http://www.familylegacy.com/blog-posts.aspFamily Legacy BlogMadison, my youngest daughter – asked me if she could go over to a friend’s house. I told her that she could  - only to be vetoed by Patti. “She didn’t clean up her room like I asked her to,” Patti said. “And I don’t think that she should be able to go over to her friend’s house when she didn’t listen and do what she was supposed to.”  This, of course, was met with cries of derision and anguish that one might expect from a much more traumatic event. “But Dad SAID I could go!” Madi protested through tears. “DAD! …..you said IT WAS OKAY!” Madi even threatened the “I’ll hold my breath” routine.   “Go ahead. Hold your breath,” I said. “When I said it was okay I didn’t know that mom told you to clean up your room and that you didn’t do it,” I explained. “So I change my decision. No going to your friend’s house.”   Anyone who has children has been through a similar conversation. We all make decisions and then have to renege on them. Usually though, to change one’s mind one needs some sort of justification. The justification might be caused by another’s actions or failure to act (as in the case with Madi) or for changes in circumstances.   This apparently isn’t the case when we are historically dealing with the United States Congress, the President and the tax law. Allow me to explain.   Under the tax law signed into law by President Bush back in 2001, the estate tax was scheduled to expire in 2010, only to be revived in 2011 with a much smaller estate tax exemption ($1 million). Congress was going to act to “bridge” 2010 by passing a law that would retain the 2009 tax exemption ($3.5 million per person) into 2010 as a “stop gap” measure. The intent was for Congress to reexamine the estate and gift tax system and come up with something more permanent.   Well, along came the great ObamaCare debate. Estate tax reform got shoved to the back burner. So what do we have now? We have a system where there is no federal estate tax for this year. Or do we?   Like the parent that changes his mind (whether or not for good reason) the Congress could, conceivably, retroactively pass legislation that imposes an estate tax for those decedent’s dying after January 1, 2010.   Some have made the argument that in so doing, Congress would be acting unconstitutionally. This is known as a “due process” argument. In other words, no one had proper notice or even the ability to alter one’s conduct before the law changes. Therefore any such change shouldn’t be applied retroactively.   You might suggest that when taxing the value of an estate, that value exists whether the estate is taxable or not, and therefore due process shouldn’t be considered. Aside from the concept of due process being a cornerstone of our constitution, I would counter that there is a lot even a large estate could do to minimize taxes. But if there is currently no tax imposed, then reasonable people could therefore assume that they wouldn’t be affected and would do nothing. On the other hand, if they knew that a retroactive law might be passed, they might act. That’s where due process comes in relation to estate tax planning.   Unfortunately, those knowledgeable in the law suggest that the unconstitutionality challenge to a retroactive tax law change would not hold water. They point to another United States Supreme Court case decided in 1994 on a similar issue, United States v. Carlton.   In a nutshell, that case involved the disallowance of an estate tax deduction that was legal in 1986 when the events causing the deduction occurred, but by the time the estate tax return was filed in 1987 the deduction was no longer legal. Congress and the President passed had passed a law that denied the deduction in the interim.   The taxpayers argued that they should get the deduction, because the law indicated that the deduction was legal and proper. Only later was another law enacted that resulted in no deduction. The United States Supreme Court in essence said that the Congress and the President could take away tax deductions retroactively – and that we all had to abide by it whether or not we could foresee in our crystal ball what future tax law would look like.   In other words, our President and Congress can tell us that we can’t go to our friend’s house, even if they earlier said we could. Worse yet, we cleaned our rooms. In Carlton the taxpayers did nothing wrong – other than reporting a deduction that was legal when the events leading to it occurred. There doesn’t appear to be any reason justifying the retroactive imposition of tax other than “the United States government needs the money,” which, incidentally was a reason cited in the text of the opinion justifying why Congress and the President could do such a thing.   So for those of you who believe that there will be no federal estate tax imposed on decedent’s estates who die this year, don’t hold your breath.    ©2010 Craig R. HerschTue, 12 Jan 2010 00:00:00 ESThttp://www.familylegacy101.com/blog/comments.asp?id=186Let me start the new year off with one of the most common questions I encounter in my practice. That question goes something like this, “I’m not a millionaire and my estate is not taxable, so I don’t need a trust do I?”  Whether you would benefit from a revocable living trust does not really have any relation to whether your estate might be subject to tax. A revocable living trust helps you if you should become disabled, for example. In the event of your disability, or if you are simply unable to manage your investments or pay your bills because of age or infirmity, the successor trustee of your revocable living trust can step in and do these things for you.   