A TAP trust is an extremely versatile trust designed to hold a variety of assets. This type of trust helps the grantor avoid needless estate taxes without the restrictions of other trusts.

The TAP trust can hold a variety of assets that include: real estate, stocks, insurance policies, bonds, and a few other business interests. A TAP trust can even own an IRA after the grantors death.

A TAP trust can set up as a grantor, or non-grantor trust. This distinction will decide h A non-grantor trust is taxed like a separate taxpayer with all income directly taxed to the trust at a trust income tax rate. However as a grantor trust, all income is taxed on the personal income tax of the grantor at an individual’s tax rate.

Those who are knowledgeable of estate planning have most likely encountered an ILIT, or an Irrevocable Life Insurance Trust. This trust was designed to hold life insurance policies after a person dies to ensure the funds within the trust were not included in the probate of the estate.

The ILIT can be either a grantor or non-grantor trust. A grantor trust is a trust in which the IRS deems the grantor the owner of the funds for tax purposes. This means all of the income generated by the trust is taxed to the grantor and the trust is spared the tax. This is sometimes ideal because the top tax rate for a trust occurs around $11,000, while the top tax bracket for an individual is only reached at the $450,000 mark.

Traditionally, the ILIT trust was used, along with a few other trusts, to secure a person’s assets through estate planning. The TAP trust is a fairly new trust that provides much more flexibility and convenience for clients because one trust can hold so many different assets. A TAP trust is so flexible it can even be used for IRA planning purposes by acting as the stand-alone IRA trust.

Another great way a grantor can use a TAP trust is to use the trust to make annual gifts to avoid yearly estate taxes. These taxes are avoided by the trust making annual gifts in the amount of the tax exclusion, which is currently $14,000. These gifts should be made to the grantor’s beneficiaries, such as children and grandchildren. In turn, these benefactors should be appointed as trustee of their own separate trust and have the funds deposited there.

The main purpose of the TAP trust is to ensure all gifts made to the trust will be excluded from the grantor’s estate. For more information on TAP trusts and how they can benefit your estate, contact Jacksonville attorney David Goldman today.

The Florida Supreme Court recently decided the long and costly case of a deceased woman who tried to write her own Will using an online legal form.

In Aldrich, v. Basile, Ann Aldrich used a pre-printed legal form to draft a Will. She did this most likely to avoid paying an estate-planning attorney. This Florida Supreme Court Decision resulted in costly legal fees and most likely years of anguish for her family.

Deciding who would inherit Ann Aldrich’s property was appealed twice, which was finally decided by the Florida Supreme Court. The court’s decision of who would inherit the property was most likely not what the deceased had intended. Justice Pariente wrote in her concurring opinion the result of the court’s decision came not from the interpretation of Florida law but from Ann’s mistake of using an online form that did not adequately express her specific needs.

Ann Aldrich handwrote her Will using an E-Z legal form. In this document she wrote specific directions for her house and its contents, her life insurance policy, her car, and her bank accounts to pass to her sister Mary Jane Eaton. She even took a further precaution by writing in her Will that if her sister died before her, the above-mentioned assets would pass to her brother James Aldrich.

Tragically, her Will failed to include a residuary clause to address any other property she might own at death. Her sister died three years later after Ann drafted her Will. Her sister left her cash and real estate, which Ann deposited into an account with Fidelity Investments.

Ann Aldrich passed away 2 years later and had never revised her Will to include the additional assets she acquired from her sister’s estate. Since her Will did not include a residuary clause, a dispute arose within the family regarding who should actually inherit the property Ann received from her sister. James Aldrich, the brother, believed he should receive these assets, like the other property described within the Will. The other heirs, two nieces, believed the property should be considered intestate property. Intestate property is property distributed to the deceased’s heirs according to state law, because the property was not accounted for in a Will. If the property were intestate, then the nieces would receive a significant portion of the assets.

Ann did attempt to draft an amendment to her Will in 2008. The amendment stated that since her sister died, she wished to reiterate that all her worldly possessions should pass to her brother. However, the note only had one other signature, and thus the amendment was not valid under Florida law.

