Florida Estate Planning and Probate Law Blog focused on recent case law and planning ideas.

THE ABLE ACT (ACHIEVING A BETTER LIFE EXPERIENCE)


 
The Achieving a Better Life Experience (the ABLE Act) was signed into Federal law on December 19, 2014. Each state is responsible to pass legislation to create the vehicle for ABLE accounts to be created and administered. The law creates a new savings vehicle for those individuals suffering with disabilities. The account funds can be utilized for education, medical and dental care, job training, housing, transportation and other expenses.
 
The first $100,000 is disregarded when determining SSI (Social Security Income) eligibility. Without this Act a person receiving Medicaid could only have personal liquid assets of $2,000 or less. Contributions grow tax free and withdrawals for qualified expenses are also tax free.

Eligibility for an account requires an individual to be entitled to Social Security benefits, based on a blindness or disability that occurred before the date on which the individual turned age 26. A beneficiary is limited to one ABLE account and the account must be set up and established in the state in which they live. Account contributions are treated as a completed gift (they are non-deductible cash contributions) and limited to $14,000 per year.

An ABLE Account may be rolled-over tax free from one account to another for the same beneficiary, but only once in a 12 month period. Any amounts remaining in an ABLE Account at the beneficiaries death are subject to a claim from the state for an amount to replace Medicaid payments made by the state.

In contrast, a Special Needs Trust can be established for any age beneficiary and is not subject to this payback provision. There are also no dollar limits that can be contributed or accumulated in a Special Needs Trust.

2016 FEDERAL ESTATE AND GIFT TAX LIMITS (PROJECTED)


It is estimated that on January 1, 2016, the federal estate and gift tax exemption will rise to $5.45 million (up from $5.43 million).  This would allow a married couple to shield $10.9 million from federal estate taxes. With the top federal estate tax rate at 40%, this number is important to individuals who try to decrease the size of their estates and avoid the tax. Over the years, the exemption amount has risen from $675,000 in 2001, $1.0 million in 2003, $2.0 million in 2008, until it was set at $5 million in 2011, and indexed for inflation.

It is important to note that the gift tax is tied to the estate tax, so the inflation indexing helps individuals make the most of tax-free lifetime giving too.  This increase in the exemption amount will allow an individual, who previously made a $5 million gift to their children to provide them with an additional $450,000. 

Separate and distinct from the federal estate and gift tax exemption is the annual gift tax exclusion amount. In 2016, it is projected to remain at $14,000 (the same as 2014-2015). The annual gift tax exclusion allows individuals to gift the sum of $14,000 to as many individuals as they desire without any gift tax consequences.  A husband and wife can make a joint gift of $28,000. It is important to consider the federal kiddie tax when making gifts to young individuals and students through the age of 23, since the young individual pays no tax on the first $1,050 of unearned income and then a 15% rate on the next $1,000. Investment income, above these small amounts, will then be taxed at the parent’s tax bracket. 

WILL YOUR PRE-MARITAL AGREEMENT PROTECT YOU?


 
In Hahamovitch v. Hahamvitch, the Florida Supreme Court Case No. Sc14-277 (September 10, 2015) addressed a divorcing spouse claim that a twenty (20) year old pre-marital agreement did not apply to the enhanced value of non-marital property, attributable to marital labor. Her position was that the enhanced value to the husband’s assets was subject to equitable distribution. The divorcing spouse additionally claimed an interest her husband’s earnings, since their agreement did not specifically address the issue.

The husband argued that the agreement did provide that the property “owned or hereby acquired by each of them respectively” would be free of claims of the other spouse. It also provided that “each party agrees that neither will ever claim any interest in the other’s property,” and if one party “purchases, [a]cquires, or otherwise obtains, property in [his/her] own name, then [that party] shall be the sole owner of same.” Thankfully, both the District Court of Appeals and the Supreme Court concurred and found that the above general waiver language was broad enough to protect enhancement in value of property and the husband’s separate earnings as separate property of the husband, thus denying the wife an interest in those assets upon divorce.

When drafting marital agreements it is important to look to Fla.Stats. Section 61.079 and Casto v. Casto,  508 So.2d 330 (Fla. 1987), in which the Florida Supreme Court found that unfairness or unreasonableness can negate enforceability, although full and complete financial disclosures will still allow for enforceability even if the agreement is unfair or unreasonable.

MAKE YOUR FINAL DECISIONS EARLY

 
Over seventy (70%) percent of Americans, dream of spending their final days at home, in peace and comfort, surrounded by loved ones who care for you compassionately until their last breath. In reality, seventy (70%) percent actually die in a hospital, nursing home or long-term care facility. To avoid this happening to you, it's never too early to start planning because there are no guarantees for the future.
 
Prepare Estate Planning Documents. According to a survey, forty-one (41%) percent of all baby boomers do not have an estate plan and fifty (50%) percent of all Americans die without a valid Last Will and Testament. As a result, your state of residence, at date of death, will determine how your assets are distributed.
 
Protect Minor Children. According to a survey, fifty-five (55%) percent of Americans, with minor children, do not have an estate plan and have not named a legal guardian for their children. As a result, the state will determine who receives custody of the minor child(ren) if both parents die.
 
End-Of-Life Care. Less than one-third (1/3) of Americans have an advanced directive (Power of Attorney, Health Care Surrogate and Living Will). These instruments can provide valuable instructions to health care professionals on the type and extent of care to be delivered in a life-threatening situation. Without a Living Will or other form of advance directive, in the event of an end of life situation you will receive aggressive, full medical treatment, which you may not really want and have no one to enforce your desires.
 
