Orlando Estate & Elder Law

The Final ‘I Love You’

“An ‘I love you’ estate plan follows what you would expect most estate plans for married adults would look like: Everything to the spouse and then to the kids.”

Many estate plans fall into the “I love you” estate plan. This isn’t always how it goes, but it’s the rule rather than the exception, according to nwi.com’s article “Estate Planning: Excluding a loved one from the plan.”

The exceptions are mainly because the family dynamic requires it. For instance, the person is not married or doesn’t have children. However, sometimes even a regular old-fashioned “Mom and Dad and Brother and Sister” family has a reason why one or more of the kids are left out of the will.

If someone needs to be excluded, for whatever reason, your estate planning attorney will create a will that accomplishes this. Some people think that instead of excluding someone entirely, they should leave something small, or that they are required to leave something, and the best solution is to leave $1. That’s not true and could lead to problems with settling the estate.

The person who is most problematic to exclude from your estate, is your spouse. They have certain legal rights that are not easily overcome.

Another common question concerns the “no contest” term. These clauses provide that if anyone challenges the will, there is a penalty. Florida does not recognize this clause, so there’s no point to using it. If you are not in Florida, your estate planning attorney will know the laws for your state and be able to advise you about whether you can use this to exclude someone from your will.

The bottom line: your will should reflect your wishes and accomplish your goals. If a family member has a problem such as a substance abuse problem or is not able to manage money, an estate planning attorney can work with you to either exclude them from your will, create a trust with guidelines (i.e., requirements to be engaged in a rehab program or be gainfully employed) or distribute your assets at certain periods of time.

Speak with an estate planning attorney to discuss your family’s situation. The attorney has heard and seen pretty much every family situation and will be able to prepare an estate plan that will help your family, while you are living and when you have passed.

For more information about estate planning in Orlando, FL (and throughout the rest of Central Florida), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Resource: nwi.com (Aug. 5, 2018) “Estate Planning: Excluding a loved one from the plan”

Slayer and Mack Estate Settle

A settlement has been reached in the estate of Sheila von-Wiese Mack, a wealthy Chicago woman who was the victim of a gruesome murder in 2014.

Sheila von-Wiese Mack created a relatively simple estate plan. She created a trust whose sole beneficiary was her daughter Heather Mack. Heather was to receive small annual payments until she reached the age of 30, at which time she was to receive the remainder of $1.6 million. However, Heather could not wait for the inheritance. While on vacation in Indonesia, she and her boyfriend killed Sheila.

The case became famous as Sheila's body was stuffed into a suitcase. Heather was convicted and sentenced to 10 years in prison in Indonesia. She continued to garner attention, however, as she was pregnant when she went to prison.

The child, Stella, was born in prison. Heather insisted that the child remain in prison with her, which she was allowed to do, until Stella reached the age of two. Heather's fame continued, since apparently in Indonesia, prisoners have access to social media, where Heather posted pictures of herself partying in prison and even going out to restaurants. The Daily Mail reported on this in "Heather Mack settles claims for mother's estate four years after killing her with her boyfriend - and all the money left will go to her daughter Stella, 3."

The story does not end there. Heather Mack still wanted her inheritance.  However, the executor of the estate in Illinois refused to give it to her, since Illinois has a slayer statute. According to the statute, a person cannot receive an inheritance from someone they murdered. Nonetheless, Heather continued to pursue her claim and the resulting lawyer's fees have taken half of the estate's assets to defend. Heather Mack has now finally settled and agreed that all of the estate assets will go to the benefit of Stella. She might have settled for that initially!

For more information about estate planning in Orlando, FL (and throughout the rest of Central Florida), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: Daily Mail (June 22, 2018) "Heather Mack settles claims for mother's estate four years after killing her with her boyfriend - and all the money left will go to her daughter Stella, 3."

Managing Your (Non) Grantor Trust

Whether a trust is considered a grantor or non-grantor trust can have important tax implications.

One of the more important issues in trust law, is whether any particular trust is considered a grantor or non-grantor trust for tax purposes. The differences between the two are set forth in the Internal Revenue Code and can be rather complicated.

A grantor trust is one in which the person who created and funded the trust remains in control of it. For tax purposes, non-grantor trusts are normally better, since they can be used to lower state income taxes.

Qualifying as a non-grantor trust requires that the grantor and the grantor's spouse do not have beneficial enjoyment of trust property under Section 674. However, there are some very important and useful exceptions to that rule, as Wealth Management discusses in "The Perils and Pitfalls of Grantor Trust Triggers," including:

• A reasonable definite standard limits the ability of the trustee to make distributions from the trust. This is known as the "HEMS" exception, since the standard can be health, education, maintenance or support.
• If a trust has multiple beneficiaries who each receive distributions of income and principle on a pro rata basis, it is an exception.
• If a trust has only one beneficiary, income and principle must be paid on a definite schedule to that beneficiary for the trust to be an exception.
• Neither the grantor nor the grantor's spouse are a trustee, nor are more than 50% of the trustees in a subordinate position to them

This is another area of planning that is definitely not DIY.  Contact an experienced estate planning attorney for guidance.

