by Linda Suzzanne
Griffin
The Service recently issued Revenue Procedure 2004-24, 2005-16 I.R.B. 909, which states that if a spouse has an elective share right at the decedent's death, and if that share could be satisfied in whole or in part from a charitable remainder annuity trust ("CRAT") or charitable remainder unitrust ("CRUT") then this procedure provides a safe harbor whereby the Service will disregard such elective share right for determining whether the CRAT or CRUT is valid. A CRAT or CRUT will not qualify as such a trust if any payments other than the annuity or unitrust is paid. Thus, if an elective share right is exercised, this election would disqualify the CRUT or CRAT.
A waiver by the spouse of such elective share must be obtained for CRATS or CRUTS created after June 28, 2005. If a CRAT or CRUT was created before June 28, 2005, then the Service will disregard the right of election, even without a waiver, but only if the spouse does not exercise the right of election. Further, if the state does not provide a spouse with a right of election against a CRAT or a CRUT, then no waiver is required.
Section 732.2075 of the Florida Statutes provides that protected charitable interests are generally not subject to the elective share. The statute however actually states that the elective share only excludes charitable interests for which charitable deductions were allowed or allowable under the United States gift tax laws. Thus, if a charitable gift tax deduction is not allowed or allowable, then the elective share could be satisfied from the charitable interest and therefore a spousal waiver would be required.
Advice:
Carefully review this Revenue Procedure and amend your prenuptial agreement to provide not only for waivers by a spouse for benefits of retirement plans after the date of marriage, but also for waivers by a spouse of the elective share CRAT or CRUT. Even though the elective share may not be satisfied against a CRAT or CRUT under Florida, your client could easily move out of state when the applicable law may be different.
Homestead Property
As we all know, homestead is an extremely difficult area of the law. A recent case has shown how a disclaimer will not fix the disposition of a homestead. In Estate of Frances M. Janien, 12 Fla. L. Weekly Supp. ______ issued February 28, 2005, a decedent died testate survived by a husband and two adult children. The will attempted to devise the homestead to her daughter. The homestead cannot be devised if survived by a spouse. Pursuant to Section 732.401 of the Florida statutes a life estate vests in the spouse with the remainder vesting in the decedent's lineal descendants in being at the time of the decedents death. The husband attempted to disclaim his life estate interest so the property could be distributed to the decedent's daughter under the decedent's Last Will and Testament. The court determined that because the homestead vests at the moment of decedent's death and the husband only received a life estate, the husband could not disclaim an interest greater than he had. The disclaimer had the effect of releasing his life estate rights and the property was distributed directly to both of the decedent's children, the lineal descendants in being at the time of the decedent's death.
Advice:
This once again points out how important it is to analyze and discuss homestead. I recommend a specific question on your questionnaire and a specific paragraph in your documents addressing homestead.
Disclaimers
The Florida legislature passed the new Disclaimer Act effective July 1, 2005. Among the significant provisions in the Act are as follows:
(1) The disclaimer does not have to be recorded. (Fla. Stat. 739.601(2))
(2) The disclaimer for real estate must be recorded for constructive notice. (Fla. Stat. 739.601(1))
(3) Conditional disclaimers are now allowed. (Fla. Stat. 739.104(1))
(4) The statute is the only method of disclaimer, i.e., common law disclaimers are no longer allowed. (Fla. Stat. 739.103)
(5) Delivery cannot be made by email. (Fla. Stat. 739.301)
(6) A fiduciary may disclaim by court order or if authorized in the document. (Fla. Stat. 739.104(2))
(7) Without court order a natural guardian can disclaim for a minor child of the natural guardian even if it is not "in the best interest" of the minor; but only if the minor child is receiving the property solely because of another disclaimer and only if the disclaimed property does not pass to the natural guardian as a result of the disclaimer. (Fla. Stat. 739.104(2))
(8) If a disclaimer is valid under Section 2518 of the Internal Revenue Code, then the disclaimer is valid under Florida law. (Fla. Stat. 739.501)
(9) A disclaimer can be made at any time as long as the disclaimer is not barred (as defined in the statute). (Fla. Stat. 739.401, 739.402)
Advice:
Carefully review the new Florida disclaimer statute to determine whether your current forms have the correct references to the statutes and to determine where the forms comply with the new law.
