Wills & Estate Planning

The future of federal estate taxes, a filial responsibility case out of Pennsylvania, a voided adult adoption out of Florida, and disinheritance by hairdresser Vidal Sassoon topped the most read Wills and Estate Planning Blogs in April 2013:

Top 5 Most Read Blogs in April 2013 Posted at Any Time

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As my overview of Florida homestead laws reveals, Florida has unique and very strict laws with regard to who you can leave your primary homestead residence to after you die. This is particularly troublesome for nonresident, married couples who title their second residence located in Florida into the name(s) of their revocable living trust(s) and then eventually decide to become Florida residents and apply for the Florida homestead exemption. Typically, the revocable living trusts of these couples will contain estate tax planning by creating AB trusts or ABC trusts after the first spouse dies. And therein lies the problem - Florida law states that if you are married and survived by a spouse at the time of your death, then the spouse must receive the homestead residence outright and without any strings attached, otherwise the spouse will take a life estate and the children of the deceased spouse will receive the remainder. What's so bad about this? If the surviving spouse wants to sell or mortgage the homestead (including a mortgage refinance), then he or she will need permission from the children to do so. This could present a problem, particularly in a second or later marriage where the children are the deceased spouse's children. In addition, for his or her remaining lifetime the surviving spouse will be stuck footing the bill for all of the ordinary upkeep on the house, all of the real estate taxes, all of the insurance and all condo or homeowner association fees. And even if this becomes costly in the future, the surviving spouse can't force a sale or refinance of the mortgage - instead the spouse and the children must all agree to a sale or refinance.

So let's go back to the couple who have their Florida homestead titled in the name(s) of their revocable living trust(s) that contain AB trust or ABC trust planning - if one spouse dies, what will happen? The surviving spouse will take a life estate because leaving the deceased spouse's share of the homestead to the A, B or C trust is legally not the same as giving the surviving spouse a life estate. In many cases this won't be what the couple expected or what they would have wanted had they known the end result.

While there are several ways to avoid this problem, each has its own pros and cons:

The couple can take the homestead residence out of their trust(s) and title it in joint names as tenants by the entirety. But this may not work in a second or later marriage where one spouse brought the home into the marriage and eventually wants it to go to his or her own children.

The couple can sign a postnuptial agreement and waive the right to take a life estate in the homestead. But this may not work in a second or later marriage if one of the spouses refuses to sign such an agreement.

The couple can rely on a Florida law that went into effect in October 2010 which gives a surviving spouse the right to elect to inherit a 50% ownership stake in the homestead and the children will split the other 50% (see F.S. §732.401). This election must be made within six months of the deceased spouse's date of death, and once the election is made it's irrevocable. What this does is effectively give the surviving spouse the right to force a sale of the homestead through a private sale or court-supervised partition action. But a 50/50 split between the surviving spouse and the children may not be an equitable division, and a court-supervised partition action can be costly and may result in a fire sale of the residence.

The bottom line: if you and your spouse have your Florida homestead residence titled in the names of either or both of your revocable living trusts and your Florida estate planning attorney didn't handle the transfer, then run, don't walk, to a Florida estate planning attorney to learn what your options are in your particular situation.

If your estate plan includes a revocable living trust, then after your trust is in place you will need to "fund" your trust with your assets. What does it mean to "fund" a trust? It means that you will need to take a look at each and every asset you own with your estate planning attorney and determine (1) if the asset should be a part of your trust and, if so, then (2) how to get the asset into the name of your trust. Why do you need to do this? Because assets that are transferred into the name of a revocable living trust during your lifetime will avoid probate after you die, which is one of the reasons revocable living trusts have become so popular.

So what about real estate? How does real estate get into your trust? The only way to transfer ownership of real estate into the name of your revocable living trust is to have a new deed prepared and then recorded among the appropriate land records. But what if your real estate is part of a condominium or homeowner's association? Does the association need to know that your revocable living trust has become the new owner of your property? Actually, it depends - while some associations require their owners to obtain permission from the association before the new deed into the trust can be recorded, others don't really care. Thus, you will need to check with your association before recording your new deed.