For more information about estate planning in Orlando, FL (and throughout the rest of Central Florida), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: Wealth Management (June 19, 2018) "The Perils and Pitfalls of Grantor Trust Triggers."

So Many Gifts To Give Before Sunset

If you would like to take advantage of the new lifetime gift tax exemption limit before it reverts to a lesser amount in a few years, you have many options for doing so.

The recently passed tax reform law doubled the lifetime gift tax exemption from previous levels. However, the exemption is scheduled to revert to the previous level in a few years. That means if you want to take advantage of the increased limit, then you need to act quickly.

It is not always a good idea to gift large amounts of cash that can potentially be wasted and there are many other options. News Max listed some of them in "Gifting Wealth and the Estate Tax Law Under Trump," including:

• You can create an LLC that holds stock or other investments and gift your family members’ interests in the LLC. That allows you to control the investments, while still gifting to your family for their use later.
• If you own a company, you can create a trust and gift stock in the company to that trust for your family's benefit.
• It is a great time to fully fund any special needs trusts your relatives have.
• Now is a great time to create and fund trusts that your family can benefit from later. If you have enough money, you can even create a dynasty trust that will supplement your family wealth for generations to come. An estate attorney can help you determine the best trust for your family.
• You can help younger family members purchase their first homes.
• Consider funding retirement options for younger family members, such as by purchasing annuities for them.

For more information about estate planning in Orlando, FL (and throughout the rest of Central Florida), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: News Max (June 20, 2018) "Gifting Wealth and the Estate Tax Law Under Trump."

Dynasty Isn't Just a TV Show

The temporary raising of the estate and gift tax exemptions has given wealthy Americans a small window that could help their families for generations.

A long time ago, lawmakers were concerned about the ability of one wealthy person to control how assets were managed after they passed away. In English common law, a host of complicated rules were developed to make it so that assets could no longer be controlled from the grave and that heirs were given full control.

These rules became part of the laws in the U.S. after the revolution. Today, however, their biggest impact is typically in the headaches they cause law students who must learn them. The old rules have steadily been replaced.

Today, there is a type of trust that can last indefinitely to pass money down between generations of a family. With the raising of the gift and estate taxes, these “dynasty trusts” could be a great deal for many wealthy people as Bloomberg discusses in "Heirs of Heirs of Heirs of Heirs Love Dynasty Trusts."

Married couples can put up to just over $22 million into a dynasty trust today without triggering tax liability. If those assets are invested wisely, the proceeds from the investments can be used by the family for a long time, perhaps even forever.

Heirs do not have to pay any capital gains on the trust assets until an asset is sold.  However, they most likely will likely be required to pay income taxes on any distributions.

People with enough money to create a dynasty trust might want to consider the option while they have it. However, these trusts are only available in a few states, so it is important to consult an experienced estate planning attorney to set it up.

For more information about estate planning in Orlando, FL (and throughout the rest of Central Florida), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: Bloomberg (June 10, 2018) "Heirs of Heirs of Heirs of Heirs Love Dynasty Trusts."

No Casino Trip with Trust Dollars

When people go gambling with money that is not theirs, the results are rarely like the movies.

The 1990s movie Empire Records was not well received by film critics.  However, it has become a cult classic for fans. The movie starts with an employee of an independent music store taking money from the store safe and heading to a casino. Naturally, the employee loses big at the tables and all the money is lost.

Without that money, the store will need to be sold to a large chain. However, since this is a movie, the store employees come up with a way to raise money and save the store. The employee who gambled away the money is not punished. Everything presumably goes on as before, after the movie finishes.

When someone gambles with other people's money in real life, the results are usually different, as a story in the Sacramento Bee illustrates "Woman accused of cheating trustees, spending their money on Vegas gambling trip."

A Sacramento woman was acting as a fiduciary of a trust that owned a piece of real estate. She sold the property for $300,000. That money was supposed to go to the beneficiaries. However, she only gave the beneficiaries $30,000 and kept the rest for herself. She used the money to pay off debts and go gambling in Las Vegas.

Trustees, of course, are handled differently than fictional music store employees. Trustees have legal duties and, if they do not fulfill those duties, they can face criminal punishment. If she is convicted, the woman faces up to 20 years in prison.

For more information about estate planning in Orlando, FL (and throughout the rest of Central Florida), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: Sacramento Bee (May 30, 2018) "Woman accused of cheating trustees, spending their money on Vegas gambling trip."

No Commuting An Irrevocable Trust

After the settlor of an irrevocable trust passes away, the beneficiaries of the trust may think they would be better off dissolving the trust and taking the assets. They may be allowed to do so.

When people create irrevocable trusts to control how beneficiaries will receive assets from the trust, the beneficiaries do not always like it. They would often prefer to have the assets outright and control them for themselves. This was the case recently in Florida.

A settlor created an irrevocable trust and funded it with assets totaling $3 million. His son was named as the beneficiary and entitled to interest income from the trust for life. Three educational institutions were named as the remainder beneficiaries. The son and the remainder beneficiaries sued the trustee to get the trust commuted, so they could all receive their share of the trust assets as the Wills, Trusts & Estates Prof Blog discusses in "Court Stops Beneficiaries From Commuting Trust."

