Estate Planning and Tax Lawyer Blog

When potential clients come into my office to talk to me about estate planning, some of them have certain goals in mind.  Others have no idea what they want or need while others have one goal but leave with other goals in mind.  This blog hopes to get you thinking about what you really want to accomplish in your estate plan.

Some clients’ goal is to avoid the probate process.  Probate here in Florida is a pain because it costs a lot of money, is public record and takes a long time.  Some clients come in just wanting to save money in estate taxes.  While that is not a big problem this year that will definitely change whether Congress acts this year or not. 

One frequent goal is to pass on a family business or a secondary residence that has been in the family for years.  That can easily be obtained with proper planning.  Finally, and probably the most frequent goal, is to make sure that the assets stay in the family and do not go to the in-laws in a divorce.

One goal that I usually have to bring up with the client is to make sure that they themselves are taken care of.  Clients get so caught up in worrying about everything else that they forget about themselves.  I feel clients need to be focused on the present while they are alive and well, when and if they become disabled and then finally what happens upon their death. No matter what your goals are, a proper estate plan can take care of all of them while taking care of you at the same time. 

Continue reading "Estate Planning Goals to Keep in Mind" »

I recently had a potential client ask me what "tenancy by the entirety" means. The answer is pretty simple. In Florida, if you own property jointly with rights of survivorship with your spouse, then you own it as tenancy by the entirety. There are several important points in the previous sentence.

First, I said "in Florida". Not every state allows tenancy by the entirety. Ohio, for instance, does not. Next, I said "jointly with rights of survivorship". You can own something as tenants in common with your spouse and own it as tenancy by the entirety. Finally and most importantly, I said "spouse." You must be married to own something as tenancy by the entirety. If you get divorced, then the tenancy by the entirety goes away.

Why is tenancy by the entirety so important? In Florida, it is important because if you are sued for anything but your spouse is not, then any asset owned as tenancy by the entirety cannot be taken from you because of the innocent spouse rule. Florida has decided that an asset cannot be taken from an innocent spouse. Maybe that is why so many Ohioans move to Florida?

Continue reading "What Does Tenancy By The Entirety Mean?" »

A bill was recently passed by the Florida House and Senate which could finally put an end to whether or not an inherited IRA is asset protected for the beneficiary. House bill 469 states that an inherited IRA is asset protected for the beneficiary. This law should apply to both state courts and Bankruptcy courts as the Bankruptcy court uses and analyses state law to determine certain exemptions.

Please note however, that this law only applies to beneficiaries who reside in Florida and not a beneficiary who resides in another state who would be subject to that state’s specific exemptions. Further, it may still be important to have the inherited IRA pass through a conduit trust for the beneficiary to protect a beneficiary who may move to a state with less favorable asset protection laws.

The bill is currently awaiting Governor Scott’s signature for it to become law.

Continue reading "Florida passes Inherited IRA protection law, bill awaits Governor's signature" »

As promised, I am going to be doing a series of blogs on planning for clients with a chronic illness. A lot of the information I am using and have received is from a seminar given by Martin Shenkmen, a New Jersey attorney, who is touring the U.S. giving presentations about caring and planning for clients with chronic illnesses. More information can be found at www.RV4TheCause.org.

Currently, over 120 million Americans are living with some sort of illness or disability. 96% of those affected show no signs that they have a chronic illness. Most attorneys instantly think of creating a special needs trust for a client who has a chronic illness. A special needs trust is appropriate for clients whose illness has progressed enough to limit their mobility and who are on some sort of government benefits. A special needs trust is not appropriate for someone who is newly diagnosed and shows no real signs of being affected by a chronic illness.

For the initial meeting with a client, make sure you keep in mind the clients needs. For instance, if they are diabetic, make sure you have food and/or juice available just in case their blood sugar levels would go low during the meeting. You may need to plan frequent breaks for those clients who are not able to concentrate for long periods of time. Also, make sure that a friend or family member accompanies the client so that there are others present to go over what was said in the meeting should the client forget. I always take a lot of notes and write down everything and give it to the client so they have my notes as well from the meeting.

