Estate Planning and Tax Lawyer Blog

Florida Statutes, Chapter 744 contains all the provisions under Florida law for the guardianship of a ward. A “ward” is the person whom a guardian has been appointed. A “guardian”, just to be clear, is a person appointed by a court to act on behalf of a ward’s person, property or both.

The State of Florida has gone out of its way to make it clear what their intent is behind setting up a guardianship. Specifically, in Florida Statute 744.1012, it states:

“The Legislature finds that adjudicating a person totally incapacitated and in need of a guardian deprives such person of all her or his civil and legal rights and that such deprivation may be unnecessary. The Legislature further finds that it is desirable to make available the least restrictive form of guardianship to assist persons who are only partially incapable of caring for their needs. Recognizing that every individual has unique needs and differing abilities, the Legislature declares that it is the purpose of this act to promote the public welfare by establishing a system that permits incapacitated persons to participate as fully as possible in all decisions affecting them; that assists such persons in meeting the essential requirements for their physical health and safety, in protecting their rights, in managing their financial resources, and in developing or regaining their abilities to the maximum extent possible; and that accomplishes these objectives through providing, in each case, the form of assistance that least interferes with the legal capacity of a person to act in her or his own behalf. This act shall be liberally construed to accomplish this purpose. “

I have quoted the entire statute as I feel it is important to see the State of Florida’s intent behind passing all the laws pertaining to guardianships. In setting up a guardianship, courts have taken the route to set up a guardianship in the least restrictive means possible to the ward. This is important to keep in mind when dealing with a guardianship.

Florida statute 744.105 allows all costs to be paid out of the ward’s estate (ward’s property). If the ward owns many different types of property, the court may direct what specific account(s) the costs are to come out of.

The court may also appoint a person known as a “monitor”. A monitor is a person appointed by the court to provide the court with information concerning a ward. The monitor, once appointed, may investigate, review documents, speak to the ward and seek other information and report their findings back to the court. A monitor may be appointed under normal procedures (with proper notice to the guardian and ward) or in an emergency situation. If, based upon the monitor’s findings, the court needs to enter any further orders to protect the ward’s interests, the court may do so.

Under Florida Statute 744.108, a guardian and their attorney are entitled to reasonable fees for the services provided. The fees will be calculated based upon the time required, difficulty of the services provided, the results of the services and the experience of the guardian and attorney. For more information on what all a court may take into account in determining the fee, please read the statute itself as there is a list of items to be taken into account. This has become a profitable area here in Florida so the legislature has rules regulating who may serve as a Professional guardian. To learn more about becoming a Professional guardian, please review statute 744.1083 and 744.1085.

Continue reading "General Guardianship Provisions under Florida Law" »

What is a Living Trust?

Think of a Living Trust as a bucket on paper. A trust is an agreement between the Trustee and the Trustmaker (also called a Settlor or Grantor) whereby the Trustee holds title to the assets for the benefit of the Trustmaker and other named beneficiaries. A Living Trust usually is an agreement with yourself that says while you are alive and well, you maintain total control of your property and you may do whatever you’d like with that property. Then upon your disability, it names a successor Trustee who will manage the assets for your benefit. Then upon your death, it names a successor and how the property is to pass to your beneficiaries.

To go back to the bucket theory, think of it as a bucket that you carry along while you are alive and if you need an asset, you take whatever you need out of the bucket and as you obtain or purchase an asset, you put it into the bucket. If you become ill, you just hand the bucket off to someone else to take care of he assets. It really is that simple.

Do you have to be wealthy to have a Living Trust?

No you don’t. However, a Living Trust is more expensive to set up than a typical will. The money you spend to set it up is minute compared to the money you will save in probate costs though upon your death. So do you want to pay more now to save more later or pay a little now to pay more later?

Why a Living Trust?

The primary purpose of a Florida Living Trust is to spare your beneficiaries the delay, publicity and expense of a public probate court proceeding. In Florida, a probate court proceeding can take anywhere from 8-15 months, depending on the size of the estate and whether or not a hearing is needed. However, with a Florida Living Trust, your assets can pass to your beneficiaries without delay, usually within a month or two.