Revocable living trusts are also private documents. In contrast to wills, which are filed with the probate court after your demise, and are available for anyone to review, trusts are not filed with any public court in the event of your disability or in the event of your death.   Further, new Florida statutes enhance the privacy of your revocable trust when transferring assets into your trust. Brokerage firms have, in the past, requested a copy of your trust when you transferred your brokerage account into the trust. The new Florida statutes provide that the brokerage firm may rely upon a brief “certificate of trust” and a “trustee’s affidavit” to verify the trust and trustee.   Many of you already know that trusts help avoid the probate process for the assets that have been transferred into the trust. If you own real property in more than one state, trusts help avoid not only the domiciliary proceeding here in Florida, but also avoid the necessity for an ancillary proceeding in the states that you own real property. If you own a home in Indiana, commercial real estate in Ohio, and your primary residence is here in Florida, a revocable living trust could help your family avoid a probate process in three states.   The types of assets that you own also speak to whether a trust may assist you and your family. If most of what you own is in an IRA account, for example, then you have a beneficiary designation and a trust may not be as useful.   The ages and relative condition of your beneficiaries speaks to whether a revocable living trust would benefit you or your family. If you have minor children or grandchildren, for example, it is easy to create provisions inside of a trust that take care of them until they become old enough to handle their inheritance. If you want to provide asset protection features for your surviving spouse, children or grandchildren, trusts are often easier than wills.   If you are concerned about someone challenging your will, then a trust could benefit your family. Trusts are harder to challenge than wills are because you operate under the trust during your life, as opposed to a will that doesn’t have legal significance until your death. Since you have been operating under the provisions of your trust for your lifetime, the theory goes that you had a greater understanding of the trust contents and that it was likely consistent with your intent.   So all of the above reasons speak to the benefits of a revocable living trust without consideration to whether you are a millionaire or have a taxable estate.    ©2010 Craig R. HerschFri, 08 Jan 2010 00:00:00 ESThttp://www.familylegacy101.com/blog/comments.asp?id=185Last week I wrote about the uncertainty surrounding whether and how the federal estate tax might be extended into 2010 and beyond. As of January 1st without further legislation being enacted the federal estate tax disappears for one year, only to be replaced with a capital gains tax system that is difficult for lay people to both understand and to comply with.  It is likely that 2010 brings sweeping changes to the federal estate and gift tax system. The law which we have operated under for the last ten years was originally passed in President Bush’s first term in the White House. By design, that law will sunset at the end of 2010 as the Congress could not get the 60 votes required to make the tax cut permanent for more than ten years.   My experience as an estate planning attorney is that too many clients shove their plans into their safe deposit boxes never to be looked at or reviewed again until someone gets sick – or worse – dies.  Especially in today’s ever changing world it is important to remain vigilant and to review your estate plan on an annual basis.   In the last several years alone, here are a few of the changes that have impacted many estate plans:   In 2005 the federal estate and gift tax system “decoupled” from the state death tax system. In other words, the federal government no longer provides a credit for state death taxes paid. Because the states are looking for more money everywhere they can, many states have lowered their state death tax exemption. This means that when someone’s estate planning documents are not drafted to accommodate this 2005 change, there is a possibility (for decedents who die in a state that imposes a death tax or who have property in such a state) that state death tax will be assessed upon the first spouse’s death – which would obviously impact the surviving spouse;    In 2005 and in 2006 there were many changes impacting the way that IRA and 401(k) accounts are taxed and required to be distributed after the death of the account owner. Actually, the laws here can work to the beneficiaries’ benefit – allowing them greater leeway in achieving continued tax deferred growth. The pension plan laws are ever changing, and these assets are among the toughest to plan for as one wrong move could result in the recognition of the previously untaxed income. A beneficiary who is unaware of the complex rules surrounding IRA and 401(k) accounts can easily fall into a trap resulting in thousands (if not more) of income tax liability;   In 2007 the Florida Trust Code changed in its entirety.  