Jennifer Fox as the president-elect of the Young Lawyers Section of the South Palm Beach County Bar Association hosted an induction ceremony to welcome new attorneys to take the Florida Bar’s Oath of Admission on September 28, 2018. Practicing attorneys were welcomed to re-affirm their oath along with newly admitted attorneys at the South County Courthouse in Delray Beach. New attorneys were provided the opportunity to take their oath in front of their local south county judges and at the courthouse they would soon practice in. Additionally, new attorneys had an opportunity to network with practicing attorneys in their community. The induction ceremony provided a valuable experience for new attorneys to start their careers!
Read More…By Brandan J. Pratt, Esq., CFP®
Retirees flock to South Florida based on the allure of the South Florida lifestyle, which often includes memberships to various types of clubs including country clubs, golf clubs, beach clubs, tennis clubs and yacht clubs. Many club memberships are equity memberships that cost in excess of one-hundred thousand dollars to join. Members are partial owners of the clubs that have equity memberships, and often
times, the equity membership can be transferred upon the death of a member.
Estate planning lawyers may be under the impression that a club membership can be devised simply by drafting provisions in a will. However, the relationship between a club and a member is contractual. Susi v. St. A ndrews Country Club, Inc., 727 So. 2d 1058 (Fla. 4th DCA 1999). Further, a decedent’s property can be transferred upon death outside of probate proceedings by way of contract. Blechman v. Estate of Blechman, 160 So. 3d 152 (Fla. 4th DCA 2015). “The common thread of such non-probate mechanisms is that the assets to which they apply are distributed to the designated beneficiaries immediately upon the transferor’s death without the need for judicial intervention.” Blechman v. Estate of Blechman, 160 So. 3d at 157. Therefore, because the relationship between a club and a member is contractual in nature, the club membership agreement typically controls the method by which the membership is transferred upon the death of a member even if there are provisions in a decedent’s will that contrast with the terms of the club membership agreement.
Read More…Brad H. Milhauser, a managing partner at the law firm of Huth, Pratt & Milhauser in Boca Raton, Florida has been accepted into the Florida Fellows Institute of the American College of Trust and Estate Counsel (ACTEC).
Mr. Milhauser earned his LL.M. in Estate Planning from the University of Miami School of Law. Prior to obtaining his LL.M. degree, he attended St. Thomas University School of Law where he was a member of Law Review and served as a judicial intern for the honorable David M. Gersten, Chief Judge of the Third District Court of Appeal, Miami, Florida.
The Florida Fellows Institute was created by Florida ACTEC Fellows to develop the profession’s future leaders in trust and estate law through a series of in-depth educational presentations led by outstanding subject matter experts in each field from across the U.S.
The institute includes six sessions for lawyers who were nominated by a Florida ACTEC Fellow and selected through a competitive application process. The program begins in October 2018 and concludes in April 2019.
For more information, visit FloridaFellowsInstitute.org.
The American College of Trust and Estate Counsel is a national organization of lawyers elected to membership by demonstrating the highest level of integrity, commitment to the profession, competence and experience as trust and estate counselors.
About Huth, Pratt & Milhauser
Huth, Pratt and Milhauser is a boutique law firm that offers a wide range of legal services in the specialty areas of wills, trusts, estate planning, probate, guardianship, litigation, and related matters. The range of legal services that Huth, Pratt & Milhauser provides in these specialty areas includes planning, administration and litigation. The experience and skills of the attorneys and staff, coupled with their knowledge of applicable law, enable the firm to provide outstanding representation to their clients.
Huth, Pratt & Milhauser attorney, Jennifer Fox, accepts Impact Award from Pine Grove Elementary School
Jennifer Fox is an attorney at Huth, Pratt & Milhauser and serves as the Treasurer of the Young Lawyers Section of the South Palm Beach County Bar Association (“YLS”). Throughout the 2017-2018 school year, the YLS made an impact at Pine Grove Elementary School by hosting a school supply drive, a thanksgiving food drive, and a holiday toy drive. In addition, Ms. Fox was chair of the annual Law Day event that was held at the school. On March 22, 2018, Ms. Fox accepted a Certificate of Appreciation from Pine Grove Elementary School on behalf of the YLS. Congratulations Ms. Fox on making an impact in the lives of children in need.
In estate proceedings, it is all too common for family members to get into arguments over who should receive certain items of personal property upon the death of a loved one. The disputes range from who should receive the diamond ring, artwork, fine china or other family heirlooms. The disputes often involve claims that a deceased relative made a verbal promise that the family member could have the item upon death or agreements that beneficiaries claimed existed with each other and/or the Decedent. The Fourth District Court of Appeal recently gave practitioner’s some instruction on how to address these issues in, Eisenpresser v. Koenig, 43 Fla. L. Weekly D376 (Fla. 4th DCA February 14, 2018). In Eisenpresser v. Koenig, the Decedent was survived by two daughters, Eisenpresser and Koenig.