With the Michael Jackson/AEG Live wrongful death lawsuit as a backdrop, the controversy surrounding the King of Pop and his family continues. Last week choreographer Wade Robson, who was a voluntary defense witness at Michael Jackson's child molestation trial in 2005 where he testified that he had never been abused by Jackson, filed a claim against MJ's estate in which he now alleges that he was in fact molested by the singer. While the court documents have been sealed for now and it is unknown at this time how much the famed choreographer is asking from the estate, MJ's estate attorneys have denounced the claim. In a statement to TMZ, estate attorney Howard Weitzman stated: "Mr. Robson's claim is outrageous and pathetic. This is a young man who has testified at least twice under oath over the past 20 years and said in numerous interviews that Michael Jackson never did anything inappropriate to him or with him. Now, nearly four years after Michael has passed, this sad and less than credible claim has been made. We are confident that the court will see this for what it is."

Meanwhile, two alleged business partners of MJ, Broderick Morris and Qadree El-Amin, have filed a lawsuit against the estate, seeking damages based on a joint venture agreement and asking for an accounting of The Michael Jackson Company. Morris and El-Amin claim to have helped MJ stage his comeback after the 2005 child molestation trial and are each seeking 1.6% of profits earned by the estate.

And then there is the teenage angst of Paris Katherine Michael Jackson, MJ's only daughter, who is now 15. Apparently Ms. Jackson is tired of being raised by her now 84-year-old grandmother, Katherine, who is a tad bit old fashioned. Instead, rumors have been circulating that Ms. Jackson wants to move in with her biological mother, 54-year-old Debbie Rowe. Rowe was married to MJ for three years and is also the biological mother of MJ's oldest son, Michael Joseph "Prince" Jackson, Jr.

So, unfortunately, it appears that MJ will not be resting in peace any time soon.

Will another state death tax disappear retroactively in 2013? Quite possibly. Last Wednesday the North Carolina House of Representatives voted 82 - 37 in favor of repealing the state estate tax retroactively to January 1, 2013. The bill has now been referred to the North Carolina Senate where it will be reviewed by the Finance Committee. This comes on the heels of Indiana's retroactive repeal of its state inheritance tax: It's Official - Indiana's Inheritance Tax Has Been Repealed, Retroactively.

If North Carolina's estate tax is repealed, then this will only leave 16 U.S. jurisdictions that collect a state estate tax in 2013 and 6 U.S. jurisdictions that collect a state inheritance tax in 2013, with Maryland and New Jersey being the perennial favorites that end up on both lists by collecting a state estate tax and a state inheritance tax. Tennessee's death tax is already set to disappear, but not until January 1, 2016.

OK, here I go again, writing about a topic that irks me every time I read an article or a study which concludes that people don't move to reduce their tax bill. As an estate planning attorney who practiced in Maryland from 1995 to 2004 (by the way, Maryland has a state income tax, estate tax, and inheritance tax) and moved to Florida in 2004 (by the way, Florida has none of those state taxes), I am here to tell you that people do move to avoid state income taxes and death taxes. At least once a week (sometimes more), attorneys from my firm work with clients who have made the decision to give up their Connecticut, Illinois, Maryland, New Jersey, New York, etc. (fill in the name of the state that has an income tax and/or a death tax) residency to become a Florida resident. Why? Taxes, that's why.

Don't believe me? Then read this opinion piece from The Baltimore Sun titled "Farewell, my Maryland, farewell to taxes, farewell to extreme liberalism," which I have reproduced here:

"It is with a heavy heart that after living here for 40 years, my husband and I must bid Maryland farewell. We can no longer afford to support fiscal and social programs with which we do not agree.

We moved here in 1973, bought a home we could afford, sent our children to Maryland public schools, worked for Maryland companies, paid our share of property and income taxes, and lived within our means. And now that we have retired, the state of Maryland feels it is entitled to increase the tax burden on our hard-earned retirement income.

