THE FLORIDA BAR ASSOCIATION SPEAKS ON "THE LIVING TRUST"

The Florida Bar provides information for the public on certain general areas of law as well as specific legal issues. Here is their discussion on "The Revocable Trust in Florida"

"The revocable, or “living,” trust is often promoted as a means of avoiding probate and saving taxes at death. The revocable trust has certain advantages over a traditional will, but there are many factors to consider before you decide if a revocable trust is best suited to your overall estate plan.

WHAT IS A REVOCABLE TRUST?

A revocable trust is a document (the “trust agreement”) created by you to manage your assets during your lifetime and distribute the remaining assets after your death. The person who creates a trust is called the “grantor” or “settlor.” The person responsible for the management of the trust assets is the “trustee.” You can serve as trustee, or you may appoint another person, bank or trust company to serve as your trustee. The trust is “revocable” since you may modify or terminate the trust during your lifetime, as long as you are not incapacitated.

During your lifetime the trustee invests and manages the trust property. Most trust agreements allow the grantor to withdraw money or assets from the trust at any time, and in any amount. If you become incapacitated, the trustee is authorized to continue to manage your trust assets, pay your bills, and make investment decisions. This may avoid the need for a court-appointed guardian of your property. This is one of the advantages of a revocable trust.

Upon your death, the trustee (or your successor if you were the initial trustee) is responsible for paying all claims and taxes, and then distributing the assets to your beneficiaries as described in the trust agreement. The trustee’s responsibilities at your death are discussed below.

Your assets, such as bank accounts, real estate and investments, must be formally transferred to the trust before your death to get the maximum benefit from the trust. This process is called “funding” the trust and requires changing the ownership of the assets to the trust. Assets that are not properly transferred to the trust may be subject to probate. However, certain assets should not be transferred to a trust because income tax problems may result. You should consult with your attorney, tax advisor and investment advisor to determine if your assets are appropriate for trust ownership.

WHAT IS PROBATE?

Probate is the court-supervised administration of a decedent’s estate. It is a process created by state law to transfer assets from the decedent’s name to his or her beneficiaries. A personal representative is appointed to handle the estate administration. The probate process ensures that creditors, taxes and expenses are paid before distribution of the estate to the beneficiaries. The personal representative is accountable to the court as well as the estate beneficiaries for his or her actions during the administration. For probate estates having less than $75,000 of non-exempt assets, Florida law provides a simplified probate procedure, known as summary administration.

ARE ALL ASSETS SUBJECT TO PROBATE?

No, only assets owned by a decedent in his or her individual name require probate. Assets owned jointly as “tenants by the entirety” with a spouse, or “with rights of survivorship” with a spouse or any other person will pass to the surviving owner without probate. This is also true for assets with designated beneficiaries, such as life insurance, retirement accounts, annuities, and bank accounts and investments designated as “pay on death” or “in trust for” a named beneficiary. Assets held in trust will also avoid probate.

HOW DOES A REVOCABLE TRUST AVOID PROBATE?

A revocable trust avoids probate by effecting the transfer of assets during your lifetime to the trustee. This avoids the need to use the probate process to make the transfer after your death. The trustee has immediate authority to manage the trust assets at your death; appointment by the court is not necessary.

The “funding” of a revocable trust is critical to successfully avoid probate. Those persons who do not fully fund their trusts often need both a probate administration for the non-trust assets as well as a trust administration to completely distribute the assets. Because the revocable trust may not completely avoid probate, a simple “pour over” will is needed to transfer any probate assets to the trust after death.

HOW DO I KNOW IF MY ASSETS ARE PROPERLY TITLED TO MY REVOCABLE TRUST?

The account statement, stock certificate, title or deed will make some reference to the trust or to you as trustee. You might also elect to fund your trust by naming the trust as a beneficiary of life insurance or other similar arrangements. Your attorney and financial advisor may assist you with the transfer of assets to your trust. If your trust will own real estate then it is important to have the deed prepared by an attorney. The attorney will consider the impact of existing mortgages, title issues and homestead restrictions when the deed is prepared.

CAN THE TRUST HOLD TITLE TO MY HOMESTEAD?

In some situations your homestead property can be transferred to your trust. Most Florida counties have special requirements to maintain the homestead tax exemption and special language may be required in the trust agreement and the deed. However, homestead property may lose its exemption from creditors when title is held in a revocable trust—the bankruptcy law on this point is unsettled. Your attorney can advise you on whether placing your homestead in your trust is appropriate, and if so, the requirements for a valid transfer.


DO I BENEFIT BY AVOIDING PROBATE?

