Estate Planning and Tax Lawyer Blog

The law relating to LLCs changed with the ruling in the Olmstead case. The Olmstead case struck down the charging order as the sole remedy against the membership interest in a single member LLC. In fact, the ruling left open the possibility that a multi-member LLC could be subject to the same type of ruling. In reading the Olmstead case, it was apparent that the Florida Supreme Court wanted to get to this ruling in reading the first sentence of the facts. The Court pointed out the fact that the LLCs were being used to run a credit card scam.

The ruling may have effectively killed the Florida LLC and the reasons for creating it. The Court discussed the Florida Limited Partnership and why the charging order is still in effect for it but not the LLC. I believe something will have to be done to clarify the law to make it clear whether or not the ruling applies to multi-member LLCs so that we will not have to wait until the Court rules on a multi-member LLC case. So only time will tell.

To discuss your LLC or other business entity, please consult our Jacksonville planning attorney.

The Florida Single-member Limited Liability Company (LLC) took a huge hit last week when the Florida Supreme Court issued its ruling in the Olmstead v. FTC case. On June 24^th, the Florida Supreme Court ruled that a judgment creditor may seize the ownership interests of a member in a single-member LLC. To fully understand the courts ruling, let me first discuss what used to be the benefits of an LLC versus say a C Corporation.

The LLC is a business entity that provides the benefits of both a partnership and a corporation. LLCs are taxed either as a sole proprietorship, partnership or S corporation, depending on what box you checked when you formed the LLC. LLCs protect against liability that arises from business activities, just like a C corporation. However, when someone gets a personal judgment against you as a shareholder of a C corporation, they may obtain your shares of stock. With a LLC, that was not the case. A judgment creditor, until last week in Florida, was only able to get a charging order. A charging order limited the judgment creditor to receiving only distributions from the LLC. The LLC does not have to make a distribution. Further, the holder of the charging order would pay taxes on the income allocated to them because they had the right to the income, not the member. The charging order does not give the creditor any management rights at all, only a right to the distribution.

In my next blog I will discuss what the Florida Supreme Court case ruling does to existing law. To discuss your LLC or other business entity, please consult our Jacksonville planning attorney.

If you started and/or own a family business, chances are that you spend a lot more time thinking about running the business than you do about leaving it. However, having a business exit strategy in place – whether you plan to retire or go out feet first – is an essential part of estate planning.

A business exit strategy usually involves the transfer of ownership interest to other family members or key employees, or the sale of the business. As part of your business exit planning, you will need to prepare a list of assets and have the business valued by conducting a professional appraisal or valuation.

You will then need to confer with your estate planning attorney to examine all the potential alternatives available and the legal and tax consequences of each for your estate. Once a business exit plan has been designed, it must be implemented carefully following the proper legal and business steps to accomplish your end goals.

Having a documented business exit strategy in place ensures that you protect the business you’ve spent years building, as well as a secure future for your heirs.

If you need more information about business exit strategy planning, contact our Jacksonville Florida estate planning law firm.

One of the most common mistakes that we as Florida estate planning attorneys see is incorrect beneficiary designation. This is at the root of many unintended consequences that often lead to legendary family disputes.

An area where you need to be sure you get it right is for beneficiaries of qualified plans. Qualified plans include IRAs, life insurance policies, annuities, 401(k)s and any other plan that qualifies for income tax benefits. You need to be sure you have the proper beneficiary designations in place so these assets go where you intended.

For example, if you leave assets to your “living children” and one of your children pre-deceases you, their children will be cut out of any inheritance that may have eventually come to them through the deceased parent. Most people would want the grandchildren to benefit, so the language must be very specific.

In addition, if you name your children as beneficiaries and they have not reached legal age to own those assets at the time you die and you have not named a guardian, the assets would then have to be administered by a court-appointed guardian, which is an expensive process and may not follow your wishes. The solution would be to set up a trust, naming a trustee to take over until the children are at the age you designate to receive their inheritance.

For more information on beneficiary designation and Florida estate planning, contact our Jacksonville Florida estate planning law firm.

Identifying the individuals who will carry out your wishes once you are gone is an important part of estate planning. There are several different roles to fill, including:

Executor – this is the person who takes charge of all your assets and ensures they are distributed in accordance with your wishes as spelled out in your will. Some people choose a responsible family member to fill this role, while others may prefer a professional.

Guardian – this is the person who is designated to care for your minor children in case you and your spouse die before they come of legal age. While this is usually a family member, careful consideration needs to be given to a guardian’s financial and emotional capabilities as well as their willingness to care for your chlld(ren). Sometimes, two guardians are appointed – one to look after the children and one to manage the children’s financial assets.