After researching the issue, we found that Florida has no state income tax and no state estate tax. We recently purchased a home in Florida, and in May we will establish Florida residency.

We are not alone. Florida real estate brokers told us that the exodus from Maryland is astonishing. The last legislative session that increased taxes, went soft on illegal immigration and hardened criminals, and stepped on the Constitution's Second Amendment was the catalyst we needed to move.

That Gov. Martin O'Malley thought it was his most productive session ever was ample proof that we do not align with his vision for our once beloved state.

The real tragedy of our departure is not only the income the state will lose because we are no longer obliged to pay state income tax, but Maryland also loses the hundreds of volunteer hours I devote to my church, Towson University and Mercy Hospital. Florida will now be the beneficiary of my money and my free labor.

So good-bye, Maryland, I will miss you. But if your policies ever change from being the mismanaged "Freeloader State" back to the well-managed "Free State" I may return.

Constance Kihm, Parkton"

Welcome to Florida, Mrs. Kihm.

It's now official, yesterday Indiana Governor Mike Pence signed a two year budget bill into law. Under the provisions of the bill, Indiana's inheritance tax is repealed effective for deaths occurring on or after January 1, 2013. Estates of decedents who died between January 1, 2013 and May 8, 2013 that already paid their Indiana inheritance tax bill will be looking for a full refund in the mail.

This story amazed me when I read it - how could the NFL let this happen? John Helwig, who played defense for four seasons with the NFL's Chicago Bears, died on December 2, 1994, and apparently his widow, Ruth Helwig, was not entitled to continue to receive any portion of his NFL pension. Nonetheless, Mrs. Helwig managed to collect her deceased husband's NFL pension checks until her death 13 years later in 2007. But that's not the end of the story - John Helwig's daughter, Constance Helwig-Langlois of Detroit, continued to collect her father's pension checks for several years after her mother's death. All of this came to an abrupt halt in 2011 when the NFL finally figured it all out. Last Wednesday Ms. Helwig-Langlois, who had admitted that she had forged her father's signature on the pension checks, was charged with fraud. The erroneous pension payments totaled about $200,000 over the 17 years since Mr. Helwig's death.

So, as I asked above, how could the NFL let this happen? According to The Associated Press, Mrs. Helwig had informed NFL officials on at least two occasions that her husband was still alive. Kind of tough to catch someone who deliberately lies.

Last week I reported on the 2013 Cost of Long Term Care Survey conducted by Genworth, which, not surprisingly, indicates that the cost of long term health care in the United States will only continue to rise. And with the federal Commission on Long-Term Care (COLTC for short) off to a bumpy start - members of COLTC haven't even selected a chairman or vice chairman yet and are basically at a loss as to what to do first, let alone next, even though all of the members of the commission were finally selected over a month and a half ago - Marlene Y. Satter has put together a list of the 2013 "Top 10 Cheapest States for Long-Term Care Costs" for AdvisorOne based on the information contained in Genworth's survey. Ms. Satter averaged the costs for the categories of adult day care, licensed home care, assisted living and nursing home private rooms to come up with her list.

So if you, like me, are not counting on COLTC to fix the long term care problem any time soon, then you may want to consider moving to one of the following ten states which have the overall least expensive annual long term health care costs for 2013:

10. Kansas - $40,868
9. Iowa - $40,536
8. South Carolina - $40,315
7. Georgia - $38,713
6. Texas - $37,751
5. Arkansas - $37,535
4. Oklahoma - $36,936
3. Alabama - $35,963
2. Louisiana - $35,749
1. Missouri - $35,645

If you're not too excited about moving to Missouri, then consult with an elder law attorney in your state to discuss your options for planning for your long term health care needs.

Admittedly, so far the advent of portability of the federal estate tax exemption has led a handful of clients to undo their AB Trust estate tax planning, and I anticipate this trend to continue in the future. Nonetheless, these clients live in Florida, where there is no state estate tax, and they don't plan to move away any time soon. But in a majority of the states that still collect a state estate tax, there is a significant gap between the federal estate tax exemption, which sits at $5,250,000 in 2013, and the state estate tax exemption. And, at least to date, none of the states that collect a state estate tax have introduced legislation to make their state estate tax exemption portable between married couples, so estate tax planning in states that collect a state estate tax still remains critical.