Avoiding probate may lower the cost of administering your estate and time delays associated with the probate process. However, many of the costs and time delays associated with probate, such as filing a federal estate tax return, will also be necessary with a revocable trust. The administration of a revocable trust after death is similar to a probate administration. The trustee must collect and value the trust assets, determine creditors and beneficiaries, pay taxes and expenses, and ultimately distribute the trust estate. A trustee is entitled to a fee for administration of the trust, as is the personal representative of an estate. To the extent professional services of attorneys, accountants and estate liquidators are used to complete the process, the savings may be marginal.

On the other hand, avoiding probate in multiple states is a definite benefit. Because of the nature of real estate, probate is usually required in every state in which you own real estate. This can usually be avoided by transferring ownership of the real estate to your trust during your lifetime.

HOW ARE CREDITORS SATISFIED?

Florida’s trust law does not have a specific procedure for identifying and paying creditors at death. The creditors have up to 2 years from the decedent’s death to file claims against the estate. The trustee may be reluctant to distribute the trust assets to the beneficiaries until he or she is satisfied that all claims have been paid, and 2 years is a long time to wait. For this reason, some clients choose to open a probate estate in addition to the trust administration to take advantage of the probate claim process. The probate law limits the time for creditors to file claims against the estate (generally 3 months from the date of notice), and also provides a process for objecting to claims.

DOES THE TRUST PROVIDE PROTECTION FROM CREDITOR CLAIMS?

In Florida, the trust assets are not protected from the claims of your creditors. During your lifetime the assets in a revocable trust are treated as owned by you, and subject to the claims of your creditor as if you owned them in your personal name. If the trust assets remain in trust after your death, the interests of the beneficiaries may be protected from their creditors by a “spendthrift” provision in the trust agreement. Florida law provides special protection for many types of assets, including assets owned by a husband and wife as “tenants by the entirety.” Consideration should be given to these assets when you decide how to fund your revocable trust. Your attorney can advise you on the types of assets that offer creditor protection and the effect of funding your trust with them.

DOES THE TRUST PROVIDE PROTECTION FROM THE ELECTIVE SHARE?

Florida law provides that a surviving spouse is entitled to a minimum portion of the decedent’s estate. This elective share is equal to 30% of the estate, including certain assets passing outside of probate. Generally, assets held in a revocable trust will be subject to the elective share. There are some exceptions to the elective share, and the right to receive an elective share can be waived by the spouse. You should consult with your attorney regarding the application of the elective share to your particular situation.

WHO PAYS FEDERAL INCOME TAX ON TRUST INCOME?

In most instances, the revocable trust is ignored for federal income tax purposes during the grantor’s lifetime. The income and deductions are reported directly on your individual income tax return. The trust will use your social security number as its tax identification number.

A revocable trust becomes a separate entity for federal income tax purposes when it becomes irrevocable, or stops reporting income under your social security number for any other reason. The trustee is then required to file an annual fiduciary income tax return. Taxable income, deductions and credits are determined in much the same way as for an individual. Trusts are also allowed a deduction for distributions to beneficiaries. In this way, the trust passes on income and deductions to the beneficiaries to be taxed on their personal income tax returns. Income that is not distributed to the beneficiaries is taxable to the trust.

DOES A REVOCABLE TRUST SAVE ESTATE TAXES?

Revocable trusts are often credited with saving estate taxes, but this is not entirely accurate. Your retained interest and power over the trust assets will cause the trust to be included in your taxable estate at death. The trust can be drafted to minimize the effect of estate taxes, but the same estate planning techniques are available to persons who choose to use a will as those who choose a revocable trust.

WHAT ARE THE TRUSTEE'S RESPONSIBILITIES?

Serving as trustee is no simple task. While very important, the prudent investment of trust assets is not a trustee’s only responsibility. Your trustee’s exact powers and duties will depend on the instructions in your trust agreement. But, in general, your trustee will:


Hold trust property
Invest the trust assets
Distribute trust income and/or principal to the beneficiaries, as directed in the trust agreement
Make tax decisions concerning the trust
Keep records of all trust transactions
Issue statements of account and tax reports to the trust beneficiaries
Answer any questions you and the beneficiaries may have concerning the trust

Your trustee may have broad powers or very limited powers. In either case, your trustee is a fiduciary and must follow a strict standard of care when performing trust functions.

WHO MAY ACT AS TRUSTEE OR SUCCESSOR TRUSTEE?

The choice of a trustee is extremely important, and may have tax consequences. You can name almost anyone as your trustee. Unlike the appointment of a personal representative of a probate estate, a trustee does not have to live in Florida or be related to you. You can name yourself or any other individual (subject to tax considerations), or a corporate trustee, such as a bank or trust company. The individual trustee can be a family member, friend or professional advisor. Many individuals appoint family members or friends as successor trustee, to assume responsibility for the trust management and distribution after their death. When a family member or friend is chosen, consideration must be given to the person’s qualifications, the potential for friction with other beneficiaries, and the potential burden you are placing on that individual. The trust agreement should allow these individuals to hire qualified professionals to assist them in their duties, such as attorneys, accountants and financial advisors.