Read More…
When may a litigant amend a petition in a contested probate proceeding? The Fourth District Court of Appeal addressed this issue in Winslow v. Deck, 225 So. 3d 276 (Fla. 4th DCA 2017). In Winslow, the issue presented to the appellate court was whether the trial court erred in dismissing appellant’s counter-petition for administration on the grounds that appellant failed to properly request relief to revoke a prior will admitted to probate within three months of receiving a notice of administration. Fla. Stat., §733.212(3), provides in pertinent part that “any interested person on whom a copy of the notice of administration is served must object to the validity of the will…by filing a petition or other pleading requesting relief… on or before the date that is 3 months after the date of service… or those objections are forever barred.” Fla. Stat., §7733.208, provides that “on the discovery of a later will or codicil, any interested person may petition to revoke the probate of a prior will or probate a later will.”
Read More…By: Brandan J. Pratt, Esq., CFP® and Jennifer L. Fox, Esq.
In Winslow v. Deck, 225 So. 3d 276 (4th DCA 2017), the issue presented to the appellate court was whether the trial court erred in dismissing appellant’s counter-petition for administration on the grounds that appellant failed to properly request relief to revoke a prior will admitted to probate within three months of receiving a notice of administration of the Decedent’s estate. Section 733.212(3), Florida Statute, provides in pertinent part that “any interested person on whom a copy of the notice of administration is served must object to the validity of the will…by filing a petition or other pleading requesting relief… on or before the date that is 3 months after the date of service… or those objections are forever barred.” Section 733.208, Florida Statute, provides that “on the discovery of a later will or codicil, any interested person may petition to revoke the probate of a prior will or probate a later will.”
Read More…Motions to determine entitlement and amount of attorney’s fees almost always follow the completion of a trial in trust and estate disputes. There are many articles written about entitlement to attorney’s fees. However, determining entitlement to attorney’s fees is only half the battle. Under Section 733.6175 of the Florida Probate Code, the personal representative has the burden to prove that the attorney’s fees are related to probate and are reasonable. Specifically, Section 733.6175(3) provides that the personal representative has the burden of proof regarding the propriety of the employment of any person that the personal representative employs and the reasonableness of their compensation. In the trust context, Section 736.0206(3) puts the burden of proof of the propriety of the employment and the reasonableness of the compensation on the trustee.
By Brandan J. Pratt, Esq., CFP
Florida is home to a large population of retirees, and people are living longer and longer. Many people live well into their late 80’s and 90’s. There is a correlation between age and dementia. Therefore, there is a good chance that someone who wants to sign estate planning documents in their late 80’s or 90’s has some degree of dementia. It can be confusing as to whether someone who has dementia, has the requisite mental capacity to sign estate planning documents. This is known as “testamentary capacity”. In Raimi v. Furlong, 702 So. 2d 1273, 1286 (Fla. Dist. Ct. App. 3d Dist. 1997), the Third District Court of Appeal established the standards for a determination of “testamentary capacity” and explained the idea of having a “lucid interval.”
Read More…An estate plan may be your last communication with your loved ones. It contains your final wishes regarding your body and possessions and directions regarding your health care. There are four legal documents you must have (and another you should have) to instruct your loved ones. First, you need a Last Will and Testament. A Last Will and Testament names the beneficiaries who will inherit the assets from your estate and names a Personal Representative (known as an “Executor” in other states) who will be in charge of administering your estate. Second, you need a Living Will. This may be the most important document you ever sign. A Living Will makes your intentions known regarding the providing, withholding, or withdrawal of life-prolonging procedures in the event you have a terminal condition, end-stage condition, or you are in a persistent vegetative state. Third, you need a Durable Power of Attorney. Your agent acting under a Durable Power of Attorney will have access and decision making authority over your finances. It is “Durable” because it continues to function even if you become incapacitated. Lastly, you need to appoint a Heath Care Surrogate. A Health Care Surrogate is an individual appointed under a written document designating an individual to make health care decisions and/or receive health information on your behalf.
The aforementioned legal documents are necessities, but it is also recommended that you form a Revocable Trust, mainly to make the administration and distribution of your assets as simple and cost effective as possible. By using a Revocable Trust to own and distribute assets at death, in lieu of a Last Will and Testament, the onerous court process called “Probate” can be avoided. Probate is a court proceeding to administer assets in a decedent’s name at death. Probate can be costly and time consuming, and in we help our estate planning clients avoid it.
The planning outlined herein is designed to keep you and your assets and estate outside of a court. By doing the proper planning today, you can make life easier on your loved ones in the future.
