Estate Planning and Tax Lawyer Blog

Many business owners in Northeast Florida have significant assets but no estate plan in place or no plan on how to exit their businesses. This blog will focus on how to estate plan around your business and how to come up with a way to exit your business.

As far as estate planning for your business goes, a Living Trust is the best way to ensure continuity in your business. A Living Trust is a Grantor Trust for taxation purposes so it will qualify as a shareholder for an S corporation. A Grantor Trust is a trust in which the grantor retains certain powers over the trust (such as the ability to revoke the trust) so that all income is reflected on the grantor’s personal income tax return. For IRS purposes, the trust does not exist since everything tax-wise is reflected personally.

The Living Trust will say who is to take over as Trustee of the trust (owner of the business) should you become disabled or pass away. Once the trust is set-up, you will transfer your ownership of the business into your trust. For a corporation, that would be re-issuing new stock in the name of your Living Trust. If an LLC, you would re-issue your membership interests in the name of your Living Trust.

The reason a Living Trust is better suited for owning your business is for continuity of ownership. If you only have a Will-based estate plan, then your Durable Power of Attorney would control as to who can run the business. However, if your power of attorney is not accepted for any reason, then a guardianship would have to be set up to run the business. A Living Trust avoids all of these problems.

When it comes to leaving your business, there are only two ways: involuntarily or voluntarily. You really need to plan for both! Involuntarily means you leave via disability or death. Voluntarily means you leave when you want to via a sale to a third party, transferring the business to family or to key employees. Again, either way requires planning.

If your business transfer is through involuntary means, you can plan around it through a buy-sell agreement with your partners. What a buy-sell agreement does is if one partner becomes disabled or passes away, it forces the other partners to buy out that partner. This agreement is usually funded with insurance so that there is cash readily available for the transfer. If you do not have a partner, you may want to think about brining one in or training key employees so that if something happened to you, the business would not disappear over night.

If your business transfer is through voluntary means, you should answer the following questions to begin your planning:
1. How long do you want to remain in the business?
2. Who do you want to transfer the business to?
These two questions are vital to be able to plan for your exit of the business. If your answer to “when” is tomorrow, there is not much you can do. If your answer is 5 years, there may be some business restructuring we can do to maximize the value of the business and lessen the tax burden to you because of the sale. The “who” is just as important as the “when”. If to family members, you may want to legally lower the value of the business as much as you can. If to a third party, you will probably want to increase the value of the business as much as you can.

Continue reading " Estate Planning For Business Owners " »

Just as most clients in the Jacksonville Florida area, life insurance can be one of the biggest assets in someone’s taxable estate. Yes, I said the word taxable estate. I want to discuss some ways life insurance can play a role within your estate plan but also some of the general rules regarding life insurance.

The first general rule is that if you are the owner of the life insurance policy, the death benefit of the life insurance will be included in your taxable estate. A lot of clients come in and talk to me about their life insurance and say it passes tax-free upon their death and so they do not worry about it. They are partially right. It passes income tax free. However, it may not pass estate tax free. Since the value of the death benefit is included in your taxable estate, your $2 or $3 million policy, dramatically increases your taxable estate.

To get around this potential estate tax, a lot of clients who have a large life insurance policy transfer ownership of the policy into an irrevocable life insurance trust (“ILIT”) that is run by someone other than the trust creator. By doing this, you are taking the value of the death benefit out of your taxable estate and the value of the death benefit in fact does pass completely tax free. Seems simple does it not? It isn’t.

If the current life insurance policy has any cash value built up within it, the transfer of that policy into the trust is a taxable gift up to the cash value amount. To avoid the gift tax, you will have to fall within one of the five exceptions to the gift tax that I wrote about on Monday. The easiest way to avoid the gift tax is to have enough beneficiaries in the trust to eat up the cash value through the $13,000 per year exemption. For example, if you have $50,000 of cash value in the policy but you have 4 children, you will be fine.

Another way to avoid the gift tax is to just purchase a new life insurance policy. In purchasing a new life insurance policy, you do not have to worry about the cash value because there will be no cash value. The Trustee right from the outset purchases a new policy in the name of the trust. A lot of clients will go this route through the use of a second-to-die life insurance policy. Second-to-die policies are nice because they are cheaper per year since they are based upon 2 lives and not just one.

