Cooper M. Powell Selected as Rising Star for Cystic Fibrosis Foundation of Central Florida

ShuffieldLowman associate, Cooper Powell, has recently been selected as a Rising Star for the Cystic Fibrosis Foundation. The Orlando Rising Stars program is designed to raise awareness about cystic fibrosis, raise money for the CFF, and to recognize young professionals in the Central Florida community. Cooper is one of eight Rising Star recipients being recognized. The Rising Star program runs until May 7th, where it ends with an event at The Balcony Orlando.

Cystic Fibrosis is a life-threatening genetic disease that causes persistent lung infections and progressively limits the ability to breathe. In people with cystic fibrosis, a defective gene causes a thick buildup of mucus in the lungs, pancreas, and other organs. In the lungs, the mucus closes airways and traps bacteria leading to infections, extensive lung damage, and eventually respiratory failure. In the pancreas, the mucus prevents the release of digestive enzymes that allow the body to break down food and absorb vital nutrients. Roughly 30,000 people live with cystic fibrosis.

The Cystic Fibrosis Foundation is the leading organization in the United States that provides support for those battling cystic fibrosis. The CFF funds and accredits more than 130 cystic fibrosis care centers. Thanks to the CFF’s support of nearly $3 Billion dollars, we have seen advancements in medicine that have shown promise in controlling and, one day, curing cystic fibrosis. Orlando is fortunate to be home to three of these CFF accredited care centers.

If you would like to support Cooper’s pledge to The Cystic Fibrosis Foundation, you can donate to his fundraiser directly by visiting here: https://finest.cff.org/RisingStars2020/CooperPowell.

ShuffieldLowman is happy to be supporting Cooper by making The Cystic Fibrosis Foundation our Jeans’ Day Charity of the month, which allows employees to opt into wearing jeans on Friday if they donate to our monthly charity.

IRA Planning Under the SECURE Act:  the Good, the Bad, and the Ugly

IRA Planning Under the SECURE Act: the Good, the Bad, and the Ugly

On December 20, 2019, President Trump signed the Setting Every Community Up for Retirement Enhancement Act of 2019 (the “SECURE Act”) into law.  This drastically changes the landscape for inherited IRAs and provides several other changes to current law.

The Good

            Under prior law, each account owner of their own IRA had to begin taking a “Required Minimum Distribution” by April 1st of the calendar year following the year in which they turned seventy and one-half (70.5) years old.  Under the SECURE Act, this now begins at age seventy-two (72), which allows for some additional deferral of income taxes.  The new rules only apply to individuals born on or after July 1, 1949.

The age limitation for contributing to a traditional IRA has been repealed entirely.  This means that as long as a person continues to have earned income, they may contribute to their traditional IRA.  This opens the door not only for additional contributions but also for other planning techniques, like the so called “back door Roth.”

The Bad

            Under prior law and with proper planning, a beneficiary of a decedent’s IRA could stretch the payments out over their life expectancy.  Many trusts were also created to take advantage of this rule.  The SECURE Act eliminates this rule, with only a few exceptions, providing instead only a ten (10) year window to withdraw the IRA funds completely.  The importance and impact of this change cannot be understated.  This will increase taxes payable by beneficiaries of IRAs and often push them into a higher tax bracket.  This rule also applies to 401(k) plans, defined contribution plans, and profit-sharing plans.

The exception to the new “ten (10) year rule” is that it does not apply to: a surviving spouse, a disabled beneficiary, a chronically ill beneficiary, a child who is a minor, or a person who is not more than ten (10) years younger than the decedent.

A surviving spouse may rollover an inherited IRA plan to be treated as if they were the owner.  Additionally, a surviving spouse may be the beneficiary of a “conduit trust” and receive payments over their life expectancy.  There is essentially no change from prior law for surviving spouses.

A disabled beneficiary has a very limited definition under the SECURE Act.  For example, the beneficiary must not be able to engage in any “substantial gainful activity.”  If a beneficiary qualifies, then they may receive payments over their life expectancy (including through an “accumulation trust”).

