The Florida Estate Planning and Probate Law Blog is focused on recent federal and state case law and planning ideas.


The Special Needs Trust Fairness Act (the “Act”) was signed into law on December 14, 2016. The Act amends federal law to enable disabled individuals to establish their own first-party payback Special Needs Trusts under 42 U.S.C. § 1396p(d)(4)(A). A first-party funded Special Needs Trust will enable a disabled individual, who receive assets outright, including through a gift, inheritance, personal injury settlement or child support, to protect such assets for their future use while remaining eligible for essential means-tested government benefits (Supplemental Security Income and Medicaid). The Act will amend Section 1396p(d)(4)(A) of the Social Security Act to exclude first-party funded Special Needs Trust as a transfer for less than fair consideration and countable asset. This amendment will only apply to trusts established on or after the date of the enactment of the Act. Prior to the passage of the Act, federal law required disabled adults who were capable of handling their own affairs (and thus without legal guardians) to rely upon their parents, their grandparents or the courts to establish a first-party funded non-pooled payback Special Needs Trusts for their benefit. This requirement contradicted the fact that such Trusts were being funded by the disabled individuals with assets legally belonging to them (i.e. not third-party funds). This requirement was also inconsistent with the law governing the creation of Pooled Special Needs Trust which allows disabled individuals to create their own first-party funded Pooled Special Needs Trust with non-profits.


As our circumstances change with life events these changes should be reflected in your estate planning documents (your plan should be reviewed periodically anyway). The following list is meant to give you an idea of when changes should be made to your estate planning documents: Your marriage, divorce or remarriage. The birth or adoption of a child, grandchild or great-grandchild. The death of a spouse or another family member. The illness or disability of you, your spouse or another family member. When a child or grandchild reaches the age of majority. When a child or grandchild has education funding needs, The death of the person named: as guardian for minor children, personal representative or successor trustee of your trust. Sizable changes in the value of assets you own. Sale or purchase of a principal residence or second home. Receipt of a large gift or inheritance. Sale of a business interest. Special Needs child or family member. Changes in federal or state income tax or estate tax laws. Don't put these changes off to the future because you may not have the ability to change them later.


Families with a special needs child/adult need more estate planning than families without. A Special Needs Trust (SNT) can play an important role in helping families plan. Issues to consider: Preserve public benefits while enhancing your child/adult's lifestyle. Many individuals with special needs obtain basic support from Supplemental Security Income (SSI) - a gateway to Medicaid and other critical programs. Since SSI covers only essential expenses, it is important to create a supplement for their lifestyle. But because SSI imposes limits on income and assets, gifts or an inheritance could adversely impact benefits eligibility. The Social Security Administration (SSA) does not count assets in an SNT as income for determining benefits eligibility because the assets are owned by the trust rather than the special needs beneficiary. Ensure assets will be used as intended. With an SNT, distribution of assets is directed by trust documents as well as SSA and IRS guidelines. By comparison, if you leave assets to an "able-bodied" child and ask that some of the funds be used for the sibling with special needs, the child may fail to honor your request, lose the assets to creditors or die prematurely and leave the funds to his or her own children. Allow others to contribute. If you establish the trust now, family members and friends can make gifts to the SNT. Anyone interested in leaving an inheritance or making a gift should be advised to direct bequests to the SNT. Maximize the benefits of a personal injury settlement. If the child/adult is the recipient of a sizable settlement, having the payout (often a lump sum plus a structured settlement) directed to a self-settled SNT offers several benefits. They will still qualify for public benefits, can use settlement funds for nonessential expenses and may enjoy the financial security of receiving regular payments for life.


With December 31, 2016, right around the corner, it is important to look at your year end personal tax and estate planning situation. With a Trump administration and a Republican-controlled Congress, much attention has been paid to the tax proposals in the president-elect’s Contract with the American Voter and the House Republicans’ Task Force for A Better Way to see how they match up. The key points that both proposals have in common, as they affect our tax and estate planning clients, include: • Elimination of the estate tax, although the Trump proposal states that “capital gains held until death and valued over $10 million will be subject to tax.” • Reduction of the maximum individual federal income tax rate to 33 percent. Remember, states income tax rates are not affected. • Limitations on itemized deductions. • Repeal of the 3.8 percent net investment income tax and continue the current low tax rates for investment income. • Reduction of corporate tax rates. • Taxation of “carried interest” income at ordinary income tax rates. • Elimination of the alternative minimum tax. Estate Planning: wait and see. While it would be unwise to modify an existing estate plan simply to anticipate estate tax changes that may or may not occur, clients who are in the middle of planning (e.g., to make year-end gifts using valuation discounts or for business succession purposes) might want to continue and implement their planning, but with a view toward the possibility of estate tax repeal. Estate planning is not all about taxes. • Defer income and accelerate deductions. Since tax rates would be reduced next year, it would be smart to consider deferring income to be taxed in 2017 at, presumably, lower rates, and accelerate deductions to 2016 to reduce taxable income that would be taxed at higher rates and to take advantage of deductions that might disappear. The same thinking would apply to sales of capital assets: gains should be deferred to next year and losses should be harvested this year. • Make your charitable contributions now. You might want to make larger charitable contributions this year to reduce taxable income that would be taxed at higher rates. If you have pledged to make future contributions, consider honoring those pledges now. • Be prepared to review and possibly rewrite your existing estate plan. Of course, the action you take depends on what tax law changes are ultimately enacted. • Consider making annual exclusion gifts on or before Dec. 31. Each year you can give up to $14,000 in value (e.g., cash, property interests, stock, etc.), or $28,000 in value for gifts by a married couple, to an unlimited number of people. These dollar amounts will remain at $14,000 in 2017. • Consider front-loading a 529 Plan. 529 Plans provide some exceptional income tax planning benefits for those who are putting aside funds for college. • Consider making large lifetime gifts tax-free using your lifetime gift tax exemption. You may want to consider using part or all of your gift tax exemption by making a gift to your family members or others, thereby removing the value of the gifted asset, plus future appreciation, from your estate. Preferably, high basis assets should be gifted. While the possibility of a estate and gift tax repeal exists, there will be no tax cost by using your lifetime exemption (currently $5,450,000 and increasing to $5,490,000 in 2017), and if there is a repeal, you will have simply made additional tax-free gifts. • Review your entire estate plan. While there may be nothing to do now in response to the anticipated tax law changes, it is still a good time to review your existing estate plan to make sure it still expresses your wishes, discuss with your family and your professional advisors (including your tax accountant, financial planner, investment advisors, insurance professionals, and us) whether any non-tax related changes are desired or advisable, and then establish an action plan, which might include taking some action now and deferring some action until the tax laws have changed. Questions for Consideration: 1. Have you nominated the right individuals or organizations to serve as trustee, executor, guardian, conservator, attorney-in fact and/or health care agent? 2. Did you accidentally omit a beneficiary who should be included, or include someone as a beneficiary who should not be included? 3. Have you reviewed all of your beneficiary designations, including life insurance, IRAs, 401(k) plans, other employer-sponsored plans, to make sure they are not out of date and that they are consistent with your wishes and your other estate planning documents? 4. Are your assets properly titled (e.g., assets intended to be held in a Revocable Trust have been formally transferred by deed, change on account name, etc.)? 5. Are your estate planning documents in a safe location and easily accessible to the people named to handle your affairs (e.g., executor, trustee, attorney-in-fact or health care agent)? Have you communicated the location of these documents to these people? 6. Do you have in force adequate life insurance, disability insurance, liability insurance and, perhaps, long-term care insurance? 7. Are there changes within your family (such as births, deaths, aging, health problems, marriages, divorces or a family member’s ability to handle financial matters responsibly)? 8. Have there been changes in your financial situation, including increases or decreases in your income, net worth, liquidity, indebtedness, and major investments? 9. Are you contemplating retirement (or have you retired)? 10. Have you started a new business or sold an existing business?