Read More…By: Brandan J. Pratt, Esq., CFP
Florida is home to a large population of retirees, and people are living longer and longer. Many people live well into their late 80’s and 90’s. There is a correlation between age and dementia. Therefore, there is a good chance that someone who wants to sign estate planning documents in their late 80’s or 90’s has some degree of dementia. It can be confusing as to whether someone who has dementia, has the requisite mental capacity to sign estate planning documents. This is known as “testamentary capacity”. In Raimi v. Furlong, 702 So. 2d 1273, 1286 (Fla. Dist. Ct. App. 3d Dist. 1997), the Third District Court of Appeal established the standards for a determination of “testamentary capacity” and explained the idea of having a “lucid interval.” It stated the following:
The right to dispose of one’s property by will is highly valuable and it is the policy of the law to hold a last will and testament good wherever possible. To execute a valid will, the testator need only have testamentary capacity (that is, be of “sound mind”) which has been described as having the ability to mentally understand in a general way (1) the nature and extent of the property to be disposed of, (2) the testator’s relation to those who would naturally claim a substantial benefit from his will, and (3) a general understanding of the practical effect of the will as executed. A testator may still have testamentary capacity to execute a valid will even though he may frequently be intoxicated, use narcotics, have an enfeebled mind, failing memory, or vacillating judgment. Moreover, an insane individual or one who exhibits “queer conduct” may execute a valid will as long as it is done during a lucid interval. Indeed, it is only critical that the testator possess testamentary capacity at the time of the execution of the will.
In Miami Rescue Mission, Inc. v. Roberts, 943 So. 2d 274 (Fla. Dist. Ct. App. 3d Dist. 2006), the Third District Court of Appeals expanded on holding in Raimi v. Furlong, by explaining the concept of an “insane delusion.” The Third District Court of Appeals stated that:
Where there is an insane delusion in regard to one who is the object of a testator’s bounty, which causes him to make a will he would not have made but for that delusion, the will cannot be sustained. An insane delusion has been defined as a spontaneous conception and acceptance as a fact of that which has no real existence except in imagination. The conception must be persistently adhered to against all evidence and reason.
In conclusion, testators have testamentary capacity if they have the ability to mentally understand in a general way (1) the nature and extent of the property to be disposed of, (2) the testator’s relation to those who would naturally claim a substantial benefit from his will, and (3) a general understanding of the practical effect of the will as executed. Testators can be suffering from some type of mental disability as long as the documents are executed during a lucid interval and they are not suffering from an insane delusion.
Read More…Attorney to Watch Brandan J. Pratt
A trained civil engineer, Brandan J. Pratt began working as a construction manager for a Chicago real estate developer following his graduation from the University of Illinois.
“I was constantly confronted with legal issues,” Pratt said. “After speaking to our developer’s in house counsel, I realized that armed with a Juris Doctor, my civil engineering degree and my experience in construction management, I would have a powerful tool.”
Pratt enrolled in Marquette Law School. Following graduation, he relocated to Fort Lauderdale. “I was fortunate to begin working for a trust and estate litigation firm early on,” he said. Pratt quickly came to recognize that he would spend his career focused on trust and estate litigation, so he pursued his graduate certificate in financial planning and his certified financial planner designation. “I knew that to effectively help my clients, I needed to have a strong background in tax, investment management, insurance and other financial areas. I felt my knowledge in those areas was lacking, so I made the call to get the education my client’s deserved.”
To date, Pratt has handled hundreds of trust, probate and estate cases. “While I’m proud of having helped touch so many people’s lives, I try to keep the perspective of the client,” he said. “They will most likely be involved in only one trust and estate case in their lifetime. It will be one of the most stressful experiences of their life. In that crisis situation, it is rewarding to be able to help them obtain a successful result.”
For the first eight years of his practice, Pratt worked as an attorney at various firms gaining the knowledge – and education – to effectively represent his clients. Once he felt secure in his ability, he set out to fulfill his original ambition, founding his own firm.
Now, as a managing partner of Huth, Pratt & Milhasuser, Pratt has embraced the many roles that come with owning a business. “In those early years my only role was to be an attorney,” he said. “Now, I’ve been thrust into the roles of office manager, business owner and lead counsel.”
Read More…The American Taxpayer Relief Act of 2012 (ATRA) raised the federal estate tax exemption to $5 million per individual which is indexed for inflation. Due to the inflation adjusted exemption, a married couple can transfer almost $11,000,000, estate tax free. ATRA also made permanent “portability” which allows the surviving spouse to “port” the unused estate tax exemption of the first spouse to die, and tack it onto his or her own exemption.
It is these two tax law changes under ATRA that could significantly impact your estate plan. For nearly all Americans, the focus for estate planning has shifted from planning for the estate tax to planning for income tax.
For years, the conventional wisdom for married couples was to establish a credit shelter and marital trust (or A/B trust), with the intent being to shelter the first deceased spouse’s exemption by allocating the applicable exemption amount to the credit shelter trust. Any overage would fall to the marital trust and in the end all estate tax would be deferred until the death of the surviving spouse and the first deceased spouse’s exemption would be sheltered. Upon the death of the surviving spouse, both exemptions would be utilized.
