Archive for Areas of Practice
NEW LEGISLATION: PART II
For those of you who are married and have not had your own Will or Living Trust prepared, the Florida Legislature has just changed your “Will”. The bill was sent to the Governor for his signature on June 13th and was signed in June 21st.
Previously, your government-made “default will” provided that if you are survived by a spouse and children of that spouse, the surviving spouse would receive the first $60,000 of your estate and then one-half (½) of the remaining estate. The other half (½) would be divided equally among your children (or their descendants). That now has been changed. In the traditional marriage situation, where all of the decedent’s surviving children are also the children of the surviving spouse, the surviving spouse now receives one hundred percent (100%) of your estate (providing the surviving spouse has no children or grandchildren [descendants] from another relationship).
This change in the “default will” does bring the state’s version of estate planning more in line with the typical choices of married couples. Most married couples do choose to leave everything to their surviving spouse.
In cases of second marriages and/or blended families, the State’s “default will” remains unchanged. Fifty percent (50%) of the estate goes to the surviving spouse and the other fifty percent (50%) is divided equally among the decedent’s lineal descendants (children/grandchildren). This new law does not have any effect on Florida’s current elective share, homestead, exempt property or family allowance provisions.
So, if you like the Will the Florida legislature has prepared for you, stand pat. If you’d like to make your own choices and/or learn how the laws mentioned in the previous paragraph affect your “default will”, call us…we can help.
NEW LEGISLATION (Good News for a Change!)
The busy beavers in the Florida Legislature have passed several bills this year which affect our clients in the estate planning and asset protection areas. This newsletter will be our first report on new legislation and focuses on two new bills which were passed to either overturn or clarify recent decisions of the appellate courts. Both of these new laws became effective on May 31, 2011 and contain good news.
First is an act relating to individual retirement accounts (IRAs), amending Florida Statute Section 222.21. This new law provides that inherited IRAs are exempt from claims of creditors. An individual’s IRA (to which he/she has contributed) clearly has been exempt from claims of creditors. However, once the IRA accountholder died and passed those assets to a spouse or children, even if the assets remained in a “rollover” or inherited IRA, they no longer were exempt from creditor’s claims. This law overturns the court case which decided that inherited IRAs were not exempt from the beneficiaries’ creditors and has retroactive application to all inherited individual retirement accounts without regard to the date such account was created.
The second bill relates to limited liability companies (LLCs), amends Florida Statute Section 608.433 and provides that a charging order against a member’s limited liability company interest is the sole and exclusive remedy available to enforce a judgment against a member of a multi-member LLC. This new law clarifies the primary asset protection benefit of an LLC.
This new law was passed because in 2010, the Florida Supreme Court held in the case of Olmstead v. Federal Trade Commission, 44 So.3d 76 (Fla., 2010), that a charging order is not the exclusive remedy available to a creditor holding a judgment against the sole member of a Florida single-member limited liability company. This ruling caused uncertainty in the business community about its breadth and questions arose as to whether businesses were better off organizing LLCs under the law of other jurisdictions where a charging order is clearly the exclusive remedy available to a judgment creditor. The legislature has now made it clear that the major asset protection benefit of organizing as an LLC remains intact, so long as there is more than one member of that LLC.
In the case of a single-member LLC, the ability to protect that member’s assets is not as strong. A charging order is not the sole and exclusive remedy by which a judgment creditor may satisfy the judgment against a judgment debtor who is the sole member of an LLC. If a judgment creditor establishes to the satisfaction of a court of competent jurisdiction that distributions under a charging order will not satisfy the judgment within a reasonable time, then, upon such showing, the Court may order the sale of that member’s interest in the LLC pursuant to a foreclosure sale. Accordingly, the asset protection benefits of a single-member LLC in Florida remain limited. However, if an LLC can be established with multiple members, the asset protection benefits of an LLC are much stronger.
This newsletter is only intended to provide a general overview of these two new laws. As always, if you have any specific questions or concerns about these laws, please do not hesitate to contact me.
ESTATE PLANNING THOUGHT FOR THE DAY: “I Ieave everything to my children in equal shares.” Why it might not always be the best idea.
It is understandable that parents typically want to treat all of their children equally when preparing an estate plan. However, all children are not created equal. One may be self-sufficient, even wealthy, and not need an inheritance. Another may not be able to manage money for one reason or another. Another child might have a drug or other addiction problems. In such examples, parents need to work with their estate planning attorney to create a plan that takes care of each individual child according to his or her needs.