The trial court originally found in favor of James Aldrich, but the nieces appeal and won. The Florida Supreme Court agreed with the appeals court, ruling Ann’s 2008 amendment to be extrinsic evidence because the amendment was not properly drafted. When looking at a Will, the Court shies away from trying to guess the intent of the deceased who drafted the bill, and instead will only consider the concrete language of the document. Therefore, any assets not specifically included in Ann’s Will would have to pass to her heirs according to Florida’s intestate laws.

This court case serves as a reminder of the risks involved with estate planning. We recommend hiring an experienced estate planning attorney to draft your Will and to ensure your heirs are properly taken care of.

The U.S. Supreme Court recently held that the funds contained in an IRA are not “retirement funds” and thus not protected from creditors during bankruptcy. The next question many attorneys now have is how this ruling will affect tax law?

The Supreme Court justices felt there were three legal characteristics that lead the Court to conclude inherited IRA’s are not retirement funds within the meaning of 11 U.S.C. Section 522(b)(3)(c).

  1. Inherited IRA holders are not able to invest more money into the account.
  2. The law requires the holder to withdraw funds from an inherited IRA no matter how far from retirement the holder may be.
  3. The holder is able to withdraw 100 percent of an inherited IRA’s funds without penalty.

Before this case, IRAs and inherited IRAs were believed by some to be protected from creditors. It now appears that for inherited IRAs this is not the case. While Florida residents have protection for Inherited IRAs, where the Florida law applies, we do not know where our beneficiaries will live or what type of trouble they may create in the future. Those who inherit IRAs may now need to take extra precautions to avoid the risk of loss of their IRA.

When a spouse inherits an IRA he or she has three options. The spouse can inherit the IRA, create a new IRA, or roll the inherited IRA into an existing IRA. We do not recommend that the Spouse inherit the IRA as would make the IRS subject to risks of creditors. A spouse should generally choose to create a new IRA or roll the IRA over into an existing IRA.

Another way to reduce taxes or extend the life of an IRA is to convey the IRA to the children instead of the spouse. Naming a trust as the beneficiary can provide this option in the future as it is often difficult to know if there will be enough money for the surviving spouse. The trust should have separate retirement account language so that the trust will be a “see through” trust and not require a 5 year payout of the funds.

There are four steps required for the IRS to find a trust to be a “see through” trust.

  1. the trust must be irrevocable at death.
  2. the trust must comply with the state law of where the trust is located.
  3. the trust’s beneficiaries must be human.
  4. a copy of the trust must be provided to the IRA custodian by a certain date.

As far as providing a copy of the trust say this must be done prior to death and others state it must be done no later than 9 months after death. We recommend that a copy be given to the custodian prior to death.

The next issue comes from what beneficiary must be named in the trust. Remember the same rules regarding naming of the beneficiaries should be followed as if the IRA was left to a beneficiary.

It is also important to determine how the trust will pay the beneficiaries. This is done through either an accumulation or a conduit trust. An accumulation trust allows a trustee to hold the funds and not distribute them. This is usually done to protect the money from judgments and creditors. However, an accumulation can be taxed at the highest tax rate after only $12000 in income. If there is a creditor who would take the IRA payments, then paying a higher tax rate is not a bad option compared to loosing the entire amount. A conduit trust is used to make regular payments to beneficiaries for the remainder of the projected life or the life of the oldest person to receive a portion of the IRA. If there are people with large differences in their ages as beneficiaries, it is possible to split the IRAs so that each person has their own life expectancy to calculate their IRA payments over. Many planners do not give the option of using an accumulation trust, but giving our clients the extra flexibility can be a good option. Remember as estate planners we try to plan for unexpected events and offer options for them when they do happen.

Planning how to protect your IRA or retirement accounts from the potential creditors of your heirs is a fairly complicated process that should be reviewed by an attorney who is familiar with these issues. For more information regarding inherited IRAs, contact David Goldman at 904-685-1200.

Establishing a trust is often an important part of the management of your assets and estate. A trust can help to ensure decedent’s assets are passed to their heirs precisely the way they are intended.

Trusts can either be irrevocable or revocable. The person who creates a revocable trust can change the trust at any time. An irrevocable trust can be more restrictive, but can offer greater protection for an individual and their family.

