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


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.