Under today’s law, that same estate plan could unnecessarily produce a capital gains tax. The assets in the credit shelter trust receive a “step-up” in tax basis to the date of death value of the assets at the date of the first deceased spouse. If the surviving spouse lives another 10, 20 or 30 years, the assets in the credit shelter trust would most likely appreciate but would not receive another step-up in basis upon the death of the surviving spouse. The beneficiaries inheriting the credit shelter trust assets (usually the children) will inherit the assets but their tax basis would be the same as it was when the first spouse died. If the beneficiaries thereafter sell the assets, the capital gains tax would take a big bite out of the inheritance.
For most Americans, it makes more tax sense to cause the assets to be included in the surviving spouse’s estate so that there would be a second step-up in basis upon the surviving spouse’s death. A traditional credit shelter trust and marital trust design (A/B trust) would not accomplish a second step-up in basis.
It is likely that if you haven’t had your estate plan updated within the last couple of years, these tax law changes could greatly impact your plan. As a reminder we offer a complimentary estate plan review every 2 years at which time we can address these changes and determine whether our clients would benefit from updating the tax provisions of their estate plan.
Read More…Over the last several years, our firm has made a concerted effort to bolster our asset protection planning practice. Not only have our existing clients become more concerned with asset protection planning, but we are receiving more referrals from professional advisors regarding their clients’ concerns with protecting wealth. Although we are fortunate that we practice in a debtor-friendly state such as Florida, we continue to avail our clients with laws from jurisdictions that are even more favorable under certain circumstances. Homestead exemptions and statutory exemptions only protect certain asset classes. When our clients seek to shield assets which require sophisticated planning and attention, we feel it is our duty to seek protection under jurisdictions that offer increased protection outside of a client’s home state.This article will offer practical guidance and suggestions when representing clients in establishing a Domestic Asset Protection Trust (DAPT) under the law of a state in which they do not reside.
Perhaps the most frequently cited law against the use of a DAPT for a non-resident of the DAPT jurisdiction is the Full Faith and Credit clause in the United States Constitution. The clause stands for the proposition that the courts of one state must recognize judgments rendered in another state. In the asset protection context, if a Florida resident client establishes a DAPT in Nevada, a judgment entered in a Florida court against the client may be enforced against the client in Nevada. As a practical matter, a creditor would attempt to join the Trustee of the DAPT by bringing a fraudulent transfer action and joining the Nevada Trustee as a transferee. The Florida court would then have jurisdiction over the Trustee and the Florida order may be enforceable in Nevada. This argument, however, is made under the presumption that the creditor will be successful in its attempt to join the Nevada Trustee. By choosing the right trustee, the careful practitioner can greatly reduce the risk that a Trustee will be subject to jurisdiction in the client’s home state.
We recommend selecting a Trustee that is chartered only in the state where the DAPT is located and that such Trustee has few contacts, if any, with the client’s home state. It is important to interview multiple Trustees prior to appointing one in a DAPT. The attorney should have a solid understanding of the contacts and the business presence that the Trustee has in the client’s home state. Issues to address with the Trustee include but are not limited to (i) offices maintained by the Trustee outside of the DAPT state, (ii) advertising or business generation efforts outside of the DAPT state, (iii) prior experience in serving as Trustee of a DAPT, and (iv) information regarding parent or subsidiary companies that may operate in other states. By choosing a Trustee that has minimal contacts with a client’s home state, a practitioner can reduce the risk that a Trustee would be subject to the home state’s jurisdiction.
It is rarely advisable to transfer real estate located in a client’s home state to a DAPTlocated in another jurisdiction. A court will have in rem jurisdiction over real estate located within its borders. Some practitioners advocate turning the real estate into an intangible asset by contributing it to a limited liability entity such as a partnership or LLC, however, the viability of that technique is questionable. Further, if the property in question is related to income-producing activity in the home state, the limited liability entity will be required to apply for qualification to transact business in the home state and submit to jurisdiction there. For every entity that we establish outside of a client’s home state, we retain local counsel to review the transaction for compliance with state law. Not only will this avoid an unauthorized practice of law issue against the attorney, but counsel in these jurisdictions are likely more familiar with laws in their states, they are better acquainted with the court system, and will have a better perspective on the strength of the asset protection technique.
We layer each of our DAPTs with a limited liability entity such as a LLC. The LLC adds an additional hurdle for a creditor due to the charging order remedy. For practitioners and clients that are concerned about whether the DAPT will stand up in a court of law, the LLC component is an important obstacle that will have to be overcome if the DAPT is defeated. Further, in some instances, we try to mitigate the risk of relying too heavily on one jurisdiction. For instance, if we establish a Nevada DAPT, we may layer it with a Delaware LLC. This may cause the court to turn to Delaware LLC law after the Nevada DAPT was successfully defeated. This long process may frustrate a creditor to the point of inducing a favorable settlement for our client.