The most important part of establishing a trust is choosing the right trustee. The trustee is an important person because he or she will be responsible for the record keeping, accounting, tax planning, and the investment decisions. It is important for this person to be someone who is trustworthy. Often, individuals manage their own trust, but it is important to pick a backup trustee or successor trustee who is trustworthy.

The successor trustee should also be a person who is experienced in dealing with the difficulties of disturbing assets to beneficiaries. Often beneficiaries are not happy with the amount of his or her inheritance. For this reason, it may be beneficial to hire a professional trustee such as an experienced estate-planning attorney.

A trust can be beneficial for people with a net worth of at least $100,000 or with a a substantial portion of their assets in real estate or in a small business. A trust may also reduce the need for a probate, which can cost between 5 and 7 percent of the estate’s total value. There are other ways of avoiding probate and you should have a professional evaluate your individual circumstances and goals to determine if a trust is appropriate for your situation.

A trust is also a great way to put conditions on how and when the assets of the estate are distributed to a beneficiary. A trust can be designed to protect assets from creditors and lawsuits. Many estate plans include a will, a living will, a health care proxy, HIPAA release, and one or more trusts.

Assets can begin to be protected by some types of trusts once the asset has been titled in the name of the trust.

Estate Planning:

There are a number of ways to save money for a family’s children that will release the money to them at an early age in their life.

The two most popular options are either through the Uniform Gift to Minors Act (UGMA) or through the Uniform Transfer to Minors Act (UTMA). Both of these were created with a similar goal, to save money for children to use when they become legal adults. While the acts are similar, both have specific nuances that must be taken into account.

Under both acts, a grandparent or a parent usually serves as the custodian for the child. This person is usually whoever has legal custody of the child. The custodian is the person who donates funds into the account and also manages it. A custodian must be someone who is a US citizen and is currently in a financially sound position. Additionally, any other adult can invest in these accounts on behalf of a minor.

Both of these accounts are taxed to the minor beneficiary for the account’s interest and dividends. The custodian can withdraw from this account at any time without any restrictions so long as the money is used to benefit the child in some way. This rule is not strictly enforced, and as an example may allow a parent to buy a car the child can use when he or she turns 16. This gives a custodial account an edge over 529 plans or other education savings accounts because it allows the custodian to withdraw the money. However, a custodian is not allowed to close the account.

The two types of accounts do differ in some key ways. In Florida, the termination age for a UGMA trust is 18 years, while the termination age for a UTMA trust is 21 years. The termination age for both of these acts differ by state so it is important to consult an attorney who is familiar with the state’s law.

Another way the accounts differ is in the type of assets that can be held in the account. The UGMA account is limited to gifts and transfers to bank deposits, securities, mutual funds, and insurance polices. A UTMA account is not as restricted, and allows the transfer of any kind of asset including real estate.

One difference between a custodial account and educational savings plan is how they are taxed. UGMA and UTMA accounts are taxed as ordinary income and are not tax free like an ESA or 529 plan. Once the child turns 14, both the income and capital gains in the custodial accounts will be taxed at the child’s rate.

The good news is there is some tax relief for children under 14. The first $950 deposited into a custodial account is tax-free. The next $950 is taxed at a child’s rate, and any additional funds are taxed at the parent’s rate.

Parents who want to use a custodial account to save for a child’s education should note the child is not required to use these funds for college. Once the child takes control of the account, the child may use the money for any purpose they desire. Children who start college before the account termination may still use the account’s funds for tuition as long as the custodian consents.

UGMA and UTMA accounts do not provide the same level of asset protection or flexibility that a trust can provide. Often parents and grandparents use a combination of

Last week, The Supreme Court unanimously ruled that the funds contained in an IRA are not protected from creditors after bankruptcy.

You may need to reevaluate how your estate plan deals with your IRA. If your beneficiaries live in Florida, this may not be a concern because the Florida Legislature has an IRA exemption statute which includes inherited IRAs. As it is difficult to predict where your beneficiaries will live at the time of your death, you may not be able to count on the Florida statutes to protect your beneficiaries.