A Living Trust also allows you to do disability planning in order to avoid having to set up a guardianship in the future. This alone is a big benefit to setting up a living trust and transferring all of your assets into the living trust.

Types of Living Trust?

There are two types of living trusts: revocable and irrevocable. A revocable living trust keeps you in control of your assets while you are still living, and allows you to change beneficiaries, modify the terms or even revoke the trust.

An irrevocable living trust is one you do not control, and it cannot be changed or revoked. However, there are tax benefits to an irrevocable trust that are not available with a revocable trust. Generally, an irrevocable trust is not subject to estate taxes. On the other hand, an irrevocable trust is only available in certain situations.

How to set up a Living Trust?

There are a lot of websites out there that say they will set up a Living Trust for you by just answering a few questions. However, I suggest you go see an attorney to have a Living Trust set up for you. I have seen some of the trusts that are created online and when I review what they say with the client, they do not pass the property according to the client’s wishes. Sometimes they actually pass property to people that the client wanted to actually disinherit!

Continue reading "Common Questions Regarding a Florida Living Trust" »

As I was watching the coverage of the Florida primary last night, I started to wonder what the tax plans were for Newt Gingrich and Mitt Romney, the two leading Republican candidates in this years presidential election. So I did a little research. I write this blog purely to inform and not insert any personal feelings or politics at all. All the information I share is readily available on both candidates’ websites and you can go there to further your knowledge. My goal is to try and consolidate their tax plans into this blog post.

Newt Gingrich’s tax plan, in a nut shell, would give all individual taxpayers the choice between paying their taxes under the current tax system or a flat tax system of 15%. Corporate taxpayers would pay an income tax of 12.5% and be allowed to fully expense capital expenditures (subject to some exceptions).

Gingrich’s choice for individual taxpayers would slightly modify the current tax system by 1) making capital gains, dividends, and interest income tax free, 2) apply a standard deduction of $12,000 for each individual and dependent, and 3) eliminate most of the deductions and credits currently available except the deductions for mortgage interest, charitable deductions, child credits and earned income tax credit. Newt’s plan also repeals the AMT tax and the federal estate tax. It is unknown if the gift tax would be repealed or not. Note the individual “flat tax” is different than previously announced and publicized flat taxes because Gingrich’s flat tax maintains deductions and credits for his flat tax.

Based upon early estimates from the Tax Policy Center, Gingrich’s plan would reduce the federal governments revenue by about 35%. Please note these estimates can change greatly once the full policies are announced and disclosed.

Mitt Romney’s tax plan seeks to permanently extend the 2001-2003 tax cuts, eliminate taxation of investment income for most taxpayers, reduce the corporate income tax rate, eliminate the estate tax, reduce the gift tax and repeal the taxes implemented in 2010 with the health reform bill.

Romney’s plan would permanently extend all the 2001 and 2003 tax cuts and continue a patch on the AMT tax. The plan would eliminate the tax on long-term capital gains, dividends and interest income for married couples filing jointly with income lower than $200,000 ($100,000 for individuals and $150,000 for heads of households). Romney’s plan is to permanently repeal the estate tax but keep the gift tax with a maximum rate of 35% and lifetime exemption of $1 million.

Romney’s corporate tax plan will seek to 1) reduce the corporate income tax rate to 25%, 2) make the research and experimentation credit permanent and 3) extend for one year the full expensing of capital expenditures. The plan would also allow a “tax holiday” for the repatriation of corporate profits held overseas. This would allow companies to bring their profits back into the US without the profits being taxed. Currently, a business pays the income tax based upon the countries tax policy where the business is located. They then keep the money within that country to prevent it being taxed again when brought into the US due to the US’s current high corporate tax rate.

Based upon early estimates from the Tax Policy Center, Romney’s plan would reduce the federal governments revenue by about 16%. Please note these estimates can change greatly once the full policies are announced and disclosed.

To learn more on each candidates tax plan, go to their respective websites to find out more detailed information than I have provided here. Like I said, my goal was to summarize their proposals but not persuade you one way or another. I hope I was able to give you something to think about when it comes time for your state’s primary to take place.

Continue reading "What are the Tax Policies of the Two Leading Republican Candidates?" »

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?" »