Likewise, a chronically ill beneficiary also has a very limited definition under the SECURE Act.  If a beneficiary qualifies, then they may receive payments over their life expectancy (including through an “accumulation trust”).

Careful consideration should be given to whether an intended beneficiary will qualify as disabled or chronically ill under the SECURE Act and also whether being the beneficiary of a “conduit trust” may be problematic from the standpoint of qualifying for means based governmental benefits in which case an “accumulation trust” may be desirable.

A beneficiary who is a minor at the time of the IRA owner’s death and is also their child, may receive payments over their life expectancy (including through a “conduit trust”) until they reach the age of majority, at which time they will be subject to the “ten (10) year rule.”

A person who is not more than ten (10) years younger than the IRA owner (who is also not a surviving spouse) may receive payments over their life expectancy (including through a “conduit trust”).

Under prior law, once you were receiving Required Minimum Distributions (after turning seventy and one-half (70.5) years old), you could contribute up to One Hundred Thousand Dollars ($100,000) per year directly to a charity and exclude that amount from your income.  The SECURE Act surprisingly did not change this age to seventy-two (72); but you would not see any benefit for such a gift until you had a Required Minimum Distribution (at age seventy-two (72)) to exclude the charitable gift from your income.  However, it did create a reduction on the amount that can be given to charity while receiving an exclusion from income.  The reduction is tied to the aggregate amount of any contributions to the IRA after age seventy and one-half (70.5) for which an income tax deduction is taken over the amount of any prior year reductions.

The Ugly

            There was so much certainty under prior law regarding inherited IRAs, that most people used a fairly standard approach for their beneficiaries to inherit IRA proceeds relying on a stretch payment (either over the life expectancy of each beneficiary or at least over the oldest trust beneficiary).  Nearly every estate plan with a revocable trust or “simple” Will includes the so called “conduit trust.”  Now, with the SECURE Act, any beneficiary of a “conduit trust” that does not fall into one of the exceptions discussed above may face real issues with complying with current law (and so will their Trustee).  That is because a typical “conduit trust” directs the Trustee to withdraw the Required Minimum Distribution each year and then distribute it from the Trust to the beneficiary.

The problem that arises is that for most beneficiaries there is no Required Minimum Distribution any longer.  Further, even if the Trustee used the old life tables to determine what it would have been under prior law, the amount withdrawn would not be sufficient to draw the IRA down in ten (10) years, as required under the SECURE Act.  Many “conduit trusts” prohibit the Trustee from withdrawing anything over the Required Minimum Distribution.  Without an update to the estate plan, compliance with current law will be difficult.

Conclusion

            Because there have been many changes under the SECURE Act, speak with an estate planning and tax attorney with significant experience in planning for IRA benefits.  You should not only review your estate planning documents, but also your beneficiary designations.  The good news is that there are several planning strategies that can be employed to address these changes (such as discretionary trusts and life insurance to provide for increased income tax liability), but there is not a one size fits all solution.

Did You Forget About Your Digital Assets? Understanding the Florida Fiduciary Access to Digital Assets Act

In 2016, Florida passed the Florida Fiduciary Access to Digital Assets Act (the “Act”) to allow Florida’s probate law to develop with the digital age. Much like the traditional probate code, the Act regulates who and when someone may legally access a decedent’s digital assets.

What is a Digital Asset?
A “digital asset” is any electronic record in which an individual has a right or interest. This term includes the underlying asset if that asset is itself an electronic record. For example, the money in your online bank account is not a digital asset because the underlying money is physical. But, the photos, digital books, documents, emails, blogs, cryptocurrency, reward points, and other information stored on a digital device are considered a digital asset because it is, in and of itself, an electronic record.

Who May Access Your Digital Assets?
Generally, only a fiduciary or designated recipient may legally access your digital assets upon your death. When an individual passes away, the court will appoint someone to maintain and/or distribute the estate’s assets to the designated recipients. This person, referred to as a fiduciary, is defined by the Act to include a personal representative, guardian, agent, or trustee. The Act also provides that the decedent may direct the disclosure of digital assets to a designated recipient in a will, trust, power of attorney, or other record.

