With the current estate tax exception of $5.43 Million for an individual and $10.86 Milliion for a married couple, some estate planners have begun to question whether gifting provisions in a Durable Power of Attorney pose more risk than reward.  While it is true, that these provisions can be abused by individuals, there are several situations when estate taxes is not the primary concern and removing gifting provisions could pose a substantial risk to the individuals.

In Florida, individuals must initial next to any gifting provision for them to be valid under current law.  Generally there are those provisions which permit the amount under the annual gift tax exemption (currently $14,000 a year per person) and those which permit larger gifting.  While many estate planners may not see a need for these anymore, elder law attorneys use them all the time to protect the assets from loss due to the need for nursing home coverage for the individual or their spouse.  So while it may be true that less than 0.2%  (2 in 1000) people are actually subject to estate taxes, many more will need long term care.  Without these important gifting provisions, individuals could end up being bankrupt or leaving little or no money for their surviving spouse to live on.

In addition, there is no guarantee that the estate tax exemption will continue to increase or remain the same. Congress could change the numbers in the future and without gifting provisions, your family may not be able to decrease the amount of your estate that would be subject to estate taxes.

For those clients who are subject to estate tax or who live in a jurisdiction where the state may charge an estate tax, gifting can significantly reduce the amount of estate tax that would otherwise have to be paid.

These gifting provisions are important when an individual or family has not planned to protect their assets from loss due to the need for long term care.  Many estate planning and elder law attorneys recommend that families should begin protecting assets by age 60 so that if care is needed later, the assets can be exempt from those used to disqualify one for coverage.  Today there are modern trusts where the individual does not lose control and has the flexibility to change beneficiaries, in much the same way as a with a revocable trust.  If you have a traditional estate plan that does not exempt assets from claims that may be made by the government or other creditors, or you would like to review your durable power of attorney to see if it complies with the current law and permits the right type of gifting for your family, contact a Jacksonville Florida estate planning lawyer to discuss your objectives.

In Florida, a trust is not valid until funded.  Many trusts need to be funded prior to your death to be used in the way intended.  Often, individuals create trusts and forget to fund them during their life and do not receive the benefits that their trusts were designed for. There are 4 major ways to fund a trust.

  1. Purchase items in the name of the trust.  New property or items can be purchased in the name of the trust.  When you purchase a new item or asset, the sale can be made out to the trust.  Anyone can purchase these items, it need not be the creator or settlor of the trust.
  2. Assign items to the trust. Generally, when a trust is created, many items can be transferred to the trust by the use of an assignment of personal property.  This document will transfer personal property which does not require a deed or title to the trust.  This is good for personal property like clothing, jewelry, and other minor issues. One needs to be careful not to assign firearms to your trust unless it is a gun trust as many traditional trusts do not properly deal with firearms issues properly and can cause legal and criminal issues for those who survive you.  If you sign an assignment of personal property, you should exclude firearms unless the firearms are being assigned to a gun trust.
  3. Change the ownership of an item to the trust. Bank accounts, stock accounts, life insurance, annuities and other assets can be transferred to a trust by changing the ownership of the account.  When the taxpayer ID remains the same, it is generally not a taxable event.  This is the case for revocable trusts and some irrevocable trusts like an iPug™ Asset Protection trust.  With some assets like real property or vehicles, the deed or title to the property will have to be changed.  In most cases, other than with Vehicle Trusts, it is not recommended to transfer a vehicle to a trust because of the liability that is associated with the ownership of a vehicle in many states like Florida.
  4. Change the beneficiary of an item to a trust. This does not initially fund a trust, but can be used for certain items like retirement accounts.  While in the past some lawyers, CPAs, and financial advisors might have recommended against naming a trust as a beneficiary of a retirement account, it is now recommended because of the additional flexibility and asset protection a trust can offer due to a Supreme court ruling that removed asset protection from inherited IRAs where the beneficiary did not live in Florida at the time of inheritance.

When you have multiple trusts it is important to understand which assets should be transferred to which trust.  Generally, if you only have a revocable trust, most assets will be transferred to the revocable trust.  When using an iPug™ trust, your checking or assets representing income and where your expenses are paid from should be transferred to a revocable trust and other remaining assets will be transferred to your iPug™ trust.  Because in Florida ones homestead has asset protection it is typically transferred using a deed to a revocable trust and other real estate is transferred to ones iPug™ trust.

Funding a trust can be complicated and should be discussed with a Florida estate planning or an Elder law attorney who help to design the trusts.

Last month the United States District court in Orlando found that the membership interest in a Nevis LLC was subject to Florida jurisdiction. The court also found that Florida law, not Nevis law, applies to the creditor’s application for a charging lien because the situs of the asset determines what laws are applicable to issues related to the charging lien.