The law is, for the most part, better than the law we had before. Nevertheless, the law is completely different than what it was. Even if you have Florida trusts, if they haven’t been updated to take into consideration the various elements of this new law, you should visit with your estate planning attorney;   Now in 2009/2010 we have other big changes with the federal estate tax laws. Depending upon what the Congress decides to do and the President agrees to sign, trusts may need updated tax language. Moreover, which assets you’ve put into your respective trust may need to change. Many married couples “balance” their trusts by putting some into husband’s and some into wife’s trust. To the extent that the tax laws change, rebalancing the assets that you’ve decided to place into each spouse’s trust might be necessary.   A final change that occurs is not due to any law change; rather it has to do with changes to your residence. If you own a Florida residence and declare it as your Florida homestead, at that point in time (the declaration as Florida homestead) very specific rules regarding how it can be left to your beneficiaries come into play. Those same rules didn’t apply the minute before you became a Florida resident. That’s another big change that can affect an estate plan.   2010 is likely to be a year of change. Let’s hope it’s for the better. But in any event, don’t lock your estate planning documents in a drawer and forget about them. Now more than ever you should dust them off and discuss them with your estate planning counsel. ©2009 Craig R. HerschMon, 04 Jan 2010 00:00:00 ESThttp://www.familylegacy101.com/blog/comments.asp?id=184If someone dies when their home, residence or other mortgaged property is “under water”, what should the personal representative of the estate do? Should they continue to make the payments on the property to keep it current until it sells? What happens if the sales proceeds are not enough to cover the mortgage note? Should the estate be worried about a deficiency judgment? What is a deficiency judgment by the way?  Unfortunately, in today’s economy these issues appear to be coming up more frequently so I’ll cover them in this column.   Assume that Barry owns his home either in his name or in the name of his revocable living trust. He purchased the home a few years ago for $600,000, taking out a $500,000 mortgage on the purchase. The home has since depreciated in value to $420,000. Barry dies.   The personal representative of Barry’s estate sees that Barry’s trust has sufficient monies to continue servicing the mortgage debt for some time. It isn’t clear, however, whether the property will rebound in value quickly enough to make the continued payments worthwhile. The carrying cost of the property, including taxes and insurance will drain the trust over time.   The personal representative reviews several options. The first option is to continue making payments with the hope that the value of the property will rebound and that it would be sold for enough money to cover its outstanding debt and the accumulating carrying costs. The danger with this option is that the property’s value is unlikely to rebound rapidly enough so as to offset these amounts, and the estate is depleted keeping the note current.   The second option is to try and work out a short sale with the lending institution where the property is sold to a third party for whatever it can be sold for, and the lender would agree that the net proceeds would be full satisfaction of the outstanding debt. This might work if the lending institution is agreeable. The personal representative decides to keep this option open.   The third option is to let the home go into foreclosure. The danger here is that if the lender sues the estate the lending bank can get something called a “deficiency judgment”. A deficiency judgment is a judgment against Barry’s estate for the difference between what the lender is able to unload the home for after its foreclosure and the sum of the outstanding debt, accumulated interest, attorneys fees and costs of the transaction. In Barry’s case that may easily amount to more than $80,000.   You might wonder whether Barry’s revocable trust, which harbors all of his liquid assets, would be liable for a deficiency judgment against Barry’s estate. The answer to that question is “yes”, but there is an important qualification. That qualification is that the lender has properly filed a creditor’s claim against Barry’s estate.   Barry’s personal representative has an obligation to run a “creditors notice” period and to actually serve any reasonably ascertainable creditor with a “notice to creditors”. That notice provides that the creditor must file a claim against the estate within the creditor’s notice period (generally the later of ninety days from the date of a creditor’s notice publication in the newspaper or 30 days from the date of notice to that creditor). If the creditor fails to file a claim against the estate then the creditor is barred from recovering amounts against the estate or the decedent’s revocable trust.   Often banks are lackadaisical and don’t file within the prescribed time period. If they fail to so file a claim, the mortgage is still valid as to the property as collateral. In other words, the bank can still foreclose and recover the property.   However if the lender doesn’t file a claim within the prescribed time period, the lender loses the ability to obtain a deficiency judgment against the estate. Established case law in Florida from the 1930s tells us that the lender’s only recourse when the lender fails to file a timely claim is on the mortgaged property (and any other collateral) pledged under the terms of the note and mortgage.   