FAQ

Business Law

Which business entity is right for me?

This, of course, is a loaded question.  The right answer can depend on many different factors.

  • Do you value simplicity?
  • Will you go public in the future?
  • Will your business have active or passive income?

These are just some of the considerations in deciding on the right entity.  The best method is to meet with professionals that can help you anticipate your needs.

Estate & Gift Tax

Am I required to file an estate tax return?

If the decedent is a U.S. citizen or resident and decedent’s death occurred in 2016, an estate tax return (Form 706) must be filed if the gross estate of the decedent, increased by the decedent’s adjusted taxable gifts and specific gift tax exemption, is valued at more than the filing threshold for the year of the decedent’s death. The filing threshold for 2016 is $5,450,000, for 2015 is $5,430,000, for 2014 is $5,340,000, for 2013 is $5,250,000, for 2012 is $5,120,000, and for 2011 is $5,000,000. An estate tax return also must be filed if the estate elects to transfer any deceased spousal unused exclusion (DSUE) amount to a surviving spouse, regardless of the size of the gross estate or amount of adjusted taxable gifts. The election to transfer a DSUE amount to a surviving spouse is known as the portability election.

An estate tax return may need to be filed for a decedent who was a nonresident and not a U.S. citizen if the decedent had U.S.-situated assets.

How do I elect portability of the Deceased Spousal Unused Exclusion (DSUE) amount to benefit the surviving spouse?

In order to elect portability of the decedent’s unused exclusion amount (deceased spousal unused exclusion (DSUE) amount) for the benefit of the surviving spouse, the estate’s representative must file an estate tax return (Form 706) and the return must be filed timely. The due date of the estate tax return is nine months after the decedent’s date of death, however, the estate’s representative may request an extension of time to file the return for up to six months. An automatic six month extension of time to file the return is available to all estates, including those filing solely to elect portability, by filing Form 4768 on or before the due date of the estate tax return.

How many annual exclusions are available?

The annual exclusion applies to gifts to each donee. In other words, if you give each of your children $11,000 in 2002-2005, $12,000 in 2006-2008, $13,000 in 2009-2012 and $14,000 on or after January 1, 2013, the annual exclusion applies to each gift. The annual exclusion for 2014, 2015, and 2016 is $14,000.

What are the tax advantages to setting up an irrevocable trust to own an insurance policy?

Although life insurance is generally not subject to income taxation upon the death of the insured, it is subject to estate taxes if the insured owns the policy (or has other ownership rights).

Owning a life insurance policy results in all or a portion of the insurance proceeds being included in the insured’s estate and therefore taxed when death occurs, thereby substantially defeating the purpose of buying the life insurance.

While it is true that life insurance which is received by a spouse is not subject to estate or inheritance taxes because of the unlimited marital deduction (assuming the surviving spouse is a citizen of the United States), those same proceeds will be included in the spouse’s estate later on when he or she dies. Therefore, life insurance trusts are often a good idea even when there is a surviving spouse to receive the proceeds.

Life insurance trusts offer a number of significant advantages over outright ownership. For starters, the trust will insulate the proceeds from the claims of creditors and from spouses in a divorce.

Also, life insurance trusts can be written to last for children’s lifetimes and then pass without estate taxes to additional trusts for grandchildren. This is a feature commonly referred to by estate planning lawyers as “generation skipping planning.” Your children shouldn’t be alarmed by the words “generation skipping” because you are not skipping them. Your children can serve as trustees of their trusts, and they can be given the power to make distributions to themselves or their children according to fairly liberal standards. Normally, trusts like the ones being described would allow your children to make distributions for their health, education, maintenance and support. And your children would be the ones determining how much money it takes to maintain and support themselves. Even though the life insurance proceeds will be held in a trust, your children would not be prevented from using the trust funds.

What gifts can I make without having to pay gift taxes?

As of 2015, every year, you can give any person you want as much as $14,000 without any gift tax consequences. This dollar amount is known as the annual exclusion, and it is now indexed for inflation. It will be increasing from time to time in $1,000 increments.

