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


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.