So if the creditor does not file a timely claim, the personal representative may actually choose the third option available which is to allow the home to be foreclosed upon. The rest of the decedent’s assets are not subject to any deficiency judgment. By not making continuing payments on an underwater asset the personal representative actually preserves the remainder of the estate.   In the example that I describe I am assuming that there is no one else who has signed or otherwise guaranteed the mortgage and that there is no other collateral pledged under the terms of the note and mortgage. Further, if the lending bank has actually filed a valid claim within the prescribed time period then the lender may go after the other estate and trust assets for recovery under a deficiency judgment.   As always, one should consult with one’s own legal counsel on the application of the law to your own facts before acting.   ©2009 Craig R. HerschTue, 15 Dec 2009 00:00:00 ESThttp://www.familylegacy101.com/blog/comments.asp?id=183Good riddance, many of us say, to 2009. But with the end of the year inevitably come questions about gifting and taxes. Most gifts to our loved ones are gift tax free, but you should know some basics before gifting anything of value to your children, grandchildren and other loved ones.  The most that you can give tax free to any one person is $13,000 in any calendar year. This counts whether you give cash, a valuable painting, a car or any combination of items. A husband and wife together can give $26,000 worth of assets to any one person during a calendar year and count them as tax free. If the assets aren’t gifted from a joint account, you can still treat the gift as coming from both the husband and the wife so long as a Gift Tax Return Form 709 is timely filed, and the spouse elects to “split the gift” by checking a box on the return and signing it.   Gift splitting is more common in second marriage situations. An example might help assist in understanding this technique. Suppose that Robert is married to Doris, and that this is a second marriage. Robert has two sons from a prior marriage, Herb and Scott. Doris has two children from her prior marriage, Sophia and Rachel. Robert wishes to give each of his sons, Herb and Scott $24,000.  Assume further that Robert and Doris maintain separate bank accounts.   So Robert transfers $24,000 each to Herb and to Scott. This would be a taxable gift exceeding the $13,000 per beneficiary rule unless Doris agrees to “split the gift” by signing a Gift Tax Return Form 709. Doris is not affected by splitting the gift, nor are her children affected. In this example, Robert is gifting money from Robert’s separate bank account. Doris may therefore still give $13,000 each to her children and grandchildren. In fact, Doris can ask Robert to split the gifts to her children, Sophia and Rachel to give them $26,000 each as well so Doris can write those checks directly from her account.   In addition to gifts of money, many of my clients tell me that they intend to give other items, such as valuable paintings or jewelry. In order for a gift to be considered “tax free” and to remove it from the estate for federal estate tax purposes, the donor must actually transfer custody of the asset to the donee. Let’s illustrate this by another example.   Suppose that Doris intends to give a valuable Monet painting to her daughter Sophia. Doris tells Sophia that the painting is hers, but that Doris intends to keep the painting in Doris’ living room until she dies. “After I die I want you to take the painting off the wall and put it in your home,” Doris instructs Sophia.   Doris has not made a tax free gift to Sophia. In fact, Doris has not made a gift at all. If Doris dies with the Monet still hung on her wall, then under the tax law the painting is included in Doris’ estate for federal estate tax purposes. Clients often ask me how would the IRS know whether the painting was still hanging in Doris’ home at the time of her death?   The answer lies in a number of places. The most likely clue of ownership might be uncovered when the IRS requests a copy of Doris’ homeowner’s insurance. The IRS would look to see whether at the time of Doris’ death there was a rider on the homeowner’s policy covering the Monet. If Doris truly transferred the Monet to her daughter Sophia, then there would be no reason for Doris to continue to insure it.   Some folks think that they are clever by “selling” something of value as opposed to gifting it. Suppose Fred “sold” a piece of property to his daughter Melanie for $10,000 when in fact the fair market value of the property at the time of the transfer was $110,000. Here, despite the fact that Fred “sold” it, the IRS would consider the transaction to be a $100,000 gift (calculated as a transfer of $110,000 of property for $10,000).   If you have any particular questions about gifting that may be affected by the tax laws, discuss them with your estate planning attorney prior to making the transfer.   ©2009 Craig R. HerschTue, 08 Dec 2009 00:00:00 ESThttp://www.familylegacy101.com/blog/comments.asp?id=182When a loved one passes away owning securities, there are steps that the personal representative and/or the trustee of the decedent’s trust should immediately take to minimize investment risk during the estate administration. In today’s column I’m going to review these basic concepts.  Most folks own securities in some form or another. They may own stock in individual companies, such as Disney, Exxon or Proctor & Gamble. They may own mutual funds that own shares of stock in different companies. They may own some combination of individually held positions and mutual funds.   