Under the Internal Revenue Service (IRS) rules, the service has a three (3) year statute of limitations after the filing of IRS Form 709 to assess gift taxes on a gift, so long as the gift is adequately disclosed on the return. If a gift is not disclosed on Form 709, the statute of limitations does not begin to run on that gift. Form 709 requires the disclosures of prior gifts, so that the tax on the current gifts can be properly calculated (since prior gifts can impact the rate of tax and available unified credit applicable to the current year computations). The question has arisen as to what happens if a gift is improperly reported on a return? A recent Chief Counsel Advice 201643020 concludes that the Code does not support an extended statute of limitations in this circumstance. However, I do not recommend filing an improper return with the IRS.


Most individuals expect significant changes to the US Tax Code once President (elect) Trump takes office. High on his agenda are the following: INDIVIDUALS: Cut the number of individual income tax brackets (from 6 to 3) and bring income tax rates down to 12%, 25% and 33% - that would benefit everyone who works across the board. Elimination of the 3.8% Obamacare tax - if Obama Care goes away this extra tax on the wealthy will go away with it. Tax carried interest gains as ordinary income. Retain 20% capital gains rate for non-corporations. Increase the standard deduction for joint filers to $30,000 from $12,600, while eliminating personal exemptions - basically a wash. $200,000 cap for itemized deductions for joint filers - this will only impact high earners. Most importantly, repeal of the estate tax (a double tax for those who leave an inheritance to their children, etc..). This would be offset by no step-up in basis at death, except on first $10 million of assets. CORPORATIONS | BUSINESS: Lower the business tax rate for corporations and small businesses alike to 15%, but with elimination of many deductions - we have one of the highest corporate tax rates in the world. Ever wonder why so many companies leave the US for foreign shores. Elimination of corporate alternative minimum tax - to bring american business back home. A 10% one-time tax on repatriation of corporate profits held offshore - could raise trillions of dollars. Allow U.S. manufacturers to elect to expense capital investment and lose the deductibility of corporate interest expense.


Standard deduction - married filing jointly = $12,700 Standard deduction - single persons = $6,350 Standard deduction for a dependent = $1,050 Overall Limitation on itemized deductions (Section 68(b)) = $313,800 (Married person) Personal exemption = $4,050 Unified credit against estate tax and gift tax = $5,490,000 Gift tax annual exclusion = $14,000 (no change) Gift tax annual exclusion for gifts to noncitizen spouse = $149,000


Federal Estate & Gift Tax: The Federal estate tax exemption amount will be $5,490,000 in 2017. The annual gift exclusion amount will remain at $14,000 Qualified Plans for 2017: The limit on the maximum amount of elective contributions that a person may make to a §401(k) plan, a §403(b) tax-sheltered annuity, or a §457(b) eligible deferred compensation plan remains unchanged at $18,000. The limit on “catch-up contributions” to a §401(k) plan, a §403(b) tax-sheltered annuity, or a §457(b) eligible deferred compensation plan for persons age 50 and older remains unchanged at $6,000. The dollar limit on the maximum permissible allocation under a defined contribution plan is increased from $53,000 to $54,000. The maximum annual benefit under a defined benefit plan is increased from $210,000 to $215,000. The maximum amount of annual compensation that may be taken into account on behalf of any participant under a qualified plan will go from $265,000 to $270,000. The dollar amount used to identify “highly compensated employees” remains unchanged at $120,000. Social Security Tax: The Department of Health and Human Services has set the maximum taxable wages for the OASDI portion of the social security tax at $127,200 for 2017, which is an increase from the 2016 limit of $118,500.


Since 2001, the Massachusetts Department of Revenue ("DOR") has taken the position that Massachusetts resident who die owning real estate or tangible personal property in states which do not impose a state estate tax (New Hampshire, Florida, etc...)the Massachusetts estate tax is applied to the total net value (including the assets in other states). In effect, if another jurisdiction charges an estate tax on real estate or tangible items located within its borders, Massachusetts allows a credit for the tax paid to the other jurisdiction. If no tax is charged, Massachusetts collected the tax attributable to that value as part of the total tax computed. However, a recent Massachusetts probate court held for the first time that a taxpayer who died with property in such a jurisdiction was able to exclude such property from their taxable estate, thus decreasing the tax significantly. While this decision was made by a state trial court, and not on the appellate level, the reasoning was based on solid U.S. Supreme Court precedent. The DOR does not seem likely to challenge the court’s reasoning. The U.S. Supreme Court previously ruled on this issue and found that such taxing schemes were in violation of the Due Process clause of the U.S. Constitution, because the person owning the land or tangibles in the other state derived no benefit from the laws of the state imposing the tax. Such benefits are held to be the basis of the state’s power to tax.