Another common problem is the large family. If you have seven (7) children and leave your house to them equally in your estate planning documents, heartache is likely to follow. How can seven (7) people own a house? Is it likely that all seven (7) will agree on how to maintain or sell the property? Well, if you do not leave the house to specific individuals with specific instructions in a Will or Trust, then, in Florida, (without a Will or Trust) your assets will be left equally to your children. This can turn a house the children used to love into a house of tears. Even if you want to have all of the children benefit equally from the sale of your house, you would be wise to consider leaving the house in trust, with one of the children in charge, with instructions to distribute the proceeds equally. If seven (7) children have to unanimously decide to sell a house (or do most anything to maintain it), you are asking for trouble. So, please stop and think before saying “I want to leave everything to my children equally.”
WHAT IF THE MAYANS ARE WRONG!
I am sure by now everyone is familiar with the idea that the Mayan Calendar ends in 2012, and, according to the History Channel and other news media, so do we! What if this theory is incorrect?! What if, there still is life on earth after 2012? Will you wish you had planned for the future to protect yourself and your family from disability, an untimely death or paying unnecessary taxes? Or, will you just assume the future will take care of itself?
It just makes sense to take care of yourself and your family now, by making sure you have a will or trust, healthcare directives, guardians for your children, power of attorneys, etc.
There seems to be a general malaise in our country and people are terrified to move forward…but, you can’t move backward! Log onto our website and see all the services we provide. Be brave, plan for the future!
GETTING MARRIED? PLAN TOGETHER – Why Use an Estate Planning Attorney to Prepare a Prenuptial Agreement
People contemplating marriage often consider the advisability of a prenuptial agreement, particularly in a second marriage. What difference does it make if you go to a divorce attorney to prepare the prenup or seek the advice of an estate planning lawyer? Plenty! Let me share a recent story with you that comes from my work as a Jacksonville, Florida estate planning lawyer.
A client came to me after being told by her fiance’ that she would have to sign a prenuptial agreement prepared by “his” attorney. This was less than two (2) weeks prior to the scheduled wedding ceremony. She was assured by her fiance’ that she was being asked to sign a “standard” prenup. However, its terms sought to have the soon-to-be wife waive every legal right she conceivably could have acquired as a result of the marriage and also stated that the parties’ assets and funds would at all times be kept separate during the marriage. As you might suspect, my client was quite upset and felt blind-sided by this request. She pushed back by refusing to sign the agreement and presented a counterproposal for, perhaps, more than she otherwise would be legally entitled. This upset the prospective husband. Rocky negotiations ensued and the wedding was postponed.
What is the moral of this story? Tone and context is as important as content. By going to a divorce attorney to prepare the prenup, it was presented in a threatening manner. The prospective husband presented it to the prospective wife as a precondition to the marriage from “my attorney”. This caused bitter feelings and led to angry negotiations. Contrast this scene to the couple instead sitting down with an estate planning attorney to discuss how “we” want “our” financial arrangements during the marriage (and beyond) to unfold. The estate planning lawyer will counsel and provide options to this couple for what “we” want to accomplish; protection of children from a prior marriage, their family issues, asset protection, etc. and the role that a prenuptial agreement will play in their overall estate plan. The parties thus are able to begin their marriage discussing difficult financial and legal issues together in a supportive environment, instead of apart in an adversarial one.
The choice of an attorney, including the type of attorney, to prepare a prenuptial agreement is an important one. If you or one of your friends are contemplating taking this step, please carefully consider the different outcomes that may result from this decision. Plan together, for the journey of marriage…
MARCH 17TH IS ST. PATRICK’S DAY!
The Irish have observed St. Patrick’s Day on March 17th for more than a thousand years. Traditionally, Irish families would attend church in the morning and celebrate in the afternoon with dance, drink and a feast consisting of bacon (not corned beef) and cabbage. Today, St. Patrick’s Day is celebrated all over the globe. The world’s oldest civilian parade, the New York City St. Patrick’s Day Parade, features over 150,000 participants and is attended by nearly three million people. Boston, Chicago, Philadelphia, Savannah and other cities also host massive parades.
Clearly, St. Patrick achieved an enduring legacy. Yet very little is known about the man himself, what he truly believed and valued most in life. Would he approve of green hats, green rivers and green beer (perhaps consumed with a wee bit too much exuberance)? We simply do not know. And, of course, Cramer Law Center was not there to help him make his wishes known, by designing a customized estate and legacy plan.