When May a Fiduciary or Designated Recipient Access Your Digital Assets?
A fiduciary acting under an estate plan that does not address digital assets must obtain a court order to gain access to the content of electronic communications. But, if your estate plan addresses digital assets, the fiduciary or designated recipients may access the content of electronic communications and other digital assets when they supply the custodian with:

  1. A written request for disclosure;
  2. A certified copy of the death certificate of the user;
  3. A certified copy of letters of administration, order authorizing a curator or administrator ad litem, order of summary administration, or other court order; and
  4. A copy of the user’s will, trust, power of attorney, or other record showing the user’s consent to disclosure of the content of electronic communications.

Content of electronic communications include any writing, images, or data transferred by or to the decedent that is not readily accessible to the public. For example, emails or private messages are considered content of electronic communications. Other digital assets include all digital assets that are not considered content of electronic communications. For example, this may include photos or messages available to the public, digital currency, online accounts, or information stored on a digital device. And a custodian is a person or entity, like Facebook or Yahoo, that carries, maintains, or stores a digital asset of a user.

While a custodian retains the discretion to grant a fiduciary or designated recipient full or partial access to the decedent’s account, the custodian must not disclose content of electronic communications without a court order or consent by the decedent. Thus, if your estate plan does not address digital assets, the fiduciary must obtain a court order directing the custodian to release the specific electronic communications.

Why Should Your Estate Plan Include Digital Assets?
Without an estate plan protecting digital assets, your family may experience financial stress and lose memories.

First, a decedent who does not protect their digital assets may cause their family to experience financial stress. According to a study performed by McAffee, the average American has over $55,000 in digital assets.

When a decedent passes away, their estate must be administered according to their estate plan or state intestacy laws. To properly administer the estate, a court must appoint a fiduciary to locate and safeguard all of the estate’s assets. No one may legally access the estate’s general assets until a fiduciary is appointed by the court. If your estate plan does include digital assets, there may be a dispute regarding who should be appointed fiduciary of the digital assets which will create financial stress. For example, if you have automatic payments for bills or monthly subscriptions, you would be unable to legally access those accounts to make or cancel payments until a fiduciary is appointed.

Even after a fiduciary is appointed, they must obtain a court order to gain access to content of electronic communications. Moreover, the estate may be forced to go through probate if digital assets are not included in the estate plan. This process can be expensive, time-consuming, and emotionally tolling on your family. But, it can be avoided with proper planning.

Second, a decedent who does not protect their digital assets may cause their family to lose sentimental memories. If a decedent passes away without addressing their digital assets, the decedent’s fiduciary may not have access to the decedent’s photos, internet posts, emails, or videos. Valuable content such as emails or private writings may also be lost if the court does not order the custodian to provide the fiduciary or designated beneficiaries with that content.

An unfortunate, but all to common, example of the emotional toll associated with failing to include digital assets in an estate plan is displayed when a family member passes away. Often times, there is valuable sentimental content or conversations stored in the deceased’s online messages or notes that are lost forever.

How Can You Protect Your Digital Assets?

  1. Create a list of your digital assets with the corresponding password, username or account number, and evidence linking the account to you.
  2. Designate a recipient to have (or not have) access to the digital asset through a tool provided by the custodian. For example, Facebook allows you to choose a “legacy”.
  3. Meet with an Estate Planning Attorney to draft or amend your will, trust, and/or power of attorney so that your digital assets will be devised properly upon your death and your family can avoid the financial and emotional stresses associated with probate.

If you have more questions about protecting your digital assets, reach out to one of our estate planning attorneys or fill out our website contact form.

Client Spotlight: Florida Surety Bonds, Inc.

Client Spotlight: Florida Surety Bonds, Inc.