We have recommended to make an asset protection trust the beneficiary of your trust to protect from the retirement funds from the loss that could be associated with creditors of our client’s beneficiaries (typically their spouse or children). Many have not seen the need for this and as a result, there may be many families using traditional beneficiary designations which place their retirement funds at risk.

Attorney and U.S. Bankruptcy Trustee William Rameker won a landmark case in Clark v. Rameker last week that will fundamentally change bankruptcy law. The Supreme Court Justices held funds contained in an IRA, which were inherited by Heidi Heffron-Clark after her mother died, did not qualify as retirement funds.

The general rule in bankruptcy law is an IRA held by the original owner is considered a retirement fund and is exempt from creditors. Before this case, there was a gray area in the law upon how to treat a non-spousal inherited IRA. This ruling has cleared up the confusion. Now these funds are no longer protected by the retirement exemption.

The court reasoned inherited IRAs do not operate like ordinary IRA’s. Unlike a traditional IRA, a person who inherits an IRA can withdraw funds from it at any time. The owner of an inherited IRA must actually withdraw all the funds or else be required to take minimum distributions on an annual basis. Additionally, the owner of an inherited IRA can never make contributions to the IRA.

Clark inherited the IRA after her mother died in 2001. When she first received the IRA it was worth over $450,000. She took monthly installments from this IRA until 2010, when she and her husband filed for Chapter 7 bankruptcy.

Rameker argued Clark’s inherited IRA, now worth $300,000, was not exempt from creditors under 11 U.S.C. § 522(b)(3)(C) because the funds in an inherited IRA are not “retirement funds.” The Bankruptcy Court agreed with Rameker, but was overturned by the District Court, which felt the law protected any funds that were originally accumulated for retirement purposes.

The District Court was then overturned by the Seventh Circuit Court, who held the differences between an IRA and an inherited IRA were fundamentally different. The most important difference to the Court was that an inherited IRA “represent[s] an opportunity for current consumption, not a fund of retirement savings.”

The Supreme Court agreed and found there was three legal characteristics that lead the Court to conclude funds held in inherited IRAs are not set aside for the purpose of retirement. These reasons included the IRA holder’s inability to invest more money into the account, and the law that requires the holder to withdraw the funds no matter how far from retirement the holder may be.

The Supreme Court reasoned the IRA holder’s ability to withdraw 100 percent of the funds from the IRA at any time without penalty was too dissimilar from a traditional IRA. In a traditional IRA, the holder is penalized a 10 percent tax penalty if he or she withdraws any funds before the age of 59.

How this holding will affect bankruptcy law is unclear as there is now a risk that IRA money left to heirs will no longer be protected from creditors if the beneficiary is in financial trouble. However, in Florida these inherited IRA’s may still be protected from creditors by state law.

Bankruptcy law is constantly changing, and therefore it is important to consult an experienced estate-planning attorney to ensure your estate is secure for your heirs. For more information on IRAs and estate planning, contact Florida attorney David Goldman at (904) 685-1200.

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In today’s world, it is common to see blended families full of biological and stepchildren. It is crucial for parents, who wish to leave an inheritance to their stepchildren, make a will or trust because stepchildren do not have the same inheritance rights as biological children.

Florida’s probate laws do not treat stepchildren as a person’s legal heir, which means stepchildren do not have an automatic right to inherit from their stepparents. Remember that your children may be the stepchildren of your spouse, and depending on who lives longer may be unintentionally disinherited.

This does not mean that stepchildren cannot be included in the will. To ensure a step-child can inherit from the estate, he or she must be specifically named as a beneficiary.

If the stepchild is not specifically named he or she might not inherit anything. For example, a will that states, “I leave 40 percent of my estate to my children,” would only transfer assets to the biological children. This statement would only include a stepchild who has been legally adopted (which would not be a stepchild).

In Florida, a child is a person who is legally adopted or the natural child of the decedent. If the will is found to be ambiguous, a court may try to interpret the intent of the deceased by looking to the plain language of the will. Any general statement found in a will referring to children, will be assumed to mean only biological children unless defined otherwise.

