualified Beneficiaries of the Trust, then it may serve them Formal Notice instead.
4.  Section 736.0802 is amended to impose stricter rules on what type of investments a Trustee may make, and whose consent it must receive before doing so. 

But the two major changes to the law involve the elective share and disclaimers, which I shall discuss in my next post.

Link to Original Legislation

• Email This
• Print
• Comments
• Trackbacks

 I have received a number of inquiries lately from potential clients who are interested in asset protection.  The absolute best time to engage in asset protection is before you have any creditors or potential creditors.  While there are some sophisticated techniques that an attorney can help you with, there are also some simple things that everyone should know.  Note that (1) this applies to Florida residents only, as I am not familiar with the laws in other states, and (2) more importantly, this is general information only, and may not apply to your specific facts and circumstances.

1. If you are married, then one of the best things you can do for asset protection is to own all of your assets with your spouse as "Tenants by the Entirety." Tenants by the entirety is a special form of joint ownership that is available only to spouses.  What makes it a powerful form of asset protection is that the individual creditors of either spouse cannot reach the asset. However, a creditor of both spouses jointly might be able to.  Be aware however that when you own property as Tenants by the Entirety, when one of the spouses dies, the other spouse automatically inherits the entire property.  Based on your individual situation, this might not be ideal from an estate planning perspective.
2. Certain assets are exempt from creditors.  That means that if you are sued and lose the lawsuit, your creditors may not force you to sell these assets to pay them, or collect against them.  These assets include (1) your Homestead (with certain very important caveats); (2) your IRA, Pension Plan, 401(k) or other Retirement Plans; (3) the cash value of any life insurance policy that you own on your life; (4) certain annuities.
3. The rules regarding your Homestead and its exemption from creditors are tied into the federal bankruptcy law.  There may be some limitations based upon how long you have lived in the state and the value of your homestead.  If this is a concern, you should consult an attorney.
4. Despite what you might have heard, a revocable living trust does not provide any creditor protection at all.  Zero.  None.  Zilch.  The purpose of a revocable living trust is to avoid probate, and to plan for incapacity.  That's it.  Now, probate avoidance and incapacity planning, can be and is very important. It could save your family the burden and cost of a Guardianship if you are incapacitated (as could a durable power of attorney); and avoid the cost of probate after your death.  However, it is not an asset protection tool.

These are just some simple tips that everyone should know.  If you are concerned about potential future creditors, by putting your wealth into some of the above assets, they should be protected.

There are also some more advanced creditor protection techniques, including family limited partnerships, irrevocable trusts in certain states, and other ownership structures.  However, if you are interested in these, you should see an attorney.

• Email This
• Print
• Comments (2)
• Trackbacks

However, I just received an email from a scam artist claiming he did.  I hope that everyone knows that these types of email are always false and are always scams.  Michael Jackson did not leave you money in his will, and the widow of the prince of Nigeria doesn't need your help getting $10,000,000 out of the country.  Also, in the event that someone has died and left you something, in all likelihood you will be contacted in a method other than email.

This message made it past my junk mail filter.  I'm not sure why.  Normally, I'd just delete these obvious scams and move on.  But I have to say, as an attorney who practices in the area of trusts and estates, I was very amused.  

First, the email is from "BARRISTER JOHN BRANCA [[redacted]@yahoo.com.hk]"  Let's ignore the fact that the email is from Hong Kong.  The scammer made a major error here by calling himself "Barrister."  In many countries, the job of a lawyer is split into two professions -- a barrister and a solicitor.  Generally, the barrister is the lawyer that goes to court, and the solicitor is the lawyer that does everything but go to court (it's more complicated than that).  

However, in the United States, there is no such thing as a barrister or solicitor.  All lawyers can be both or neither.  So his use of the term "Barrister" shows that he knows absolutely nothing about the United States legal system.  Not a good first step.

Here is the rest of the email in its entirety.

 

Hope you receive this message!!!

On behalf of the Trustees and Executor of the estate of Late Michael Jackson. I once again try to notify you as my earlier letter were returned undelivered. I wish to notify you that late King of Pop. Michael Jackson made you a beneficiary to his WILL. He left the sum of Five Million, Dollars (USD$5,000.000.00) to you in the Codicil and last testament to his WILL. This may sound strange and unbelievable to you, but it is real and true. Being widely entertainer, he must have been in contact with you in the past or simply you were nominated to him by one of his numerous fans abroad who wished you good. Late Michael Joseph Jackson until his death was a member "MJFC" The Michael Jackson Fan Club and the Institute of entertainer. Please if I reach you as I am hopeful, endeavor to get back to me as soon as possible to enable me conclude my job. You are advice to contact me with my personal email: [redacted]

 

Okay, I'm only pointing out some of the errors I see as a probate attorney.

1. That should be "made you a beneficiary of " his Will, not "to."
2. Not only that, as I have previously written, Michael Jackson did not leave anyone anything in his will.  The Will is a "pourover" will, meaning that it leaves everything to a Trust, and the Trust makes dispositions of the assets.  The Will is public; the trust is not.
3. The email then says, "He left the sum of Five Million, Dollars (USD$5,000.000.00) to you in the Codicil and last testament to his WILL."  This sentence does not make any sense.  It seems like the writer does not know what the term "Codicil" means, and hopes his recipient won't either.  Simply, a Codicil is an amendment to a Will.  When a person wants to change their Will, sometimes instead of rewriting the entire Will, they will issue a Codicil, which would only amend a page or a paragraph, or a section or a sentence.  Codicils were much more common in the days before computers and laser printer, when rewriting a 50 page Will could be a major undertaking.

The other errors of spelling and grammar and just general ridiculousness are easily spotted, whether or not you are an estate planning attorney.  What's sad, is that these emails actually work.  There will be some poor fool out there who will be taken in, and will soon discover that in order to receive their inheritance, they will have to pay money to the scam artist.

But note to scam artist: Stick with Princes of Africa and not Kings of Pop -- you'll be more successful. 

• Email This
• Print
• Comments
• Trackbacks

The clock is ticking.  If Congress doesn't act, on January 1, 2010, the Federal Estate Tax will be repealed.  While I'm sure that many people think that this is a great thing, it is not.

First, it will be repealed for one year and one year only. Not only that, when it returns on January 1, 2011, the lifetime exemption, that is the total amount of property that a person may own at the time of their death, goes from $3,500,000 today back to $1,000,000.

Estate planners are referring to 2010 as "Throw Momma From the Train".

Tick tock, Congress.  Tick tock. 

• Email This
• Print
• Comments
• Trackbacks