Final Remembrance. How and where you choose to be laid to rest is a personal decision. Whether it be a military funeral, social style or small family event, it is important to make your family aware of your desires in advance. You can also make arrangements in advance for your own funeral and leave detailed instructions so your loved ones will know what to arrange for you.
 
Talk To Your Loved Ones. To avoid conflicts over how to handle financial, health care, or after-death arrangements, you should communicate your specific desires (sit down conversation, detailed instructions, etc.) and create the necessary legal documents to ensure your desires are met. This should include future placement in an assisted living facility or retirement home or spending your final days at home

INHERITANCE OF FREQUENT FLYER MILES


If you think that using your frequent flyer miles is a hassle while you are alive, it is even worse when you are dead. In the Florida probate area a frequent question is can I inherit a decedents frequent flyer miles. Some of the big North American lines specifically address the issue of transfer to heirs (and divorced spouses) in their frequent flyer membership rules:

Air Canada: Miles or rewards are personal and cannot be assigned, traded, willed or otherwise transferred.

American: Neither accrued mileage, nor award tickets, nor upgrades are transferable by the member (i) upon death, (ii) as part of a domestic relations matter, or (iii) otherwise by operation of law. However, American Airlines, in its sole discretion, may credit accrued mileage to persons specifically identified in court approved divorce decrees and wills upon receipt of documentation satisfactory to American Airlines and upon payment of any applicable fees.

Jet Blue: Accrued points and award travel do not constitute property of member and are non-transferable (i) upon death, (ii) as part of a domestic relations matter, or (iii) otherwise.

United: Neither accrued mileage nor certificates are transferable (i) upon death, (ii) as part of a domestic relations matter, or (iii) otherwise by operation of law.

Southwest: Their frequent flyer program rules have nothing to say about the subject one way or the other.

Even the airlines that allow transfer are pretty specific about who can claim the miles. You must be either a "surviving spouse" or mentioned as an heir in the deceased member's Will.

ONE IN THREE AMERICANS WHO GET AN INHERITANCE BLOW IT

 
The “Great Wealth Transfer” (the wave of wealth, estimated to be in the trillions, which will flow from the oldest generation in the coming decades) will land in the hands of many Americans ill prepared to handle an inheritance. Multiple studies indicate that the majority of these recipients will quickly dispose of their inheritance. One study found that one third of people who received an inheritance had negative savings within two years of the event.
 
The problem stems from the fact that those inheriting the funds tend to view it as “fun money” and do not utilize it to shore up their retirement savings. The 2015 Retirement Confidence Survey by the Employee Benefit Research Institute found that 57% of workers have less than $25,000 in savings and investments.  In addition, when you factor in inflation, even a $1 million inheritance will not guarantee a couple’s comfortable retirement.
 
The following is a list of expert’s guidance:
 
A decision-free time period where no big decisions (large investments or expenditures) are made. This includes evaluating funds put away for retirement and anticipated cost, the cost of a child’s education through graduate school, annual trips with the extended family, or the purchase of a second home for the whole family to use. 
 
The payment of oppressive debt should also top the list of considerations. Why would you maintain a credit/debit card with a 20% interest rate when you could not invest the funds and earn a financial return even close to that amount annually. 
 
The next consideration should be the creation of an emergency fund in case of unemployment, a medical emergency, or a big-ticket home repair. The funds can help you weather the unexpected expense while still maintaining your lifestyle. 
 
Do not make family members aware of your windfall. If you do, you will quickly learn about multiple “get rich quick” ideas that distant relatives have for your money or loans that you will need to pay on someone else’s behalf. 
 
Funds which remain, after allocating for each of the above items, should then be spent with caution. What may have initially sounded like a great idea (a second home by the lake) could result in the purchase of an item that family and friends will use more than you.

 

2015 CHANGES TO FLORIDA'S HEALTH CARE SURROGATE STATUTES

 
A “Designation of Health Care Surrogate” (“Designation”) is typically prepared in connection with one’s basic estate planning documents. A Designation is a written document naming someone to make health care decisions for an individual (the “principal”) or receive health information on the principal’s behalf in the event he or she is unable to do so. The instrument is not effective until the principal lacks the ability to make the decisions on their own behalf (a determination of incapacity). Although Florida has recognized an individual’s right to designate a health care surrogate, effective October 1st, two key changes go into effect. 
 
First, a designated health care surrogate will now be able to act immediately, prior to any determination of incapacity of the principal. Under the new statute, the Designation can be drafted so that the health care surrogate has the power to act immediately upon execution of the document and avoid waiting for a determination of incapacity of the principal. However, if the principal has mental capacity, his or her decisions would be controlling and would not require any consent of the surrogate. In addition, the Designation can be revoked at any time. 
 
Second, parents will be able to name a health care surrogate for a minor child in the event the parents (or guardian) are unable to act. In such case, whoever is taking care of the minor child can be authorized to make such decisions without the delay of locating a parent who is unavailable. This designation is made by an executed document and can be amended or revoked at any time.
 
It is important to understand that a Designation of Health Care Surrogate is distinct from a “Living Will” which is a separate document that reflects one’s desire to have life prolonging procedures (machines) removed where the principal is terminally ill or in a persistent vegetative state with no reasonable probability of recovery. The individual chosen to be the health care surrogate would normally also be named in the Living Will document to ensure that the wishes of the principal are carried out.