Notes from Heckerling - Pressing the "Do Over" Button: Strategies for Modifying Wills and Trusts after Formation

Posted on January 16, 2012 by Craig Dreyer

 

Title: Pressing the “Do Over” Button: Strategies for Modifying Wills and Trusts after Formation

Presenter: Joshua S. Rubenstein

                Mr. Rubenstein opened his presentation discussing a few current events that weren’t expected such as the European debt crisis, the Asian spring, and the Yankees failing to reach the World Series. He noted that you cannot anticipate all changes and issues that may arise in the future.   Clients often make bad decisions regarding their estate plans, and lawyers sometimes make mistakes. In addition, people are living longer than ever before which raises the question, so how long does a person have to wait to inherit? There is an increase in litigation, and trust beneficiaries often few trusts negatively. Mr. Rubenstein divided the presentation into four different sections in discussing how to address some of these issues:  I) Tax Considerations Underlying Modifications: Income and Transfer Taxes, II) Retroactive Modifications, III) Prospective Modifications, and IV) Special Considerations with Respect to Litigation Settlements. 

I) Tax Considerations

                In describing the tax consideration’s underlying modifications, he noted the current low income tax rates, which he only expects to increase.  Historically income tax rates are as high as 90% for the top rates as opposed to the current 35-40% income tax rates and 15-28% capital gains rates.   He also discussed the various forms of taxation for different entities and how gifts, legacies and distributions from estate/and or trusts are generally tax exempt, except for income in respect of a decedent, distributable net Income, and gifts to employees.   The most common deductions are charitable, businesses, and administration expenses which are all subject to substantial limitations. He also noted many states and municipalities impose income tax rates, while eight states levy no income tax. 

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Reformation of a Will to Correct Mistakes

Posted on October 10, 2011 by Craig Dreyer

In a dramatic change from previous law, the Florida Legislature has enacted Florida Statute section 732.615 to allow the reformation of a will. Previously under Florida probate law, a trust could be reformed for a mistake of fact or law, but a will could not. The new statute allowing the modification of wills is effective as of July 1, 2011 and reads as follows:

732.615 Reformation to correct mistakes.—Upon application of any interested person, the court may reform the terms of a will, even if unambiguous, to conform the terms to the testator's intent if it is proved by clear and convincing evidence that both the accomplishment of the testator's intent and the terms of the will were affected by a mistake of fact or law, whether in expression or inducement. In determining the testator's original intent, the court may consider evidence relevant to the testator's intent even though the evidence contradicts an apparent plain meaning of the will. 

Previously, if a will was ambiguous, a Florida court could allow a reformation since the primary intent was to ascertain the intent of the testator. However, in some circumstances a mistake did not involve ambiguity, but instead involved a mistake of fact or law. One such example is where a bequest was for $10,000 instead of $100,000. In such cases, courts were previously barred from introducing evidence to determine the true intent of the testator, even if it was obvious what the testator’s true intent was from evidence other than the will. 

New Florida Statute section 732.615 will give support for beneficiaries who were deprived of an inheritance or part of an inheritance under a will when it was clear from other evidence that the decedent’s intent was not properly reflected in the will.  If you have any questions, or we can help you with an estate planning or probate matter, please contact Craig Dreyer or Jeffrey Skatoff at (561) 842-4868.

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Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010

Posted on December 19, 2010 by Jeffrey Skatoff

On December 17, 2010, President Obama signed the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (the 2010 Act).  The 2010 Act provides for extension of the Bush tax cuts from 2001 and 2003 until 2012, as well as a variety of other tax reductions.   Here are the some of the highlights.

 
Reductions in Individual Income Tax Rates
 
Temporarily extend the 10% bracket. Under current law, the 10% individual income tax bracket expires at the end of 2010. Upon expiration, the lowest tax rate will be 15%. This 2010 Act extends the 10% individual income tax bracket for an additional two years, through 2012.
 
Temporarily extend the 25%, 28%, 33%, and 35% brackets. Under current law, the 25%, 28%, 33%, and 35% individual income tax brackets expire at the end of 2010. Upon expiration, the rates become 28%, 31%, 36%, and 39.6% respectively. This 2010 Act extends the 25%, 28%, 33%, and 35% individual income tax brackets for an additional two years, through 2012.
 
Temporarily repeal the Personal Exemption Phase-out. Personal exemptions allow a certain amount per person to be exempt from tax. Due to the Personal Exemption Phase-out (“PEP”), the exemptions are phased out for taxpayers with AGI above a certain level. The EGTRRA repealed PEP for 2010. The 2010 Act extends the repeal of PEP for an additional two years, through 2012.
 