Continue reading "Planning for a Family Member with a Chronic Illness Cont." »

A Family Limited Partnership (FLP) provides four considerable advantages that are unavailable through any other asset protection vehicle.  These advantages are:

Asset Shield – a FLP can be used to protect business and personal assets from creditor judgment since a creditor of a partner cannot seize assets of the partnership to satisfy a debt.

Deter Litigation – a judgment creditor cannot seize the assets that are protected in a FLP, so having an FLP in place discourages creditors from filing a lawsuit since they will not be able to collect on any judgment.

Reduce Income Taxes – a FLP can be used to reduce income faxes by shifting income to lower bracket family members through gifting of partnership interests.  Gifting can be done to children or grandchildren over the age of 14.  A nonprofit organization can also be included as a partner in the FLP to further reduce taxes.

Reduce Estate Taxes – by gifting limited partnership interests valued at $10,000 or less to children or other family members each year, you can realize significant estate tax savings since these gifts will not be included in your estate for tax purposes nor subject to gift tax.

If you need more information on a Family Limited Partnership or other asset protection vehicles, contact our Jacksonville Florida estate planning law firm.

An asset protection trust protects your assets against creditor attack, and there are a number of different methods to protect different categories of assets.

Typically, asset protection trusts are used 1) to keep asset ownership confidential, 2) to discourage litigation, 3) to protect otherwise unprotectable assets, 4) as an alternative to a pre-nuptial agreement, and 5) as a way to diversify investment.

An asset protection trust is usually established outside the U.S., although the assets themselves will normally remain in the U.S. under the indirect control of the person who has established the trust.

An asset protection trust is generally irrevocable for a set period of time.  Once that time period has elapsed, the assets are returned to the owner of the trust or their heirs.

Recently, several states have enacted asset protection legislation in an effort to compete with offshore trusts.  These include Alaska, Delaware, Nevada, Utah and Rhode Island.  However, since the legislation is so recent, the courts have not yet tested the true scope of this protection, so domestic asset protection trusts should be considered with that in mind.

Continue reading "Do You Need an Asset Protection Trust?" »

Dynasty trusts are long-term trusts that are created to benefit generations of descendants – some can last as long as a century.

Usually funded utilizing a benefactor’s estate tax credit ($2 million per individual, $4 million per couple), a dynasty trust allows assets to accumulate for years free from federal gift and estate taxes.

While the dynasty trust is in force, distributions can be made to the benefactor and his or her heirs with no federal taxes due.  Since estate taxes are applied to each generation, the savings can be tremendous over multiple generations.

Another benefit of a dynasty trust is “spendthrift clauses” which can restrict a beneficiary’s access to the trust income or principal.  This is usually put in force by wealthy parents whose children or grandchildren might not be financially responsible or where access to great wealth might be a negative influence on their lives.  Having a spendthrift clause still allows the parent or grandparent to provide for those heirs in a reasonable way.  It can also prevent creditors from attacking trust assets for debts of the beneficiaries, and prevent an heir’s ex-spouse from laying claim to the assets of the trust.

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

The IRS’ marital deduction allows a spouse to pass on his or her assets to a surviving spouse without those assets being taxed.

A marital deduction trust is created to protect the assets of both spouses from federal estate taxes when they die.  So how does a marital trust work?

When the first spouse dies – let’s say the husband – his assets pass not to his surviving wife but to the marital deduction trust and no federal estate taxes are due.  While the wife is still living, the trust generates income for her.  When she dies, the assets in the marital deduction trust are not part of her estate, so are therefore not subject to federal estate taxes.

To qualify for a marital deduction trust:

• The surviving spouse must be the only beneficiary of the trust during his or her lifetime


• The surviving spouse must have unrestricted power over how the trust assets are bestowed upon his or her death


• All trust income must be given to the surviving spouse on an annual basis during his or her lifetime


• The trust must specify who will receive the trust assets upon the death of the surviving spouse

A trustee must also be appointed, and all the assets in the trust must be specified in the trust document.

For more information on marital deduction trusts and Florida estate planning, contact our Jacksonville Florida estate planning law firm.

Most estate plans include a variety of assets: investment accounts, bank accounts, property, life insurance and IRAs or other retirement accounts. Many people may consider IRAs to be among the least of those assets because they intend to deplete their IRAs during their lifetime. But if someone dies with a substantial amount still in an IRA, it can become a major inheritable asset if the right steps are taken to protect it.