HOW DO I KNOW WHAT I NEED?

This brochure is intended to give you a basic understanding of revocable trusts, but it cannot substitute for a thorough review with your estate planning attorney. A revocable trust must be implemented as part of an overall estate plan. Ownership of assets must be coordinated between the individual and the trust. Decisions must be made as to what assets are appropriate to fund the trust, the transfers must then occur, and the asset allocation should be periodically reviewed. Tax considerations must be discussed with qualified professionals. The trust agreement should reflect your family, economic and tax goals. A revocable trust can help you accomplish these goals when properly prepared and implemented.


[Revised: 4/07 ]© 2005 The Florida Bar"

THE FTC SPEAKS ON THE LIVING TRUST

From The Federal Trade Commission:

"Make Sure Living Trust Offers Are Trust-Worthy

You've worked hard for your money, so it's no wonder that you'll want some control over what happens to your assets in the event of your death. At the very least, you probably want to minimize or avoid potential hassles and headaches for your loved ones.

Many consumers turn to experts in estate planning for help in directing what happens to their assets after they die. There are several strategies consumers can choose from to make sure that their assets are distributed as they wish and in a timely way. Unfortunately, there also are scam artists who prey upon misinformation and misunderstanding about estate taxes and the length or complexity of probate.

Some unscrupulous businesses advertise seminars on living trusts or send postcards inviting consumers to call for in-home appointments to learn whether a living trust is right for them. Others sell living trust "kits" they never deliver, and still others use estate planning services to gain access to consumers' financial information and to sell them other financial products.

The Federal Trade Commission (FTC), the government agency that works to prevent fraud, deception and unfair business practices in the marketplace, advises consumers to proceed with caution. Before you sign any papers to create a will, a living trust, or any other kind of trust, the FTC suggests that you:

- Explore all the options with an experienced and licensed estate planning attorney or financial advisor.
- Avoid high-pressure sales tactics and high-speed sales pitches by anyone who is selling estate planning tools or arrangements.
- Avoid salespeople who give the impression that AARP is selling or endorsing their products. AARP does not endorse any living trust product.
- Do your homework. Get information about your local probate laws from the Clerk (or Register) of Wills.
- Make sure your living trust is properly funded — that is, that the property has been transferred from your name to the trust.
- Ask if the seller of a living trust is an attorney. Some states limit the sale of living trust services to attorneys.

Remember the Cooling Off Rule. If you buy a product or service in your home or somewhere other than the seller's permanent place of business (say, at a hotel seminar), the seller must give you a written statement of your right to cancel the deal within three business days.

Check out any organization that wants your business with the Better Business Bureau in your state or the state where the organization is located before you send any money for any product or service. This is a prudent step, but not altogether foolproof: there may be no record of complaints if an organization is too new or has changed its name.

For more information about living trusts and estate planning, including a list of the "terms of art" and their definitions, consumers can call the FTC toll-free, 1-877-FTC-HELP, and ask for the publication, Living Trust Offers: How to Make Sure They're Trust-worthy.

The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint or to get free information on consumer issues, visit ftc.gov or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. The FTC enters consumer complaints into the Consumer Sentinel Network, a secure online database and investigative tool used by hundreds of civil and criminal law enforcement agencies in the U.S. and abroad."

MORE ON "THE LIVING TRUST"

And finally from Attorney Evans: "Myth # 4: Even if it might do no good, a living trust will do no harm. Not necessarily. In their desire to avoid the alleged evils of "probate," many people jump out of the frying pan and into the fire, running directly into the arms of charlatans who are eager to sell "packages" of living trusts for exorbitant fees. And those trust documents may be poorly written, with the result that large fees have been paid for documents that actually result in unnecessary taxes, legal fees, or court costs. And the probate system is not without its advantages, because it requires notices to beneficiaries and a clear remedy if the estate is not distributed according to the will. In their desire to avoid probate litigation, many people create trusts that give fewer rights to their beneficiaries and so, if the trustee turns out to be dishonest or hostile, the beneficiaries of a living trust may find themselves hampered by the trust document in their attempts to recover their inheritances." His conclusion is that "Living trusts are good for some people, but not for everyone. Living trusts have both advantages and disadvantages, but most people don't need them and aren't helped by them. A living trust is most likely to benefit someone who lives in a state with complicated or expensive estate administration requirements .....who has life insurance or retirement benefits which need to be held in trust after death (because of minor children or for tax reasons), who owns real estate in other states (which might require probate proceedings in those other states), or whose investments are already being held and managed by some other person and that other person could serve as trustee at little or no additional cost." He also notes that the AARP publishes a booklet, "A Consumer's Guide to Living Trusts and Wills", a copy of which can be obtained by sending an email request to member@aarp.org. Now, there is still something that bothers me about the "Living Trust" and this discussion will continue.