When implementing an asset protection plan, we integrate it with the client’s estate plan in such a way to validate it for other purposes such as tax planning or business succession planning purposes. In DAPT jurisdictions such as Alaska, the common law rule against perpetuities has been abolished. Thus, establishing a DAPTin Alaska makes sense from a GST tax standpoint because a grantor can create a GST exempt trust which can grow free of GST tax for generations. Further, in Alaska, some practitioners rely on Private Letter Ruling 200944002, which may allow a client to establish a Alaska DAPT and treat the transfer to the DAPT as a completed gift, thereby eliminating the DAPT assets from the client’s gross estate for estate tax purposes. This will allow appreciation on the DAPT property to accumulate outside of the client’s estate. Where appropriate we try to encourage clients to establish a third-party DAPT which is established for the benefit of the client’s family. The law on third-party DAPTs is certainly more defined and tested than a first-party DAPT of which the client is a discretionary beneficiary. If the client is not married or is in a troubled marriage, a third-party DAPT may not be ideal.
Our approach to asset protection planning is simple: we strive to position our clients so that they are unattractive targets for lawsuits and thereby force favorable settlements. It is just as important, however for a client to understand our approach and never leave our office with the mindset that their asset protection plan is made of Teflon. As lawyers, we can never guarantee results. If we stay focused on our asset protection approach, rather than attempting to create structures that are too complex for clients, judges, or juries to understand, then we are more likely to succeed in protecting wealth by forcing settlements that are favorable to our clients.
Read More…Many business owners devote much time and energy “working in” their business to improve business operations and profitability; however, they often neglect to “work on” their business by not addressing certain asset protection issues. Business owners, particularly those owning their business in corporate form, should consider the following: 1) how to own C corporation or S corporation stock to minimize exposure to creditors, an “outside” asset protection issue; and, 2) whether to implement several basic business agreements designed to protect and even enhance business value from the “inside” of the corporation.
Generally, a creditor of a corporate shareholder may seize the shareholder’s stock and thus have the same management and liquidation rights as the debtor shareholder. Charging order protection (described below), normally applicable to limited liability entities, does not apply to S corporations or C corporations. S corporation owners may have additional concerns if a creditor is an ineligible S corporation shareholder thereby causing the corporation to lose its S election. As a result the corporation will be treated as a C corporation and exposed to double taxation.
A business owner who owns S corporation or C corporation stock should consider the asset protection benefits of converting or merging the corporation to a new Limited Liability Company (“LLC”). There are several limited liability organizations that can protect business assets from the personal liabilities of the owner. However, entities such as limited partnerships, or limited liability limited partnerships, are treated as partnerships for federal tax purposes and therefore cannot own S corporation stock; whereas, an LLC electing to be taxed as a corporation may.
Generally, the asset protection benefit of an LLC is a judicial remedy as known as a “charging order” which protects the owner’s interest in the LLC from his or her personal liabilities. If a creditor obtains a charging order, the creditor is limited to the rights of an assignee of a membership interest in the LLC. If a distribution is made from the LLC, the creditor is entitled to receive a proportionate distribution. However, the creditor has no voting rights and thus, cannot force a distribution, liquidate the LLC, or otherwise manage the business.
With proper planning, both C corporation and S corporation owners may be able to avail themselves of the LLC asset protection benefits by converting the corporation to an LLC taxed as a corporation. Generally, such conversions are treated as nontaxable “F” reorganizations under IRC Section 368(a)(1)(F). However, potential income tax consequences and individual state law considerations should be carefully evaluated. For instance, C corporations considering conversion should analyze potential exposure to the “built-in-gains tax” under IRC Section 1374. Also, the strength of the charging order protection provided by an LLC varies depending upon state law.
Among the basic business agreements or legal documents that should be considered by business owners to protect business value include a Non-Compete and Confidentiality Agreement, Buy-Sell Agreement, and perhaps even a Deferred Compensation or Bonus Plan for key employees.
Few events can sap the value of a small business like a key employee or associate leaving the business and starting a similar enterprise, especially if such an employee departs with trade secrets, confidential information or even customer lists. Business owners should require their employees to sign Non-Compete and Confidentiality Agreements to prevent this from occurring. If the terms of such an agreement are considered reasonable under state law, the agreement should be enforceable.
A Buy-Sell Agreement is another key document that if properly structured, funded, and updated will protect the value of both the exiting and remaining business owner’s interest in the business. The Buy-Sell Agreement accompanied by proper planning should provide the exiting owner a fair value for his or her ownership interest and provide the remaining owner a means to purchase the exiting owner’s interest without depleting the business of cash flow and its value. A Buy-Sell Agreement is designed to establish a predetermined and agreed-upon business value (or method of arriving at the value) at the occurrence of certain trigger events such as the death, disability, voluntary or involuntary termination, or retirement of a shareholder or partner.