When a person dies owning shares of stock or stock mutual funds, it is often a good idea to sell the securities or some portion of them at the onset of the administration. This is due to several factors. First, the capital gains consequence that the decedent would have faced at he sold the securities during his lifetime usually is no longer a factor as of his passing. Second, he may have too many eggs in one proverbial basket. Finally, the administration of the estate, generally speaking, is a short time horizon and in those situations it is usually wise to play it conservative, and stocks are by nature risky, especially in the short term.   Allow me to elaborate on those three points.   First, the reason many of us don’t sell stocks that we would otherwise sell and reinvest is because of the capital gains tax disincentive. If I bought shares in Eli Lilly Company, for example, and reinvested the dividends, over time the value of those shares has likely grown. If I sell the shares during my lifetime I must pay a tax on the gain that I recognized when I sold the shares. The gain recognized is the difference between the sales price and my “tax cost basis” in the shares. The tax cost basis in my shares is generally the price that I paid for the shares plus the reinvested dividends on which I’ve paid income tax.   When I die, however, my estate receives a step up in tax cost basis equal to the date of death value. It no longer matters what I paid for my shares. That is irrelevant. The new basis for determining capital gain is the value of the shares as of the date of my death. My personal representative and trustee should request the date of death values from my broker or financial institution. If they sell the stocks or mutual funds at the new value, the capital gains are zero, and no tax is paid.   Second, it is not uncommon for decedent’s estates to be heavily weighted in one or two holdings. Ask anyone who owned Enron stock during its collapse if they would have otherwise chosen to pay capital gains tax had they only known before the collapse what was about to happen. Too often individuals hold on to positions that they shouldn’t because they are fearful of the tax consequences of selling. This is allowing the “tax tail to wag the dog” as I like to say. You should avoid making decisions based solely on tax reasons.   I have found that there are other reasons that families tend to hold onto positions that they otherwise shouldn’t – and that is the emotional reasons. “Dad worked for that company for thirty five years and those are the shares that he broke his back for” is a refrain I’ve heard on more than one occasion.   Just as one shouldn’t base decisions on tax consequences alone, one should not base investment decisions on emotion either. The goal of any investment strategy is to maximize the return on that investment. I’m sure that any parent would favor that goal over an emotional goal of holding onto shares of a certain company solely because that parent happened to work at that company for a number of years, or chose to buy the stock and hold it for a prolonged period.   Getting back to my point, many investors for one reason or another find their portfolios over weighted with just a few particular holdings. As we learned above, when those investors die their estates are no longer burdened with the capital gains tax consequences of the sale. The personal representative or trustee would be well advised to sit down with a competent investment advisor to determine which holdings would be best to sell to limit the investment risk during the course of the administration.   And that brings me to my final point. When you are serving as the personal representative of an estate or as the trustee of a trust, you are held to a fiduciary standard to invest and protect the money in a prudent and reasonable manner. While holding stocks for the long term is not outside the scope of reasonableness, it can be argued that holding a large share of equities during an estate administration is unreasonable.   This is due to the fact that an estate or trust administration is usually a short term affair, meaning that it can take anywhere from six months to two years. In that short of a time horizon, a portfolio might have a hard time recovering from a severe dip in the stock market. Imagine if you were the trustee of a trust that consisted largely of securities just prior to the 2008 stock market collapse.   Imagine further that if the estate were to pay estate tax on the value of the date of death values and the estate were to drop suddenly in value. The estate would be paying taxes on an amount much higher than that the beneficiaries would receive. There is, by the way, a six month alternate valuation date that might take care of this problem, but it isn’t prudent to rely solely on that escape hatch.   If you should find yourself in the role as personal representative or trustee, it would be wise to bring up these issues with the estate attorney and with the investment advisor before too much time transpires.    ©2009 Craig R. HerschMon, 30 Nov 2009 00:00:00 ESThttp://www.familylegacy101.com/blog/comments.asp?id=181I wish you and yours a Happy Thanksgiving and thank you very much for following my column over the years. In the spirit of this week’s holiday, allow me to list some of the things that I am grateful for:   I’m grateful for this column – I appreciate Lorin Arundel & Ken Rasi and all of the good folks at the Island Sun Newspaper as well as my faithful readers for allowing me to bring you this estate planning column. I will say that it is sometimes a challenge to come up with interesting topics on a weekly basis for nine years straight.  