2019 Secure Act Takes Away the Security of Stretch Distribution Planning

The Secure Act, which became effective January 1, 2020, changed the options for inherited retirement account beneficiaries.  In some cases, planners recommended that a retirement account be payable to the trustee of a trust, rather than directly to the beneficiaries. There could be good reasons to do so:  the beneficiary is too young, has a disability, or just can't manage money.  To retain the advantage of "stretching" the distribution of the inherited account funds, attorneys put special language in trusts to preserve the stretch. 

The Conduit Trust. One option was a "conduit trust" which required the trustee to collect the yearly distributions for a beneficiary and then distribute the funds in the same year for the intended beneficiary.  Even though the funds ultimately passed to the beneficiary, the trustee could at least control the timing of the distributions.  As a result, the trust was really just a "conduit" to receive and disburse funds. The trustee could make the election to take the beneficiaries over the beneficiary's lifetime, which allowed for:

• yearly distributions, 
• continued tax-free growth within the account, and 
• the avoidance of the higher income tax brackets for undistributed income within a trust.   

Under the new law, the retirement account funds must be fully distributed by the trustee by the end of the 10th year.  In some situations, this might be undesirable. 

The Accumulation Trust.  In cases where mandatory distributions from the trust each year were not desirable, the trust could provide that the trustee is permitted to accumulate income.  That gave the trustee more control over the distributions, but potentially subjected the yearly distribution of retirement account funds to the trust to income tax at much higher rates than those paid by an individual. 

Qualified Beneficiaries. Under the old rules, the beneficiary's life expectancy could be used to calculate the yearly mandatory distribution of inherited retirement account funds.  To qualify, the beneficiary would have to be an individual and have an identifiable interest in the trust.  Only surviving spouses had the option of a true roll-over, allowing them to wait until age 70 to take distributions, and then calculate the yearly distributions based upon their life expectancy. 

Eligible Qualified Beneficiaries.  Under the new law, beneficiaries only have 10 years to withdraw the inherited retirement account funds unless they are "eligible qualified beneficiaries."  This limited group includes: 

• Surviving spouses; 
• Minor children of the account owner; 
• Beneficiaries with a chronic illness or disability; and 
• Beneficiaries who are not more than 10 years younger than the deceased account owner. 

Minors loose their favorable status when they turn 18 and then have 10 years to withdraw the funds. 

Steps to Consider.  In light of the new plan, there are several options to consider. 

• Consider naming a charity or a Charitable Remainder Annuity Trust as the account beneficiary; 
• Convert to a Roth IRA; 
• Amend a trust to act as an accumulation trust instead of a conduit trust. 

The available options  should be discussed with your tax adviser and your legal adviser.  There are many factors to consider, so the best approach for one estate plan may not be the best for another. 

Ensuring Insurance Coverage for Trust-Owned Properties

According to an article in The Ledger - Will 2020 Give Florida a Break In Hurricane Season? , there is only a 10% change that we'll see a less than normally active season in 2020.

Fellow attorneys have reported cases where insurance carriers refuse to honor a claim when the homeowner's insurance policy does not name the homeowner's trust as an additional insured. In other cases, the insurance company has dropped the policy when the homeowner dies.  What's the solution?  Ask your insurance agent 2 important questions:

• Is my trust listed as an "additional insured?"
• Will coverage continue in the event of my death, or if no one is living in my home? 

The concept of an additional insured is used to protect third parties, such as banks who loan money in exchange for a mortgage.  They want to be sure that the mortgage is paid before money goes into the pocket of the homeowner.  It's not unreasonable for you to expect continued coverage for the successor trustee of your revocable trust if they hold title to your home. 

In 2017, Citizens Property Insurance Corporation announced its plans to cover property held in trust.  The following guidelines were posted on its web site:

Residence Held in Trust 

Under the new rules:

A homeowner, dwelling or a condominium unit policy can be issued when legal title to the residence is held in trust.

• Eligible policy types can be endorsed to insure a trustee and, if applicable, a trust.
• The trust, by itself, cannot be the named insured. The name(s) of the trustee(s) must precede the name of the trust as the named insured.  
• Trustees that are corporations, partnerships or limited liability companies (LLCs) may be eligible for dwelling policies without liability coverage.

https://www.citizensfla.com/-/20171016-residence-held-in-trust-new-rules-forms-and-system-changes

Finally, if you agent says your trust can't be added as a named insured or an additional insured, ask your agent to help you find a company that will protect you and the beneficiaries of your trust. 

Are Insurance Proceeds for Hurricane Damage Protected?