And the most important step is to designate beneficiaries for your IRAs. Because if you don’t name a beneficiary – or if you name your estate as the beneficiary – you may have made a big mistake that could cost your heirs a huge tax saving.

Here are the rules on inherited IRAs:

A spouse can roll over an inherited IRA as he or she wishes.

Any other heir must separate an inherited IRA from their own retirement funds and must start taking withdrawals right away, no matter what age they are at the time they inherit. These distributions do not suffer a 10% withdrawal penalty, but they do count as taxable income.

Here’s the important part about naming a beneficiary: if your heir is named, they can spread the withdrawals over their lifetime. If not, they have to take it all within five years. Which can put them in a higher tax bracket and cut the growth of the inherited IRA.

Taking a few minutes to fill out a beneficiary designation form for each of your IRAs is a small price to pay so your heirs don’t have a big price to pay later.

The IRA Charitable Rollover was reenacted as part of the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (H.R. 4853).

The bill allows someone, who falls within the rules, to make a charitable donation out of their IRA without it being included as part of their taxable income, plus it counts as their required minimum distribution for the year. For 2010, the charitable rollover may be elected through January 31, 2011. For the 2011 rollover, the election must be made between January 1, 2011 and December 31, 2011.

To qualify, you must be age 70 ½ or older. The rollover election must be made by the dates above. The rollover must come from a traditional IRA, not from a Roth IRA, 403(b), 401(k) or any other retirement plan and cannot exceed $100,000 per year. Any amount over $100,000 will be included in your taxable income.

Who would benefit from this charitable rollover? Those who do not itemize their deductions, those whose Social Security income is taxable or those who have estate subject to estate taxes are just a few classes of people who would benefit from a charitable rollover.

To learn more about the IRA charitable rollover, please consult our Jacksonville estate planning attorney at Wood, Atter & Wolf to see if you would benefit from the IRA charitable rollover.

Most people know that married couples enjoy greater tax benefits just by virtue of the fact they are married. But are there other financial benefits to being married? The answer is yes.

A heftier IRA. To be eligible to contribute to an IRA, you must have taxable income. However, if you are married and do not have taxable income, the spouse who does work is allowed to make an IRA contribution on behalf of his or her nonworking spouse.

Health insurance. Having one spouse covered by the other spouse’s employee health plan can save thousands of dollars every year.

Social Security benefits. A husband or wife is entitled to one-half of each other’s Social Security benefits as well as to death benefits.

Automatic inheritance rights. If a spouse dies without a Florida will, the surviving spouse has a legal right to at least one-half of the estate.

No estate tax. You can leave an unlimited amount to a spouse without generating any estate tax.

No gift tax. Current law allows exempts spouses from having to pay any taxes on gifts to each other.

Special trusts. There are life estate trusts that are restricted to married couples, including marital deduction trusts and QTIP trusts.

There are several places that you can transfer assets to–both in and out of your estate–that offer asset protection:

Closely Held Corporation: This protected entity is a private company that is usually owned by the members of a family who act as the shareholders. Because it is an entity and not a person, it is separate and has its own rights and privileges regarding the assets it holds.

Offshore Trust: This protected entity is operated by a trustee – typically the bank administering the offshore trust or one of its officers – who oversees the management of the trust assets, usually at the direction of the grantor of the estate that holds the trust. Like the closely held corporation, an offshore trust has legal rights that separate it from family members.

Family Foundation: You can set up a family foundation as a single Florida family and transfer assets into this protected entity. The foundation will typically be private, and family members can serve as foundation officers of members of the foundation’s board of directors.

There are a number of other protected entities you can consider to protect assets. If you have an interest in transferring your assets to or from a trust into any other protected entity, contact our law firm of Wood, Atter & Wolf, P.A..

A USA TODAY article notes that the number of unmarried couples who are living together rose 13 percent in 2010. Whether it was because of the bad economy, or because more young people are living together rather than marrying to avoid divorce, there are certain steps unmarrieds should take to protect their interests in case of a split.

If you and your partner decide you want to purchase a house, you should decide beforehand how you want to own it. The house will belong to whomever is listed on the title, even if both of you paid for it. One option that ensures both partners own an equal share is to own the house as joint tenants with right of survivorship, so if one dies, the other owns the home outright. However, if you split, you are both still legally liable for the mortgage. Another option is to draw up a trust or contract that specifies how the property will be handled if a break-up ensues.