If you are married, the amount you can give to each person doubles to $28,000 since the person receiving the gift can receive $14,000 from each spouse. Gifts can be in the form of cash, stocks, bonds, real estate, or anything else of value. Buying real estate or bonds in the names of one or more other persons is the same as making a gift of that property to them. The value of the gift would be the amount of money you spent to buy the property or the bond.

You can also make tuition payments for any person you choose, and these payments do not count toward the $14,000 annual limit. Payments you make for medical expenses don’t count against the $14,000 limit either. However, if you make a tuition or medical payment, be sure to pay the school, hospital or doctor directly, as a check made payable to a person which is used for tuition or medical care counts towards the $14,000 annual limit.

If you want to give more than $14,000 to any one person, to the extent your gifts exceed $14,000, you will use up a portion of your $5,430,000 lifetime exemption. This is the amount each person can give away without having to pay gift or estate taxes. By way of example, if you give one of your children $45,000 this year, you can exclude the first $14,000 under the annual exclusion, and the other $31,000 will leave you with a remaining lifetime exemption of $5,398,000.

Keep in mind that if the gifts to any person exceed $14,000 during a single calendar year, you will be required to file a gift tax return by April 15th of the following year to report the gift. That is how the IRS keeps track of how much of your $5,430,000 lifetime exemption is still available. Once you have given away more than the $5,430,000 lifetime limit, you must start paying gift taxes. The estate and gift tax rate is presently 40%.

Before making large gifts, it is often a good idea to talk to an estate planning attorney. Once gifts are made, you can’t go back and do things a better way. For instance, if you are planning to make really large gifts, then it may be wise to create trusts for the benefit of your children. There are a number of important advantages to creating trusts, with few downsides.

What is “Fair Market Value?”

Fair Market Value is defined as: “The fair market value is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts. The fair market value of a particular item of property includible in the decedent’s gross estate is not to be determined by a forced sale price. Nor is the fair market value of an item of property to be determined by the sale price of the item in a market other than that in which such item is most commonly sold to the public, taking into account the location of the item wherever appropriate.” Regulation §20.2031-1.

What is considered a gift?

Any transfer to an individual, either directly or indirectly, where full consideration (measured in money or money’s worth) is not received in return.

Who pays the gift tax?

The donor is generally responsible for paying the gift tax. Under special arrangements the donee may agree to pay the tax instead. Please visit with your tax professional if you are considering this type of arrangement.

Will my same-sex spouse be considered a surviving spouse for purposes of the marital deduction for estate tax purposes?

For federal tax purposes, the terms “spouse,” “husband,” and “wife” includes individuals of the same sex who were lawfully married under the laws of a state whose laws authorize the marriage of two individuals of the same sex and who remain married.  Also, the Service will recognize a marriage of individuals of the same sex that was validly created under the laws of the state of celebration even if the married couple resides in a state that does not recognize the validity of same-sex marriages.

However, the terms “spouse,” “husband and wife,” “husband,” and “wife” do not include individuals (whether of the opposite sex or the same sex) who have entered into a registered domestic partnership, civil union, or other similar formal relationship recognized under state law that is not denominated as a marriage under the laws of that state, and the term “marriage” does not include such formal relationships.

All property that is included in the gross estate and passes to the surviving spouse is eligible for the marital deduction.  The property must pass “outright.”  In some cases, certain life estates also qualify for the marital deduction.

Estate Planning

Are my out of state documents good in Florida?

The law in Florida is if the document was valid in the state in which it was executed, it is valid here.  However, as you can see, this would involve the need for two attorneys.  One to confirm validity of the documents in the state of execution and a Florida attorney to administer the documents in this state.  Often it is a good idea to replace out of state documents to avoid this necessity.

Do I need a trust?

A trust can perform many different functions.  Reasons to consider a trust:

  • minimize the expense of probate
  • control distributions to your loved ones
  • use life insurance in your estate plan
  • own properties in multiple states
  • protect your property from ex-spouses
  • minimize taxes
  • protect minor and young adult children
Do I need a will?

The primary reasons to have a will is to distribute your belongings differently from state law, to designate who will be in charge of your estate, or to name a guardian for your children.

If someone’s Will is in a safe deposit box at a bank when he or she dies, how do you get access to it?

There are several ways to get the Will out of the box.