This rationale would seem to apply to Foreign trusts as well as Foreign LLCs.  It appears that a Corporation or LLC where there were actual certificates for the membership interests that were not located within the state of Florida may have a different result.

The court rejected the claim that jurisdiction was in Nevis.  They stated that unlike with a corporation, a membership interest “accompanies the person of the owner.” and as a result is subject to Florida jurisdiction if the owner of the certificate is subject to the jurisdiction.  With some foreign LLCs a single member can have charging order protection, but under this court’s ruling, a single member foreign LLC would not receive charging order protection as only a multi-member LLC has charging order protection as an exclusive remedy.

Perhaps the bigger question is with good, strong, valid options for asset protection within the state of Florida, why spend the extra money, take the risk, or live with the results of the stigma of wrongdoing that is often associated with offshore planning?

To more about this case see WELL FARGO BANK, NA v. Barber, Dist. Court, MD Florida 2015

Asset protection was previously out of reach for most Americans.  Thanks to a new trust called the IPUG™ Trust, Asset Protection is affordable for the average family.  In the past many families created trusts to avoid estate tax, but with the recent increases in the Federal estate tax exemptions, many use trusts to manage assets, avoid probate, and protect assets from creditors.

The iPug™ Trust not only provides advantageous tax benefits, but it also provides asset protection, while retaining Grantor control,” explains David J. Zumpano, CPA, ESQ., President and Founder of MPS and creator of the iPug™ Trust. “iPug™ Planning will  apply to 99.5% of Americans.”

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Estate Planning for Digital Assets is becoming a more important part of our estate planning.  While most online accounts simply expire when you die, Facebook has recently incorporated some changes to your account so you can specify what happens when you die.

Until recently, loved ones of the deceased only had two choices:

  1. Keep the wall public so everyone could continue to post messages and thoughts on the wall, or
  2. Request to have the page “memorialized,” which meant the profile was no longer searchable or visible to those who were not already friends of the individual.

What Facebook did not allow to happen was for someone to manage the profile of the deceased owner without  having the password.  That just changed with the Facebook Legacy Contact feature.  A Facebook user can now choose a “legacy contact.”  The Legacy Contact can manage your account  or delete the account after you pass away.

Facebook’s Updated Options and Release Stated:

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The amount you can give anyone without having to file a gift tax return in 2015 remains the same as 2014 at $14,000.

Remember that you can give your children, their spouses, your grandkids $14,000 each. In addition, if you are married, your spouse can also gift $14,000 to each person.

Generally, families use gifting to reduce the size of their estate do not need Medicaid long-term care coverage, but if you or your spouse need care and you have gifted money in the past, it may affect your ability to obtain coverage.

The $14,000 figure is the amount of the current gift tax exclusion (for 2014 and 2015), meaning that any person who gives away $14,000 or less to any one individual does not have to report the gift to the IRS, and you can give this amount to as many people as you like. If you give away more than $14,000 to any one person (other than your spouse), you will have to file a gift tax return. Filing a gift tax return does not mean you will have to pay a gift tax. Taxes are only when your reportable gifts total more than $5.43 million (2015 figure) during your lifetime.

Many people incorrectly believe that if they give away an amount equal to the current $14,000 annual gift tax exclusion, this gift will be exempt from Medicaid’s five-year look-back at transfers that could trigger a waiting period for benefits.

The gift tax exclusion is an IRS rule, and this IRS rule has nothing to do with Medicaid’s asset transfer rules. While the $14,000 that you gave to your grandchild this year will be exempt from any gift tax, Medicaid will still count it as a transfer that could make you ineligible for nursing home benefits for a certain amount of time should you apply for them within the next five years.

If you think there is a chance you will need Medicaid coverage of long-term care in the foreseeable future, see your Jacksonville elder law attorney before starting a gifting plan.

If you have been told, don’t worry about your IRA it is protected because Florida has statutory protections for IRAs, you may have misunderstood or been mislead. While Florida does have statutory protection for inherited IRA’s, this protection only applies if your beneficiaries are residents of Florida at the time of your death.

Why take a chance with naming individuals as a beneficiary of your IRA. A properly designed trust should be the beneficiary of your IRA to protect the proceeds from the creditors of your beneficiaries at the time of your death.

In June of this year, the US Supreme Court in Clark V Rameker stated that children or other “non-spouse” individuals who inherit are at risk of loss to their creditors. This was not a close call, it was a 9-0 decision and clarifies that an inherited IRA is not protected from the creditors of its owners.

While a spouse can be named, the spouse has a unique option that other beneficiaries do not have. The spouse can do a rollover IRA. This protection does not help one who dies without a spouse or has serious risks if the surviving spouse is in need of long-term care.