On October 14, 2016, Governor Chris Christie signed into law legislation which raises the New Jersey estate tax exemption to $2,000,000 in 2017 (up from $675,000) and eliminates it entirely in 2018. Until January 1, 2018, the New Jersey estate tax will continue to be applied based on a graduated rate table which begins at 4% for estates of $675,000 or more and increases to 16% for estates in excess of $10,100,000. While the New Jersey estate tax exemption is going away, the New Jersey inheritance tax will remain. The New Jersey inheritance tax only applies to transfers to other relatives and friends, and does not apply to transfers at death to parents, spouse, children and other descendants and charity. So ends New Jersey's reign as the state with the highest estate tax among those states which continue to impose an estate tax.


The Social Security Administration has announced its changes for 2017. Social Security benefit payments will increase by .3% (3/10s of 1%) in 2017. The Social Security Wage Base, the amount of income subject to Social Security taxes, will increase to $127,200 (up from $118,500). In addition, the age for full retirement (which has been 66 for the past 12 years), will increase in 2017. You receive the full amount of your calculated benefits at full retirement age, but a reduced amount if you start receiving benefits earlier. For those born in 1955, full retirement age will be 66 years and 2 months. In essence, Social Security benefits are being decreased since you are required to wait longer to collect "full benefits." The change in the full retirement age dates back to a "deal" enacted in 1983.


♠ Posted by Marc J. Soss in ,,
Recent reports indicate that the State of New Jersey will officially eliminate it's estate tax. The tax elimination will be offset by an increase in the both the gas and sales tax. The tax reform will also include a larger tax credit for the working poor, a tax cut on retirement income, and a tax exemption for veterans who have been honorably discharged. It is anticipated that the estate tax exemption will increase from $675,000 (its current exemption amount) to $2,000,000 effective January 1, 2017 and be phased out completely over the next few years.


This is a reoccurring issue that Personal Representatives/Executors of a probate estate need to be educated on. The First Circuit recently ruled that the executor of an estate was personally liable for unpaid federal income tax when she knew, prior to distributing property from an insolvent estate, that there were outstanding tax deficiencies. The decedent owed $340,000 in unpaid federal income tax, which would have left his estate insolvent. The transfer took place right after the decedent's death and prior to their appointment as executor. The transfer was made despite IRC Section 3713(a)(1)(B) which provides that a claim of the U.S. government shall be paid first when an estate is insolvent (it has priority over any other claims). If the executors fail to honor that priority, they become personally liable for the deficiency under Section 3713(b) if three requirements are met: (1) they transfer assets before paying the government’s claim; (2) the estate is insolvent; and (3) they had knowledge of the liability. The executor's argument, against personal liability, was that the transfer occurred prior to her appointment as executor and a strict reading of the statute found it applied to “a representative of the person or an estate…” The court said that whether she had actually been appointed executor at the time was irrelevant because the assets were under her control at the time they were transferred.


Is a Spousal Lifetime Access Trust (SLAT) part of your estate plan? Many families today, for both Florida estate planning and Florida estate protection planning purposes, are utilizing SLAT’s to protect their assets. When both spouses are living, one spouse can establish this type of trust for the other spouse through the use of their lifetime gift tax exemption. A SLAT will typically name the non-gifting spouse as the beneficiary, and allow the trustee to make distributions to them during their lifetime. Upon the non-gifting spouse’s death, the trust assets can then pass to the designated trust beneficiary(s) under the specified terms and conditions of the instrument. For estate planning purposes, the non-gifting spouse can be given a limited power of appointment, effective at their death, which allows them to change how the SLAT assets will be distributed after the beneficiary-spouse’s death. This effectively gives them the ability to change the trust beneficiary(s) and the specified terms and conditions of the instrument. To maximize the asset protection benefits available with a SLAT, the gifting spouse should fund the trust using only their personal assets and not jointly held assets. The non-gifting spouse should only serve as a trustee if the power to make distributions to themselves is limited by an “ascertainable standard” (distributions can only be made for health, education, maintenance, and support). Under no condition should the gifting spouse serve as a trustee of the SLAT.


Both presidential candidates have proposed changes to the estate tax regime. Mr. Trump calls for a total repeal of the Federal estate tax. No matter how much wealth you accumulate during your life, under Mr. Trump’s plan, there will be no estate tax due on death. The Trump belief is that you have paid taxes your whole life; therefore, you shouldn’t be taxed again at death. However, the repeal of the estate tax comes with a caveat, even under this plan: capital gains held until death will be subject to tax, in some cases. Mr. Trump’s proposal eliminates stepped-up basis on death for estates over $10,000,000. Basically, under this plan, gain, determined using the deceased’s basis on the asset, would be subject to tax when an inheritor sells an asset, not when she or he inherits it on the death of a decedent. The $10,000,000 exemption is similar in amount to the current federal estate tax exemption. It is unclear if the $10,000,000 exemption is per person, or per married couple. Similarly, it is unclear if Trump’s plan eliminates gift and generation-skipping tax provisions as well. The impact of Mr. Trump’s plan would be less felt by the wealthy who believe their children and grandchildren will retain the assets they inherit or those whose assets have not appreciated significantly, and more by those whose children plan on selling the assets they have inherited and whose assets have significant appreciation attached to them. Mrs. Clinton’s plan calls for increasing the Federal estate tax. Originally, Mrs. Clinton proposed reducing the threshold at which estates are taxed, from $5,450,000 per individual or $10,900,000 per married couple to $3,500,000 per individual or $7,000,000 per married couple, and increasing the top estate tax rate from 40% to 45% for the highest-taxed estates. The end result of this plan seems to put the estate tax back to where it was in 2009. Yet, just last week, Clinton’s campaign material referred to an even more aggressive estate tax, with a 50% tax rate on estates over $10 million per individual, a 55% rate for estates over $50 million per individual and an unprecedented 65% tax rate for the largest estates valued at over $500 million per individual. The Clinton plan would also eliminate stepped-up-basis when assets pass to heirs on death. The combination of an estate tax without a corresponding step up in basis is quite novel, and if passed would be the first time in our country’s history that the estate tax system worked this way. The goal of Mrs. Clinton’s estate tax proposal is said to raise additional tax revenue by targeting the wealthiest in our country Proponents of an estate tax, like Mrs. Clinton’s, argue that it helps to stop wealthy people from getting even wealthier, generation after generation. Undeniably, the impact of Mrs. Clinton’s plan will be felt by the wealthiest Americans. The goal according to the Clinton campaign would be use to use the additional revenue collected by the new estate tax regime to help pay for some of her plans which assist the middle class in our nation, like expanding the child tax credit and simplifying small business taxes. Which candidate will win the election? Article courtesy of Brian Cave, law firm.