Estate planning isn’t the most entertaining of subjects by itself. But I’ve received a lot of positive feedback along with appreciation from many who’ve told me they understand the concepts that I’ve tried to highlight over the years. I thank all of you for your continued support;   I’m grateful that I’m alive and well – Sounds trite to say that, but I almost died in a terrible bicycling accident five years ago. As some of you know I am an avid road cyclist. On a July afternoon in 2004 a car cut me off near the Siesta Key subdivision as I was heading north on the Summerlin Road bike path. The helmet that I wear saved my life, yet I had four skull fractures and problems with my neck and spine. The accident resulted in a four day ICU stay at Lee Memorial Trauma Center’s ICU and eventually required neurosurgery to correct. Today I have screws and a pin holding a cadaver bone in place in my neck. I’m still on the bike – and doing well. I am grateful for those motorists who are considerate of us cyclists and beg the rest of you to please watch out for bicyclists both on the bike paths and on the road. Road cycling at speeds exceeding 20 mph on some bike paths is downright dangerous hence the need to be on the road itself – so please be considerate;   I’m grateful to live in Southwest Florida -  I grew up in Indianapolis but have lived in Florida for thirty years. Our area of the country is among the best to live. We have great weather, beaches, boating, recreation – you name it. The people here are kind and down to earth. While our summers are hot – they’re not unbearable – and therefore you can enjoy the outdoors all year round. One of my good friends from Chicago visited not too long ago and I took him out to dinner. We travelled to a waterfront restaurant via boat instead of the car. He saw dolphins jumping and a wonderful sunset that evening. He couldn’t believe that we can do this anytime we want. It made me proud and happy to live here.   I’m grateful for my career – I truly enjoy what I do for a living. My firm’s been established in this community for several generations dating back to 1924. My law partners and I get along very well – it’s more like a family than a firm - we’ve watched each other’s children all grow up. We have a loyal and hard working staff – some have been with us more than thirty years! My clients are second to none – a bunch of friendly, warm and sincere people who have interesting backgrounds and life experiences. I’ve learned so very much from many of my clients. One, for example, gave me the idea to have “Daddy-Daughter” nights – where I enjoy having a private dinner with each one of my daughters individually. We do this about once a month. It’s nice bonding time to have with each of them – one on one. I might not have thought of that idea without the suggestion of Paul Flynn, who was an editor of the News-Press and was instrumental in the early days of USA Today – and later in life ran the Southwest Florida Community Foundation. Paul gave me the idea based upon his own experience with his own daughters while they were growing up. Sadly, Paul passed away last year, but a little bit of Paul lives on in my family through his good suggestion.   Finally, I’m thankful for my family – I have a loving, devoted, smart – and might I add – very patient wife (she needs a LOT of patience to be married to me!) who has put up with me for over twenty years. We started out with nothing and over a hundred thousand dollars of student loan debt between us. It seems, though, that our adventure has just begun. We have three daughters who we couldn’t be more proud of. Our extended family gives us much love and emotional support. My wife’s 96 year old grandmother will join us for Thanksgiving dinner, as will all of Patti’s and my parents. It is a blessing that all four will be together for another year, as my mother almost died of leukemia and survived a bone marrow transplant that cured her disease. Unlike a lot of guys who complain about their in-laws – I feel fortunate to have mine. My mother-in-law is one of the sweetest, most generous persons that you would ever meet. Our siblings and cousins help celebrate major family events. The only gripe I have is that I wish we saw each other more often.   In closing, I wish you and yours a Happy Thanksgiving. I’ll be back to reporting on estate planning topics next week.    ©2009 Craig R. HerschWed, 25 Nov 2009 00:00:00 ESThttp://www.familylegacy101.com/blog/comments.asp?id=180From time to time I field calls in my office from a son, daughter or other loved one who tells me that they fear their elderly relative (mom, dad, uncle or aunt) is being taken advantage of.  Usually the accused is another relative (sister, brother, cousin) who allegedly transferred assets for their own benefit and to the detriment of an elderly relative. The accuser is usually a named beneficiary in the will or trust, and their motivation to call me is the fear that they are losing some (or all) of their future inheritance.   They ask me whether they can level a charge of “undue influence” to reverse whatever has happened. Recent Florida court decisions tell us that the charge of “undue influence” often doesn’t work in the setting where the elderly relative is still alive, but there may be other means available when one fears an elderly relative is being financially taken advantage of.   