Durable Power of Attorney – this is the person who would make financial decisions for you if you become disabled or otherwise unable to manage your financial affairs.

Power of Attorney for Healthcare – this is the person who would make healthcare decisions for you if you are unable to make them for yourself.

If you need help with ensuring your wishes are respected after you’re gone, contact our Jacksonville Florida estate planning law firm.

The battle continues over the former childhood star's estate. Gary Coleman's ex-wife Shannon Price and former business associate, Anna Gray continue to argue over who Coleman left as the beneficiary of his estate. In the meantime, Robert Jeffs, an attorney, has been appointed as the estate's temporary special administration.

Coleman and Price were divorced in 2008, but were living together at the time of Coleman's death. One one hand, Price argues that she was Coleman's common-law wife and has filed a hand-written document from 2007 that would give her Coleman's estate, if validated by the court. On the other hand, Coleman signed a will in 2005 that named Gray, from Portland, Oregon, as executor and awarded her all of his estate.

It is expected to take Utah District Judge, James Taylor, several months to conduct a trial that will determine which document is Coleman's last legal will and, thus, who will be awarded Coleman's estate. Until then, Coleman's remains are expected to be cremated and locked into a vault by Jeffs. There is no debate over whether or not Coleman wished to be cremated; the 2005 will called for his remain to be cremated as well as an earlier will made in 1999. Although both these wills are in agreement over Coleman's cremation, the wills contradict each other over whether or not Coleman wanted to have a funeral service. The 2005 wills states "there be no funeral serve, wake, or other ceremony memorializing my passing." However, the earlier 1999 will states gives instructions on who could and could not attend any funeral or memorial service. To read more about the battle of Coleman's estate see Gary Coleman's estate may take months to resolve.

Coleman's case happens all to frequently; where different and conflicting wills are created throughout one's lifetime. It is important to keep your legal will up to date. A legal will ensures your interests are protect and your estate is divested the way you intended. Contact a Florida Estate Planning Attorney to draft a legal will, update a previous legal will or discuss any questions or concerns you may have regarding the planning of your estate.

2010 not only ushered in the death of the estate tax, it also gave us the opportunity to take tax-free withdrawals on IRA investments by converting traditional IRA assets to Roth IRAs.

This year, income limits on conversions were lifted to allow anyone to convert from a traditional IRA to a Roth IRA and spread the associated taxes over two years (2011-12).

The benefits to converting:

You can take tax-free withdrawals in retirement from a Roth IRA; withdrawals from a traditional IRA are taxed as ordinary income;

You are not required to take retirement distributions with a Roth, and can let the money accumulate for your heirs.

Generally, the younger you are, the more it makes sense to make the conversion. Seniors who are already in retirement need to examine if they will have enough time and resources to recover from the tax hit.

You can roll your 401(k) into a Roth IRA as long as you are no longer employed by the company where your 401(k) resides. You will owe taxes on the deductible contributions and investment earnings when you convert.

To get all the facts and understand the tax consequences of converting from a traditional to a Roth IRA, you should speak with an estate planning attorney.

Need to learn more about protecting your assets through careful estate planning? Contact our Jacksonville Florida estate planning law firm.

The Florida Supreme Court just published a case that allowed a judgment creditor to attach a single member LLC's membership interest. I will review the case and publish my thoughts on it soon. Stay tuned.

The Section 7520 rate, a minimum interest rate that the IRS makes you use, is at 2.8% for July. This rate is published on a monthly basis. An example of when this rate is used is when you create a note. Recently, I prepared a short term note, less than three years, using an interest rate of .76%.

With rates being this low, it is a great time to do some advanced estate planning. A few great planning ideas include:

1) Grantor Retained Annuity Trusts (GRATs). A GRAT is a trust where the grantor retains the annuity interest for a period of years with the remainder going to the beneficiaries. The annuity payment is calculated using the 7520 rate. With a low rate, the assets should be able to increase faster than the interest rate. Therefore, the investment returns above and beyond the interest rate is passed on to the beneficiaries of the GRAT.

2) Charitable Lead Annuity Trust (CLAT). The same reasoning for doing a GRAT applies to a CLAT. The difference is that a charity has the annuity interest instead of the grantor.

3) Gift of a remainder in personal residence or farm. A lot of clients give a piece of real estate to charity upon their death. With low interest rates, the life estate retained by the property owner is worth less and the remainder to the charity is valued higher. The higher the gift to a charity, the bigger the tax deduction.