Promises are really the bottom line when it comes to bonded work – promises to fulfill obligations in the event of disruptions to project completion and/or payment.  Florida Surety Bonds, Inc. has helped their clients to keep their promises for 20 years, and grown into the largest independently owned bond agency in Florida.  They enjoy a much-deserved sterling reputation, affording them the credibility and clout to provide a wide variety of customized bonds in a timely and efficient manner, delivered with outstanding service.  According to Kim Niv, Vice President/Principal, “We’re known for investing in relationships, providing continuing guidance, support and information.  Some clients have consulted with us for many years before they actually need our services, and we are happy to help them navigate the complexities of the bond system.  They know we are here for them when they need us.”

Working with businesses of all sizes, from some of the largest contractors in the state to start-up companies, Florida Surety Bonds focuses on designing the best bond program for each client, using one of their 50+ surety companies.  They have negotiated pre-approved lines of credit for clients, which means faster service.  Thanks to their bonds-only expertise, and outstanding reputation with surety companies as an ethical partner, Florida Surety Bonds has qualified for exclusive surety appointments within the State of Florida.  This gives their clients unmatched access to maximum programs and minimum rates with the most competitive conditions.  This combination of experience and market access allows the agency to help clients grow their businesses, working with them as an integral part of their team, and problem-solving as they pursue new job opportunities together.

Bonds available through Florida Surety Bonds, Inc., include contract bonds (bid, performance, and payment), commercial, civil court, and license and permit bonds.  Applying for smaller bonds is made simple with an online application tool for contractors and a helpful FAQ section of the company website.  But they invite business owners to sit down with one of their expert agents to custom craft larger programs.

Florida Surety Bonds, Inc. is proud to recommend ShuffieldLowman to clients and prospective clients when they need legal assistance, including contract review, estate planning, and dispute resolution.

How to Decant to a Special Needs Trust

How to Decant to a Special Needs Trust

In 2018, Florida revised the ability to more easily modify existing trusts.  Basically, now there are three separate ways that a trustee may engage in a decanting, a general term used to describe the trustee of an existing trust creating a new, second trust, and moving all assets of the old trust into the new trust.

1. A trustee may decant if they are given “absolute power” over distributions in the trust instrument. This method of decanting provides the most flexibility for all parties.

2. A trustee without “absolute power,” such as a distribution power limited by the ubiquitous health, education, maintenance and support, or “HEMs,” standard may decant. This method must comply with a more rigid standard.

3. A trustee may decant from any trust that does not qualify as a “supplemental needs trust” to a trust that does qualify as such. There are important limitations for this type of decanting as well. 

You can read more about the ways a trustee may decant a trust in our other article: Decanting Trusts In Florida.

New statutes in Florida for special needs trusts

The new statute provides that a trustee who has the power “to invade the principal of the first trust to make current distributions to or for the benefit of a beneficiary with a disability may instead exercise such power by appointing all or part of the principal of the first trust in favor of a trustee of a second trust that is a supplemental needs trust.”  A “beneficiary with a disability” is defined as “a beneficiary of the first trust who the authorized trustee believes may qualify for government benefits based on disability, regardless of whether the beneficiary currently receives those benefits or has been adjudicated incapacitated.”  A “supplemental needs trust” is defined as “a trust that the authorized trustee believes would not be considered a resource for purposes of determining whether the beneficiary who has a disability is eligible for government benefits.”  That provides a great deal of flexibility in the trustee being able to create a second trust that qualifies as a supplemental needs trust, however, there are requirements specific to this type of decanting.

There are many situations where decanting to create a supplemental needs trust will be desirable.  For example, what if mom and dad create a trust that is irrevocable after their death and this trust benefits their three children?  The trust lasts for the life of the beneficiaries and allows the trustee to distribute from income or principal to the beneficiaries for their health, education, maintenance, and support. 