I wanted to add a few words on the cost of life insurance. If you have policies that are older than 10 years old, it would be a good idea to have your policies reviewed to see if you can get it cheaper. About 10 years ago, they revised the way life insurance was priced because people are now living longer. If you have an old policy, you may be able to get the death benefit cheaper or get more death benefit for the same premium price. Speak to your insurance professional for the review as it is free.

Why am I saying so much about life insurance? Life insurance is a very useful way to leverage your assets to pass more onto your beneficiaries in a tax efficient manner. The life insurance policy must be owned a certain way for it to pass completely tax free.

Continue reading " Life insurance and how it can fit into your estate plan " »

On Monday, I wrote about the federal gift tax as part of the federal transfer tax system. Again, anytime you give anything to anyone, whether during life or death, the federal government wants you to pay a tax on that transfer unless you fall within one of their exemptions.

The second transfer tax is the federal estate tax. The current federal estate tax exemption is $5.120 million dollars (up from $5 million in 2011 due to inflation). That means every U.S. citizen has $5.120 million dollars they may leave completely tax free upon their death. Any amounts above the $5.120 million are taxed at a 35% tax rate.

There are two important points to the estate tax however. First, remember in my last blog that I said that everyone has $5.120 million that they may transfer during their lifetime, either all at once or in small amounts over time. Every dollar you use of the $5.120 million during your lifetime, you also lower the amount you can pass upon your death. So if Bob gives a $1 million gift to his daughter during his life, Bob will file a gift tax return for the gift and will only have $4.120 million he may leave upon his death.

I counsel clients all the time though that it is cheaper to give during your life than it is upon your death. The reason is that if you owe a gift tax, you will be paying the tax with money outside of the gift. If you have to pay an estate tax, then you will pay the tax with money that is includible in your estate – paying the tax with money being taxed. So if you can lower your estate while you are alive, it will cost you less in taxes in the end.

The second important point is that that there is currently the concept of portability in the estate tax. What is portability you may ask? It is the concept that if you are married and do not fully use your $5.120 million exemption upon your death, that any unused amount will pass to your surviving spouse for them to use upon their death. For example, if Bob dies with a $2 million estate, his wife, Susan, will have an additional $3.120 million to use upon her death. So she will have $8.240 million she may leave tax-free upon her death.

To be able to use your deceased spouse’s unused estate tax credit, you must file an estate tax return for their estate. The estate tax return is due 9 months from the date of death. Further, portability of the estate tax is set to expire at the end of 2012 along with the $5.120 million exemption per person. Without Congressional action, the estate tax exemption will revert back to $1 million per person with every dollar thereafter being taxed at 55%.

The last federal transfer tax is what is called the generation-skipping tax. The best way to explain this tax is with an example. Assume Bob has grandchildren and he wishes to leave them $10.120 million. As explained above, he has $5.120 he can leave tax free in 2012 so we would take $5.120 off of the $10.120 million for an amount of $5 million, which is subject to the estate tax. However, since Bob is skipping a generation, his children, he must also pay the generation-skipping tax, which is currently 35%. So he would pay a total tax of between 60% - 70% for the transfer to his grandchildren.

The rationale from the IRS for this tax is that usually you would pay an estate tax for the amount you pass to your children and then your children would pay an estate tax when they pass assets to their children (Bob’s grandchildren). Since you are skipping the middle tax, the IRS takes it now. Think of this tax as a mousetrap, easy to avoid but if you get caught

Continue reading " Basics Aspects of the Federal Transfer Tax in Florida (cont) " »

Well it is 2012, the year of the Dragon, and there have been a few very minor adjustments to the federal estate tax limits. By the end of this year, there will probably be many more depending on the results from the November election. So where are we currently?

Currently, the federal government says that anytime you transfer assets to anyone during your life, you must pay a transfer tax (gift tax) unless you fall within one of their 5 exceptions. The exceptions are:

1. Transfers between a husband and wife who are U.S. citizens, are free from the gift tax. So if Bob and Susan are both U.S. citizens, Bob may transfer $1 billion to Susan and not expect to pay any gift tax. If one of them are not U.S. citizens, special rules apply. Please seek help ASAP if you have transferred assets to a spouse who is not a U.S. citizen.
2. You may transfer up to $13,000 per year per person completely tax-free. An example of this is that you may go to church this Sunday and write a $13,000 check to every person who walks past you. Your spouse may do the same. Then on January 1st of every year thereafter, you may write the same check to them. This amount increases based upon inflation in $1,000 increments. Clients usually use this type of gifting to pass assets to children and grandchildren either through outright gifts, gifts into a trust for their benefit or to pay for life insurance on the life of the client to leverage the amount of assets that will pass to the beneficiaries.
3. Every U.S. citizen has $5.120 million they can gift over their lifetime, either all at once or in smaller transfers. Last year it was only $5 million but has increased due to an inflation adjustment. So if you happen to go over the $13,000 per year amount, please make sure you file a gift tax return telling the IRS that you are borrowing against your $5.120 million.
4. You may make payments for tuition (in general but there are some limitations) in unlimited amounts. The payment must be made directly to the education provider and not go through the hands of the person whom the payment is being made for. So if Bob wanted to pay for his grand-daughter’s education to the University of Miami, he could but would have to pay the “U” directly and not first give the money to his grand-daughter for her to pay the bill.
5. Finally, you may make payments for medical expenses (generally but again with some limitations) in unlimited amounts. Just as with the tuition payments, the payments for medical expenses must be paid directly to the health care provider and not pass through the hands of the person whose bill is being paid.

(If you have accidentally paid the money to the beneficiary under #4 and #5 above and the payment was more than $13,000, please make sure to seek tax counsel to see if you must file a gift tax return.)

If you do not fall within one of the 5 exceptions listed above, you must pay a 35% tax on the value of assets transferred. If the transfer was in cash, or stocks that is easy to value. If the asset transferred was a real estate interest or a business interest, make sure you get a proper valuation on the asset done so that you can prove to value of the transfer should the IRS come knocking on your door.

I will discuss the estate and generation-skipping tax in my next blog.

Continue reading " Basics Aspects of the Federal Transfer Tax in Florida " »

What are rules of construction in the first place you may ask? Rules of construction are the generally rules you must use when reading a trust. Think of them as the reading glasses you must use when reading a trust. Each state has its own set of rules. Florida Statutes 736.1101 – 736.1108 encompass Florida’s rules of construction.

The first basic rule of construction is that the intent of the settlor expressed in the terms of the trust control the dispositions made from the trust. So if it is the settlor’s intent that the trust money be used for education, then the Trustee shall only distribute trust assets for educational purposes. If the settlor’s intent is to pay for the beneficiaries health, education and maintenance, then the Trustee shall only pay for those ascertainable standards.

In determining who may be a beneficiary if the beneficiaries are the children or “issue” of the settlor, the rules of construction in determining paternity and relationships for the purposes of intestate succession apply in determining the settlor’s children or “issue”, including but not limited to adopted persons and persons born out of wedlock. The rules may be found in my blogs from October 26, November 1 and November 28, 2011.

Generally, if you insert in your trust language such as a gift to “my descendants” but do not say anything else, that gift will be read as to say a gift to “my descendants, per stirpes”. Remember, per stirpes means that the children of any predeceased beneficiary within a generation step up and take their parent’s share of the gift. The rules of per stirpes and per capita may be found in my blog from October 15, 2011.

Just as in a probate estate, a killer (who is a beneficiary of a trust) is not entitled to receive property from the trust by reason of their involvement in the settlor’s death. The rules relating to Florida’s ‘’slayer statute” may be found in my blog from December 26, 2011.

Say you create a trust while you are married and your trust provides for your spouse upon your death. Then the unfortunately event occurs that you and your spouse get divorced a year later and you never change your estate planning documents to remove your ex-spouse. A year later, you pass away. Florida’s rules of construction come to the rescue…a bit. Your trust will read as if your spouse predeceased you and your assets will pass accordingly. However, this rule of construction only applies to your estate plan and not to any life insurance or retirement plan beneficiary designations. If your ex-spouse is still named on any beneficiary designation upon your death, the assets will pass according to your beneficiary designation and not your estate plan. Moral of the story – if you get divorced, change your beneficiary designations and estate plan!

Florida’s antilapse statute also applies to future interest within a trust. The general antilapse rules in Florida may be found in my blog from December 23, 2011. However, the antilapse statute may also be voided if a clear intent is shown in the trust that the antilapse statute is to not apply.

Finally, Florida’s construction rules are the same as the probate rules when it comes to no contest clauses within an estate plan. In Florida, a no contest clause, no matter what type of an estate plan you have, is unenforceable.