4) Notes to family members. With banks still being reluctant to give loans to new businesses, some clients are giving intrafamily loans. The interest rate will be low on the note, very low if the note is for less than 3 years.

The above are just a few great advanced planning opportunities available now while the 7520 rates are low. However, Congress and the IRS have recognized some of these and are discussing how to increase the taxes being paid. So plan now while the planning is good.

To discuss planning opportunities while the 7520 rate is low, please consult with an estate planning attorney.

If your phone contact list includes both a pediatrician and a gerontologist, welcome to the sandwich generation, that growing demographic segment of the population who are taking care of their parents and their kids at the same time.

Besides healthcare, many of us are also taking on more responsibility for helping older parents manage their finances. If you are currently tasked with that responsibility – or will be at some point – here are some things to put on your checklist:

Prescription drug coverage. Is the Medicare drug program your parents chose a year or two ago still the right one for them? Most seniors find the plethora of choices confusing, so defer making any changes they might need. Mark Nov. 15 on your calendar, which is the start date for Medicare’s open enrollment program (it ends on Dec. 31). Visit www.medicare.gov and use the online prescription drug plan finder to find the best plan for them.

Retirement account distributions. If you have parents over the age of 70 ½, they must take the required minimum distributions from their qualified retirement accounts by the end of each year. If they don’t, whatever is left over on Dec. 31 is subject to a 50 percent penalty. You can set up automatic deductions to solve this problem as well.

Estate planning. If they have not done so already, your parents need to visit with an estate planning attorney. Estate planning laws change constantly, so even if they do have an estate plan in place but haven’t updated it in awhile, they need to do so.

For more information on retirement and estate planning, contact our Jacksonville Florida estate planning law firm.

State estate taxes, like federal estate taxes, are constantly changing. The federal estate tax expired on January 1, 2010. Since the federal tax expiration, its restoration has been uncertain and federal lawmakers have been putting off action in some cases. Some of the states fluctuation instability stems from the federal mess. In the interim, 19 states and the District of Columbia have imposed their own estate and/or inheritance tax on estates not left to a spouse or charity. Some of these individual state taxes are even taxing modest estates. Hopefully the federal lawmakers will make some decisions, because largely what happens in the states will depend on what happens federally.

Summary of the 19 states plus Washington D.C.:

• 11 States and Washing D.C. – levy an estate tax only
• 6 states – levy an inheritance tax only w/ a rate dependent upon the relationship of the heir to the deceased
• New Jersey and Maryland – levy both an estate and inheritance tax

To read more about this topic see 19 States impose tax on estates not left to a spouse or charity or Disappearance of the federal estate tax creates confusion.

To discuss the current and future estate tax situation, please consult with an estate planning attorney.

As stated in my last few blogs, there are certain things you should think about when designing a trust for a beneficiary. Also remember, this list takes a very conservative approach and can be modified according to specific state law. The list continues as follows:

7) Consider selecting a state to settle the trust or move the location of the trust to a jurisdiction with more debtor friendly laws to maximize the protection of the corpus from the claims of potential creditors of a beneficiary. Some states are much friendlier than others.

8) Avoid giving a beneficiary the authority to remove and replace any trustee because a court may view it as placing with the beneficiary ultimate control over the trust.

9) Give the trustee the authority to distribute income or principal to multiple current beneficiaries rather than a single current beneficiary. This can easily be done by including the children of the beneficiary you intend to be the main beneficiary.

10) Consider including provisions that might automatically eliminate or suspend a beneficiary’s interest in the trust or give an independent trustee the authority to eliminate or suspend a beneficiary’s interest in the trust. This is commonly done with divorce provisions to cut-off an in-law upon divorce.

11) Consider limiting the beneficiary’s access to all or a portion of the trust for the term of the trust or a lesser period. You may want to limit distributions to income until age 65 to allow the principal to be there for your beneficiary’s retirement.

12) Consider giving an independent trustee the power to distribute the assets of the trust to the trustee of another trust.

And a bonus consideration: Do not permit a beneficiary to assign any part of all of his or her beneficial interest in a trust to anyone, not even a limited class of individuals such as a beneficiary’s descendants.

To discuss your current estate plan, please consult with an estate planning attorney.

The Atlantic magazine has calculated the net worth of all U. S. presidents in 2010 dollars and the richest chief executive is the one whose face graces those dollars:  George Washington.

By taking into account property assets as well as income and inheritances, our first president ranks #1 at $525 million in 2010 dollars, mostly due to his 8,000 acres of Virginia farmland and his high salary, which was two percent of the total U.S. budget in 1789.