Temporarily repeal the itemized deduction limitation. Generally, taxpayers itemize deductions if the total deductions are more than the standard deduction amount. Since 1991, the amount of itemized deductions that a taxpayer may claim has been reduced, to the extent the taxpayer’s AGI is above a certain amount. This limitation is generally known as the “Pease limitation.” The EGTRRA repealed the Pease limitation on itemized deductions for 2010. The 2010 Act extends the repeal of the Pease limitation for an additional two years, though 2012.
 
Capital Gains and Dividends
 
Temporarily extend the capital gains and dividend rates. Under current law, the capital gains and dividend rates for taxpayers below the 25% bracket is equal to zero percent. For those in the 25% bracket and above, the capital gains and dividend rates are currently 15%. These rates expire at the end of 2010. Upon expiration, the rates for capital gains become 10% and 20%, respectively, and dividends are subject to the ordinary income rates. This 2010 Act extends the current capital gains and dividends rates for all taxpayers for an additional two years, through 2012.
 
 
 
Temporary Individual Alternative Minimum Tax (AMT) Relief
 
Two-year AMT patch. Currently, a taxpayer receives an exemption of $33,750 (individuals) and $45,000 (married filing jointly) under the AMT. Current law also does not allow nonrefundable personal credits against the AMT. The 2010 Act increases the exemption amounts for 2010 to $47,450 (individuals) and $72,450 (married filing jointly) and for 2011 to $48,450 (individuals) and $74,450 (married filing jointly). The 2010 Act also allows the nonrefundable personal credits against the AMT. The 2010 Act is effective for taxable years beginning after December 31, 2009.
 
Estate Tax Relief
 
Temporary estate, gift and generation skipping transfer tax relief. The EGTRRA phased-out the estate and generation-skipping transfer taxes so that they were fully repealed in 2010, and lowered the gift tax rate to 35 percent and increased the gift tax exemption to $1 million for 2010. The 2010 Act sets the exemption at $5 million per person and $10 million per couple and a top tax rate of 35 percent for the estate, gift, and generation skipping transfer taxes for two years, through 2012. The exemption amount is indexed beginning in 2012. The 2010 Act is effective January 1, 2010, but allows an election to choose no estate tax and modified carryover basis for estates arising on or after January 1, 2010 and before January 1, 2011. The 2010 Act sets a $5 million generation-skipping transfer tax exemption and zero percent rate for the 2010 year.
 
 
Portability of unused exemption. Under current law, couples have to do complicated estate planning to claim their entire exemption (currently $7 million for a couple). The 2010 Act allows the executor of a deceased spouse’s estate to transfer any unused exemption to the surviving spouse without such planning. The 2010 Act is effective for estates of decedents dying after December 31, 2010.
 
Reunification. Prior to the EGTRRA, the estate and gift taxes were unified, creating a single graduated rate schedule for both. That single lifetime exemption could be used for gifts and/or bequests. The EGTRRA decoupled these systems. The 2010 Act reunifies the estate and gift taxes. The 2010 Act is effective for gifts made after December 31, 2010.
 
Temporary Employee Payroll Tax Cut
 
Temporary reduction in employee-paid payroll taxes. Under current law employees pay a 6.2 percent Social Security tax on all wages earned up to $106,800 (in 2011) and self-employed individuals pay a 12.4 percent Social Security self-employment taxes of on all their self-employment income up to the same threshold. The 2010 Act provides a payroll/self-employment tax holiday during 2011 of two percentage points. This means employees will pay only 4.2 percent on wages and self-employment individuals will pay only 10.4 percent on self-employment income up to the threshold.
 
 
As a trust and estate attorney, the portability of the estate tax credit is the most significant feature of the new law.  It allows the unused credit of the first spouse to die to be used in the estate of the second to die.  This will severely limit the need for complex, tax-driven estate planning for those married couples with assets under $10 million.  Instead, other considerations will be paramount, such as asset protection, income tax planning, and trust planning. 
 
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Income Tax Update - November, 2010

Posted on November 27, 2010 by Jeffrey Skatoff

Without Congressional action between now and the end of the year, effective marginal income tax rates are set to soar.  Between 2010 and 2013, the marginal tax rate on the highest earners will increase over 15%.  For those in the highest brackets with qualified dividend and long term capital gain income, the marginal rate is set to increase an unbelievable 58% between 2010 and 2013.  

Part of the increase is attributable to the phase out of the Bush-era tax cuts enacted 10 years ago. The remainder of the increase is based on the increase in taxes to pay for the new health care program enacted by the Obama administration. 

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