Case in point is that involving a Ms. Helen Wedrall – who had established and transferred her assets to The Helen M. Wedrall Revocable Living Trust. The terms of the trust provided that upon Mrs. Wedrall’s death, her trust was to be equally divided among her three sisters, Agnes Wedell, Dorothy Ziegler and Liz MacIntyre.  Prior to her death, Ms. Wedrall removed her assets from the Trust and transferred them into an account jointly titled with only one of her sisters, Agnes Wedell.   Upon her death, Agnes inherited the account and the other sisters got nothing.   Following Ms. Wedrall’s death, Ms. MacIntyre, the successor trustee of her sister Helen’s trust, filed suit against Ms. Wedell alleging that the transfer of assets and effective termination of the Trust was made at a time when Ms. Wedrall was suffering from physical and mental ailments and were the product of undue influence.   In reliance of a 1984 Florida Supreme Court case, the district court dismissed the complaint. In the prior case, the Florida Supreme Court indicated that the Settlor of a revocable trust has the right to recall assets at any time, and therefore gain absolute ownership over the property. As a result, the “co-trustee could not seek to preclude the Settlor from revoking the trust on the grounds of undue influence.”   “…courts have no place in trying to save persons [who are] otherwise competent [from what may or may not be her own imprudence with her own assets. When she created this trus, she provided a means to save herself from her own incompetence, and the courts can and should zealously protect her from her own mental incapacity. However, when she created this trust, she also reserved the absolute right to revoke if she were not incompetent. In order for this to remain a desirable feature of a trust instrument, the right to revoke should also be absolute.”   In other words, undue influence is a proper means to defeat a provision found in the trust instrument itself, but under Florida law the charge can only be made after the Settlor’s death. A charge of undue influence, however, is apparently not a valid legal means that can be used to undue a transfer out of a revocable living trust.   While I disagree with the court’s rulings in these lines of cases, there remains another means to challenge a transfer of assets that would appear to benefit one person at the detriment of the original account owner. Florida Statutes Section §825.103 was enacted to prosecute those who prey on an “elderly person” or “disabled adult”. A felony charge awaits those who utilize deception or intimidation to obtain or use an elderly person or disabled adult’s funds, assets or property with the intent to deprive them (permanently or temporarily) of the “use, benefit or possession of the funds, assets or property,” or to benefit someone else.   Warning signs include significant withdrawals from the person’s account, sudden changes in financial condition, suspicious changes to their legal documents and additions of names to bank account signature cards. This charge is a criminal matter that can lead to a police investigation, so it should not be taken lightly.   Another possible course of action is to institute a guardianship proceeding with a court. This is an adversarial proceeding where the court determines if a person is competent or incompetent. Again, the court does not take this consideration lightly, and is reluctant to adjudicate incompetency unless there is irrefutable evidence of same.   The best course of prevention is to remain active in the lives of those who you feel may become “prey”. In Ms. Wedrall’s case it was her sister who appeared to take advantage, so even those closest to us might become predators. If you are concerned about yourself or a loved one along these lines, make sure you mention it to the estate planning attorney who can help minimize this possibility.   ©2009 Craig R. HerschFri, 20 Nov 2009 00:00:00 ESThttp://www.familylegacy101.com/blog/comments.asp?id=179A few weeks ago I wrote a column covering the unique ability that we all have to convert traditional IRAs into Roth IRAs providing a timeline that you can follow when working with your advisors. If you missed that article search my firm’s web site www.sbshlaw.com and click on “Family Legacy Blog” where you can find it.   Today I’m going to review for you some of the estate planning issues that are affected should you choose to convert a traditional IRA into a Roth IRA. While the question whether to convert is typically a financially driven decision, once that decision is made you should meet with your estate planning attorney to make sure that the converted Roth IRA fits properly into your estate plan.   Asset Protection   In Florida IRAs are generally considered to be asset protected by statute. Roth IRAs, however, appear to fall outside of the scope of the statutory definition of what is protected. Federal laws also limit asset protection to Roth IRAs. Before converting to a Roth, if you are in a high risk occupation or should you be involved in an activity or in a lawsuit that merits a close look at what assets are protected, you should meet with your estate planning counsel.   Beneficiary Designation Forms   Upon converting to a Roth IRA, your beneficiary designation forms should be reviewed to ensure that they coordinate with your overall estate plan. The preparation of proper beneficiary designations is critical to ensure that each separate share for your beneficiaries allows for the maximum opportunity to achieve tax deferred growth.   