If a person dies without a will, stepchildren will not receive any inheritance under Florida’s intestate succession law. This law states that if there is no spouse, the estate would first descend to the biological and adopted children of the decedent. When there is no descendant, the property passes to the parents, and if that is not possible, then the property passes to the decedent’s siblings. If the decedent has no heirs, then the property would go to the state.

Another issue may arise for children born out of wedlock. There is no issue if the parent includes this child in the will. However, there is an issue if the parent has died and the child needs proof he or she is related to the parent.

This is more often an issue when the child wishes to inherit from the father. If the father is alive, then a paternity test is usually performed to determine if the child is a descendant. This becomes more difficult to prove when the father is dead. In this scenario, a child’s best hope is that an autopsy was performed. Then it could be possible to obtain DNA samples from the father’s tissues in order to perform the paternity test.

Under Florida law, the intent to include children in a will must be made clear within the language of the document. This is why it is crucial the will be drafted by an estate planning attorney. An experienced attorney can ensure the intent of the will, and the identity of the will’s recipients, are made clear to the court upon the decedent’s death.

For more information on how to include your stepchildren in the will, contact Jacksonville Estate Planning attorney David Goldman today for a free consultation at 904-685-1200.

Probate is the system the court uses to administer a person’s estate, either through a will or through intestate succession. Clients often ask for ways to avoid the probate process, such as adding a child to their bank account or adding the child’s name to the deed.

Adding a Child to a Bank Account

In most cases, adding a child to your bank account is not a good idea. A parent who adds a child to his or her bank account, may interfere with the will, and could put the account’s funds at risk.

Generally, a power of attorney is the best way to manage a loved one’s assets. A power of attorney is a superior way to handle these assets because it gives far more expansive control to the child over the parent’s assets, but requires the child to act as a fiduciary to the parent. A power of attorney can allow a child to manage all assets in the parent’s bank account. Additionally, a power of attorney can allow the child to become an agent to call insurance companies in order to settle disputes, and to enter and break contracts on behalf of the parent.

There are many risks involved with adding a child to the account. If the child has creditors or becomes subject to a judgment, those assets can be used to pay the amount owed by the child.

If another person is added to the account, the bank will give both parties full access to the funds within the account. This means the child would be allowed to withdraw funds whenever he or she wanted without restriction. While many parents may think this may never happen, we see it all the time.

Additionally, all the funds in this account would pass outside the probate process. However, if there is a will, the child is not legally obligated to distribute those funds in accordance to the will. These funds would also not pass to other heirs in accordance with Florida’s intestate laws.

There may also be gift tax costs for adding someone’s name to an account other than a spouse. Besides this cost, when the child is added to the account a gift of up to 50% of the account value takes place. This can cause gift tax returns to be filed with the IRS. There are limits on yearly and lifetime tax-free gifts, which could mean much of the account is subject to taxation. This situation can also be avoided by giving the child a power of attorney. In addition, this gift could disqualify the parent from nursing home coverage if it occurs within 5 years of needing coverage.

Adding a child to a Deed
Adding a child to a deed is also a bad idea for many of the same reasons. This is usually done in Florida by a life estate deed. This document would give the parent a present interest in the property and the child a future interest.

In this situation, a parent would retain the present right to live in the home. This right would last as long as the parent, or their spouse, is alive. During this time, the child retains a future interest in the home. This means as soon as the parent dies, the child becomes the owner and possessor of the home.

This situation creates some potential problems because the courts view a life estate deed as a gift to the child. This means the parents could lose a step up in tax basis for the children, face penalties and taxes for failure to perform gift tax returns, and lose eligibility for nursing home coverage.

A child’s future interest can also be at risk to creditors and become subject to a judgment. While a future interest may not appear to have a money value on the surface, courts often allow the value of a future interest to be determined based on certain tables. These tables determine a future interest’s value by incorporating factors such as the age of the parent, their life expectancy, and the current interest rates.

There are ways of avoiding probate, but doing so without the guidance of an experienced Florida Estate Planning attorney can put your family and assets at risk. For more information on how to plan your estate and power of attorney in Florida, contact Jacksonville estate planning attorney David Goldman at 904-875-1200.

There are many situations where a parent may wish to disinherit a child, such as when the parent has been estranged from the child for years. Clients often wonder if they are obligated to leave assets to their children or if they are allowed to disinherit them completely.