Democratic presidential candidate Hillary Clinton would levy a 65% tax on the largest estates and make it harder for wealthy people to pass appreciated assets to their heirs without paying taxes, expanding the list of tax increases she would impose on the top sliver of America’s affluent. The estate-tax increase and other new proposals that Mrs. Clinton detailed on Thursday would generate $260 billion over the next decade, enough to pay for her plans to simplify small business taxes and expand the child tax credit, according to the nonpartisan Committee for a Responsible Federal Budget, which advocates fiscal restraint. In all, Mrs. Clinton would increase taxes by about $1.5 trillion over the next decade, increasing federal revenue by about 4%, though that new burden would be concentrated on relatively few households. There is at least a $6 trillion gap between her plan and the tax cuts proposed by her Republican rival Donald Trump. The Clinton campaign changed its previous plan—which called for a 45% top rate—by adding three new tax brackets and adopting the structure proposed by Sen. Bernie Sanders of Vermont during the Democratic primaries. She would impose a 50% rate that would apply to estates over $10 million a person, a 55% rate that starts at $50 million a person, and the top rate of 65%, which would affect only those with assets exceeding $500 million for a single person and $1 billion for married couples. In 2014, just 223 estates with a gross value exceeding $50 million filed taxable estate-tax returns, according to the Internal Revenue Service. In a statement, Mr. Sanders said the proposal would respond to the “grotesque level of wealth” concentrated among the top few households. “Secretary Clinton understands that it is appropriate to ask the top three-tenths of 1%, the very wealthiest people in this country, to pay their fair share of taxes so that we can provide a child tax credit for millions of working families and lower taxes for small businesses,” Mr. Sanders said. The 65% estate-tax rate would be the highest since 1981 and marks one of the most enormous tax-policy gulfs between Mrs. Clinton and Mr. Trump, who would repeal the tax. “It is the height of hypocrisy for Hillary Clinton to offer an even more dramatic hike in the death tax at the same time she uses exotic tax loopholes reserved for the very wealthy to exempt her Chappaqua estate,” said Jason Miller, a spokesman for Mr. Trump, referring to Mrs. Clinton’s use of residence trusts in New York to lower the value of her taxable estate. Neither Mrs. Clinton’s nor Mr. Trump’s proposals stand much chance of succeeding in a divided Congress where Republicans control the House and Democrats can block action in the Senate. The current top rate of 40% was set as part of a bipartisan compromise in January 2013, and the first $5.45 million a person is exempt from tax. Mrs. Clinton’s plan is “dead on arrival,” said Rep. Kevin Brady (R., Texas), chairman of the House Ways and Means Committee. “It will stop family owned businesses—including women and minority-owned businesses—from being passed down to their children and grandchildren,” he said. The estate tax is “wildly unpopular” with small business owners, said Matt Turkstra, who works on the issue for the National Federation of Independent Business, and “the biggest transfer of wealth is going to be from very, very wealthy people to lawyers.” The shrunken version of the estate and gift tax that has been in place in recent years brings in relatively little money for the federal government, less than 1% of projected revenue over the next decade, according to the Congressional Budget Office. Still, the tax carries symbolic and political weight. Republicans and their allies in the business world see it as a patently unfair confiscation of wealth that punishes family-owned businesses. Democrats see it as a leveling tool necessary to combat the increasing concentration of wealth, and say that the impact would largely be felt by a very small number of people. “The people who care a lot about it are the ones who are subject to it or the ones who benefit from it,” said Michael Graetz, a tax-law professor at Columbia University and co-author of a book on the politics of the estate tax. That includes charities, he said, which worry that a repeal of the tax would reduce charitable bequests. Mrs. Clinton would also repeal what is known as the step-up in basis. Under that rule, people who die with appreciated assets—for example, a stock bought decades ago—don’t have to pay the capital-gains taxes on the increase in value before death. Then, their heirs only have to pay taxes when they sell the assets and only have to pay capital-gains taxes on the difference between the sale price and the value when they were inherited. Under Mrs. Clinton’s plan and under a proposal from President Barack Obama that has gone nowhere in Congress, a bequest of an asset would be treated as realizing those pent-up gains. There would be an exemption of undetermined size that would focus the tax on high-income families, and Mrs. Clinton’s proposal, the campaign said, would include “careful protections and flexibility for small and closely held businesses, farms and homes, and personal property and family heirlooms.” But the combination of the 65% estate tax and the change to capital-gains rules could lead to significant increases in effective tax rates at death on some people—including, for example, Mr. Trump, who claims a net worth of $10 billion, though independent estimates put it lower. Mrs. Clinton’s new proposals would also limit like-kind exchanges, the technique commonly used in real estate to defer capital gains when properties are sold. The latest changes are part of a series of tax increases Mrs. Clinton has rolled out to pay for targeted tax cuts and for increased spending. She would impose a 4% surcharge on income over $5 million a year, limit deductions for high-income households, create higher capital-gains rates on assets held for between two and six years and require the “Buffett Rule,” a minimum 30% tax rate for the highest-income households named for investor Warren Buffett. “These proposals reflect Hillary Clinton’s approach to growing our economy: making investments in good-paying jobs and the middle class, paid for by closing loopholes and asking the wealthiest to pay their fair share—even as Donald Trump wants to give trillions in tax breaks tilted towards the wealthy,” said Mike Shapiro, an economic policy adviser to Mrs. Clinton. Article courtesy of the Wall Street Journal Sept. 22, 2016


The Internal Revenue Service (IRS) can easily take away what any state court giveth. Under the case facts, the decedent maintained 2 IRAs prior to his death. The IRAs listed his revocable trust as the death beneficiary. The trust qualified as a "look through" trusts, and provided each beneficiary the ability to stretch the payout period for the IRAs over their respective life expectancies. However, prior to death, the decedent moved the IRAs to a new investment firm which incorrectly listed his estate as the death beneficiary of each IRA account. This precluded the beneficiaries from stretching the IRA payout over their life expectancies. To overcome this problem, the trustee petitioned the state court for a declaratory judgment changing the beneficiary designations back to the trust. The court ordered the modification, retroactive to the date the new beneficiary designation forms were signed. The trustee then sought a private letter ruling to give effect to the state court order. The IRS, in reliance on Estate of La Meres v. Comm., 98 TC 294 (T.C. 1992) denied the request and ruled that the state court order could NOT retroactively change the tax consequences of the decedent having died with his IRA beneficiaries being designated to be his estate. The Tax Court held such reformation ineffective for tax purposes, explaining that courts generally disregard the retroactive effect of state court decrees for Federal tax purposes. It is important to note that this is not the first time the IRS has ruled against giving tax effect for IRA stretch purposes to a retroactive reformation (PLRs 201021038, 200235038 and 200620026). Individuals should take note of this result and ensure that their retirement account beneficiary designations are accurate.