Continue reading " Rules of Construction for a Florida Trust " »

Just like being a Personal Representative in Florida, being a Trustee of a Florida trust has certain duties that come with the job. Florida Statutes 736.0801 – 736.0817 describes all the different duties and powers of a Florida Trustee. The overall theme of the rules is to administer the trust in the best interest of the beneficiaries.

The general rule when describing the powers of a Trustee, the Trustee shall have all powers over the trust property that a competent person has over their individually owned property and any other powers to achieve the proper investment, management and distribution of trust property.

Other powers a Trustee may exercise are:
1. Collect trust property;
2. Accept or reject trust property;
3. Acquire or sell property at a public or private sale;
4. Exchange, divide or otherwise change the character of trust property;
5. Deposit trust money into accounts;
6. Borrow money or mortgage trust property;
7. If the trust owns a business, take any actions that a business owner may take;
8. Vote or give proxies with stock;
9. Construct additions on or repairs to real property;
10. Enter into a lease as either lessor or lessee;
11. Insure trust property;
12. Abandon trust property that has no value;
13. Pay or contest a claim against a trust;
14. Pay any taxes on trust property;
15. Make tax elections for trust property;
16. Make loans from trust property (be careful with this one and self-dealing);
17. Employ persons in regards to trust property (such as attorneys, CPA, etc);
18. Sign contracts for the trust; and
19. Upon termination of the trust, wind up the trust and distribute trust property according to the terms of the trust.

That list is not a complete list but only an example of commonly used powers. Depending on the assets within the trust, the Trustee may exercise other powers.

As stated above, the general duty of the Trustee is to administer the trust in good faith, in accordance with the terms and purposes of the trust and in the interest of the beneficiaries. The most difficult duty for a Trustee to fulfill may be the duty of loyalty as is laid out in 736.0802. The duty of loyalty is to administer the trust in the best interest of the beneficiaries. Some beneficiaries may need income from the trust to supplement their current needs while other beneficiaries may need the increase the principal so they can use the income as they grow older. That can sometimes be a struggle but the Trustee must balance the interests of both beneficiaries and try and be impartial to each of the beneficiaries respective interests in the trust.

The Trustee must administer the trust as a prudent person would, by considering the purposes, terms, distribution requirements and other circumstances of the trust by exercising reasonable care, skill and caution. If the Trustee has special skills, the Trustee must use those skills in administering the trust. Such skills might include being an attorney, being a financial advisor or a CPA.

This can be a double-edged sword. The increased skill can allow the Trustee to receive additional compensation. With additional skills though, come additional duties and a higher standard to administer the trust by. For instance, if the Trustee is a financial advisor, the Trustee will be held to a higher standard in regards to their investment decisions and also will have to pay attention to their duty of loyalty to make sure their investment decisions are in the best interest of the beneficiaries and not motivated by receiving commissions.

Continue reading " What are the duties and powers of a Florida Trustee? " »

Being a Trustee of a Florida trust, whether revocable or irrevocable, comes with a lot of duties. Here is some initial information regarding serving as the Trustee of a Florida trust as is contained in Florida Statutes 736.0701 – 736.0709.

To become the Trustee, you must either accept the trusteeship according to the terms of the trust. If the trust does not provide for a way to accept trusteeship, then acting as the Trustee (accepting trust property, exercising Trustee powers or any other action that shows acceptance of trusteeship) shall suffice to prove you have accepted the duty of being a Trustee. This is important because if you do not want to be the Trustee, then you want to make sure you do not act as a Trustee. However, you may act to protect trust property and not be deemed the Trustee, if you notify a qualified beneficiary shortly after acting to protect the property that you are declining trusteeship.

If more than one Trustee has been named to serve, the terms of the trust shall state how the voting on exercising trust powers is to take place. If the trust is silent as to voting, then the voting shall be by a majority vote of Trustees. However, a Trustee may properly delegate to another Trustee trust powers for that Trustee to exercise on their own. An example of this is if one Trustee is an investment advisor and one is a teacher, the teacher Trustee may delegate to the investment advisor Trustee the power to invest the trust assets. However, if the settlor of the trust intended for both Trustees to work together on investments, then the investment power may not be delegated.

The Trustee of a trust may always resign as well. To resign properly, the Trustee must give 30 days notice to all qualified beneficiaries, the settlor (if still living) and all co-Trustees (if any). The Trustee may also resign by petitioning a court to approve the resignation.