If after the death of their parents, one of the children is involved in an accident or suffers a brain injury with permanent damage, then the terms of the trust will no longer be the best structure.  Through decanting, an authorized trustee could create a second trust that is a supplemental needs trust for the benefit of the child with the disability and move one-third of the first trust’s assets to it through decanting.  Another second trust could be created for only the other two children who have no disability (with all other terms being the same as the first trust) and two-thirds of the first trust’s assets moved to it through decanting.  After the decantings, the disabled beneficiary may qualify for government benefits because the first trust would have been “counted” as a resource while the second trust will not.  Additionally, the beneficial interests of the other children in their new trust are substantially the same as before the decantings occurred.

Questions to consider before decanting a special needs trust in Florida

When considering decanting in the context of special needs trusts, ask these initial questions:

  • Is there a compelling reason to decant? (Will the exercise of the power further the purposes of the trust?) Perhaps the existing trust terms will prevent a beneficiary with a disability from qualifying for government benefits.
  • Is the trustee an authorized trustee (not a settlor or beneficiary)?
  • Does the trustee have the power to invade the principal of the trust?
  • Is the beneficiary under a legal disability or does the trustee reasonably believe the beneficiary is incapacitated?
  • Is the proposed supplemental needs trust one that the trustee believes would not be considered a resource for purposes of determining whether the beneficiary who has a disability is eligible for government benefits?
  • Does the supplemental needs trust benefit the beneficiary with a disability?
  • Is the second trust’s beneficial interest substantially similar to the beneficiary’s interest under the first trust? In other words, you cannot substantially change the interests of any beneficiary; the only exception being that the interests of the beneficiary with the disability need only qualify as a supplemental needs trust would normally provide and likely their interests will be changed very substantial in order to qualify.
  • Are the beneficiaries of the second trust also beneficiaries of the first trust? In other words, you cannot add new beneficiaries.

If you have answered yes to any of the above questions and are interested in learning more about the expanded opportunities for fixing your special needs trust, please feel free to contact us.  

Decanting Trusts in Florida – When and How

Decanting Trusts in Florida – When and How

Is that irrevocable trust you created, or somebody created for your benefit, really set in stone? Prior to 2007, the answer would mostly be yes, but between 2007 and now, the answer became more complex.  Modifications without going to court are now more easily done, with certain limitations. One of the easiest methods of modifying an irrevocable trust is to use a doctrine called decanting. Decanting is a general term used to describe the trustee of an existing trust creating a new trust (also referred to as the “second trust”) and moving all assets of the old trust into the new trust. The result is that the old trust is terminated, and the new trust provisions govern use of the trust property.

A trustee may have various reasons to decant. It may be to convert a trust to a supplemental needs trust, to correct drafting mistakes, to make needed clarifications, or to adapt to changes in circumstances or in the law. Decanting can transform an irrevocable trust without the need for judicial modification. The catch with decanting, has always been that under prior Florida law, very few trusts contained the appropriate powers to allow a trustee to decant.

Florida has allowed decanting since 1940, but it was limited to a trustee who has the “absolute power” to invade the principal of the trust.  In other words, if the trustee has sole and absolute discretion regarding their distribution power over the principal of a trust and that discretion was not tied to any ascertainable standard (i.e. health, education, maintenance and support of the beneficiary), then that trustee has “absolute power.” Due to that limited framework, and changes in estate planning practice over the years, the number of trusts for which decanting was even possible was quite small.

The 2018 Florida decanting statute revision

However, in 2018, Florida revised the decanting statute in many significant ways. Now, there are three separate ways that a trustee may engage in a decanting:

  1.  A trustee may still decant if they are given “absolute power” in the trust instrument. This method of decanting provides the most flexibility for all parties.
  2. A trustee without “absolute power” may decant; such as a distribution power limited by the ubiquitous health, education, maintenance and support, or “HEMs,” standard. In this scenario, the trustee’s ability to have different provisions in the new trust will be limited, as discussed below.
  3. A trustee may decant from a trust that does not qualify as a “supplemental needs trust” to a trust that does qualify as such. There are important limitations for this type of decanting as well. 