The Internal Revenue Service (IRS) has formally put into place, effective September 2, 2016, amendments to the regulations that define “who is married for tax purposes.” The new regulations state that it will interpret the term “husband and wife” as any two people who are married to each other, even if they are a same-sex couple. The IRS is addressing this issue as a result of the 2013 U.S. Supreme Court ruling in United States v. Windsor (which struck down the section of the Defense of Marriage Act (DOMA) prohibiting recognition of same-sex marriages for federal purposes) and the 2015 Supreme Court ruling in Obergefell v. Hodges (that made same-sex marriage legal throughout the nation).


♠ Posted by Marc J. Soss in ,,
IRS Announcement 2016-30 provides relief to Louisiana taxpayers suffering hardships as a result of the storms and flooding which that began August 11, 2016. The relief comes in the form of impacted residents being able to obtain a loan or in-service distribution from their retirement plans. Retirement plan administrators may rely upon representations by an employee or former employee as to the need for a hardship distribution as a result of the Louisiana storms and the distribution will be treated as a hardship distribution for all purposes. The relief applies to a employee or former employee whose: (i) Principle residence on August 11, 2016, was located in one of the parishes that has been identified as part of a covered disaster area because of the devastation caused by the Louisiana Storms; (ii) Place of employment was located in one of these parishes on that date; or (iii) Lineal ascendant or descendant, dependent, or spouse had a principle residence or place of employment in one of these parishes on that date. The hardship distribution must be made on or after August 11, 2016, and no later than January 17, 2017. Any loans made in accordance with the relief must be repaid in accordance with their terms, and any distributions will be subject to income tax and generally to the ten percent penalty on early distributions.


Becoming an empty nester and watching your child(ren) leave the home (for school or a job) can be difficult emotionally. Reality is that when a child reaches the age of 18 they are a legal adult, even though they may still depend on you for financial and emotional support. Most parents are surprised to learn that once a child turns age 18 they are not legally permitted to make financial or medical decisions on their behalf, or even be notified if their child is in the hospital emergency room. To avoid this from happening, it is important to have your child(ren) create their own estate planning documents (Power of Attorney, Health Care Surrogate and Living Will). Estate planning documents are not just for the older generation. These documents will provide authority and allow a parent or family member to step in, when a child needs financial or medical assistance and the child is unable to make such decisions for themselves. Alternatively, a parent will have to commence a guardianship proceeding to obtain legal authority to assist the child. Having your child(ren) execute these documents once they reach age 18 and before they leave home will provide you with piece of mind.


The Fifth District Court of Appeals in the case of Colino v. Volino, 41 Fla. L. weekly D1990b (5th DCA, August 26, 2016) recently addressed what “constitutes separate property” for purposes of a pre-marital agreement. The agreement in dispute contained the standard “Separate Property” provision that provided “if a party acquires real property in his or her own name it shall be that party's Separate Property.” However, during the marriage, the husband gifted funds, which he was permitted to do under the agreement, from his personal account to his wife. The wife then utilized the funds to acquire a parcel of real property in her name. Eight months later, the wife transferred the real property solely into the name of her husband. The parties subsequently divorced. At trial, the Court found the real property to be the Separate Property of the wife at the time of divorce. The Court based its ruling on the provision that “if a party acquires real property in her own name it shall be her Separate Property.” The Fifth DCA reversed and determined that the real property constituted the Separate Property of the husband. The Fifth DCA concluded that it was the wife's Separate Property when she acquired it and that it became the Separate Property of the husband when wife transferred the real property to him.


It is not uncommon today for a parent to leave a beneficiary’s inheritance in a trust for their benefit instead of an outright gift of the funds at death. Factors which must be considered are: (i) the size of the inheritance; (ii) financial savvy and sophistication of the anticipated beneficiary; (iii) high divorce rate; and (iv) desire to protect the beneficiary from themselves. To protect the beneficiary, the following provision may be included into a trust instrument: Creditor Protection: The establishment of an irrevocable trust for a beneficiary upon the parent’s death. To the extent that distributions from the trust are solely discretionary (the trustee does not have to distribute anything to the beneficiary) the assets in the trust will not be attackable by the beneficiary’s creditors. Divorce: While the termination of a beneficiary’s marriage can’t ever be anticipated, a parent can help protect the inheritance being left to them by having it held in an irrevocable trust for their benefit. This will ensure the inheritance is not commingled with the beneficiary’s spouse’s assets and will be treated as their separate and non-marital property (potentially exempt for purposes of spousal support or alimony. Similar to a creditor protection provision, the trust can make all distributions to the beneficiary discretionary. The trust can also include a provision allowing the trustee to terminate the trust and distribute the trust assets to the beneficiary if they believe their marriage is stable or any other legal reason. Estate Tax Savings: A trust can include language to prevent inherited assets from being included in a beneficiary’s estate for estate tax purposes. Despite the federal estate tax exemption being $5,450,000.00 per individual, no crystal ball can tell us what the future holds.