On the other hand, the Trustee of a trust may be removed by a beneficiary, settlor or co-Trustee petitioning the court for the removal of the Trustee. A Trustee may also be removed by other means if the terms of the trust allow for other means (such as a Trust Protector being able to remove a Trustee).

In either situation above, the former Trustee must still take actions to protect the trust property until the trust property has been handed over to the successor Trustee or other co-Trustee if that co-Trustee did not have the power to control that trust property. Again, using the example above, if the investment advisor Trustee is removed or resigns, they must act to protect the trust property until the accounts and all information is turned over to the teacher Trustee.

Lastly, a Trustee is entitled to “reasonable” compensation for their services. The compensation of the Trustee is determined according to the duties of the Trustee and the type of trust assets. Just like the compensation of a Personal Representative, the compensation of the Trustee can be increased or decreased by the court. So if the trust owns a business, the Trustee will be entitled to more compensation rather than if the trust only held cash. The Trustee, just as in any other fiduciary capacity, is entitled to reimbursement of any expenses that are reasonable and were paid by the Trustee personally.

Continue reading " What does it mean to be a Trustee in Florida? " »

A few years back, the Florida Legislature passed a new trust code to oversee the administration of trusts. Florida Statute 736.0105 lays out in detail what rules must be within a Florida trust under the Florida Trust Code.

These are some of trust provisions that must be within a Florida trust:

1. The requirements for creating a trust (there must be a Trustee, a beneficiary and property owned by the trust).
2. The duty of the Trustee to act in good faith, in the interests of the beneficiaries and according to the terms of the trust document. (A Trustee must always be thinking of the beneficiaries and not their own interests)
3. The purpose of the trust must be lawful and possible to achieve. (A trust cannot be created for a criminal purpose)
4. The formalities for executing a trust (the same for executing a Will in Florida).
5. The power of a court to modify or terminate a trust. (The court can always modify or terminate a trust)
6. The ability of the settlor/grantor to modify the trust (for revocable trusts).
7. The Trustee’s duty to pay expenses and obligations of the settlor’s estate. (The Trustee must pay for the expenses of the settlor’s estate if the estate does not have enough assets of its own.)
8. The Trustee’s duty to file a notice of trust at the settlor’s death. (The notice of trust tells any and all creditors of the setttlor’s estate to go and see the Trustee to have the claim satisfied.)
9. The right of a Trustee to decline to serve as Trustee or resign as Trustee. (A named Trustee cannot be forced to serve.)
10. The power of the court to modify the Trustee’s compensation based upon the Trustee’s specific duties. (A Trustee is entitled to be compensated for their services and may receive additional compensation depending on the assets owned by the trust.)
11. The duty to notify qualified beneficiaries of an irrevocable trust’s existence, who the Trustee is and the rights to information regarding the trust. (A “qualified beneficiary” is defined as any living beneficiary who is currently receiving trust income or principal or is entitled to receive trust income or principal if the current beneficiary’s interest terminated. An example would be if dad created a trust with mom as the beneficiary after dad’s death and the 2 kids to receive the remainder after mom’s death, the qualified beneficiaries would be mom and the 2 kids.)
12. The duty to provide a complete copy of the trust instrument and to account to qualified beneficiaries. (The Trustee must provide a copy of the trust to qualified beneficiaries and account for the assets of the trust.)
13. The duty to respond to inquiries from a qualified beneficiary. (The Trustee cannot ignore qualified beneficiaries questions.)
14. The effect of a penalty clause for contesting a trust (no contest clauses are not valid in Florida).

Theses are just a very few of the requirements of a trust under the Florida Trust Code. Besides what is required under 736.0105, a trust is very flexible and can say almost anything else.

Continue reading " What must be in a Florida Trust? " »

So Bob, a resident of Jacksonville, just passed away. He has a sizable estate but also some outstanding debts he owed upon his death. He had two credit cards with a balance of $10,000 each, a home mortgage, an outstanding hospital bill and his brother paid the funeral bill. Bob named Sally the Personal Representative in his Will, how should she take care of the bills?

First off, Sally, as the Personal Representative, must obtain the names and amounts of any creditors Bob’s estate may have. One way to do that is by obtaining all of Bob’s mail to see what bills come in through the mail. As bills come in, Sally should give them a copy of the Notice to Creditors so they may file their claim. If they fail to file their claim within 30 days, the claim is barred unless they can show a reason as to why they are late.