The easiest way is if another person is named as a joint holder of the box. That person can retrieve the Will with no problems or delays.

Another option is to go to court to request that a judge order an examination of the box. If a Will is found, it will be sent to the court. This should be the option of last resort because it takes longer, requires the filing of papers with the court, and usually involves a lawyer and the associated legal fees.

Should I give copies of my Will and other estate planning documents to my children and to the Personal Representatives of my estate?

For some people, their estate planning documents are as private as their income tax returns, and nobody is ever given copies. For other people, estate planning documents are no different than a spare key to the house, and every family member and Personal Representative and/or trustee named in the documents is given a copy.

If you are the type of person who values your privacy, who does not especially trust your children, Personal Representative, or trustee, or if you have written a Will or trust which does not treat all the children equally, then it may not be a good idea to hand out copies. Also, you may have more money than your children expect, and depending on how your Will or trust is written, giving them a copy may be letting them know too much about your personal business.

On the other hand, if you have a fairly open relationship with all your children, you regularly discuss finances with them, and you are leaving your estate to them in equal shares, then go ahead and give everyone a copy. Of course, if you decide to change your Will or revocable trust, you should be sure to give all the same people copies of the new documents. If you don’t, then there may be some arguments following your death over which document controls the disposition of your estate.

What is the difference between a Living Trust and a Bypass Trust?

A Living Trust is a revocable trust created while a person is alive, whereas a Bypass Trust is typically an irrevocable trust created at death. A Bypass Trust can be created by a Living Trust or by a Will. (Yes, a Living Trust can create a Bypass Trust, but a Bypass Trust would never create a Living Trust.)

A Living Trust is simply an ownership arrangement where property is held in the name of a “trustee” rather than in the name of the person who really owns the property. People almost always create Living Trusts for their own benefit, with the goals of avoiding probate, addressing the possibility of future incapacity, and keeping matters private.

Normally, the person who creates a Living Trust names himself or herself as trustee and as beneficiary. Upon that person’s death, all or a portion of the property which remains in the Living Trust passes according to the terms specified in the trust agreement.

Bypass Trusts are most often created when a husband or wife dies in order to save taxes when the other spouse passes away. When a married person dies and leaves everything to his or her spouse, that surviving spouse may then be too wealthy to pass everything to their beneficiaries tax free. Being “too wealthy” typically means the married couple is worth over $5,430,000 (as of 2015). The Bypass Trust is a way to shelter the first spouse’s $5,430,000 exemption from taxation when the surviving spouse dies, thereby doubling the amount that can be left tax-free to $10,860,000.

Bypass Trusts do have non-tax benefits though, and for some people, saving taxes is not the motivating factor in creating one. For instance, Bypass Trusts protect the trust property from creditors’ claims, and they allow the deceased spouse to direct where the trust property passes when the other spouse dies.

There are some exceptions to the statements contained in this answer. For instance, Bypass Trusts are not always created at death. Some wealthy people create them during life, and other people use their estate tax exemptions for different purposes rather than the creation of a Bypass Trust. Also, in answering your question, I have assumed that when you said “Living Trust,” you meant the standard type of revocable trust people across the country regularly create and not another unusual type of trust which may be created while someone is living.

Guardianship

How Is A Person Determined To Be Incapacitated?

Any adult may file with the court a petition to determine another person’s incapacity setting forth the factual information upon which they base their belief that the person is incapacitated. The court then appoints a committee of two professionals, usually physicians, and a lay person to examine the person and report its findings to the court. The court also appoints an attorney to represent the person alleged to be incapacitated. If the examining committee concludes that the alleged incapacitated person is not incapacitated in any way, the court will dismiss the petition. If the examining committee finds the person to be incapable of exercising certain rights, however, the court schedules a hearing to determine whether the person is totally or partially incapacitated. A guardian is usually appointed at the end of the incapacity hearing.

Is A Guardian Accountable?

Yes. Guardians must be represented by an attorney who will serve as “attorney of record.” Guardians are usually required to furnish a bond and may be required to complete a court-approved training program. The Clerk of the Court reviews all annual reports of guardians of the person and property and presents them to the court for approval. A guardian who does not properly carry out his or her responsibilities may be removed.