If partners plan to be in a committed relationship over time, there are also estate planning issues to consider. Since the law does not recognize living together, unmarried couples should speak with an estate planning attorney to discuss wills, trusts and tax avoidance strategies that will ensure their assets pass as they wish.

Health care is also a consideration for unmarrieds. If your employer allows you to add a domestic partner to your policy, the IRS treats any of your partner’s benefits as taxable income unless your partner is a dependent. If you both have policies from your respective employers, it is probably best to maintain those separately.

It has been said that small business is the engine of the American economy, and even today, many of America’s small businesses are “mom and pop” start-ups – meaning that mom and pop are also husband and wife, which can put the entire business in jeopardy in case of a divorce.

One insurance company study released earlier this year said that over 60 percent of business owners have not planned to protect their companies in the event of a divorce. That is a lot of businesses in jeopardy.

If a business is jointly owned by a couple that is divorcing, there are a number of serious risks. The business may need to be sold so assets can be evenly divided. The business may suffer because of the distractions brought on by a divorce that would adversely affect the decision-making abilities of the owners.

One option to divorce-proof a business is a premarital or post marital agreement that spells out exactly what will happen to the business in case the owners divorce. Another option is a buy-sell agreement that can be triggered by events like a death or divorce. There are also trust instruments available to help business owners – married or not – divorce-proof their businesses.

For proper guidance on protecting business assets, contact our Jacksonville estate planning law firm.

With the days of arranged marriages far behind us, many parents are concerned about how to protect assets they plan to leave their children from in-laws who may not be around for the long haul.

Suggesting a prenup to your child who is about to get married is usually met with resistance, so most parents don’t even broach the subject. Fortunately, there are a number of ways to shield your estate from those who marry – and may divorce – your children:

Irrevocable trust – this is a common trust instrument to pass assets to children. But married children must be careful not to contaminate the trust with marital funds – for example, paying taxes or insurance with marital assets – or else the trust is a bust.

Preservation trust – this can be used to shield assets from a soon-to-be spouse by having the child place assets they already own into the trust and naming someone other than their spouse as beneficiary.

Post-marital agreement – once the honeymoon period is over, it may be easier to convince a son or daughter to draw up a post-marital agreement to protect the family estate.

A U.S. News & World Report article has outlined some of the biggest mistakes that couples make with their money and how to avoid them:

Not discussing finances. Probably one of the most common mistakes that couples make before living together is not discussing how they will handle their money. If you plan to live together, you should discuss how you will share household expenses – will the person with the bigger income contribute more? – as well as sharing a bank account, credit card accounts, etc. You should also lay out your current debt picture.

Pooling money too soon. It is usually best to wait until you are married before you mingle your finances in a joint account, or make large purchases like a home or car together. If you break up, you will have none of the protections that are afforded married couples when it comes to splitting assets.

Sharing debt. Adding someone’s name to a mortgage, car loan or credit card account also makes them legally liable for that debt. You should discuss how you would treat debt responsibilities if you break up prior to making a commitment to share debt.

Ignoring the “what if”. While you probably don’t intend to break up, it is a good idea to discuss the money “what if’s” in case you do.

For more information on asset protection strategies, contact our Jacksonville estate planning law firm.

In today’s litigious society, it is almost a certainty that doctors and surgeons will face a medical malpractice lawsuit at some time during their professional lives. The high cost of malpractice insurance alone attests to this fact.

What doctors and surgeons need to know is that even if you have outstanding malpractice insurance, if your personal assets are not protected, you may still be vulnerable. Structuring your business and protecting personal assets properly is the only sure safeguard for keeping your personal wealth and assets protected from a malpractice lawsuit.

Statistics show that a physician facing a frivolous malpractice suit has a one in four chance of losing. If personal assets are not protected, a plaintiff can go after them. This is why asset protection for doctors and surgeons, especially those who have a high net worth, is essential.

Some insurance may not cover certain malpractice lawsuits. If a legal judgment against a surgeon or physician results, the plaintiff in the suit can pursue both personal and business assets. Executed properly, asset protection plans can give doctors control over their personal and business assets while making them invulnerable to seizure.