Fortunately, many of you have allowed us to create such a plan for you and your loved ones. A plan that provides for your financial and healthcare needs today, and ensures you give what you want, when you want, to whom you want… today, tomorrow and beyond. A plan, in short, that protects your loved ones and legacy. It is important to note that for your plan to continue to serve as an accurate expression of your wishes, you should have it reviewed and updated at least once a year, or whenever a significant change takes place in your life or that of your family.
So this St. Patrick’s Day, don’t just think about whether you should have corned beef or bacon with your cabbage. Think about your legacy, and contact us to make sure your plan addresses any changes to your personal or family situation.
END OF LIFE PLANNING
Two of the statements I hear most frequently from seniors are “I don’t want to go into a nursing home” and “I don’t want to be put on machines”. However, without proper legal documents in place, your medical decisions may end up out of your hands. This delicate subject seems to be difficult for many families to even bring up. Although we know there is a need to prepare, we tend not to want to think about someone in the family becoming terminally ill or tragically injured. Sometimes a diagnosis comes that leaves a family time to prepare, but many times there is an unexpected crisis which can leave a family reeling to making decisions. Many people lack understanding or misunderstand advanced health care directives. We are happy to explain the designation of healthcare surrogate, living will, power of attorney or even how guardianship works.
If you or someone you know has ever made one of the two statements at the beginning of this article, we invite you to stop in and talk with us. There is never a charge for an initial consultation to explore your estate planning goals.
GIFTING AND THE GIFT TAX
Many people are confused about the rules which apply to giving gifts. There is good reason to be confused. First, there are two different gift tax exclusion figures, which change frequently. Then, there is the question of basis. This newsletter will attempt to provide a basic understanding of the gift tax rules.
First, there is an ANNUAL EXCLUSION. The amount of the annual exclusion for 2011 is $13,000. With this exclusion, you can give a gift to any one person in the amount of $13,000 or less and not have to report it or even file a gift tax return. If your spouse also wishes to make a gift to an individual, a married couple can effectively give away $26,000 to any member of individuals without having to file a gift tax return.
Then there is the LIFETIME EXCLUSION. The lifetime exclusion was $1,000,000 through 2010, but for the years 2011 and 2012 has been temporarily increased to $5,000,000. If you give away more than $13,000 to an individual at any one time, you must report it to the IRS on a gift tax return. However, you will not be subject to gift tax until you have given away a cumulative total of $5,000,000 over your lifetime. For couples, this means there is a $10,000,000 lifetime gift exclusion. For example, if you wish to give your son a $50,000 gift for a down-payment on a new house, you simply file a gift tax return to report this gift and apply $50,000 of your lifetime gift exclusion to eliminate any tax being owed.
As you can see, there are a wealth of opportunities presented in 2011 and 2012 to utilize gifting strategies as part of your estate plan. However, we must remember that property received as a lifetime gift generally takes a “carry over” basis. This means that the basis in the hands of the person who receives the gift is the same as it was in the hands of the person who made the gift. Thus, if given a gift of stock that was purchased many years ago for $1,000, but is worth $10,000 at the time of the gift, the basis is $1,000. This means that if the person who received the gift turns around and sells the stock for $10,000, the gift recipient will owe $9,000 in (capital gains) income tax.
However, if the property is left to beneficiaries in a Will or a Trust and received after a decedent’s death, then that property takes a “stepped up” basis meaning that in our same example, the stock recipient would have basis of $10,000 and there would be no capital gains tax due if the beneficiary turned around and immediately sold this inherited stock.
One final concept to be aware of is the difference between a “completed gift” and an “incomplete gift”. Here is an example of which many people are not aware. If you put a child’s name on the deed to your house, you have made a completed gift at that moment of the full value of your house, or at least the value of the interest you have deeded to your child. This gift must be reported on a gift tax return. On the other hand, if you put your child’s name on your bank account, you have made an “incomplete gift” and it will not be completed until the child actually withdraws money from the account to use for his or her own benefit. When the child does withdraw money, you must report the gift.
Gifting also has serious implications if you are going to need to apply for Medicaid benefits within five (5) years of making certain gifts. So, you can see that there are both opportunities and pitfalls with respect to gift giving. As a Jacksonville, Florida Estate Planning attorney, my purpose is to guide my clients so as to maximize the opportunities and minimize the pitfalls.