Florida’s constitution protects the rights of minor children through homestead laws, which prohibit the head of the household from leaving his or her residence to anyone other than a spouse or minor child. Under this law, a surviving spouse is given use of the property for the remainder of his or her life, this is known legally as a life estate, and then the home passes to the minor children. Recently a surviving spouse has been given the option of taking 50% of the interest in the home or the life estate. The homestead law only applies to children who were minors at the time of the death.

If a person dies without a will, any property that person owned during his or her life will pass under Florida’s intestate succession law. Intestate succession is a law that regulates the decedent’s estate for the remaining heirs. The part of the intestate estate that does not pass to the surviving spouse, or the entire estate if there is no surviving spouse, is given to the children of the decedent. This means that without a will, a person’s children will receive part of their estate without the decedent’s consent.

Pretermitted children can also inherit part of their parent’s estate. A pretermitted heir is a person who is likely to inherit under a will, except that the person who wrote the will did not know of the child’s existence at the time the will was written or the child was born after the will was written. This child will receive a share of the estate equal in value to what the other children would have received if the testator had died intestate. This means an unknown child, if not mentioned in a will, could potentially receive a larger portion of the inheritance than other known children.

Many clients mistakenly believe they are obligated to leave a child a nominal inheritance, such as a dollar. If a parent wishes to intentionally disinherit a child in Florida, they are typically better to leave the child nothing. Under Florida law, any person included as a beneficiary in a will becomes an interested party and are entitled to notice of the probate. This means that person must sign all consents, receipts and waivers regarding the estate.

There are some alternatives to disinheritance. One such alternative would be to establish a trust for the child, which would allow a trustee to control the trust property and give the heir an allowance or other stipulations. For instance, a decedent could create a trust that requires the heir to attend rehab and be regularly drug tested.

If a decedent does intend to disinherit either a child, it should be expressly stated in the will. Otherwise, a court could interpret the omission to be a mistake or a failure to update the will. Wills should be drafted by an estate planning attorney, who can discuss your objectives and make recommendations as to the options available to convey property to the ones who matter most.

For more information on child disinheritance and estate planning in Florida, contact Jacksonville attorney David Goldman at 904- 685-1200. Also, feel free to email us to receive a confidential estate planning questionnaire.

Adult adoption is not only legal, but is becoming a more popular way for people to ensure their estate is inherited by the ones who matter most in their lives.

In Florida, the state law makes no distinction between child and adult adoption. According to the statute, § 63.042(1), “any person, a minor or adult, may be adopted.”

Adult Adoption in Florida requires the consent of the adoptive parent and the adopted person. Additionally, the state requires the consent of the adopted person’s husband or wife if they are married. The court may waive the requirement for spousal consent if the spouse is not available or unreasonably withholds consent.

Further information regarding consent can be found in Fla. Stat. § 63.064.

If the adoptee’s legal parents are still alive, the adoptee will have to provide notice of the final hearing to these people. The legal guardians are not required to consent to the adoption in order for the process to be successful. Once the adoption is final, it will terminate any existing rights, prior to the adoption, between the two parties. This means the adoptee will no longer be entitled to any inheritance, or other benefits, from his or her previous legal parents. But the adoptee’s prior legal parents can create a new will or documents that name their prior child as a beneficiary.

One benefit of adult adoption is you are not required to change your name. When a person files for adoption they must file a Petition for Adoption with the court. This form allows the potential adoptee to designate the name he or she wishes to be known by after the adoption is approved.

A common question regarding adult adoption is whether or not a home study is required before the adoption is approved. A home study is performed by the state to determine the suitability of the intended adoptive parents. According to Fla. Stat. § 63.092(3), a home study is not usually required for adult adoption. This means the adult adoption process is usually an easier process because the parent no longer has to be approved by the state. However, a court can order a home study when a good cause is shown.

Once the adoption is approved, the adult adoptee can receive all of the same benefits of a child adoptee. This includes being allowed to inherit property from the adoptive parents the same as other children.

To determine if an adult adoption will offer benefits in your situation, you should consult with an attorney familiar with the issues related to adult adoptions and estate planning.

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