It is crucial that planning be done to ensure there are sufficient funds available to implement the buy-sell provisions when triggered. Funding at an owner’s death with life insurance may be the easy part. More problematic may be how to buy-out a departing owner’s interest in the event of disability, retirement or voluntary termination, especially if a portion of the business’ cash flow must be devoted to that purpose. Further, once in place a Buy-Sell Agreement should periodically be updated to reflect changes in the business value and the owners’ objectives.
Finally, business owners should consider putting into place a deferred compensation or bonus plan designed to reward key employees who meet certain performance targets. A properly planned deferred compensation or bonus arrangement can serve two purposes which will work toward protecting the value of the business. First, the plan should be designed so that employees are rewarded for achieving benchmarks that not only protect but increase the business value. Second, such agreements, for example through gradual vesting schedules, should place “golden handcuffs” on valuable employees by making it difficult for a key employee to leave the business and forfeit certain benefits.
A detailed discussion of the aforesaid legal documents is beyond the scope of this article. The point here is that when considering asset protection strategies for business owners, protecting the internal value of the business through a few important but often overlooked documents can be just as important as the legal wrapper placed on the ownership of the business. It should also be noted that implementing such agreements not only protects the value of the business but also enhances its value and makes the business a more attractive target to a potential buyer when the owner eventually exits.
Read More…These tools aren’t just for Rockefellers. Use the tips below to determine whether or not setting up a trust the best for you.
The notion of a legal trust may conjure up images of country clubbers cradling gin-and-tonics.
The truth is a trust may be a useful estate-planning tool for your family if you have a net worth of at least $100,000 and meet one of the following conditions, says Mike Janko, executive director of the National Association of Financial and Estate Planning (NAFEP):
Among the chief advantages of trusts, they let you:
Trusts are flexible, varied and complex. Each type has advantages and disadvantages, which you should discuss thoroughly with your estate-planning attorney before setting one up.
When it comes to cost, a basic trust plan may run anywhere from $1,600 to $3,000, or possibly more depending on the complexity of the trust. Such a plan should include the trust setup, a will, a living will and a health-care proxy. You will also pay fees to amend the trust if it’s revocable and to administer the trust after you die.
One caveat: Assets you want protected by the trust must be retitled in the name of the trust. Anything that is not so titled when you die will have to be probated and may not go to the heir you intended but to one the probate court chooses.
For a trust in which you want to put the majority of your assets — known as a revocable living trust — you also have to have a “pour-over will” to cover any of your holdings that might be outside of your trust if you die unexpectedly. A pour-over will essentially directs that any assets outside of the trust at the time of your death be put into it so they can go to the heirs you choose.
If you’d like to learn about different kinds of trusts, read on.
Credit-shelter trust: With a credit-shelter trust (also called a bypass or family trust), you write a will bequeathing an amount to the trust up to but not exceeding the estate-tax exemption. Then you pass the rest of your estate to your spouse tax-free. You also specify how you want the trust to be used — for example, you may stipulate that income from the trust after you die goes to your spouse and that when he or she dies, the principal will be distributed tax-free among your children.
Since your spouse is also entitled to an estate-tax exemption, the two of you can effectively double (or more than double) that portion of your kids’ inheritance that is shielded from estate taxes by using this strategy.
And there’s an added bonus: Once money is placed in a bypass trust it is forever free of estate tax, even if it grows. So if your surviving spouse invests it wisely, he or she may add to your children’s inheritance, says attorney Roger Levine of Levine, Furman & Smeltzer in East Brunswick, N.J.
Of course, you can pass an amount equal to the estate-tax exemption directly to your kids when you die, but the reason for a bypass trust is to protect your spouse financially in the event he or she has need for income from the trust or in the event you think your children will squander their inheritance before the surviving parent dies.
Generation-skipping trust: A generation-skipping trust (also called a dynasty trust) allows you to transfer a substantial amount of money tax-free to beneficiaries who are at least two generations your junior — typically your grandchildren.
You may specify that your children may receive income from the trust and even use its principal for almost anything that would benefit your grand kids, including health care, housing or tuition bills.
Beware, however. If you leave more than the exemption amount, the bequest will be subject to a generation-skipping transfer tax. This tax is separate from estate taxes, and is designed to stop wealthy seniors from funneling all their money to their grandchildren.
Qualified personal residence trust: A qualified personal residence trust (QPRT) can remove the value of your home or vacation dwelling from your estate and is particularly useful if your home is likely to appreciate in value.
A QPRT lets you give your home as a gift — most commonly to your children — while you keep control of it for a period that you stipulate, say 10 years. You may continue to live in the home and maintain full control of it during that time.