A Heads Up
One of my clients recently received an official looking document called "Corporate Compliance Center - Annual Minutes Compliance Notice" which stated that the Florida statutes require that corporations file Annual Minutes and failure to comply would result in personal liability of the corporation's shareholders. The notice advises your client to send $100.00 to corporate Compliance Center, Annual Minutes Compliance Notice, at 400 Capital Circle, Suite 18-403, Tallahassee, Florida 85291. In discussing this with the State of Florida and it appears that the Attorney General is investigating this matter.
Advice:
Be sure to advise your corporate clients about this.
Asset Protection
In Conseco Servs., LLC, v. Cuneo, 3rd District Case #3D04-1995, the individuals, the Cuneos borrowed close to $40,000,000.00 from banks to purchase Conseco stock. The Cuneos signed notes and guaranties in favor of the subsidiary of Conseco. Of course Conseco declared bankruptcy and the Cuneos defaulted on obligations under their loans. The Cuneos sold $8,000,000.00 of securities and obtained a mortgage on their Connecticut residence and then used these funds to purchase a Florida residence. Conseco=s subsidiary filed an action against Cuneo alleging a fraudulent transfer. The Court determined that even though a debtor acquired homestead property in Florida with the intention to hinder, delay and defraud their creditors, such property will still benefit from the homestead protection granted under the Florida Constitution.
Advice:
The new Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 "ABAPA") became law on April 21, 2005 and is effective 180 days from April 21, 2005. BAPA curtails the use of the homestead protection (in excess of $125,000) in scenarios such as these. Basically, BAPA law institutes a waiting period of three (3) years and four (4) months before a debtor who moves to Florida can claim the full benefit of the homestead exemption. As space here is limited, the reader is advised to review BAPA.
Retirement Accounts
Revenue Ruling 2005-36, 2005-26 I.R.B., permitted a qualified disclaimer of the IRA proceeds even after the beneficiary received a required minimum distribution ("RMD") from the IRA. The examples mentioned in the ruling are as follows:
(1) The decedent died in 2004 with an IRA of $2,000,000. The decedent's required beginning date occurred before 2004. Decedent had not taken the 2004 RMD. Decedents' spouse was designated as a sole beneficiary and a daughter was designated a contingent beneficiary. After decedents' death in 2004, the IRA custodian paid the RMD of $100,000 to the spouse. Four months later, spouse executed a written disclaimer disclaiming a fixed amount of $600,000 plus the income attributable to that amount. The IRS permitted the disclaimer.
(2) The same facts above in 1 except the spouse disclaimed 30% of her interest. This was allowed as long as proportional income related to the RMD is paid to the spouse.
(3) The same facts except the daughter is designated as a primary beneficiary with the spouse designated as contingent beneficiary. If the daughter disclaims by September 30th of the following year, she is not treated as a designated beneficiary and the spouse will be the designated beneficiary. Thus, the spouse could rollover the balance (except for the income attributable to the RMD to the daughter) into her own IRA.
Advice:
This is a very favorable ruling for beneficiaries. Always consider disclaimers to save estate taxes upon the first to die.
Documentary Stamp Tax
In Crescent Miami Center, LLC v. Fla. Department of Revenue, (No. SC03-2063) the Supreme Court determined that a transfer of real property from a grantor to a wholly owned grantee is not taxable under Section 201.02(1) of the Florida statutes.
Advice:
This documentary tax controversy has existed for several years. The Supreme Court finally answered. Carefully read this case. It provides a good discussion of the issue.
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Contents © Copyright Linda Suzzanne Griffin,
P.A.