The Atlantic article noted that inherited wealth contributed to the fortunes of a number of presidents starting in the 20^th century, including both Roosevelts, both Bushes and John F. Kennedy.

The publication did not list a “poorest” president, instead listing nine presidents whose net worth was less than $1 million, including the notable (Abraham Lincoln, Ulysses S. Grant, Harry Truman) and the not-so-notable (Chester A. Arthur, James Garfield).

The wealthiest of contemporary presidents was Lyndon B. Johnson, at $98 million.  JFK died before he could inherit any part of his father’s estimated $1 billion estate.

If you need more information about protecting and enhancing your net worth, contact our Jacksonville Florida estate planning law firm.

As I stated in my last blog, the ways you pass the assets on to your beneficiaries determines whether or not there is any asset protection for thos assets.  In the end, most clients want to make sure it is their family who enjoys the assets and no one else.  Below is the first 6 in a list of 12 things you should think about when designing your estate plan.  Remember, this is a very conservative list and dependent on various state laws.

1)  Do not appoint the beneficiary as a Trustee, or if the beneficiary serves as their own Trustee, vest the distribution authority solely in an independent Trustee.

2)  Make all interest in income and principal discretionary unless a mandatory income interest is required to qualify for a tax benefit.  The assets left to a surviving spouse, to qualify for estate tax deferral, must pay all the income to the surviving spouse.

3)  Provide that distributions of income and principal may only be made in an independent trustee's sole, absolute, uncontrolled, unfettered, unlimited and full discretion.

4) Do not give a beneficiary with a withdrawal right over trust assets.

5)  Draft the trust to continue for a beneficiary's life rather than providing for outright distributions or unfettered withdrawal rights.

6)  Do not give a beneficiary a testamentary general power of appointment unless it is required to qualify the trust for a tax benefit.

My next blog post will finish the list of things to think about when designing your estate plan.  To have your estate plan reviewed to ensure it is designed to meet your needs, please consult an estate planning attorney.

There many things to think about when designing your estate plan.  One very important thing to think about is how to leave assets to your beneficiaries after your death (and your spouse’s death if applicable).

Most older estate plans just pass the assets outright to the beneficiary.  The downside of that is that if the beneficiary is ever sued, divorced or has to go on government benefits, the assets are completely subject to be taken.  There is NO ASSET PROTECTION when you leave assets outright to a beneficiary.

The best way to leave assets to a beneficiary is through a trust.  By leaving assets in trust for the beneficiary, as long as the language is correct, the assets will only be available for the beneficiary’s benefit, not for the benefit of any creditor.

Over the next few blogs, I will lay out 12 steps to take in designing a trust share for a beneficiary.  These 12 steps will help better protect your beneficiary from any potential creditor attack in the future.  These 12 steps are very conservative in nature and there may be case law that is more favorable and lenient towards creditor protection.  However, for purposes of my blog, I want to take the most conservative approach to education.  Stay tuned for the rest of the week to see how to properly design your estate plan.

To learn more about designing your estate plan to best protect your beneficiaries, please consult an estate planning attorney.

Many Americans have the mistaken belief that estate planning is just for the wealthy, but that is not the origin of the term “estate” planning.

Everyone who dies owning property or other assets leaves an “estate.”  If you do not have property that would normally go through probate, then having a will is probably good enough.  And drawing up a will is an important part of estate planning.

Another important part of estate planning is developing advance directives, which spell out your wishes in terms of healthcare and/or property management.

Some other reasons for having an estate plan include:

• You have children from one or more marriages or relationships
• You have minor children
• You have a disabled child
• You have no heirs but want your property dispersed to someone other than the state
• You have heirs you want to disinherit

Whatever the size of your “estate”, it is a good idea to formulate an estate plan that reflects your wishes after you’re gone.

For more information on Florida estate planning, contact our Jacksonville Florida estate planning law firm.

It used to be that you could decide at what age you wanted -- or were able -- to retire.  Not any more.

According to a recent NPR report, older Americans are being forced to take early retirement because of the high unemployment rate.  And the Social Security Administration confirms that more older Americans are applying for benefits early.

In fact, the average age of retirement for men and women has gone down steadily since 1945, when the average retirement age was 69.6.  In 2008, the average retirement age stood at 63.6.

From the NPR report:

The Social Security Administration had predicted there would be a 15 percent increase in retirement applications last year as baby boomers reached retirement age. Instead, the increase was 20 percent.

"That's a significant amount," says Jason Fichtner, chief economist at the Social Security Administration.