In valuing the gift, the IRS assumes your home is worth less than its present-day value since your kids won’t take possession of it for several years. (The longer the term of the trust, the less the value of the gift.)
Say you put a $675,000 home in a 10-year QPRT. The value of that gift in 10 years will be assumed to be less — say, $400,000 — based on IRS calculations that take into account current interest rates, your life expectancy and other factors. Even if the house appreciates in 10 years, the gift will still be valued at $400,000.
Here’s the catch: If you don’t outlive the trust, the full market value of your house at the time of your death will be counted in your estate. In order for the trust to be valid, you must outlive it, and then either move out of your home or pay your children fair market rent to continue living there, Janko says. While that may not seem ideal, the upside is that the rent you pay will reduce your estate further, Levine notes.
Irrevocable life insurance trust: An irrevocable life insurance trust (ILIT) can remove your life insurance from your taxable estate, help pay estate costs, and provide your heirs with cash for a variety of purposes. To remove the policy from your estate, you surrender ownership rights, which means you may no longer borrow against it or change beneficiaries. In return, the proceeds from the policy may be used to pay any estate costs after you die and provide your beneficiaries with tax-free income.
That can be useful in cases where you leave heirs an illiquid asset such as a business. The business might take a while to sell, and in the meantime your heirs will have to pay operating expenses. If they don’t have cash on hand, they might have to have a fire sale just to meet the bills. But proceeds from an ILIT can help tide them over.
Qualified terminable interest property trust: If you’re part of a family where there have been divorces, remarriages and stepchildren, you may want to direct your assets to particular relatives through a qualified terminable interest property (QTIP) trust.
Your surviving spouse will receive income from the trust, and the beneficiaries you specify (e.g., your children from a first marriage) will get the principal or remainder after your spouse dies. People typically use QTIP trusts to ensure that a fair portion of their wealth ultimately passes to their own children and not someone else’s.
Money in a QTIP trust, unlike that in a bypass trust, is treated as part of the surviving spouse’s estate and may be subject to estate tax. That’s why you should create a bypass trust first, which shelters assets up to the estate-tax exemption, and then if you have assets left over you can put it in a QTIP, Levine says.
Read More…The number of new businesses forming as traditional “S” corporations has decreased dramatically in recent years. That is due in large part to the popularity of limited liability entities such as Limited Partnerships or Limited Liability Companies (LLCs). An entity such as an LLC offers all of the same protection that a corporation offers from business creditors, but it has the added benefit of protecting the business assets from the personal creditors of the business owner.
As an asset protection planner, there are two types of creditors that I account for: inside creditors and outside creditors. An inside creditor is one that arises against the business such as a slip and fall on business property. The injured party may have a claim against the business itself, not against the owners of the business if it is established and run properly. Thus, if the injured party has a judgment, he or she can only have that judgment satisfied by business assets and not the personal assets of the owner.
An outside creditor is one that is not related to the operation of a business, rather the creditor has a claim against an individual. It is the outside creditor protection that makes an LLC a no-brainer over a corporation. A personal creditor with a judgment that is not related to the operation of the business may seize the debtor’s shares in a corporation and thus, control those shares and possibly the company itself. Once the creditor controls the shares it can liquidate the entity and satisfy its judgment.
If a LLC is used to own the business, however, a personal creditor of a business owner that owns a membership interest in an LLC will be limited to obtaining a charging order instead of seizing the membership interest itself. A charging order is an equitable remedy which allows a creditor to receive distributions if made from the entity. A charging order would not carry voting or liquidation rights and a creditor that holds a charging order cannot control the limited liability entity.
For tax purposes, limited liability entities are much more flexible than corporations. A corporation can be taxed one of two ways: as an S corporation or as a C corporation. An LLC, for example, can be taxed as an S corporation or a C corporation, however, it can also be taxed as a partnership or it can even be treated as a disregarded entity if it has only one member.
Traditional corporations are becoming obsolete, and due to the asset protection and tax flexibility it is almost always more advantageous to operate a business or own property through a limited liability entity. When starting a business or forming an entity to own real estate, a limited liability entity should be utilized. For those with existing entities already up and running, you can convert the entity into an LLC in a tax-free reorganization. Please contact our office for more details.
Read More…A 2012 Florida case underscores the risk in naming a Revocable Trust as a beneficiary of a life insurance policy. The decedent named his Revocable Trust as beneficiary of two life insurance policies. The Revocable Trust provided that the Trustee shall pay all of the debts and expenses of the decedent’s estate prior to making distributions. A clause of this nature is quite common in Revocable Trusts.
Normally life insurance is exempt from creditors of a decedent. Fla.Stat. §222.13(1) provides: “Whenever any person residing in the state shall die leaving insurance on his or her life, the said insurance shall inure exclusively to the benefit of the person for whose use and benefit such insurance is designated in the policy, and the proceeds thereof shall be exempt from the claims of creditors of the insured unless the insurance policy or a valid assignment thereof provides otherwise.”
