The Uniform Partition of Heirs Property Act Passed by Florida Legislature

The Florida legislature has passed the Uniform Partition of Heirs Property Act. Click here for the  Enrolled version of CS/CS/SB 580. It is expected that the governor will sign.  The Agriculture Improvement Act of 2018 passed by Congress ties funding to the passage of the Uniform Partition of Heirs Property Action. Text of the Agriculture Improvement Act of 2018.

Florida Bar Journal Article.  University of Florida professor Joan M. Flock and two recent UF Law graduates studied Alachua County statistics and made the argument that special partition procedures were needed for heirs who inherited property, but never properly probated the estate of the original owner.  Here's a link to their article in the Florida Bar Journal.  The Disproportionate Impact of Heirs Property in Florida's Low Income Communities of Color   In poor communities, this can mean generations of heirs who never hired a lawyer to clear title  need to prove ownership for programs like the Manatee County SHIP program and for homeowner’s insurance. The same problem arises when the family wishes to sell because they can no longer afford to maintain the property.  

RPPTL Section Response. As Co-Editor of the RPPTL Section column in the Bar Journal, I helped with a response to explain why current partition proceedings could be utilized to address the problem.  The Uniform Partition of Heirs Property Act - A Solution in Search of a Problem In addition to Chapter 64 partition action procedures, which already exist, there is a section in the Probate Code that authorizes the partition of non-homestead property by the court.  Section 733.814, Florida Statutes, When property qualifies as the deceased owner's homestead and it passes to family members, the Probate Code should not apply and family members would have to utilize the normal partition procedures. The new partition procedures still don't avoid the need to probate or otherwise establish the passage of ownership from the original owner to the heirs. A partition lawsuit, including ones under the new Act, could include a count for a declaratory judgment that establishes ownership in the heirs.

No Place Like Home. The Real Property, Probate and Trust Law Section Section has addressed the problem with the “No Place Like Home” program that coordinates pro bono attorneys to help these families.  I handled an estate where the daughter of a deceased veteran could not recover insurance proceeds after a hurricane damaged the home. More information on the program can be found here: RPPTL Section No Place Like Home Program.

Application of the New Act. The new law would also apply to cases where heirs inherited under a Lady Bird deed. This is often a problem because Lady Bird deeds are viewed as an estate planning tool for the poor, but they often result in situations where multiple owners can’t or don’t maintain the property and won’t hire a lawyer to address the problem.  The law would apply to cases where the original owner had a will and cases where the owner did not. 

South Carolina History. Advocates of the new law often cite South Carolina as a place where the heir's property problem is common.  On a personal note, I am a descendant of George Goethe, who came to South Carolina in the 1760's.  He received 800 acres from England and established a lumber mill.  Records indicate that he fought in the American Revolution, was captured, and was held on a British prison ship off the coast of South Carolina. To the best of my knowledge, none of George Goethe's ancestors own any portion of the 800 acres he owned.  (I have not traced the title back to the 1760's.) 

South Carolina Non-Profit Organization. The Center for Heirs' Property Preservation is a non-profit organization in South Carolina that advocates proper planning as an important way to prevent the heirs' property situation.  They conduct educational outreach programs to stress the importance of having a will and utilizing probate proceedings when a landowner dies.  A major source of the problem is that families often wait until several generations of owners die before seeking legal assistance.  By then, the number of heirs involved has increased exponentially and many of the heirs holding an interest in a piece of land may be minors, incapacitated, or deceased.  Here's a link to their web site:  https://www.heirsproperty.org/

The Need for Estate Planning. Overall, the new law highlights a problem that is not unique to low income families.  A study reported at Caring.com is summarized with a startling graphic: 

Just about anyone who owns property, or will own property, should have a will.  For something so important, and so easy to get wrong, it really is important to seek the assistance of a professional. 

How Much Coverage Do I Get for my FDIC Insured Trust Account? As concerns for our economy grow, some individuals are looking at FDIC coverage for their accounts.         According to the FDIC According to the FDIC, only 1 bank failed in 2019 and 4 failed in 2018. https://www.fdic.gov/bank/historical/bank/ For an account held subject to a revocable trust, the coverage is per beneficiary. The owner, or the creator of the trust, does not count in the calculation. In determining coverage for “beneficiaries,”  it is tempting to look to the Florida Trust Code for the definition of Beneficiary: The 2019 Florida Statutes
Title XLII ESTATES AND TRUSTS Chapter 736 FLORIDA TRUST CODE View Entire Chapter
736.0103 Definitions.—Unless the context otherwise requires, in this code:  (4) “Beneficiary” means a person who has a present or future beneficial interest in a trust, vested or contingent, or who holds a power of appointment over trust property in a capacity other than that of trustee. An interest as a permissible appointee of a power of appointment, held by a person in a capacity other than that of trustee, is not a beneficial interest for purposes of this subsection. Upon an irrevocable exercise of a power of appointment, the interest of a person in whose favor the appointment is made shall be considered a present or future beneficial interest in a trust in the same manner as if the interest had been included in the trust instrument.

http://www.leg.state.fl.us/statutes/index.cfm?App_mode=Display_Statute&Search_String=&URL=0700-0799/0736/Sections/0736.0103.html.

The FDIC looks to the trust document to identify beneficiaries.  The state law definition should help determine when the document is not clear. Beneficiaries don’t have to be labeled “beneficiaries”, or even identified by name, but the trust needs to reflect who will receive a distribution.  Here’s what the FDIC says on its web site:  https://www.fdic.gov/deposit/diguidebankers/revocable.html#maximum_di_coverage

 

4. Identifying Beneficiaries

For deposit insurance purposes, beneficiaries are those persons or entities who shall become entitled to the trust funds upon the death of the last trust owner.