Fichtner says you might expect fewer people to retire early after the beating so many 401(k)s took when the markets crashed.

"But we also see that there are those people who at age 62 or 63 might have lost their jobs and find it harder to find new employment and decide to take retirement benefits earlier," says Fichtner. "On net, there seems to be more people filing for early benefits than delaying."

If you need help preparing a retirement plan that works for you, contact our Jacksonville Florida estate planning law firm.

Saving too much for retirement is such a contrary notion – especially today, when it has been estimated that Baby Boomers have lost 45% of their net worth in the last five years.

However, it is possible to save too much.  We have been taught to spend our pre-retirement years maxing out contributions to 401(k)s and IRAs in order to save on taxes.  However, much of the tax breaks we enjoy while we are employed no longer are available to us upon retirement.  And if we find ourselves needing less money than we saved, Uncle Sam requires us to start taking the money out and – surprise – gets a nice big chunk of it.

Thus, the taxes we spent so many years deferring now come back to haunt us in our golden years.  Not what most of us planned on!

Which is why retirement planning is essential, and the sooner the better in terms of years left before you retire.  Getting a handle on how much you will really need to retire comfortably is key to managing your retirement funds.  Because you may not need as much as you think.

Once you retire, you will no longer be paying Social Security taxes.  You won’t be making contributions to a retirement account.  And you should rethink paying off that mortgage, since mortgage interest is one of the biggest deductions available for personal income taxes.

And even if you are able to live off other income while your tax-deferred income languishes in your retirement accounts, your heirs may have to pay a hefty price once you’re gone.

Need to learn more about protecting your family through careful estate planning?  Contact our Jacksonville Florida estate planning law firm.

It is estimated that 15 million Americans have left a 401(k) behind with a former employer.  Which means there are 15 million opportunities for Americans to save on their taxes by reclaiming that orphan 401(k) and rolling it over into a Roth IRA.

In addition, if your current employer’s 401(k) plan allows you to make in-service rollovers, you can do the same.  And if you are over the age of 59 ½, you can roll all your money over from your current employer’s 401(k) to a Roth IRA without penalty.

Rolling a 401(k) over to a Roth IRA is the same as rolling over a traditional IRA: the old account is declared taxable with taxes paid on pretax contributions and earnings; the rest goes into the Roth IRA, where future growth is tax-free.

But here’s where converting 401(k)s provides a better tax break than converting traditional IRAs: when converting your 401(k) into a Roth IRA, you can disregard your other IRAs and 401(k)s when determining what percentage of the conversion is taxable.  IRS rules say that if you own several IRAs and want to convert just a portion of the total, that amount must be drawn proportionately from pretax and after-tax dollars in all the IRAs.

If you earn more than $250,000 annually and are thinking about converting a 401(k) to a Roth IRA, better do it this year.  Taxes are likely to go up next year for your income bracket.

For more information on retirement and estate planning, contact our Jacksonville Florida estate planning law firm.

The editors at Money Magazine have put together a good guide on Social Security and pension payouts:

The best age to start collecting Social Security -- You will receive a much larger benefit if you can afford to delay until you reach "full retirement age" or later - and working in retirement might allow you to do just that. For example, if you take an early benefit at 62 the payment will be 25% less than if you waited until your full retirement age. Hold off until you are age 70 and your benefit will be 25% to 30% more than the payout you would have received at full retirement age. So the difference between taking early retirement and waiting until you are 70 can be a benefit that is more than 50% higher.

Of course, the tradeoff is that when you take the earlier benefit you have that many more years of receiving a payout. Still, with much longer life expectancies today, delaying the payout as long as possible typically pays, assuming you make it to at least age 77. And according to the official actuary tables, if you are alive at 65 there's a high probability you will indeed still be around at age 77.

Will you receive your deceased spouse’s Social Security? -- Yes; you will be covered under the Social Security Survivor's Insurance program. And this being Social Security, there are the usual array of odd rules that determine how big a benefit you will receive.

If you have already reached full retirement age (somewhere between 65 and 67 based on your date of birth; if you aren't sure, check your latest Social Security annual statement), you're entitled to 100% of your deceased spouse's benefit.

If you're at least 60 but not yet at Social Security's definition of "full retirement age," your payout will be somewhere in the range of 71% to 99% of your deceased spouse's full benefit. Note that a widow or widower of any age with a child under age 16 is entitled to a 75% payout.

Will you receive a deceased spouse’s pension? -- Maybe. It depends on whether your spouse chose a monthly payout based solely on his/her life expectancy, or a monthly payout that continues through your life - that is, the "joint and survivor" benefit option. If you aren't sure what your spouse chose, get in touch with the company providing the pension.