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Also from Attorney Evans: "Myth # 3: A living trust can be distributed faster than an estate. This is also wrong. There is no law preventing an executor from distributing all or any part of the estate at any time, as long as the executor is willing to assume the risk of loss if there are additional debts or taxes, or if the distribution is incorrect. The trustee of a living trust is also liable for debts and taxes, and may delay distributing assets for the same reasons. As a practical matter, most executors are reluctant to distribute assets until the death taxes have been settled, which can take from nine months to two years, and there is no reason for the trustee of a living trust to distribute assets any more quickly.

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This is also from attorney Daniel P. Evans, from Pennsylvania: "Myth # 2: A living trust is cheaper to administer than an estate. This may be true for some persons in some states, but the generalization is wrong more often than it is right. In Pennsylvania, New Jersey, and many other states, the much-feared "probate of the will" usually takes less than an hour and does not require a lawyer. The real work in the administration of an estate is the collection of the decedent's assets, the payment of debts and death taxes, and the distribution of the remaining assets according to the will. The administration of a living trust is almost exactly the same, because the trust assets must be collected, the debts and death taxes must be paid, and the remaining trust assets must be distributed. The only advantage of a living trust is that if the decedent was not the trustee, the time and expense of searching for assets and transferring them to the executor might be avoided. That advantage must be weighed against the time and expense of transferring assets to a trustee during lifetime, as well as the inconvenience and loss of control when assets are held in the name of a trustee. Because the steps necessary to settle a trust are similar to the steps necessary to settle an estate, the legal fees should be about the same, and the executor (or trustee) should be able to negotiate a reasonable fee agreement after comparing the fees of different lawyers. Legal fees for the settlement of an estate will be higher than the fees for the administration of a trust in those few states (such as California and New York) that have complicated probate procedures or a statutory fee schedule for lawyers. In those states, having a living trust may help to reduce legal fees." Now it appears that the "Living Trust" may be useful for some New York residents but we need to examine this more.

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This is from attorney Daniel P. Evans, from Pennsylvania, but I believe his statements regarding taxes applies to us in New York as he is talking about federal taxes: "Myth # 1: Living trusts save taxes. This is absolutely wrong. All of the assets in a living trust are subject to both state inheritance taxes and the federal estate tax, just like assets that pass through a probate estate. A living trust also saves no income taxes during lifetime and may actually increase income taxes after death, because some of the income tax rules for trusts are not as favorable as the income tax rules for estates (although an option now exists to elect to treat a revocable trust as part of the probate estate for federal income tax purposes). A trust that is created at death might save taxes in the future in a number of different ways, because a trust can provide income or other benefits to a person without adding those assets to the person’s taxable estate, but that kind of trust can be created by will and a revocable trust is not needed."

FILING FOR HEARING ON UNEMPLOYMENT BENEFITS

A case came to me yesterday wherein a person was requesting a hearing on an adverse determination; however, the adverse determination was made about 7 months ago and the client claimed it was never received although each week a claim was put in and no monies received. Let's examine the law on this. According to the NYS Department of Labor FAQ page: "You may request a hearing on any determination affecting your rights to benefits by writing a letter to NYS Department of Labor, P.O. Box 15131, Albany, NY 12212-5131. The request must be postmarked or otherwise proven to have been filed within 30 days after the mailing or personal delivery of the determination. Absent proof to the contrary, a determination shall be deemed to have been mailed on the date recited on it and received by a party to whom it is addressed no later than five business days after the date on which it is mailed. Make sure you include your Social Security number on your hearing request and the reasons you disagree with the determination. You will be notified of the date, time and place of the hearing by the Administrative Law Judge section after your request has been processed." Here are some cases on the issue: 1. The 30 day statute of limitation. on hearing requests does not apply when a determination was mailed to the last known address of a person who was not then a claimant, but he did not receive it because he had moved. (A.B. 202,436; A-750-1850) 2. Claimant's failure to request a hearing within 30 days of the initial determination is not excused by claimant's incarceration, since claimant was not prevented by physical condition or mental incapacity from filing a hearing request. (A.B. 455,1691; A-750-2080) 3. When claimant' s need for Spanish language material is clearly evident, a notice of determination sent without it is defective and cannot be the basis for holding a hearing request untimely. (A.B. 429,1731; A-750-2067) 4. A claimant who did not request a hearing from a written determination of unavailability within the statutory appeal period but continued to certify to unemployment thereafter, may be heard on the question of availability for the period 30 days prior to the date on which request for a hearing is filed. (A.B. 21,562-49; A-750-938)....there is more case law, but based on the above, how would you decide?