While in the past, most financial professionals would object to naming a trust as a beneficiary, you will start to see them realize the benefit as they become aware of the new risks to the beneficiaries that they did not foresee. They also did not understand that it is possible to create a trust where the stretch out provisions are not lost.

To maintain the stretch out provisions in an inherited IRA where a trust is a beneficiary, the trust must be a qualified beneficiary. For a trust to be a qualified pass thru beneficiary of an IRA, it must meet 4 criteria:

  1. The trust must be valid under state law;
  2. The trust must have identifiable “human” beneficiaries;
  3. The Trust must be irrevocable after the death of the settlor; and
  4. a copy of the plan document must be provided to the plan administrator

It is important to comply with these rules when naming a trust as a beneficiary of an IRA or other retirement account.

If a spouse was to maintain the decedent’s IRA status and draw out funds over the life expectancy of the decedent, the IRA would not be protected as a Roll over IRA or a new IRA.

If you would like to discuss how to properly name a trust a beneficary of your IRA, please contact our Jacksonville estate planning lawyers.

In Florida, the primary residence is often protected by the Florida constitutional homestead protections.

While in many other states, a persons homestead is not protected from creditors and can be lost to claims for Medicaid reimbursement, this is not the case in Florida. The only creditors that can make a claim against the home are those that do something with the home. These may include a roofer or the bank which financed the home.

If you or a spouse needs nursing home case, selling the home can place that asset or the money received from the sale at risk to creditors as well as Medicaid eligibility. There are several methods of avoiding probate on your homestead. Choosing the right method is not an easy decision without knowing your facts and circumstances.

Many people make the mistake of adding another individual through a deed. This mistake can cause tax problems, subject the home to creditors, cause the loss of part or all of the homestead tax credits, and create an ineligibility period for Medicaid.

Every person who owns and resides on real property in Florida on January 1 and makes the property his or her permanent residence is eligible to receive a homestead exemption up to $50,000. The first $25,000 applies to all property taxes, including school district taxes. The additional exemption up to $25,000, applies to the assessed value between $50,000 and $75,000 and only to non-school taxes
To apply for a homestead tax exemption, complete this Form.

In some situations, a ladybird deed or enhanced life estate deed may be a valid solution while in others a trust may offer a less expensive route and offer better protection for the beneficiaries.

An improper transfer or change in ownership can have many adverse effects including violating the 5 year Lookback for transfers on Medicaid.

To find out which option makes the most sense for your family, you should contact a Florida estate planning lawyer who is familiar with elder law issues and discuss your circumstances in detail.

We often get asked about the iPug™ Trust and how it can be so different than a traditional revocable trust or a standard irrevocable trust. The iPug™ takes the best parts of an irrevocable trust and mixes them with the best parts of a revocable trust to create a new type of irrevocable trust where you are in control and can make changes to the beneficiaries and management of the trust just like you can with a revocable trust.

Why Do People Love iPug™?
Because iPug™ Protects You and Your Family From:

  • Lawsuits
  • Nursing Homes
  • Those that want to take away what you worked hard for.
  • Children’s indiscretions, their spouses and divorce.

An iPug™ Keeps You In Control By:

  • Allowing you to control your assets until death.
  • Allowing you to retain some, all, or none of thel income from your assets.
  • Permitting you use of your assets during life.
  • Ensuring you are able to qualify for Medicaid in the shortest period of time possible (often less than three years).
  • Favorable income and estate tax treatment.

Asset Protection Planning includes many complex laws, including, trust law, Medicaid law, probate law and contract law. If you have been using a traditional trust or will to protect from probate, it may be time to upgrade your planning to include asset protection. An iPug™ trust can be used with your current estate plan with some minor changes to your will and trust documents.

If you live in Florida and own property in another state an ancillary administration will be necessary upon the death of the owner(s) of that property. This special probate administration will be in addition to the administration you have where you lived. This is required because real estate or real property is treated differently than personal property.

There are several ways to avoid the additional administration:

  1. The real estate could be owned in a business entity. This converts the ownership from one of the real estate to one of a personal property interest in the stock or membership of the business entity.
  2. The real estate could be owned in a trust. Because the trust survives you, the trust will distribute the property according to the terms of the trust. The trust can also be used for other property and may even enable you to avoid the probate of your entire estate.
  3. The real estate could be retitled using a ladybird or enhanced life estate deed. This special type of deed, available in some states, is very similar to a deed with a beneficiary designation.

Florida’s statutory probate fees apply for an ancillary administration like other forms of probate in Florida. The legal fees start at $1500 and are typically 3% or less for the first million dollars of value. If your property is located in another state, the fees may not be as reasonable as they are in Florida.

We would be happy to discuss your specific situation and help you determine if a business entity, trust, or enhanced life estate deed could benefit your family and help to avoid the costs and delays invovled with probate. Note: some methods of avoiding probate can protect assets from creditors of your and your estate.

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