by Linda Suzzanne
Griffin
Malpractice Claim Upheld
In Re: Gunster, Yoakley & Stewart, P.A. v. McAdam, ____ So2d ____, WL2376658 (Fla. 4th DCA Aug 22, 2007)
a unanimous panel upheld a $1 million legal malpractice judgment. The thrust of the case was that the law
firm “wrongfully procured J.P. Morgan’s appointment as corporate fiduciary and caused the estate administration
to be more expensive.” The disloyalty issue was key. The case presented to the jury was that the attorney secretly favored J.P. Morgan.
Advice:
All attorneys should carefully review this case. Particularly important was language in the case that the
“trial court did not err in submitting to the jury the question of whether Gunster Yoakley had a duty to
fund a revocable trust during decedent’s lifetime as there was sufficient evidence that Gunster Yoakley
implicitly agreed to do so.” All attorneys should clearly identify and document whether
the attorney or the client is actually funding the revocable trust. If you do not make that
determination clear have you “implicitly” agreed to do so?
What Happens When Funding Goes Bad?
In Vaught v. Boerckel, ____ So2d ____, 2007 WL2428516 (Fla. 4th DCA Aug 29, 2007) the decedent executed a
pour over will which transferred all of his assets into his trust. The trust stated that certain real property
held in a corporation should be distributed to certain family members other than his wife and the balance would be
distributed to his wife. The decedent never transferred the real property by deed from his corporation into the name
of his trust. The children argued that the 100% of the stock of the company holding title to the real property became
an asset of the trust and the trustee (the spouse) was obligated to convey the real property to the named beneficiaries.
However the spouse argued that under the residuary clause the stock was transferred to the wife. The named beneficiaries
of the real property brought suit.
The court determined that the real property never became a part of the trust corpus because the decedent did not
execute deeds to transfer the real property into the trust causing such provisions to lapse.
Advice:
As if the Gunster, Yoakley case above was not enough, this case reminds every estate planner to clearly document who is funding the trust .
If your client advises you that he or she does not want to pay you to fund the trust be certain that you have that in writing.
Long Term Leases to Preserve Save Our Home (“SOH”) Cap in QPRT
As you know the SOH cap comes off when a transfer of the homestead is made, except under certain limited situations such
as a transfer to a spouse. Thus, the SOH cap will come off when the home is transferred from a qualified personal residence
trust (“QPRT”) to children. Section 196.041(1) of the Florida Statutes provides that a leasehold interest for 98 years or more
is a bona fide lease and the individual lessee is deemed to have legal or equitable interest. Further in AGO 2007-33 the question
asked the Sarasota property appraiser was whether an improvement on land leased for an initial 99 year term qualified for the
ad valorem homestead tax exemption. The property appraiser answered yes.
Advice:
If you are drafting QPRTs it is imperative that you discuss with the client what happens after the QPRT term ends.
Many grantors are extremely upset at paying increased real estate taxes and having to pay rent to children!
Proposed Generation Skipping Transfer Tax (“GSTT”) Regulations
The Service has issued final regulations on the qualified severance of a trust for GSTT purposes under Section 2642(a)(3)
of the Code. The regulations are effective prospectively from the date of severance and provide practitioners with guidance
regarding a trust with an inclusion ratio between 0 and 1 and funding rules. A taxpayer needs to clearly indicate “Qualified Severance”
at top of form 706(GS)T but no red ink is required.
Advice:
Anytime you have a trust that has an inclusion ratio of between 0 and 1 carefully review these regulations to see if a qualified severance would work.
Trust and Estate Expenses
The Service has issued proposed regulations under Section 67(a) of the Code. Under current
law miscellaneous itemized deductions are only allowed to extent they exceed 2% of adjusted
gross income (AGI). Currently costs paid in connection with administration of trust and estate
that would not have otherwise been incurred are NOT limited to the 2% restriction and are allowed
a full deduction to arrive at AGI. In Re: O’Neill, William Jr. v. Com. (1993, CA6), 71 AFTR2d 93-2052.
The Service rejected that approach. (nonacq.1994-2 CB 1). The Supreme Court has agreed to review a conflict
between the Second Circuit and Sixth Circuit.
The proposed regulations state that costs incurred by estate and trust that are “unique” are not subject
to 2% floor. Uniqueness to an estate or trust means that individual could not have incurred those fees in
connection with property not in estate and trust. The regulation further states that examples of fees unique
to a trust or estate and thus not subject to the 2% floor are expenses of fiduciary accountings, judicial
filings, fiduciary income and estate tax returns and division of income and principal to beneficiary and others.
Examples of fees not unique and subject to the 2% floor are custody and management fees, advice on investing for
total return and expenses to prepare gift tax returns. Thus, this regulation will require the “unbundling of fees”
for corporate trustees between custody and management fees which are subject to the 2% floor and other fees which
are not subject to the 2% floor.
Advice:
It appears that the Service’s proposed regulations may have been fast tracked to be promulgated
before the Supreme Court makes its decision. Some practitioners question whether these regulations
are beyond the Service’s authority under the Code. Nevertheless until this issue is decided all
clients must be advised of the current law.
529 Plans
The Pension Protection Act of 2006 (the “PPA”) provides that the sunset provisions of EGTRRA do not apply to 529 Plans,
(i.e. the 529 Plan provisions do not expire on December 31, 2007). PPA added Section 529(f) of the Code to prevent abuses,
such as the contributions of substantial amounts to 529 Plans with different beneficiaries and then changing to a single
beneficiary. If amounts are withdrawn and not used for a qualified higher education, then the amount will be subject to
an income tax and 10% penalty.
Advice:
529 Plans are excellent vehicles to plan for education and to reduce estate taxes. Be sure to suggest to your clients.
On The Horizon
Some items that have been approved by the Florida Bar RPPTL Executive Council,
are currently being considered in the Committees of the RPPTL Section, or have been passed by legislation:
- Deferred compensation added as an exempt asset (approved by Executive Council);
- Qualified orders similar to qualified domestic relations order (“QDROs”) applicable to firefighter plans, municipal plans and state retirement plans (approved by Executive Council);
- Automatic revocation of beneficiary designations of spouse upon divorce for life insurance, IRAs and annuities (considered in Committee);
- Revisions of uniform principal and income act regarding the 90/10 split of income from IRAs (considered in Committee);
- Notice to Creditors to Agency for Health Care Administration must be accompanied by death certificate(approved by the Florida Supreme Court and effective July 12, 2007);
- Emergency temporary guardian (approved by the Florida Supreme Court and effective July 12, 2007);
- Definition of insolvency for disclaimers (approved by Executive Council);
- Mediation statute in estates and guardianships (considered in Probate Rules Committee);
- Clarification of service on minors (approved by the Florida Supreme Court and effective January 1, 2008);
- General and special magistrates (approved by the Florida Supreme Court and effective January 1, 2008); and
- Procedure for objections to personal representative’s proof of claim clarified (approved by the Florida Supreme Court and effective January 1, 2008);
All
Contents © Copyright Linda Suzzanne Griffin,
P.A.