However, the time to implement an asset protection plan is before a former patient files suit. If you are a doctor or surgeon, a Florida asset protection lawyer can help shield your assets from malpractice.

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.

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.

According to the Kauffman Index of Entrepreneurial Activity, new business start-ups reached a 14-year high in 2009 – which is not surprising considering high unemployment rates across the U.S. The Index found that over 550,000 new firms were started every month in 2009 – but how many will succeed?

Of course, in business –as in life – there are no guarantees. According to the U.S. Small Business Association, about half of small businesses fail within the first five years. And while there is no way to eliminate every risk associated with starting up a new business venture, you can improve your chances of success by careful advance planning and getting good advice from professionals who help people start new businesses every day.

Studies have shown that entrepreneurs who engage in business planning early in the company development process are much more likely to create a successful venture. While having a carefully researched and well thought out business plan is essential, careful business planning can also mean seeking the advice of an estate planning and business tax attorney for the development of:

• Articles of Incorporation


• Bylaws


• Partnership Agreements


• Operating Agreements

If you are thinking of starting your own business, one of your first steps should be to seek legal advice from our Jacksonville attorney about the structure of your business – sole proprietorship, partnership, corporation or LLC (Limited Liability Company) – including the tax implications for different ownership structures, protecting your personal assets from business liabilities and more.

Real estate has historically been considered as a valuable and worthwhile investment. And despite the devastation the Florida housing market has suffered in the past few years, many people still have substantial equity in their real estate investments. In fact, in many cases, real property assets constitute a major portion of their estate. If you own property in addition to your primary residence, does your estate plan sufficiently protect it for your heirs?

In our litigious society, it is imperative that proper steps be taken to protect real estate assets. In addition to having the proper amount of insurance coverage, most income producing real estate and even raw land should be placed in limited liability companies (“LLCs”) in order to preserve and protect the other assets in your estate from claims that may not be covered by insurance.

This is particularly necessary if the property is owned jointly with another investor or in a partnership -- because sometimes the problems of joint owners or partners can endanger your own investment in the property. Contact a Florida estate planning attorney who can advise you on the proper steps to take to protect and conserve your real property assets.

A Family Limited Partnership (FLP) provides four considerable advantages that are unavailable through any other asset protection vehicle. These advantages are:

Asset Shield – a FLP can be used to protect business and personal assets from creditor judgment since a creditor of a partner cannot seize assets of the partnership to satisfy a debt.

Deter Litigation – a judgment creditor cannot seize the assets that are protected in a FLP, so having an FLP in place discourages creditors from filing a lawsuit since they will not be able to collect on any judgment.

Reduce Income Taxes – a FLP can be used to reduce income faxes by shifting income to lower bracket family members through gifting of partnership interests. Gifting can be done to children or grandchildren over the age of 14. A nonprofit organization can also be included as a partner in the FLP to further reduce taxes.

Reduce Estate Taxes – by gifting limited partnership interests valued at $10,000 or less to children or other family members each year, you can realize significant estate tax savings since these gifts will not be included in your estate for tax purposes nor subject to gift tax.

If you need more information on a Family Limited Partnership or other asset protection vehicles, contact our Jacksonville Florida estate planning law firm.

An Equity Reduction Plan (ERP) is designed to protect real estate or business assets, and can be a highly effective form of asset protection for those who have significant real estate holdings or own their business or professional practice (doctors, attorneys, etc).

Within the structure of an ERP, a practice called “equity stripping” can be utilized to move the equity or value of an asset to a protected position while still retaining original ownership. The advantages of this include:

• Avoids transfer of real estate ownership and the attendant property and transfer taxes
• Multiple properties can be protected without the need to create separate LLCs
• Protection of equity in a property from an inside liability claim
• Protection of cash flow
• Protection of assets used to run the business
• Leverage of asset equity to generate business or investment income

When creating an ERP, it is important to accurately valuate the underlying assets and to keep that valuation current through a regular review process. In the event of a claim or lawsuit, the lien of the ERP is superior to the claim of any creditor; any judgment proceeds go first to the ERP and only excess proceeds are made available to satisfy any judgment claim.