The gap between the federal and state estate tax exemptions is most significant in New Jersey, where the state estate tax exemption is only $675,000 (gap = $4,593,000), and the smallest in Illinois, where the state estate tax exemption is $4,000,000 (gap = $1,250,000). Thanks to indexing for inflation at both the state and federal levels, Rhode Island's gap in 2013 is an odd $4,339,275, while in the following states and the District of Columbia the gap is $4,250,000 - Maryland, Massachusetts, Minnesota, New York and Oregon. That leaves Connecticut, Maine and Washington, where the gap is $3,250,000, Tennessee, where the gap is $4,000,000, and Vermont, where the gap is $2,500,000. (Note that while Delaware, Hawaii and North Carolina currently collect a state estate tax, the exemption in each of these states is equal to the federal exemption of $5,250,000, which means that this is not a gap in these three states.)

So where am I going with all of this? With the gap between the state estate tax exemption and federal estate tax exemption currently ranging from between $1,250,000 and $4,593,000, married couples who live in states with a gap still need AB Trust planning in order to minimize their state estate tax bill. But that's not all that they can do - in many of the states with a gap, married couples can use what is referred to as "ABC Trust planning," "gap trust planning," or "swing trust planning," to completely eliminate the payment of both state estate taxes and federal estate taxes until the second spouse dies.

So how does ABC Trust planning work? In the states that allow for this type of planning, a state QTIP election can be made over a portion of the property that is also exempt from the federal estate tax. For example, in Maryland, where the 2013 state estate tax exemption is only $1,000,000 and a state QTIP election is authorized by statute, ABC Trust planning would work as follows for an estate valued at $7,000,000:

$1,000,000 million will go into the B Trust = state estate tax exemption, exempt for both state and federal purposes
$4,250,000 will go into the C Trust = state only QTIP election is made for this QTIP Trust so that it is exempt for state purposes, also exempt for federal purposes
$1,750,000 will go into the A Trust - state and federal QTIP elections are made for this QTIP Trust, so it is exempt for state and federal purposes

Currently the states that allow for ABC Trust planning are as follows:

Illinois
Maine
Maryland
Massachusetts
Ohio - through December 31, 2012, since Ohio's estate tax was repealed on January 1, 2013
Oregon
Rhode Island
Tennessee
Washington

So what should you do if you are married and you live in one of the states listed above and your estate plan is more than a few years old or, for shame, you don't have an estate plan? Consult with an estate planning attorney in your state to determine if you need to make ABC Trust planning a part of your plan.

And what should you do if you are married and you live in one of the states that collects a state estate tax but you can't use ABC Trust planning? Consult with an estate planning attorney in your state to discuss your options and determine which is right for you and your family.

Wills & Estate Planning

Estate Taxes, Filial Responsibility, Adult Adoption and Celebrity Disinheritance Top Wills & Estate Planning Blogs in April 2013

Top 5 Most Read Blogs Posted in April 2013

Top 5 Most Read Blogs in April 2013 Posted at Any Time

Married Couples' Alert - Is Your Florida Homestead Owned by Your Revocable Living Trust?

Condo Owner Alert - Do You Need to Notify Your Condo Association That Your Revocable Living Trust Owns Your Condo?

Michael Jackson's Estate Takes More Hits

House Votes to Repeal North Carolina Estate Tax

Moving to Avoid Estate Taxes and Income Taxes? Absolutely Says One Maryland Couple

It's Official - Indiana's Inheritance Tax Has Been Repealed, Retroactively

Family Wrongfully Collected Pension of NFL Player Who Died in 1994

Long Term Health Care Costs - America's Top 10 Cheapest States

Planning for the State Estate Tax Gap - Do You Need an ABC Trust?