A Florida Revocable Trust (“Trust”) is a common tool utilized by individuals when creating their Florida estate plans. A Trust is designed to hold assets during the Grantor (the individual who creates the Trust) lifetime and then dispose of those assets at their death (the terms of the Trust will contain the individual’s specific directions as to how the assets will be distributed). In order for a Trust to accomplish its objective it must be funded (assets retitled into the name of the Trust) with all of the Grantor’s assets during their lifetime. This will require the Grantor to retitle real property, bank and investment accounts, and any business interests (LLC interests or stock in an S-Corporation) into the Trust. If a Grantor intends to title S-Corporation stock into the name of their Trust there are specific guidelines which must be adhered to. While a Trust is a permitted shareholder of an S-Corporation, Section 1361 of the Internal Revenue Code only permits certain kinds of trusts (a Qualified Subchapter S Trust or Electing Small Business Trust) from owning the stock. If an unauthorized Trust becomes a S-Corporation stock shareholder, the Corporation will cease to be a qualified S-Corporation and will be taxed as an ordinary C Corporation. Additional pitfalls must be avoided when a married Grantor dies. Upon a Grantor’s death, the Trust assets may be divided and distributed into separate trusts (share for the surviving spouse and one for the deceased spouse). The deceased spouse’s share is typically held in an irrevocable trust for the survivor’s benefit (a “Credit Shelter Trust” or “Bypass Trust”). If the S-Corporation stock is utilized to fund the Credit Shelter Trust, not a grantor trust, then it must qualify as either a Qualified Subchapter S Trust or Electing Small Business Trust and make a timely election with the IRS.


Under the IRS “check the box” regulations, a Florida Limited Liability Company with two or more members is automatically taxed for income tax purposes as a partnership. As a result, all income that passes through a partnership to a partner is classified as self-employment income subject to payroll taxes. The entity may alternatively elect to be taxed as an S corporation for income tax purposes. The election can be made by filing Form 2553 with the IRS. The benefits of an LLC electing to be taxed as an S corporation, for income tax purposes, include treating a substantial portion of earnings as wages subject to payroll taxes, and the balance as dividends that are not subject to payroll taxes. To maintain this income tax status, the LLC is required to satisfy all of the qualifications for a “small business corporation.” If the LLC fails to meet all of the required qualifications, the S election will not be valid and the LLC will be taxed as a C corporation and subject to double taxation. Problems can also arise when drafting an LLC Operating Agreement. Standard partnership law concepts and verbiage (treasury regulations that govern partnerships, capital accounts and capital account maintenance, special and regulatory allocations of income and loss, and liquidating distributions in accordance with capital account balances) are included in most LLC Operating Agreements. These provisions should not be included in a qualifying “small business corporation” and their inclusion may disqualify the LLC from making an S election.


In the New Jersey Appeals Court case of In re the Estate of Kenneth E. Jameson, (NJ App., Aug. 12, 2016), a New Jersey appeals court upheld NJ law which allows discrimination provisions in testamentary bequests. The law does not preclude an "individual from disinheriting his or her child for religiously discriminatory reasons." The Ohio Supreme Court previously upheld a similar provision. The court upheld the specific provision contained in the Will, which disinherited his daughter if she married someone of the Jewish faith, because "neither the New Jersey Law Against Discrimination nor New Jersey public policy bars disinheriting a child based on religion or religious affiliation."


On August 6, 2016, a new Medicare law went into effect that requires hospitals to notify patients, who receive observation services as an outpatient, that they may incur out-of-pocket costs if they stay more than twenty-four (24) hours in a hospital without being formally admitted. Most patients are unaware that any time spent in “observation status” will not count towards their three (3) day hospital requirement, even if it is spent in a hospital bed or they receive hospital services (tests, treatment and medications), and Medicare will not be obligated for their hospital bills and will not pay for subsequent nursing home care. Medicare benefits will only apply when the patient has spent three (3) consecutive days in the hospital as an inpatient. The new notification requirement is part of the Notice Act passed by Congress in 2015. The notice requirement is designed to prevent hospitals from keeping patients in an “observation status” and avoiding an inappropriate admission under the Medicare rules. Under the new law, hospitals can still keep patients in observation status, and those patients who fail to meet the Medicare requirements will continue to be responsible for their nursing home costs. Medicare covers up to one hundred (100) days of skilled nursing home care at a time.


Most taxpayers are aware that they can claim a medical and/or dental expense on their Federal Income Tax Return if they meet certain eligibility requirements. Eligibility for the deduction requires (i) the taxpayer to itemize their income tax deductions (medical expenses, charitable deductions, certain taxes paid and home-related costs) and not claim a standard deduction (itemized expenses must exceed the standard deduction amount); and (ii) medical costs that exceed a percentage of the taxpayer’s adjusted gross income (“AGI”). In tax year 2016, the medical expense deduction is available to taxpayers under age 65 who have medical costs that exceed ten (10%) percent of their AGI. Taxpayers over age 65 are eligible to utilize the medical expense deduction if their medical costs exceed seven and one-half (7.5%) percent of their AGI. However, 2016 is the last tax year that the lower percentage will be available to taxpayers over the age of 65 years. Beginning on January 1, 2017, unless legislation is passed, the percentage will revert back to ten (10%) percent for all taxpayers.


Effective July 13, 2016, Final Rule 41-F (the “Rule”) of the National Firearms Act (“NFA”) eliminated the loophole which allowed the making or transferring of a firearm, without a background check, through a Gun Trust. The Rule now requires all individuals, including those utilizing a Gun Trust, to adhere to the same identification and background check requirements and obtain local police chief approval to purchase an NFA firearm (short barrel shotgun or a silencer, etc.). The Rule specifically provides that the “responsible person” of a Gun Trust must now file new forms and submit photographs and fingerprints when the Gun Trust files an application to make or transfer an NFA firearm.


The Achieving a Better Life Experience (ABLE) Act of 2014 will soon allow individuals to incorporate STABLE accounts in their estate plans for disabled family members. The accounts will allow family members to save money to be used by the disabled family member throughout their life without losing eligibility for government benefit programs. The account earnings will grow tax-free as long as they are utilized for qualified expenses. In order to establish a STABLE account, the individual must have been disabled before 26 years old and entitled to benefits under the SSI or SSDI programs.


Receiving a large inheritance can be an unexpected windfall or curse to a beneficiary. To avoid a negative outcome, it is not uncommon for individuals to evaluate alternative methods to transfer wealth to their beneficiaries. A recent survey found that only thirty-two (32%) percent of baby boomers are confident their beneficiaries are prepared both emotionally and financially to receive an inheritance. Their concern stems from the desire for their beneficiaries to learn about hard work, failure and the joys of success and concern over their ability to handle sudden wealth. In making these decisions, individuals must also be concerned with: (i) the relationships of their beneficiaries (family harmony, divorces, current spouse’s and in-laws); (ii) student loan debt; (iii) establishing a 529 Education Plan for children or grandchildren; (iv) medical issues and a special needs trust; and (v) a drug or gambling problem or other destructive addictions. It is important to consider whether you want a beneficiary to receive their inheritance in one lump sum or distributions spread out over multiple years. All of these issues and more can be addressed in a well-designed estate plan.