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

An asset protection trust protects your assets against creditor attack, and there are a number of different methods to protect different categories of assets.

Typically, asset protection trusts are used:

• To keep asset ownership confidential
• To discourage litigation
• To protect otherwise unprotectable assets
• As an alternative to a pre-nuptial agreement
• As a way to diversify investment

An asset protection trust is usually established outside the U.S., although the assets themselves will normally remain in the U.S. under the indirect control of the person who has established the trust.

An asset protection trust is generally irrevocable for a set period of time. Once that time period has elapsed, the assets are returned to the owner of the trust or their heirs.

Several states have enacted asset protection legislation in an effort to compete with offshore trusts. These include Alaska, Delaware, Nevada, Utah and Rhode Island. However, since the legislation is so recent, the courts have not yet tested the true scope of this protection, so domestic asset protection trusts should be considered with that in mind.

For more information on asset protection trusts as well as retirement and estate planning, contact our Jacksonville Florida estate planning law firm.

As I’ve stated in previous blogs, the federal bankruptcy courts have been very inconsistent as to whether or not an inherited IRA is asset protected when the beneficiary files for bankruptcy. Two cases that came out earlier this year came out with two different answers.

In re Chilton, a Texas bankruptcy case, the court decided that an inherited IRA is not asset protected because of the different tax treatment of IRAs and inherited IRAs. In re Nessa, a Minnesota case, the court decided that an inherited IRA is asset protected because the account is exempt from taxation under one of the provisions of the IRS code specified in the bankruptcy code. Although the courts were deciding the same issue, they took different paths to get to different results.

On June 18, 2010, a bankruptcy court in Pennsylvania decided as the court did in Nessa and found that an inherited IRA is asset protected in bankruptcy. In re Tabor is the case. Tabor agreed with Nessa and also stated that Pennsylvania law also protects an inherited IRA for state court purposes.

There is no easy way to determine whether or not an inherited IRA is asset protected in bankruptcy due to the different results bankruptcy courts are reaching. Hopefully Congress can either amend the statute to make it clearer whether or not an inherited IRA is asset protected (right, get in line behind all of the tax reform, immigration reform and other items on their agendas) or the U.S. Supreme Court comes out, hears a case and gives a final ruling on the asset protection of inherited IRAs.

Until then, keep checking back to my blog as cases are published. To learn more about inherited IRAs, please consult with our Jacksonville estate planning attorney.

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.

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.

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.

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.

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.

With the uncertainty still there as far as what Congress will do with the estate tax, many are waiting to see where it all ends up.  However, there are many non-tax related reasons to plan your estate that have nothing to do with Congress lack of clarity.

Disability planning is a very important part of estate planning.  Most insurance plans and Medicare do not cover long-term care, meaning the money will come from your own pockets.  You should always consider using long-term care insurance for protect your assets.  Statistics says that almost half of Americans 65 or older will end up in a nursing home at some point.

A living trust can also include disability provisions to make sure you are taken care of according to your wishes.  It is best to plan now just in case something happens to you tomorrow and you are no longer competent to sign your estate planning documents.

Special needs planning is also an important reason to do your estate planning now.  A special needs trust ensures that your special needs beneficiary (usually your child) is taken care of financially without being disqualified for government benefits.  Usually this type of planning is done with life insurance to ensure that money is there to care for the beneficiary after your death.

You also can provide asset protection for the assets left to your surviving spouse and beneficiaries.  This is really important to ensure that they assets go to your ultimate beneficiaries instead of anyone else, including a surviving spouse's new spouse should they get remarried.  Speaking of getting remarried, estate planning should be done in a blended marriage situation.  A lot of blended marriages have children from previous marriages and the one spouse usually wants their assets to go to their children only.  To prevent any legal disputes upon death, an estate plan must be completed.

To speak with someone on why you should still do your estate plan in 2010, please consult with an estate planning attorney.

On February 16, 2010, I wrote a blog about whether or not an inherited IRA was asset protected and I said that it depends on what court you are in.  The latest inherited IRA case proves that to be true.

A bankruptcy court in Texas this week has ruled that an inherited IRA is not asset protected in bankruptcy.  The debtor chose to use the federal exemption under section 522(d)(12).  The Texas court used a two part test: 1) where the funds “retirement funds”; and 2) if they were such, were they exempt from taxation under the applicable Code provisions.