IRA Trusts   Because of the additional investment in the form of paying upfront taxes on the conversion to a Roth IRA, most clients will be well advised to take the additional step of leaving the Roth IRA into a special protected trust as opposed to outright to their children. An IRA left outright to a beneficiary has limited asset protection in most jurisdictions, while a trust can serve to protect the beneficiary against predators, creditors and divorcing spouses.   Estate Tax Exemption and GST Planning   Roth IRAs are generally the best types of assets to leave in continued trusts for your children and grandchildren because of their special income tax free nature.   Estate Tax Apportionment Issues   Estate tax apportionment deals with what assets and what shares of your estate pay any estate tax that might become due at the time of your death. Since state death tax exemptions are often different than federal death tax exemptions, this becomes an even larger issue for those that either live or own property in a jurisdiction that has a state death tax.   Charitable Planning   For those that incorporate charitable planning into their estate plans, the income tax ramifications from the conversion of a traditional IRA into a Roth IRA merit another close look at how the charitable intent is satisfied.     These are just a few of the estate planning issues that merit attention when converting a traditional IRA into a Roth IRA. So be sure to include your attorney in the discussion with your CPA and financial planner when deciding to convert a traditional IRA into a Roth IRA.    ©2009 Craig R. HerschWed, 18 Nov 2009 00:00:00 ESThttp://www.familylegacy101.com/blog/comments.asp?id=178Occasionally I am asked a basic estate planning question that I will review today, and that is the basic differences between estate planning with a will as opposed to estate planning with a revocable living trust.  First, let’s start off with the will. Many people wrongfully believe that if they have a will then their estate will avoid the probate process. Actually, all wills are subject to the probate process. Probate, you may recall, is not a tax. It is the legal process wherein your last will is admitted to court, your personal representative is appointed, your estate is inventoried, your creditors are cleared, taxes are paid and ultimately your beneficiaries receive their inheritance.   Every aspect of the probate process is administered in a probate court. This means that your will’s contents and all of the other aspects regarding your estate are mostly open to the public. Anyone can go down to the courthouse and review the probate filings. In some counties, the probate filings are also available on the internet.   You may argue that your father, mother, spouse or other loved one died with a will and their estate did not go through a probate process. This might be true if everything was owned jointly. While in some estates joint ownership of assets might be a wise thing to do, joint ownership of assets often leads to more problems than it solves. Visit my firm’s web site www.sbshlaw.com and click on the Video Learning Center link to watch a video about the perils of joint ownership if you want to learn more about why placing all of your assets in joint name is generally not a wise idea if you are doing so to avoid the probate process.   Whereas wills are only useful upon your death, revocable living trusts can help you during your lifetime. A revocable living trust is a legal agreement made between a Settlor (you) and your trustee (also ‘you’) how to hold, invest and distribute the trust assets both during your lifetime and upon your death.   Many wrongfully assume that if they create a revocable living trust then they’ll lose control over the assets that they’ve put into the trust. But this is not usually the case. You are usually your own trustee, meaning that you control the assets. Because revocable trusts can be changed, you also have the ability to amend the trust at any time, meaning that you normally have complete control over all of the trust assets during your lifetime.   Generally speaking, you usually transfer most of your assets into your trust upon its creation. Failure to fully fund your assets into your revocable living trust could end up in a probate administration on those assets. This is why it is so very important to make sure that the titles on your bank and brokerage accounts, as well as the legal title on the deeds to your real estate indicates the trust (by way of the trustee of your trust) as the proper owner.   If you should become disabled, your trust names a successor trustee who can step in for you to write your checks, pay your bills and manage your investments. Your successor trustee can be your spouse or other loved one. You may also name a bank or financial institution to help with these duties if you wish, although this is not a requirement.   Whenever you have a revocable living trust you usually also have a will, but the will doesn’t usually say who gets what at your death. Instead, it “pours into” your trust. These are known as “pour over wills”.   One of the advantages to a revocable living trust is that they are private, and are usually not subject to court supervision. While Florida law imposes requirements that your successor trustee must satisfy in the event of your death, most of those requirements do not require court filings. There is no trust inventory filed with a court, for example.   To learn more about the differences between wills and trusts go to my firm’s web site and video learning center mentioned above.   ©2009 Craig R. HerschThur, 05 Nov 2009 00:00:00 ESThttp://www.familylegacy101.com/blog/comments.asp?id=177