Effective October 1, 2016, the new Connecticut law governing “Powers of Attorney” (written designations of authority) will go into effect (a major update to the 1965 law. The new law, known as the Connecticut Uniform Power of Attorney Act imposes new obligations on banks to whom POA’s are presented by requiring them to either accept a notarized POA or request additional documentation within seven (7) business days. Once the documentation is presented, if the bank requests it from the agent, it will have five (5) days to either accept the POA or reject it (based upon suspected abuse or the bank’s knowledge that the POA has been revoked). In those cases, the bank continues to be free to refuse to accept the POA, without sanction or liability. Alternatively, if the bank refuses to accept the POA without sufficient cause, the attorney-in-fact can obtain a court order mandating acceptance of the POA and potentially recover reasonable attorney’s fees and costs from the bank.

The new law also provides that (i) the commencement of a divorce or separation proceeding will automatically revoke the POA designation of a spouse; (ii) the POA remains effective during incapacity without any additional language; (iii) existing POA’s remain valid; and (iv) the new law’s presumptions, such as revocation of a former spouse’s designation as attorney-in-fact and durability, will apply to prior POA’s. In addition, the new law creates a second, long statutory form that includes estate planning powers, allowing gift giving and other powers.


A grieving daughter is fighting against a system that was designed to protect her dad

SARASOTA, Fla. - A grieving daughter is fighting against a system that was designed to protect her dad. She regrets the decision of turning to Florida's professional guardian system for help. She says that decision cost her father's estate a million dollars, and as the I-Team found out, the guardian was racking up those bills, when her father was living thousands of miles away.

“He was an immigrant, came here with one little suitcase and worked himself into millions of dollars,” said Mercedes Gyorgy, describing her father Akos Gyorgy. He earned millions as a Sarasota real estate broker, eventually owning 8 homes in three countries.. But his family says his estranged wife exploited him when he got alzheimer's disease.

They asked for the court to appoint a guardian to protect him and his assets, but now believe that was bad decision. “We turned to the courts to stop the financial abuse, and after that, over a million dollars has been spent on this guardianship,” Mercedes Gyorgy said. On Wednesday, she asked the court to release her late father's remaining assets to his estate, but the guardian and the guardian’s attorney are fighting against that.  “In the first two months of the case, one attorney billed $30,000,” Mercedes said.  And some of those bills came while her father was not even around.

He had disappeared while his Emergency Temporary Guardian was supposed to be protecting him. “I Called the police. They never called the police. They never called the police and said this man was missing,” Mercedes said. In a court document filed weeks later, it was revealed that Akos Gyorgy, who was incapacitated, managed to catch a cab from Sarasota to Orlando, then flew to Frankfort, before catching another flight to Budapest Hungary. Gyorgy was originally from Hungary, as was his estranged wife.

Mercedes says her father met her when his friend placed an ad in a Hungarian newspaper seeking a new bride for him, after his first wife died of cancer. He lived there for five years, which family members contend was out of the Sarasota court-appointed guardian’s jurisdiction.  While the guardian supposed to protect him from his estranged wife, she made multiple trips to Hungary to visit him. So did the guardian. On one visit, he billed his ward nearly $24,000 for a first class plane ticket, lodging at a 5-star hotel, and other expenses. “It was a vacation for sure,” Mercedes said. And that's not all. The court allowed the guardian to use the ward’s money to buy him a $200,000 home in Hungary just weeks before he died.

“It's a crazy case, but unfortunately, it's not that out of the norm with what's been going on in guardianship in the state of Florida,” said Marc Soss, who represents Gyorgy’s family. The judge says he's taking all of the testimony under advisement and will rule in the near future when the remainder of the ward's assets will be transferred back to the ward's family.


While meeting with an estate planning attorney may not be on your bucket list of items to accomplish during your lifetime or among your New Year’s resolutions, it is not something that you should put off until you are on your death bed. Many individuals are intimidated by the prospect of planning their estate, however, in most cases it is much easier if you come prepared.

A typical Florida estate plan consists of the following important documents: Last Will and Testament; Revocable Trust (for many individuals); Power of Attorney; Health Care Surrogate; Living Will; and Pre-Need Guardian Declaration. The Revocable Trust (if one is created), Power of Attorney, Health Care Surrogate, Living Will, and Pre-Need Guardian Declaration are all designed to operate during your lifetime and provide guidance in how your personal and financial affairs are handled during your lifetime.  In contrast, the Revocable Trust and Last Will and Testament control how your property is distributed after your death.

When you meet with your estate planning attorney, they will guide you through the various choices and planning options available to you, so that your legal documents reflect your intentions. In order to make your time with your attorney most productive, the following is a list of things that you should discuss and prepare in advance of the meeting:

Create a list of your assets and liabilities. This list should include the value of your home (including mortgage), bank accounts, investment accounts, business interests, personal belongings with value (e.g., artwork or jewelry), insurance policies on your life and retirement accounts. For each asset on the list, include an estimate of its value or current balance, as well as whether you own the asset in your individual name or in joint name with another person, such as your spouse or children. This information will assist your attorney in guiding you through the planning process.

Agents During your Lifetime

Health Care Surrogate: Who will make medical decisions for you if you become incapacitated. The individual you name to serve as your health care surrogate will be empowered to make health care decisions for you, if you are unable to do so. Thought should be given to whom should be appointed for this position, along with a successor to him or her.

Power-of-Attorney: Who will take care of your financial affairs if you become incapacitated. The individual you name to serve as your power of attorney will act as your agent with regard to your financial matters during your lifetime. The power of attorney will become effective immediately after you sign it. Thought should be given to whom should be appointed for this position, along with a successor to him or her.

Living Will: End of Life Decisions. The individual you name to serve as your surrogate will act as your agent with regard to your financial matters during your lifetime. The power of attorney will become effective immediately after you sign it. Thought should be given to whom should be appointed for this position, along with a successor to him or her.

Administration Upon Your Death

Who has the ability and skill to serve as your Personal Representative(s). The individual or professional entity that you select to serve as the Personal Representative of your probate estate will be charged with settling your estate following your death.  Their duties will include collecting your assets, paying debts, expenses and any taxes that may be due and then distributing the remaining estate assets to your beneficiaries. With married couples, each spouse typically names the other to serve as their personal representative.  The next consideration is who or what entity will serve as their successor, if they fail to survive you or are unable to serve. You may name more than one individual to serve in this role, but under Florida law they must either be a family member or resident of the state. Most importantly, it is important that the selected individual(s) or entity are trustworthy.