Is Guardianship Permanent?

Not necessarily. If a person recovers in whole or part from the condition that caused him or her to be incapacitated, the court will have the ward reexamined and can restore some or all of the person’s rights.

Is Guardianship The Only Means Of Helping An Incapacitated Person?

No. Florida law requires the use of less restrictive alternatives to protect persons incapable of caring for themselves and managing their financial affairs whenever possible. If a person creates an advance health care directive and a durable power of attorney or revocable living trust while competent, he or she may not require a guardian in the event of incapacity.

What Does A Guardian Do?

A guardian who is given authority over any property of the ward shall inventory the property, invest it prudently, use it for the ward’s support, and account for it by filing detailed annual reports with the court. In addition, the guardian must obtain court approval for certain financial transactions.

The guardian of the ward’s person may exercise those rights that have been removed from the ward and delegated to the guardian, such as providing medical, mental and personal care services and determining the place and kind of residential setting best suited for the ward. The guardian of the person must also present to the court every year a detailed plan for the ward’s care.

What Is A Guardian?

A guardian is an individual or institution such as a bank trust department appointed by the court to care for an incapacitated person, called a “ward,” or for the ward’s assets.

What Is A Guardianship?

A guardianship is a legal proceeding in the circuit courts of Florida in which a guardian is appointed to exercise the legal rights of an incapacitated person.

Who May Serve As Guardian?

Any adult resident of Florida can serve as a guardian. A close relative of the ward who does not live in Florida may also serve as a guardian. Persons who have been convicted of a felony or who are incapable of carrying out the duties of a guardian cannot be appointed. Institutions such as a bank trust department, a nonprofit religious or charitable corporation, or a public guardian, can be appointed guardian, but a bank trust department may only act as guardian of the property. The court gives consideration to the wishes expressed by the incapacitated person in a written declaration of preneed guardian or at the hearing.

Probate

For whom are living trusts most appropriate? What are the pros and cons?

Living trusts are useful estate planning tools, and they have an important place in many people’s estate plans. If you find any one of the following benefits appealing, then a living trust may be appropriate for you.

Benefit #1: No Probate. When a person dies, most properties pass either under a person’s Will or under a living trust. Some properties–such as life insurance, IRAs, and certain types of bank and brokerage accounts–pass directly to named beneficiaries. If property passes under a Will, then the Will must be probated at the courthouse. Probate entails hiring a lawyer, filing a number of papers with the court, attending one or more hearings, and providing a written inventory to the court valuing the properties which passed under the Will.

Some people don’t want this type of involvement with the court, so they opt for a living trust. By transferring all properties which would otherwise pass under your Will to a living trust, you can avoid the probate proceeding. For estates which owe no estate taxes, there is usually less work for the lawyers, and that translates into reduced estate administration costs.

Court involvement is not eliminated entirely however. Florida now requires the trustee of a living trust to file a notice of the trust with the appropriate court containing information about the person who created the trust and the trustee. Also, in certain circumstances, the trustee may be required to pay expenses of administering the decedent’s estate as well as the claims of creditors against the decedent’s estate.

Benefit #2: More Privacy. As mentioned above, when a person dies with a Will, an inventory must be filed with the court. You may not want your friends, neighbors, or the media to be able to read a listing of what you own and what it is worth. After all, an inventory is a public record. With a living trust, your properties and their values remain private.

Benefit #3: Plan For Future Incapacity. You may be worried that one day you won’t be able to manage your own finances, and you may want to name someone to handle these types of matters for you. You can address this potential problem with a power of attorney or with a living trust. A power of attorney will usually be accepted by banks, title companies and the like, but there is always the risk that an institution’s legal department will reject it. The same person who may be denied the ability to use a power of attorney will likely be allowed to do anything he or she wants when acting as trustee of a living trust.

Benefit #4: Harder to Challenge. If you are planning to disinherit one of your children or grandchildren, you may be better off with a living trust because there is nothing filed at the courthouse. Also, it is a little harder to contest a living trust than a Will. Many people are interested in doing as much as possible to prevent a successful challenge to their estate plan.

Benefit #5: Avoid Out-of-state Probate. If you own property in another state, you can avoid a costly probate proceeding in that state by transferring the property to a living trust.