As you might expect, with the "joint and survivor" option, the size of the monthly payout is smaller because the chances that one of you will live a long time are greater. Additionally, many plans offer different payout options: you may choose a setup that pays 100% to the surviving spouse, 75%, 50%, etc. The higher the promised payout to the surviving spouse, the lower the monthly payment will be.

Once the payout decision is made, it typically can't be changed. So if your spouse hasn't retired yet, your best bet is usually to make sure he or she chooses "joint and survivor" - or you may be in serious financial jeopardy if your spouse dies before you do. Alternatively, choose the bigger payment pegged to the retiree's lifespan, and invest the difference to build a bigger nest egg for you. If your spouse dies shortly after retiring, however, you're out of luck.

Are you up to speed on the latest developments concerning Social Security and pension benefits?  If not, contact our Jacksonville Florida estate planning law firm.

For those of you who are CPAs, there will be an informative CPE event at Wood, Atter & Wolf, P.A. on June 17, 2010 in our Ponte Vedra Beach office.  Seating is very limited and only a few more spots are available.  The event begins at 8:30am and runs through 12:30pm.  The topics that will be covered are IRA beneficiary designaitons, Benefits of being a Florida resident and Hot topics in businesses today that are affecting your clients.  The event includes free CPE and lunch to be provided afterwards.  If you are interested in attending, please call (904) 355-8888 and ask for Randy Kurland.

Are you considering retirement in another country?  You’re certainly not alone.

A few years ago, American retirees were flocking south to Mexico, lured by cheap housing and a lower cost of living.  The recession and the Mexican drug wars have stemmed that tide, although a recent CNNMoney.com report noted that, “The housing markets down south may be starting to revive a little after being on life support the past couple of years.”

While the cost of living in many countries is lower than the U.S., there are several factors to consider when making your decision, including:

Healthcare – it stands to reason that some of the countries with the lowest cost of living also have sub-standard healthcare.  As Americans, we are used to good quality healthcare, even if it is expensive.  Also, Medicare coverage does not extend beyond the U.S. borders, so you may need to return to the U.S. for healthcare or plan to spend more out of your pocket in your adopted country.

Taxes – if you move to another country, you still have to file a U.S. tax return.  If you work in that country and make less than $91,400, you won’t have to pay taxes, thanks to the Foreign Earned Income Tax Credit.  However, pensions are taxable no matter where you live.

Money Management – in many countries it is very difficult for a U.S. citizen to open a local bank account.  In addition, most foreign banks cannot accept deposits in U.S. dollars, so gaining access to your Social Security or other direct deposit funds may require wire transfers from a U.S. account, which can be costly.  Your U.S. income could also suffer due to fluctuations in the exchange rate.

If you need help with your retirement plan, contact our Jacksonville Florida estate planning law firm.

For this year only, Florida has come up with a way to fix old estate planning documents that have tax planning in them but did not contemplate the debacle that 2010 has caused without having an estate plan in place.  One major problem that has arisen is that people have passed away with estate plans in place that implemented tax planning, usually a good thing.  However, the tax planning stated that whatever could pass estate tax free upon their death would go to beneficiaries other than the spouse and anything left over would go to the surviving spouse.  With no estate tax in place in 2010, this would leave the surviving spouse out of the estate plan.

So Florida has come up with a plan to allow the court system, upon the application of the personal representative or beneficiary, to construe the terms of a will to define the respective shares or determine beneficiaries, in accordance with the intention of a testator.  This law is only in effect through December 31, 2010.  Although the intent of the Florida legislature is good, the law allows almost anything to come into evidence that could determine the testator’s intent, including any evidence that contradicts anything clearly stated in the will.  This could cause expensive litigation.

To discuss the new law or learn how to avoid the impact of the law, please consult with a Florida estate planning attorney.

What are the basic estate planning tools that you can use to protect your family – and your assets – no matter what age you are right now?

Will – if you die without a will or a living trust in place, your assets will be divided up according to state law.  And you might not like it.  Are you on a second marriage?  Just been through a divorce?  Without a will designating how your assets will be distributed, you will be leaving a mess for your heirs to clean up.

Financial Power of Attorney – this allows you to designate a responsible party to handle your financial affairs in case you become incapacitated.

Living Will – a living will or a healthcare power of attorney designates someone to make major healthcare and/or end-of-life decisions for you when you cannot, according to your wishes.

Beneficiary Forms – even if you name the beneficiaries of retirement accounts or life insurance policies in your will, if those names are not on the account or policy’s beneficiary form, they will not receive them.