Who has the ability and skill to serve as your Trustee(s). The individual or professional entity that you select to serve as the trustee of your Trust, upon your death or inability to serve, will be responsible to manage your financial affairs, while you are alive, and settling your financial affairs following your death.  Similar to a Personal Representative, their duties will include collecting your assets, paying debts, expenses and any taxes that may be due and then distributing the remaining estate assets to your beneficiaries. With married couples, both spouse’s typically serve as the trustees, while they are capable. The next consideration is who or what entity will serve as their successor, if they fail to survive or are unable to serve. You may name more than one individual to serve in this role, without any restrictions of family membership or resident of the state. Most importantly, it is important that the selected individual(s) or entity are trustworthy.

Items of Personal Property and to whom they should pass upon your death.  Create a written document which states how you would like to dispose of your personal items (wedding ring, jewelry, automobile(s), baseball card collection, etc.) at your death, even if you do not believe they have any monetary value. Without a separate written statement, your personal items will pass to a surviving spouse or be divided equally among your children or beneficiaries. The itemized list can potentially avoid family disputes over items with sentimental but no monetary value.

Plan for Distribution of your Estate. How, to whom and in what amounts you want your remaining estate assets distributed is the next important decision you will need to consider. Your assets can be distributed to any individual (family member, friend, acquaintance, etc.) or charity you may select. The assets can be distributed outright or over an extended time period (they reach a certain age, until the beneficiary needs or wants funds, etc.). There is no wrong decision as you are free to distribute your assets as you choose.


A recent New Jersey Tax Court ruling, unpublished opinion, emphasizes the importance for same-sex couples to not put-off marriage for estate planning purposes. New Jersey has both an estate tax and an inheritance tax, and taxpayers must pay the higher of the two taxes. The estate tax impacts estates of more than $675,000. Notwithstanding a 31-year relationship, registration as a same-sex domestic partner under New Jersey's Domestic Partnership Act (DPA), and a marriage scheduled to take place with 6 days of his death, the New Jersey Tax Court Judge ruled that the survivor did not qualify as a surviving partner for estate tax purposes under New Jersey law.  As a result of his failure to qualify as a surviving spouse he was not entitled to a $101,041 estate tax deduction under New Jersey tax law.

The Judge, in applying a “very strict reading of the statute,” reached this conclusion based upon the fact that the couple were eligible to enter into either a civil union or a marriage as of the date of the decedent's death and did neither. In 2007, New Jersey had enacted the Civil Union Act which allowed same-sex partners, who entered into a civil union, to be treated the same as opposite-sex spouses for purposes of calculating the New Jersey estate tax. Subsequently, in October 2013, the New Jersey Supreme Court, in Garden State Equality v. Dow, permitted same-sex couples to marry. The New Jersey's statute on domestic partnership is “unequivocal” in providing exemptions only for personal income and inheritance taxes and not the estate tax.  


SARASOTA, Fla. -- It's something that experts say you don't want to have running away from you. If you pass away without a will in the state of Florida, the state statutes would decide where your assets go. "Everyone should have a will, because what it does, it shows the court and all the beneficiaries how you want your assets to pass," said Marc Soss, a Sarasota attorney. According to estate planning attorneys, around two-thirds of people don't have a living will. Many folks we talked with at Bayfront Park on Thursday are in the same boat. "At this point we do not have a will and it's something we do need to take care of," said Shannon Ashburn. "We just haven't gotten around to it yet." "I have had a will and it was up to date," said Donna Wilson, "but I divorced and that's null and void now, so I need a new one but you know you put that kind of thing off." It's a little bit of smoother ride for Joe Giannetti. Several years ago he had an attorney put together his will. "We have two children, they're both married and we have grandchildren," said Giannetti. "I feel we're in great shape if something should happen." Attorneys say the will process is typically quick and easy with costs running as low as $100 for an attorney to do it. "Creating a will is actually a very simple process," said Soss. "In most cases, a simple will can take less than 15 minutes." Following the death of Prince, because it's reported he had no will, a bank has officially been appointed to handle his assets said to be worth hundreds of millions of dollars. Marc Soss says this a lesson everyone can learn from. "Whether you have minimal assets or multi-millions of dollars people fail to plan for the important things in life," said Soss.


On March 10, 2016, Governor Scott signed in law the “Fiduciary Access Law.”  Effective July 1, 2016, the law allows custodians to turn over "data, text, images, videos, sounds, codes, computer programs, software, databases" and other files. Under the law, Internet service providers and other custodians can grant access to fiduciaries who submit written requests with certified death certificates, letters of administration and other documents that show proof of power of attorney. They can request usernames, addresses and other unique subscriber information to identify accounts or ask for a court order to show the fiduciary requires disclosure to administer the estate.

The new law allows account holders to designate authorized users and specify what content they can access. It also permits custodians, like telecom companies that store files, to share that content with fiduciaries or guardians. Many internet companies already have these policies in place. 


The Bipartisan Budget Act of 2015 has strengthened the IRS’s ability to audit partnerships (including multi-member LLCs). The new rules apply to tax years beginning after 2017, and will apply to partnerships of 100 or more partners. To prepare for these changes, Partnerships should amend their Partnership Agreements and select a “Partnership Representative” (sole contact individual with the IRS auditor and someone authorized to make all decisions regarding how to handle the audit).

The new rules require the IRS to assess the partnership if filing errors are detected during an audit. The Partnership Representative will then be responsible to determine whether the partnership itself (the current partners, indirectly), or those who were partners during the audit period, should pay the assessment. The Partnership Representative will also be able to determine whether the entity could opt-out of the new rules (if it has 100 or fewer partners, individuals, S corporations, C corporations, or estates of deceased partners). If you have an S corporation partner, then you must count each of its shareholders for this purpose. If a Partnership Representative is not designated by the entity, the IRS reserves the right to appoint one for the entity.

Partnerships should begin planning for 2017 today by determining: (i) who will serve as the Partnership Representative; (ii) the level of indemnification they will receive against any costs or liabilities that may be incurred in that role, and (3) the level of accountability they will have to the company and its partners. It is important to note that Partnership Representative does not need to be a partner of the entity.