Florida law provides three different reasons for permitting an irrevocable trust to be commuted or modified by the court, which are similar to most state laws on the subject. The first is that the purposes for which the trust was created have been fulfilled or are otherwise a problem. For example, the purposes may be impossible to fulfill or illegal. The second is that unanticipated circumstances have made complying with the terms of the trust contrary to the purposes of the trust. Finally, the material purpose for which the trust was created no longer exists.

In this case, the trial court ruled on a summary judgment for the son. However, on appeal the ruling was reversed, since the court determined that the settlor's intent was the most important thing and that the trust could not be dissolved merely because the beneficiaries wanted to do so.

For more information about estate planning in Orlando, FL (and throughout the rest of Central Florida), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: Wills, Trusts & Estates Prof Blog (June 3, 2018) "Court Stops Beneficiaries From Commuting Trust."

Grandfathering Generation Skipping Trusts

When creating an estate plan, it is important you keep in mind the generation-skipping transfer tax.

In part, the federal estate tax is intended to make it so wealth does not accumulate in one family indefinitely. It may be questionable how well the idea works.  However, the idea is that as property passes down from succeeding generations in a family, the government will take a cut at each generation. People have often found ways around this.

One way around it is by arranging for the inheritance to skip generations within a family. Instead of leaving property to their children, wealthy people would leave it to their grandchildren and even great-grandchildren. Congress did not like this, so it created a tax on these generation-skipping transfers as Wealth Management discusses in "GST Tax Exemptions in Jeopardy."

However, Congress left open an exemption from these taxes for generation-skipping transfers from irrevocable trusts that were created before Sep. 25, 1986. This created another issue though. If one of those old exempt trusts is modified, it is not always clear whether it continues to be the same trust or whether it should really be viewed as a new trust, which would subject the transfer to the tax. The answer depends on how the IRS decides to rule in most cases.

If you have an old, exempt trust or are the beneficiary or trustee of one, then it is extremely important that you go to a wills and trusts attorney, as soon as you begin to consider modifying the trust in any way. That will allow you to get the best advice about what you should and should not consider doing.

For more information about estate planning in Orlando, FL (and throughout the rest of Central Florida), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: Wealth Management (May 18, 2018) "GST Tax Exemptions in Jeopardy."

Capital Gains Tax Can Still Get You

The doubling of the estate tax exemption might mean you do not have to pay that tax.  However, if you are not careful, you could end up paying more in capital gains taxes than necessary.

It is assumed by most people that since the federal estate tax exemption was doubled in the tax bill passed late last year, many wealthy families would end up paying a lot less in taxes. However, it is not that simple. In fact, people who already made estate plans around the old estate tax exemption could end up paying more in taxes than necessary. This is because of a popular way of working around the estate tax as the Wills, Trusts & Estates Prof Blog discusses in "Don’t Let New Estate Tax Law Cause Your Family to Pay Unnecessary Capital Gains Taxes."

Many people held assets valued up to the estate tax limit personally. Anything they owned over that amount was put in a trust. However, trusts are often subject to capital gains taxes. Those taxes still need to be paid.  However, they are lower than the estate tax rate.

The problem now is that the higher estate tax exemption means people can hold more assets personally. If people do not make changes to their plans, they may pay more in capital gains tax than necessary.

Most people in this situation should not have too much difficulty correcting it.  However,they will need to see an estate planning attorney to make the necessary changes to their estate plans.

For more information about estate planning in Orlando, FL (and throughout the rest of Central Florida), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: Wills, Trusts & Estates Prof Blog (May 15, 2018) "Don’t Let New Estate Tax Law Cause Your Family to Pay Unnecessary Capital Gains Taxes."

Are Your Heirs Prepared?

People who inherit a lot of wealth and are not ready to deal with it, can run into a lot of problems.

Everyone is aware that it is not a good idea to let minor children inherit a lot of wealth and leave them to manage it on their own. The money would likely be wasted, and the children might then lack any motivation to go to school and get a job.

This is so obvious to people that the law does not even allow it. If minors are left a large inheritance, the court will appoint someone to manage it on their behalf. However, many people assume that once a person matures, they are ready to handle large inheritances on their own.

Adults, particularly those who do not already have wealth of their own, can run into the same problems as minors when they inherit money. This a particularly timely problem. In the next few years, many adults will receive large inheritances they are not ready to manage, as Financial Advisor discusses in "Inheritors Not Prepared to Inherit, FIS Says."

In the coming decades, it is expected that 30 trillion dollars will be passed down between generations.  However, few of those who are set to receive this wealth, understand how to handle it. Almost half do not think they will need to get professional advice to handle it. If something does not change, much of that wealth could be squandered.

There are ways to fix this problem, by making sure your heirs understand how to handle their inheritances. You can also alleviate the problem, by using trusts managed by professional trustees as a tool in your estate plan.

For more information about estate planning in Orlando, FL (and throughout the rest of Central Florida), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: Financial Advisor (May 16, 2018) "Inheritors Not Prepared to Inherit, FIS Says."