Title Your Assets – if you have set up living trusts for your spouse or children, you must be sure to retitle the assets in the name of the trust or the living trusts are invalid.

Need to learn more about protecting your family through careful estate planning?  Contact our Jacksonville Florida estate planning law firm.

On May 27th, Florida Governor Crist signed a bill which added a new dimension to the way a homesteaded property may pass to a surviving spouse.  Under the current law, if a Florida resident died leaving a surviving spouse and adult children, the property had to pass outright to the surviving spouse without any strings attached.  However, this distribution of the homestead was subject to a prenuptial agreement, postnuptial agreement.  If there was no marital agreement in place and the homestead was distributed without 100% going to the surviving spouse, the surviving spouse would get a life estate in the property with the children receiving the remainder.  Therefore, if the surviving spouse ever wanted to sell the home, the children would also have to sign off on the sale. Further, while the surviving spouse is living in the homestead during the life estate, they would be solely responsible for the upkeep of the property. 

Under the new law, in situations where the surviving spouse would only have a life estate in the home, the surviving spouse may make an election to take a 50% interest in the homestead as tenant in common with the children.  This election must be made within 6 months after the decedent's death and during the surviving spouse's lifetime and is irrevocable.  The upside to this election is that if the surviving spouse is not interested in keeping the home, they could force a sale of the home through a partition action in the court system.  This option is not available if the surviving spouse only has a life estate. 

For more information on the new homestead election, please consult a Florida estate planning attorney.

A University of Michigan study on the effectiveness of advance directives (living wills and durable powers of attorney) shows that medical professionals almost always respect the wishes of people who have advance directives in place.

The study, published recently in the New England Journal of Medicine, is one of the largest ever done on the effectiveness of advance directives.

From an article on the study in the Los Angeles Times:

In a study of 3,746 deaths, researchers found that 42.5% of patients had faced treatment decisions near the end of their lives but that more than 70% of those people had lacked the ability to make choices because of their mental or physical health. Among that group, however, the majority -- 67.6% -- had advance directives.

Moreover, the instructions left in the advance directives were almost always carried out by surrogate decision-makers. The will of the patient, said the lead author of the study, prevailed.

"This is a big change from the early '90s, when studies reported that only about 20% of people had advance directives," said Dr. Maria J. Silveira, a clinical scientist at the Veterans Affairs Ann Arbor Healthcare System and an assistant professor at the University of Michigan. "I think it shows the public has bought into this and thinks it's important."

Silveira used data from the long-running Health and Retirement Study, which surveys adults ages 51 and older nationwide. In analyzing data from people ages 60 and older who died between 2000 and 2006, researchers found that of the 398 incapacitated people who had used a living will to request limited care at the end of life, almost 83% received it. Limited care was described as care in only certain situations.

Of the 417 incapacitated people who had requested comfort care in a living will, 97% received it. Comfort care was described as being kept comfortable and pain-free while forgoing extensive measures to prolong life.

Contingency planning for estate taxes has never been more critical than it is this year.  Why?

The federal estate tax expired on Jan. 1, 2010.  In addition, a long-standing provision that "stepped up" the basis of someone's assets to their market value at his or her death (which allowed them to be sold immediately with no capital gains taxes), also lapsed in 2010.  The federal estate tax will come back to life on Jan. 1, 2011.  

Do you know how this will end?  If so, forget about the contingency planning.  If not, then you need to consult with your estate planning attorney to ensure your estate plan has taken into consideration a year with no estate tax as well as the minimum $1 million exemption for 2011.

If you are married, chances are your estate plan has been designed to use each spouse’s estate tax exemption; when one spouse dies, the amount of the exemption goes to a “bypass trust” for other heirs and the rest goes to the surviving spouse.  But with no estate tax in place, this plan doesn’t work.

Some states have passed laws addressing this, but Florida decided to require the heirs to go to court to sort it out.  Consulting with a Florida estate planning attorney can help you bypass this requirement.

For more information on retirement and estate planning, contact our Jacksonville Florida estate planning law firm.

My last blog on gifting between spouses discussed an irrevocable trust that allows spouses to gift into irrevocable trusts while still maintaining control and allowing the assets to grow income tax free and pass estate and gift tax free to the beneficiaries.  However, doing so is not as easy as it sounds. 

The type of assets that may hold are cash, stocks, bonds, insurance, real property and business interests to name a few.  The amount that may be transferred into the trusts though is the tricky part.  The IRS has a rule, called the 5 and 5 rule, which states that when an annual exclusion gift is placed into an irrevocable trust for a spouse, a portion of the transfer will be included in the spouse's estate if the transfer is greater than $5,000 or 5% of the value of the trust property. 