The other thing Sally must do is notify any other creditors Bob may have by publishing a Notice to Creditors in a local newspaper for 2 consecutive weeks according to Florida Statute 733.701. This gives the public at large notification that if Bob owed them any money, that they have 3 months to make a claim against his estate. Again, if no claims are made within 3 months, then any claims that come in afterwards, without a good reason why, are barred.

After all the claims are filed, Sally will then file a written statement of all claims she has or intends to pay and object to any claims that are not valid. Any claims that Sally intends to pay shall be paid within one year. The probate court may extend the time for Sally to pay though if Sally shows good cause as to why she cannot pay. If Sally wants to object to a claim, she must object within 4 months from the first publication of the Notice to Creditors or 30 days from the filing of the claim, whichever is greater.

Once it is settled which claims are valid and must be paid, they must be paid in a certain order according to Florida Statute 733.707. The order of payment is as follows:

1. Class 1: Costs, expenses of administration and compensation of the personal representatives and their attorneys fees.
2. Class 2: Reasonable funeral costs, grave expenses, not to exceed $6,000.
3. Class 3: Debts and taxes with preference under federal law as well as all Medicaid and other public assistance received during the decedent’s lifetime.
4. Class 4: Reasonable and necessary medical and hospital expenses of the last 60 days of the decedent’s life.
5. Class 5: Family Allowance.
6. Class 6: Arrearage from child support.
7. Class 7: Debts acquired after death by the continuation of the decedent’s business but only to the extent of the assets of that business.
8. Class 8: All other claims, including those founded on judgments or decrees rendered against the decedent during the decedent’s lifetime, and any excess over the sums allowed in Class 2 and Class 4.

Sally will have to start with Class 1 creditors and pay them off and then move down the list. Once she gets to a Class that she cannot fully satisfy, then she will pay all creditors within that class proportionally.

So going back to the facts above, Bob had a sizable estate, so Sally won’t have to proportionally pay any of the creditors. The first creditors she will pay is herself, her attorneys fees and any prepaid costs she may have paid for as they are Class 1 creditors. Sally will then pay Bob’s brother who paid for the funeral bill since he is a Class 2 creditor. The hospital bills will be paid next as class 4 creditors. The remaining creditors, credit cards and mortgage, are Class 8 creditors and will be paid last.

Continue reading " What if the Estate Owes Money? " »

So your father who lived in St. Augustine Florida just passed away and you find out that you were named the Personal Representative of his Will. What exactly do you need to do? What are your duties and what powers do you have to carry those duties out?

The first thing you should do is contact an attorney to review the estate. The attorney will go over all the rules and types of probate with you so that you know exactly what you are getting into.

Once you are named the Personal Representative by the probate court and you have your letters of administration, then what? The powers and duties of a Personal Representative can be found in Florida Statutes 733.601 – 733.620. Generally, the Personal Representative is deemed to be a fiduciary of the estate and must act in the best interests of the estate and beneficiaries. The job of the Personal Representative is to settle and distribute the estate of the decedent according to the decedent’s Will in an expeditious and efficient manner. As long as the Personal Representative acts in the best interest of the estate and beneficiaries, the Personal Representative will not be subject to any personal claims or lawsuits.

One of the first duties of the Personal Representative is to open the probate proceeding in the proper court. Once the proceeding is opened, then the Personal Representative must notify all the beneficiaries of the estate that the probate has been opened and also notify all potential creditors that an estate proceeding has been opened. Once any interested parties have been notified, then the Personal Representative needs to go gather the assets of the estate and inventory them so that a proper inventory is filed with the court. The court’s job in the probate proceeding is to make sure that all debts are paid and all assets are distributed properly under the Will.

In gathering the assets, the Personal Representative may change the locks on any real estate to protect the asset from being depleted by beneficiaries or anyone else. In gathering financial assets, the Personal Representative shall change the name and address on all accounts so that any future statements come to the Personal Representative.

Florida Statute 733.612 describes some specific activities that the Personal Representative may engage in such as selling real estate, investing financial assets, voting on business decisions. Remember, all of this must be done in the best interests of the estate and its beneficiaries.

If you are deemed to be acting in your own best interest, a beneficiary may file a lawsuit against you personally for your bad acts and breaching your fiduciary duty. Florida Statute 733.609 allows the court to have you pay all the beneficiaries attorney’s fees and court costs, so it could get expensive.