Hurricanes are part of Florida living.  Our constitutional homestead protection for our homes is also part of our heritage, dating back to the 1868 Florida Constitution.  We know that our family home is protected by the constitution in a way that prevents creditors from forcing the sale of the family residence.  What if the home is damaged by a storm and  you receive money to repair the home?  Is that money protected? 

In Quiroga v. Citizens Prop. Ins. Corp., 34 So. 3d 101, 102 (Fla. 3^rd DCA 2010), the Third District said YES!  The court also found that the homeowner did not waive the homestead protection in a fee agreement with his lawyer.  The court's opinion explains: 

In the event a homestead is damaged through fire, wind or flood, the proceeds of any insurance recovery are imbued with the same privilege. Orange Brevard Plumbing & Heating Co. v. La Croix, 137 So. 2d 201, 203-04 (Fla. 1962). Because Quiroga did not and, as a matter of public policy in this State, cannot through an unsecured agreement, such as the contingent fee agreement in this case, enter into an enforceable contract to divest himself from the exemptions afforded him through Article X, section 4(a), see  [**3] Chames v. DeMayo, 972 So. 2d 850, 853 (Fla. 2007), this Court is compelled to affirm the order under review, the equities of the matter notwithstanding. See Pub. Health Trust of Dade County v. Lopez, 531 So. 2d 946, 951 (Fla. 1990) ("The homestead protection has never been based upon principles of equity.") (citing Bigelow v. Dunphe, 143 Fla. 603, 197 So. 328, 330 (Fla. 1940)); Pierrepont v. Humphreys (In re Newman's Estate), 413 So. 2d 140, 142 (Fla. 5th DCA 1982) ("The homestead character of a piece of property . . . arises and attaches from the mere existence of certain facts in combination in place and time."). 

Once again, the court's recognized the sacred protection in our constitution to protect the family home. 

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Thanks to Florida attorneys Justin Savioli for sharing this hard-to-find case, and to Steve Kotler for sharing Justin's find. 

Wills, Trusts & Estates Certification Review Course

The Annual Wills, Trusts & Estates Certification Review Course will be held on April 17th and 18th in Orlando.  It is always a great program.  We've lined up 19.5 hours of CLE credit, including credit for several certification areas.  Whether you are planning to take the certification exam, already board certified, or just want a great review of the law in this area, this program is a must.

Register Now

 

Kevin M. Collver has joined Barnes Walker, Goethe, Perron & Shea, PLLC. He will be handling wills, trusts, estate planning, probate, tax law, and business entities. 

Kevin received his Bachelor of Arts degree in Political Science from the University of California, San Diego in 1991. He received his Juris Doctorate degree in 1994 from Ohio Northern University where he won, among others, the American Jurisprudence book awards for corporate taxation and partnership taxation.  Kevin went on to obtain his Master of Laws in taxation from the University of Florida law school’s Graduate Taxation Program in 1995. 

Kevin brings a wealth of experience to the firm. Prior to joining Barnes, Walker, Goethe, Perron & Shea, PLLC, Kevin worked as a Wealth Strategist for more than 13 years with Raymond James Financial, Inc., at their headquarters, providing estate and gift taxation guidance to Raymond James’ 8,000 financial advisors, working with their clients, and the clients’ attorneys and accountants.   Kevin's prior experience includes estate planning, business entities, and litigation. He was also a manager at Arthur Anderson in Miami, handling international tax issues.  

Committed to Professional Service

 


I have the privilege of working with many dedicated professionals in Florida and across the country.  By being actively engaged in professional organizations, I learn something every time I help on a committee project, see the work of other committees, and or spend time with others who give their time to serve our profession and the public.  My current activities include:

• The Florida Bar Probate Rules Committee (current chair)

• The Florida Bar Real Property, Probate and Trust Law Section (Executive Council; Co-Vice Chair of the Probate Law and Procedure Committee; Chair of the Wills, Trusts and Estates Certification Review Course; Co-Chair of the Florida Bar Journal Committee)

• The American College of Trust and Estate Counsel (Elder Law Committee and Asset Protection Committee)  

Even though I am very involved, I see many others who devote even more time to these great organizations. I'm fortunate to know and work with the leaders and members of these great organizations. 

Florida Probate Rules 2020 Update

Probate attorneys live by the rules - The Florida Probate Rules.  These rules are updated by the Florida Probate Rules Committee, which consists of volunteers appointed by the President-Elect of The Florida Bar as vacancies open up.

Several changes became effective on January 1, 2020, including rules that affect the content of the Petition for Administration, the Oath of Personal Representative, and the Notice of Administration.

To keep up with the changes, The Florida Bar offers access to the most recent version of the rules.  Here's a link to the January 1, 2020 update:

The Florida Probate Rules - 2020 Update