FEBRUARY IS RESPONSIBLE PET OWNERS MONTH
According to the Humane Society of the United States, 39 percent of U.S. households have at least one dog and 33 percent have at least one cat. Together, we own more than 77 million dogs and 93 million cats! Then there are the 12 million birds and 7 million horses, together with our tropical fish, ferrets, hamsters, gerbils, guinea pigs, lizards, snakes, turtles…you get the picture. We Americans really love our pets.
Responsible Pet Owners Month was created to remind us about the importance of properly caring for our companion animals. What does responsible pet ownership entail? Much of the emphasis is on dogs and cats, since they are far and away the most popular. Spaying or neutering stands at the top of the list. Every year, 8 million cats and dogs, many of them strays, wind up in animal shelters across the country. Of these, more than half are put down.
Responsible pet ownership of a dog includes proper training, feeding a balanced diet, cleaning up after your dog on walks, regular grooming, providing plenty of attention and exercise, and making sure your pet has an up-to-date identification tag implanted, or at least on a collar.
As an estate planning law firm, we think this is also a good time to remind you that while companion animals are sometimes our very best friends in life, they are often not provided for in estate plans. Shelters and veterinarians euthanize an estimated 500,000 pets each year when their owners die before them. While an outright gift to an animal is void under law in some states, the creation of an honorary trust for the care of your beloved animal companions is generally permissible. For example, you can leave your pet to a specific caregiver and create a trust to benefit the caregiver, with specific instructions on how to utilize the funds left for the pet’s care.
The main objective of using a trust to care for your pet is to provide a flexible method for managing financial assets for the benefit of any pets that survive you. By using a trust, you can designate a party to act as guardian or caretaker for the pet. Furthermore, a trust allows you to leave specific instructions concerning the standard of care and special needs of your beloved companion animal.
In honor of Responsible Pet Owners Month, we suggest that you give your beloved companion some extra treats this week. But not too many—that would be irresponsible!
UNCERTAINTY ABOUT ESTATE TAX: WILL IT DISAPPEAR? A history lesson.
In our last newsletter, we outlined some of the highlights of the temporary extension of the estate tax that will be effective from January 1, 2011 through December 31, 2012. What will happen next? Is the estate tax likely to disappear or even remain “as is” with lower rates and a more generous personal exemption than at most any time in history? Well, let’s take a look at the history of this tax.
American governments have taxed estates, at least on a temporary basis, since the founding of this country. The first estate duty was imposed by the Federalists to finance an undeclared war with France. Abraham Lincoln imposed a temporary inheritance tax during the civil war. A third, temporary estate tax was enacted to fund the Spanish-American War. Then, in 1916, the current estate tax law was enacted and has remained in existence ever since.
Who were the champions of the idea of an estate tax in the early part of the 20th Century? It was a Republican President, Theodore “Teddy” Roosevelt (“TR”), who was the modern champion of the estate tax. In 1910 TR stated: “We grudge no man a fortune in civil life if it is honorably obtained and well used.”… “We should permit it to be gained only so long as the gaining represents benefit to the community…” The really big fortune, the swollen fortune, by the mere fact of its size, acquires qualities which differentiate it in kind as well as in degree from what is possessed of men of relatively small means. Therefore, I believe in a graduated income tax on big fortunes, and … a graduated inheritance tax on big fortunes, properly safeguarded against evasion, and increasing rapidly in amount with the size of the estate.”
TR was not alone in advocating for an estate tax. Supreme Court Justice, Louis Brandeis, said, “We can have concentrated wealth in the hands of a few or we can have democracy, but we can’t have both.” Even one of the nation’s wealthiest men at the time, Andrew Carnegie, testified in Congress in favor of an estate tax as the best way to address wealth concentration. So, the estate tax never was intended to be solely a device for raising revenue for the federal government. Rather, it was meant to address the phenomenon of a small number of Americans controlling large amounts of the country’s wealth, which was considered a national problem at the beginning of the 20th Century. This period has been referred to as the “Gilded Age”.
When the estate tax was enacted in 1916, the richest 1% of Americans owned more than 50% of the country’s wealth. By 1976, the amount of the nation’s wealth controlled by the richest 1% had fallen to only 20%. Over that time, this greater disbursement of wealth fostered growth of a strong middle class. However, the tax policies of the last 35 years have reversed the trend. Today, the wealthiest 1% own more than 33% of the country’s wealth.
So, has the estate tax accomplished the goals of its supporters? Is it a necessary component of our democracy? Only time will tell how the political debate over the estate tax plays out.