One very important concept for clients and attorneys to discuss is whether the client would be opposed to a future trustee engaging in decanting. Decanting is now a default power of all trustees.  If the client does not want changes made to their plan in the future, then the drafting attorney may include a broad prohibition against decanting to effectively prevent the trustee from being able to effectuate that type of transaction.

In order to exercise the decanting power, the trustee must be an “authorized trustee.”  Generally, that will be a trustee who is not the grantor of the trust or who is not also a beneficiary of the trust.  If decanting is something that the grantor would like available as an option to deal with the unknown future, but they will only be naming trustees who are also beneficiaries, then a power should be included to allow that trustee to appoint a special co-trustee to exercise the decanting power granted in the trust (or by Florida statute). 

What are the different types of decanting?

If a trustee may distribute trust property in any amount and at any time in that trustee’s sole discretion, then they have “absolute power.”  While there are limits on how the second trust may differ, the trustee has the broadest authority in this situation. They may divide up interests of multiple beneficiaries, add additional guidance on trust distributions, change trustee succession, and more. Thus, the trustee can change substantive and administrative provisions.

If a trustee does not have “absolute power” because, for instance, they may distribute only for a beneficiary’s health, education, maintenance and support, then the changes in the second trust are much more limited. The changes in this situation are more likely to be limited to administrative issues, i.e. trust succession, investment powers, etc.

A trustee who has the power “to invade the principal of the first trust to make current distributions to or for the benefit of a beneficiary with a disability may instead exercise such power by appointing all or part of the principal of the first trust in favor of a trustee of a second trust that is a supplemental needs trust.” That provides a great deal of flexibility in the trustee being able to create a second trust that qualifies as a supplemental needs trust (also called a “special needs trust”). However, there are requirements specific to this type of decanting which you can learn more about in another article we wrote: How to Decant to a Special Needs Trust.

It is important to note, the exercise of the decanting power may not: (i) increase the authorized trustee’s compensation beyond the compensation specified in the first trust instrument or (ii) relieve the authorized trustee from liability for breach of trust or provide for indemnification of the authorized trustee for any liability or claim to a greater extent than the first trust instrument.  However, the exercise of the power may divide and reallocate fiduciary powers among fiduciaries and relieve a fiduciary from liability for an act or failure to act of another fiduciary as otherwise allowed under law or common law. 

Also, there are many other important tax considerations when it comes to decanting and it is important to ensure you are receiving the appropriate level of advice for this sophisticated area of trust and tax law.  First, the topic of decanting is on the “no rule” list for the IRS.  This means that it is not possible to request a private letter ruling and receive the IRS’s stamp of approval before engaging in a decanting.  Further, there are many tax traps for the unwary and each situation is unique, requiring special attention to tax issues.

Considerations before decanting in Florida

  1. The “absolute power” requirement in the prior statute is no longer a strict absolute requirement. Even if the trustee’s powers to invade principal are limited to an ascertainable standard, the power to decant can still exist.
  2. Although the new statute requires that a beneficiary be disabled to decant into a supplemental needs trust, decanting does not depend upon whether the beneficiary is currently eligible for government benefits or has been adjudicated incapacitated. Rather, a trustee must believe that the beneficiary may qualify for governmental benefits based on his/her disability or the trustee reasonably believes the beneficiary is incapacitated.
  3. While decanting rules have expanded, the notification rules have become stricter. There is a 60-day written notice requirement and the statute carefully outlines who must be notified of a trustee’s intent to decant and what documentation must be sent and received to satisfy its requirements. It does allow for a written waiver of the notice period to shorten the time frame to allow the trustee to act immediately. It is important to note that the 60-day notice require does not limit the right of any beneficiary to object.

In conclusion, Florida has greatly expanded the opportunities for a trustee to decant a problem trust.  The decanting process should include the trustee consulting with competent legal and tax advisors as well as the beneficiaries and interested parties to ensure the outcome is beneficial to all parties and complies with the law.  If you are a trustee of beneficiary and would like to know more about your options with decanting, please feel free to contact us.