The court first ruled that the funds were not “retirement funds” since they are distributed to the beneficiary without regards to age or working/retirement status.  Simply stated, an inherited IRA in their minds is not equivalent to an IRA.  The court then said, for arguments sake, that if an inherited IRA contained “retirement funds”, the inherited IRA account is not a traditional IRA that is exempt from taxation.  To be exempt from creditors under 522(d)(12), the inherited IRA must be exempt from taxation under one of the IRS code sections enumerated in 522(d)(12).  An inherited IRA is not tax exempt under one of 522(d)(12)’s enumerated tax sections. 

I will try and follow this case as I believe it was looked at by the court very narrowly.  This ruling is completely opposite of the ruling last month, eventually they will have to be reconciled.  For now, at least in Texas, an inherited IRA is not asset protected in bankruptcy.  If you need help with estate planning, please consult an estate planning attorney to discuss your particular situation.

Are inherited IRAs asset protected?  The answer, unfortunately, seems to be that it depends on which state and which court you are in.  There are state courts all over the United States which have ruled that an inherited IRA is not protected from a creditor of the beneficiary. 

Recently, a Florida state court ruled that an inherited IRA is not asset protected from a judgment creditor.  The facts of the case were that the creditor obtained a judgment against the debtor and served a writ of garnishment to obtain the funds held by the debtor in an inherited IRA received from his deceased father.  The Florida District Court of Appeal ruled that Florida Statute 222.21(2)(a) does not apply to inherited IRAs because the language of the statute references only the original “fund or account” and also that an inherited IRAs tax consequences are different from the original IRAs tax consequences.

However, even more recently, a Bankruptcy court in Minnesota ruled that an inherited IRA is protected in bankruptcy.   In that case, the debtor claimed exemption under 11 U.S.C. Section 522(d)(12).  The court ruled that 11 U.S.C. Section 522(d)(12) does apply and, therefore, the inherited IRA is exempt in the bankruptcy proceeding.  This court however seemed to limit its ruling to the facts of the case.

The easiest way to ensure that your inherited IRA is asset protected is through a trust setup specifically to deal with the inherited IRA upon the IRA owner’s death.

If you have questions regarding inherited IRAs and other assets being protected as they pertain to judgments, bankruptcy and other proceedings, please contact a legal professional for legal counsel.

The second reason to become a Florida resident is that Florida has favorable asset protection laws to protect its residents.  The most widely used asset protection technique is the homestead.  Only a few states even recognize some sort of homestead protection to protect ones home from a forced sale (subject to three exceptions in Florida).  In order to qualify for the homestead exemption, you must 1) intend to permanently reside in Florida; 2) have legal or beneficial title in equity to the real property on the 1^st of January; 3) reside on the property; and 4) in good faith make the property their personal residence.  There are land limitations on the homestead though.  If the land is within a municipality, the protection is limited to one-half.  If located outside a municipality, then the limitation is to 160 contiguous acres.  Further, due to the Bankruptcy Act of 2005, for the first 1,215 days your own your homestead, you only have an exemption of $136,875.  This prevents someone from moving to Florida, putting all their money into their homestead and then filing bankruptcy.

Life insurance proceed are also exempt from the creditors of the insured unless the policy or a valid assignment provides otherwise.  The cash surrender value of insurance policies insuring the life of a Florida resident and the proceeds of an annuity contract issued to a Florida resident are exempt from the reach of creditors.  Money or other assets payable from a qualified retirement or profit-sharing plan are exempt from claim of creditors of the beneficiary and participant.  Assets set aside in a medical saving account, college trust fund or 529 plans are protected from creditors.  Finally, assets titled as tenants by the entirety, only available to husband and wife, are exempt from the creditors of one spouse.  If the creditor is a creditor of both spouses, this protection does not exist.

Becoming a Florida resident is easy as Florida is an intent state, meaning if you intend to be a Florida resident, then you can be.  The bigger problem is having the state you have left no longer claim you as a resident.  A few simple steps can allow you to show your intent and hopefully break any connection you may have with your old state of residency.

Florida residents and others should consult with an estate planning and tax attorney to review the various documents and strategies to take full advantage of the asset protection benefits under Florida law.