In identifying the beneficiaries of a formal revocable trust, search for those sections or paragraphs that provide instructions for the distribution of the trust funds following the death of the last owner. It is not necessary that the beneficiaries be individually identified in the trust agreement by name, but the designation must be specific enough to clearly identify the intended beneficiary, e.g., “to my children and grandchildren.” In addition, designations such as “my issue” or “descendants per stirpes” are acceptable.

However, a designation such as “my family” is not specific enough and would not be acceptable. Please note that a section outlining the designation of trustees or successor trustees in the event of the incapacitation of the grantor does not indicate who would be the beneficiaries upon the death of the grantor.

Some grantors may designate a special needs trust as the beneficiary of their trust. In calculating deposit insurance coverage, the FDIC will look through the special needs trust to the ultimate beneficiary of that trust and deem that individual to be an eligible beneficiary.

Under the terms of some living trust agreements, the death of a trust owner results in the creation of two or more trusts. If a trust agreement provides that the trust funds shall pass into one or more new trusts upon the death of one or both owners, the future trusts are not treated as beneficiaries of the revocable trust before the death of any owner. Rather, the future trusts are viewed simply as mechanisms for distributing the trust funds, and the beneficiaries are the persons and/or entities who shall receive the trust funds through the future trusts.

Some grantors may also indicate in their trust agreement that the beneficiaries are identified in the grantor’s last will and testament. Such a designation is acceptable provided that the beneficiaries in the last will and testament are identifiable as eligible beneficiaries. If the beneficiaries of a trust agreement are identified in the grantor’s will, the FDIC may need a copy of the will to determine deposit insurance coverage, if the IDI fails.

The FDIC web site gives examples and a flow chart to help with the determination of FDIC coverage for a trust account: https://www.fdic.gov/deposit/covered/trust.html.  Remember that the FDIC insurance coverage limits are per depositor, per institution.  As a result, some individuals in the past have established accounts at multiple financial institutions.

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Revocable and Irrevocable Trust Accounts

FDIC deposit insurance covers trust accounts under two separate ownership categories: Revocable Trust and Irrevocable Trust.

Revocable Trusts

A revocable trust account is a deposit account owned by one or more people that designates one or more beneficiaries who will receive the deposits upon the death of the owner(s).

A revocable trust can be revoked, terminated or changed at any time, at the discretion of the owner(s). The term "owner" means the grantor, settlor, or trustor of the revocable trust.

Revocable trusts can be formal or informal.

Irrevocable Trusts

An irrevocable trust account is a deposit account titled in the name of an irrevocable trust, for which the owner (grantor/settlor/trustor) contributes deposits or other property to the trust, but gives up all power to cancel or change the trust.

Irrevocable trusts are also established following the death of an owner of a revocable trust, or by statute or judicial order.

When a revocable trust has more than one owner, each owner's coverage is calculated separately.

Does the trust meet ALL 3 of these criteria?

1

The account title at the bank indicates that the account is a trust using language such as:

Formal Revocable Trusts use such terms as:

o    Living trust

o    Family trust

Informal Revocable Trusts use such terms as:

o    Payable on death (POD)

o    Totten trust

o    As trustee for (ATF)

o    In trust for (ITF)

Or similar language, including the word "trust" in the account title.

Important Considerations

There is no six-month grace period for the death of a beneficiary for revocable trust deposits.

If there is no substitute beneficiary designated when a primary beneficiary dies, the amount of deposit insurance coverage may decrease for this deposit.

2

At the time a bank fails, the beneficiary must be entitled to his or her interest in the revocable trust assets upon the grantor's death. The FDIC recognizes life estate and remainder beneficiaries, but not contingent beneficiaries.

3

How many beneficiaries does the trust/account owner designate?

When a revocable trust owner designates five or fewer beneficiaries, the owner's trust deposits are insured up to $250,000 for each unique beneficiary.

This rule applies to the combined interests of all beneficiaries the owner has designated in all formal and informal revocable trust accounts at the same bank. When there are five or fewer beneficiaries, maximum deposit insurance coverage for each trust owner is determined by multiplying $250,000 times the number of unique beneficiaries, regardless of the dollar amount or percentage allotted to each unique beneficiary.

Maximum insurance coverage for a trust owner when there are five or fewer unique beneficiaries
Number of Unique Beneficiaries	Maximum Deposit Insurance Coverage
1 Beneficiary	$250,000
2 Beneficiaries	$500,000
3 Beneficiaries	$750,000
4 Beneficiaries	$1,000,000
5 Beneficiaries	$1,250,000

·                     Example 1:

Multiple POD (payable upon death) accounts for one owner where there are five or fewer unique beneficiaries.

·                     Example 2:

Multiple types of revocable trust accounts with five or fewer unique beneficiaries.

                   

To determine your deposit insurance coverage or ask any other specific deposit insurance questions, call 1-877-ASK-FDIC (1-877-275-3342).

Last Updated 1/31/2018

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When in doubt, it is best to ask your banker about the FDIC coverage.  The FDIC web site notes that the financial institution may ask for a copy of the trust to identify beneficiaries, but they are not required to do so.  What counts is the identification of beneficiaries at the time the financial institution fails and FDIC insurance becomes available.

This information is provided for general education purposes and is not intended to constitute legal or tax advice.  It is not an offer to provide legal services, nor is it an attempt to solicit prospective clients. For advice on your situation, please consult with your lawyer, your tax advisor, and/or the FDIC. No claim is made to the materials in the Florida Statutes or the FDIC web site.

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.