Having stated all the above, the most important part is to make sure you consult and retain an attorney. In Florida, you must retain an attorney for a probate proceeding unless the only assets within the estate are tangible personal property. A qualified attorney will ensure that you do not run afoul of your duties under the Florida Probate Code and ensure that everything is taken care of in an efficient and proper manner.

Continue reading " What are some of the duties and powers of the Personal Representative? " »

When drafting your Will, one of the big decisions is who do you want to name as the Personal Representative of your estate. The job of a Personal Representative is a very important job as they are in charge with making sure the estate passes according to your wishes. However, in order to serve, the Personal Representative must fall within those allowed to serve under the Florida Statutes.

For this discussion, lets assume Bob made a Will back in 1960 and named his wife, Sally, and Acme Bank as the Co-Personal Representatives. Bob also has a brother that live in St. Augustine. In 1991, Acme Bank was acquired by XYZ Bank. Unfortunately, Sally, Bob’s surviving spouse, has recently been diagnosed with dementia. Now that we have the facts, lets review the rules that we will apply the facts to.

Florida Statute 733.301 lays out the preferences in naming a Personal Representative of an estate. If the estate is a testate estate (one with a Will), then the preferences are as follows:
1. The Personal Representative named in the Will.
2. Person selected by a majority in interest of the persons entitled to the estate.
3. A beneficiary of the Will.

If the estate is an intestate estate (one without a Will), then the preferences are as follows:
1. The surviving spouse.
2. A person selected by a majority of the heirs.
3. The heir nearest in degree (your closest relative).

In either situation, the court will appoint a capable person if no qualified Personal Representative exists.

To be able to be appointed as the Personal Representative based upon the above preferences, you must be competent at the time of the death of the decedent. However, under Florida Statute 733.303, you may not be appointed as the Personal Representative, even if you are one of the preferred appointees from above, if you (i) have been convicted of a felony; (ii) are mentally or physically unable to perform the duties or (iii) under the age of 18 years old.

Under Florida Statute 733.304, a nonresident of Florida will not qualify as a Personal Representative unless they are related to the decedent or the spouse of a relative of the decedent.

If you name a bank or trust company to serve as the Personal Representative of the estate, they must be either incorporated under the law of Florida or licensed to transact business in the State of Florida pursuant to the rules in Florida Statute 733.305. This includes any banks who may have purchased the entity you have named in your Will.

Finally, if you are named as the Personal Representative but after being named, you know or should have known that you are not qualified to serve or no longer qualified to serve, then you must promptly file and serve a notice setting forth the reasons why you cannot serve. Failure to file the notice makes you personally liable for all costs and attorney’s fees incurred in any removal proceeding.

So in Bob’s situation above, he named Sally and Acme Bank to serve as the Personal Representatives of his Will. Under Florida law, Sally, having been recently diagnosed with dementia, is not able to serve under Florida law due to her incompetency. Acme Bank no longer exists because it was bought by XYZ Bank in 1991. However, XYZ Bank is no longer doing business in Florida as of 2002 and, therefore, cannot serve as the Personal Representative of Bob’s estate. So all the persons/entities named in Bob’s Will are no longer available. However, Bob’s brother, who lives in St. Augustine, also happens to be the beneficiary of Bob’s estate. Under Florida Statute 733.301, Bob may petition the court to serve as the Personal Representative and the court will most likely appoint him since he qualifies as a Personal Representative.

If you think this scenario is far fetched, it is not. I am currently probating an estate with the exact same set of circumstances!

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For residents of Jacksonville and Duval County Florida who pass away, a probate proceeding would take place in Duval County. The place where the probate is to take place is called the venue.

So for our story, lets assume Bob, who lives in Jacksonville, Florida, passed away in his home. Bob’s assets are a bank account at Jacksonville Bank, a brokerage account at Merrill Lynch, a bank account at New York Bank and a second home in New York City. So where should the probate or probates take place?

Section 733.101 states the rules for the venue of a probate proceeding in Florida. It states that the venue for probate shall be “(a) in the county in this state where the decedent was domiciled; (b) if the decedent had no domicile in this state, then in any county where the decedent’s property is located; and (c) if the decedent had no domicile in this state and possessed no property in this state, then in the county where the debtor of the decedent resides.” So what does this mean?