When life insurance is payable to an estate, however, the proceeds are administered like any other asset subject to probate and are available to pay the decedent’s debts.
The Court held the proceeds would not be exempt because the Revocable Trust contained a provision which required trust assets to be used to pay debts and expenses and the decedent had effectively waived the exemption that normally exempts life insurance from probate claims.
Thus, it is very important to seek legal advice before naming a Revocable Trust as beneficiary of life insurance policies. Every person that owns life insurance should have the beneficiary designation reviewed in conjunction with a review of his or her Revocable Trust to determine whether or not a change needs to be made in light of the Morey decision. I typically recommend naming a sub-trust created under the Revocable Trust (or under a Last Will and Testament) as beneficiary because in that case the exemption will apply and the proceeds will not be available for estate creditors.
Read More…In early January, in order to avoid the so called “Fiscal Cliff,” the estate tax exemption was “permanently” increased to $5.25 million, indexed for inflation. In addition, the gift and generation-skipping transfer (GST) taxes were increased to $5.25 million. This law removed almost the entire national population from concerning themselves with the estate tax and allowed people to focus on other aspects of estate planning.
Now, with Obama’s new budget proposal, those permanent provisions are back on the bargaining table. The President’s budget proposes reinstating the estate, gift, and GST taxes to 2009 levels beginning in tax year 2018.
Thus, the estate tax exemption would be reduced from $5.25 million to $3.5 million and will not be indexed for inflation, and the estate tax rate would be increased from 40% to 45%. The gift and GST tax exemptions would be reduced to $1 million.
The portability of unused exemption amounts between spouses would be made permanent, however.
In terms of sophisticated estate planning, the proposal also seeks to eliminate many techniques that are used to reduce estate, gift and GST taxes. For instance, the duration of GST trusts would be limited to 90 years. Currently in Florida GST trusts can last up to 360 years.
Other strategies on the chopping block include valuation discounts and grantor retained annuity trusts (GRATs).
Although the estate tax appeared to be a closed issue, the President has highlighted changes that will no doubt spur debate between democrats and republicans. Without the certainty of permanent legislation, proper planning must account for these proposed changes. Lowering the exemption to $3.5 million and removing the inflation adjustment will produce more taxable estates and people must plan accordingly.
Read More…I have represented many parents with young children in connection with their estate planning needs. Young parents are often just starting out in their careers and haven’t accumulated the same wealth, assets and liabilities that older parents have, however their needs are just as critical (if not more) to plan for.
Typically a young couple will come to me without an estate plan in place. It is common for the couple to have already purchased life insurance, however I have rarely met with a young couple who has coordinated the life insurance and their other assets with their estate plan.
Usually the spouses will name each other as the primary beneficiary of the life insurance and the children as the alternates. When a minor child is named as an outright beneficiary of life insurance, it is very likely that those proceeds would need to be paid to a court-appointed guardian to represent the minor’s interests. The guardianship would continue until the child reaches the age of majority. Guardianships are extremely costly and unnecessary and can easily be avoided.
Any time there is a court process (such as a guardianship) a lawyer is needed, court costs are incurred and the guardian gets paid as well. All of these expenses can quickly deplete the guardianship assets.
For these young parents I have been establishing testamentary trusts in their estate plans which are created at the time of death. However, it is equally important to actually name the testamentary trust as the alternate beneficiary on the life insurance beneficiary designation form. If this step is not taken then the proceeds will bypass the testamentary trust and go to the minor child through the guardianship. If the testamentary trust is named, however, the life insurance proceeds will be distributed to the Trustee and court intervention can be avoided.
A similar structure can be utilized for retirement plan benefits when naming the minor children as contingent beneficiaries, however there are tax consequences that must be addressed in the estate planning documents.
It is also critical to name a guardian for the minor children in the Wills. This is often a contentious issue among the married couple because each spouse typically wants to name his or her family members to serve as guardian. One way to involve both families is to name one family member as “guardian” and another as “trustee.” The guardian will have legal custody of the minor but the trustee will manage the money in trust and make decisions regarding distributions. This not only separates the powers but it involves both families in the minor’s life.
These issues are very important for young parents to consider and although they may not think that their “estates” warrant an “estate plan,” I think their needs are critical to address.
Read More…
2500 North Military Trail, Suite 460
Boca Raton, Florida 33431
Phone: 561-392-1800
© 2025 Huth, Pratt & Milhauser All Rights Reserved. This website is designed for general information only. The information you obtain at this site is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation. We invite you to contact us and welcome your calls, letters, and e-mails. Contacting us does not create an attorney-client relationship. Please do not send any confidential information until such time as an attorney-client relationship has been established.
Site Map Notices
Web Development & Web Marketing by IWD Marketing