Taking the 5 and 5 rule into account, if the trust has no asset in it, then $5,000 will be the limit for transferring assets into the trust until such a time arises that 5% of the value of the trust becomes greater than $5,000.  At that point, then the amount that may be transferred per year will be 5% of the trust assets until you reach the annual gift exclusion amount (currently $13,000 per year in 2010).  You can transfer $260,000 in year one into the trust tax free by filing a gift tax return and borrowing against your lifetime gift exemption ($1,000,000).  By doing this, 5% of $260,000 is $13,000 and you may then transfer the maximum amount per year.  This second technique is super charging the trust and dramatically increases the amount that passes to your beneficiaries completely tax free.  By creating these trusts, you are creating a second estate tax exemption above and beyond the exemption that the IRS currently allows. 

To discuss the benefits of these trusts, please contact an estate planning attorney.

Many retirees – and those planning for retirement – are taking a look at reverse mortgages to supplement their retirement income.  If you are 62 or older, a reverse mortgage allows you to use your home equity to receive a loan.  The loan does not have to be repaid until you die or sell the home.

Reverse mortgage income is tax-free income that you can receive either as a lump sum, monthly payments or as a line of credit to draw on as you need it.  If you are married and your home is owned by both spouses, then each of you must be at least 62 years of age to qualify.  Generally, a reverse mortgage loan does not require a credit or income test.

With a reverse mortgage, you can borrow up to 80% of the equity in your home.  If the value of your home increases in the future, you will be able to increase the amount of your loan as well.  Conversely, if the value of your home decreases, you could be incurring more debt than you want.

The most popular – and only government-insured – reverse mortgage loan is the FHA’s Home Equity Conversion Mortgage (HECM).  To qualify, you must:

• Be 62 years of age or older
• Own the property outright, or have a small mortgage balance
• Occupy the property as your principal residence
• Not be delinquent on any federal debt
• Participate in a consumer information session given by an approved HECM counselor

To determine is a reverse mortgage or any other financial instrument makes sense as part of your retirement plan, contact our Jacksonville Florida estate planning law firm.

Generally, when clients make gifts, they make them to their children and grandchildren in an amount that is completely free from the gift tax (currently in an amount equal to $13,000 per year).  However, you may use the same logic to make gifts between spouses.  The best part...you do not lose control of the money and it passes to your beneficiaries free from the estate tax.  It must be done correctly though.

First, set up an irrevocable trust, where the donor spouse is the trustmaker and the other spouse, the donee, is the beneficiary.  The donee spouse may also be the Trustee so you do not lose any control over the assets.  The Trustee then may pay out of the trust for the beneficiary’s health, education and maintenance.  By limiting the distributions to this standard, the assets held in the irrevocable trust are asset protected for the beneficiary.Further, the trust is generally structured as a grantor trust, meaning that the income taxes that would be owed by the trust are actually paid by the trustmaker.  By structuring it as a grantor trust, then the assets in the trust will grow income tax free as well!  In my next blog, I will discuss the rules that apply to transfers to the trust as there are specific requirements for gifts between spouses to ensure that they are free from gift taxes.

To learn more about spousal gifitng, please consult with an estate planning attorney.

According to a recent Harris Interactive national survey, half of American adults do not have even the most basic estate plan in place to protect them and their assets.

The survey, detailed in a recent article in Forbes, showed:

Of those surveyed, only 35% have a will directing who gets their assets and only 29% have a living will that states their views on end of life medical procedures. Not surprisingly, older Americans were more likely to have made some preparations: 77% of adults over 55 had signed at least one of the needed documents, compared with 24% of those under 35. There was no noticeable difference in planning between men and women, but Americans with more education were far more likely to have planned.

Even the oldest respondents were hardly well prepared. For example, only 48% of those 65 and older said they a financial power in place authorizing someone to make financial decisions for them if they were incapacitated and only 51% said they had a health care power in place. Perhaps spurred by hospital admissions personnel, who usually ask if admitted patients have a living will, 58% of those 65 and older reporting having this crucial document.

The survey delved into why so many Americans lack estate planning documents. In a sign that the recession is taking its toll on planning, 44% of those without any documents said the reason was because they were more focused on "essentials" like paying bills and buying groceries. Feeding the neglect, however, were misconceptions about the primary purpose of estate documents or what might happen if someone hasn't planned.

If you need more information about retirement plans, contact our Jacksonville Florida estate planning law firm.