Well if the decedent was domiciled in Florida, the probate will take place in the county where the decedent lived. Pretty straight forward. So in Bob’s situation, since he lived in Jacksonville, Florida, the proper venue for his primary probate will be in Duval County, Florida. I will explain why I say primary here in a bit.

If the decedent had no domicile in this state, aka no primary residence, then the proper venue for the probate will be where the decedent owned real estate (his second home). So if Bob’s primary home was up in New York City but he had a second home in Jacksonville, then Bob’s primary probate would be up in New York and the personal representative would have to open what is called an ancillary probate here in Duval County (now you see why I said primary probate above). An ancillary probate is a probate opened to deal with assets owned outside of the state where the decedent’s primary residence was located. So if you own real estate in several states, be weary of having to open several probates in several states…it can get expensive.

Finally, if the decedent had no domicile and possessed no property in the state of Florida, then the venue is proper where a debtor of the decedent resides. A debtor is someone who owes you money. This situation is rare since usually the decedent will have some sort of property if they also have a debtor.

So lets go back to Bob from above. Remember that Bob, who lives in Jacksonville, Florida, passed away in his home. Bob’s assets are a bank account at Jacksonville Bank, a brokerage account at Merrill Lynch, a bank account at New York Bank and a second home in New York City. Where would Bob’s estate be probated based upon Section 733.101?

The primary probate will take place in Jacksonville since Bob’s primary residence was located in Jacksonville. Within the primary probate, we would include Bob’s Jacksonville Bank account, his Merrill Lynch account and even his New York Bank account. Why the New York account? A bank account is money that can technically be accessed anywhere in the world and not just in New York. Due to that fact, bank accounts, stock accounts, etc. may be probated in the location of the decedent’s primary residence and do not have to be probated where the financial advisor or banker is located. However, there will still have to be an ancillary probate opened in New York due to the second home in New York City. Want to know how to avoid all of this?

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Probate in Florida can be a long and drawn out process. Some of the drawbacks are the fact that it can take years to settle an estate and it is all public record. However, the biggest drawback can be the costs and fees associated with probate. Some of the costs come from the filing fees, the publication fees, attorney’s fees and personal representative fees.

Florida Statute 733.6171 sets out the provisions for how much an attorney may be compensated in a probate proceeding. Probate work is a big money maker for attorneys. The statute sets out a table of what a presumed reasonable fee is. For instance, if the value of the estate is $1M, then the attorney’s fee is presumed reasonable at 3% or $30,000. However, the statute allows the attorney to receive more compensation. The first way is the if the attorney has to provide any “extraordinary” services, the attorney may be compensated more. Some examples of extraordinary services are if the attorney has to help sell any real estate, if there is a will contest or if the decedent had a business that is continued. The other way an attorney may receive additional compensation is through an agreement between the personal representative and the attorney. An agreement supersedes all the reasonable fees discussed above.

Florida Statute 733.617 sets out the provisions for how much a personal representative may be compensated. The presumed reasonable fees for a personal representative are the same as they are for attorneys. The personal representative may also receive additional compensation for extraordinary services. Further, if you have named more than one personal representative, each named representative gets a full share as if they were the only named personal representative.

It may seem like these are a lot in fees. However, we have not even discussed the costs associated with probate. The filing fees for opening a probate range from $150 to $500, depending on how much the estate is worth. These costs are continuing to increase due to cuts in court funding. The cost to publish the notice to creditors (the notice which gives creditors notice of the estate being open) can be several hundred dollars. You also have realtor fees, CPA fees, and many other fees that can quickly add up. Finally, if you have a taxable estate, your biggest fee will go to the IRS in the form of a tax check.

To illustrate the fees and costs of a probate, lets assume that Bob has a $9 million estate and he only left a Will where he named Sally and Kim as the personal representatives. Bob’s estate was large because he had a successful internet business. The presumed reasonable attorney’s fees, based upon the statute, are $180,000. However, since Bob has a business, the attorney may petition the court for additional fees. The resumed reasonable fees for Sally and Kim each is $210,000 each for a total of $420,000. By the time you add all the other costs, the probate of Bob’s estate could cost Bob’s estate (and his beneficiaries) a total of $700,000 or about 8% of the estate. Oh, did I forget to mention the check to the IRS for approximately $1.4 million. The costs can add up quickly.

Most of the above costs are easily avoidable with a proper estate plan in place to avoid the costs and taxes.

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