Before you establish a living trust you need to understand the downsides, which include the following:

Disadvantage #1: Time-consuming to Set Up. Depending on how many different types of properties and accounts you own, it can take quite some time to switch everything over to the name of your living trust.

Disadvantage #2: Complicated. Wills are usually shorter and simpler to understand than living trusts. Also, with a Will, you can sign it and forget about it. But with a living trust, you need to put your property into the trust and run your life out of it for as long as you live. For many people, this downside outweighs all the potential benefits.

Disadvantage #3: Time-consuming to Revoke. A year after you set up the living trust, you may decide you don’t want it any more. At this point, you will need to return to every bank and brokerage house, and undo everything you had done to establish the trust. You can expect more lawyers’ fees too.

Disadvantage #4: Post-Death Costs Not Eliminated. If you have a taxable estate (which is generally an estate over $5,430,000), there will be a lot of work to be done after death regardless of whether probate is required. Typically, there are tax returns to file, trusts to establish, assets to value, and more. Avoiding probate will only marginally reduce the cost of administering a taxable estate.

Disadvantage #5: May Still Need to Probate Will. If you leave just one bank account or one piece of real estate out of the trust, probate will still be necessary. And probate takes about as long when there is one asset as when there are twenty.

Must a Will be probated if the estate is less than $5,430,000? Are insurance proceeds included in that total?

There is no requirement that you probate a Will no matter how much the estate is worth. Wills need to be probated only if property is not transferred by some other means.

You may be confusing probate with the filing of a federal estate tax return. Regardless of how the property is transferred at death, if an estate is valued at $5,430,000 or more in 2015, then a federal estate tax return must be filed. And yes, you must include proceeds of life insurance owned by the decedent in computing the $5,430,000.

The probate process is primarily a method of changing title from the deceased to the person or persons who inherit the property. Some assets require probate, such as real estate and bank accounts held only in the name of the deceased, while others do not, such as life insurance policies or retirement plans payable directly to named beneficiaries.

What are the different types of Probate?

There are several versions of probate procedure depending on the estate.

  • Formal Administration – This is a full administration and is appropriate in most circumstances.
  • Summary Administration – An estate qualifies for this abbreviated procedure if the estate has assets of less than $75,000.
  • Ancillary Administration – This is an administration for out of state residents that have real property in Florida.
What is Probate?

Probate is the procedure used to transfer a person’s assets when they die. Some assets pass automatically or outside of probate based on their character or how they were titled. There are different types of probate administration, including full administration, summary administration and ancillary administration.

Where is the proper location for probate administration?

If the decedent was a Florida resident, the proper location to probate the estate is in the county of residence.  If the decedent was not a Florida resident, the estate can be administered in any county in which property was owned.

Which assets are handled outside of probate?

There are a number of different kinds of properties that may pass outside the provisions of your Will.

The list includes life insurance, retirement plans, individual retirement accounts, and annuities. When you purchased or set up these types of assets and accounts, you were probably asked to fill out a form listing the beneficiaries who will receive payments upon your death. These investments will pass to the named beneficiaries regardless of whether you have a Will. However, if you don’t have a beneficiary named, if the beneficiary named is your “estate,” or if all the beneficiaries are dead, then those investments will be paid to your estate and pass under your Will.

Certain bank and brokerage accounts will also pass outside your Will. For instance, payable-on-death accounts (sometimes called “POD” accounts) will be distributed to the named beneficiary. Additionally, accounts set up by one or more persons as joint tenants with rights of survivorship will pass to the surviving account holder or holders.

Some banks allow you to set up what they call trust accounts even though there is no written trust agreement. These types of accounts will pass to a named beneficiary without going through probate as well.

Not all joint accounts pass to the survivor. When joint accounts are set up as tenants in common, the portion of the account that was owned by the decedent passes under his or her Will.

Many people have decided to create revocable or irrevocable trusts as part of their estate plan. Virtually all such trusts are designed to pass directly to persons or other trusts named in the document rather than under a Will.

You may find that most of your estate consists of non-probate property. Therefore, it is extremely important to coordinate the beneficiaries of all these properties to make certain your assets will be distributed as you want when you pass away.