By Phil Rarick, Weston Trust Attorney

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Every family needs instructions in the event of disability or death. A Family Trust, also known as a Living Trust, is your detailed, legally binding instructions to care for you and your family in the event of mental incapacity or death. A trust can accomplish all the goals of a will and in addition avoid probate and guardianship when properly funded. A will must go through a bureaucratic, expensive and time-consuming legal process called probate where the court may intervene in your personal or business affairs. This is why the Revocable Family Trust has become the preferred plan of choice over a will for most people; it is almost certainly the best plan if you have children.

Understanding a Family Trust – a/k/a Living Trust

There are three primary roles in a Family Trust: the grantor, trustee, and beneficiary.

The grantor is the person who makes the trust; the Trustee is the person who is legally found to follow the trust instructions exactly as stated in the Trust. And the beneficiary? Every dime of the trust must go to the beneficiaries. Initially, you can be the Grantor, Trustee, and, along with your spouse or children, the Beneficiaries.

Most Family Trusts are revocable because the grantor wants to retain 100% control over the trust instructions and change them whenever he or she wants at any time during their lifetime.   Control and flexibility are two key goals in Trusts.  The Trust has a major advantage over the mortal person: it does not become incapacitated, and it does not end at death.  It continues to provide for your family as long as needed to help protect the lifestyle of your family.   If you have children, it can help ensure they get a high-quality education and that the funds cannot be claimed by a spouse or creditor of the child.

Key Benefits of a Revocable Family Trust

1. Avoiding Guardianship. Guardianship is a bureaucratic legal process where the court supervises the person and/or property of a person.  The court selects the Guardian.    In my 30 years of practice as a Miami Trust attorney, I cannot recall anyone who wanted to allow a court to intervene in their personal or business affairs; almost all persons want a family member to take charge if they have a temporary or permanent incapacity.  A trust can help you keep legal control in the family.

2. Avoiding Probate. One of the biggest advantages of a family trust is that it allows assets to bypass the probate process provided the Trust is properly funded. Probate is the court-supervised process of distributing a deceased person’s estate, which can be time-consuming, costly, and public. By transferring assets to a family trust, those assets can be distributed directly to the beneficiaries without the need for probate, saving time and money.

3. Protection for Minor Children and Young Adults. The Trust can help ensure that funds going to minor or adult children are used in a smart way.    For minor children, a trust can help ensure that the minor child does not waste the funds by getting a big lump sum payment or that the funds could be claimed by creditors of the child after age 18.  Rather, the trust can help ensure the child receives a first-rate college and graduate education. For adult children who may marry or are already married, the trust can provide protections so the adult child’s spouse cannot claim funds designated for the child.

Conclusion Whether you have $100,000 or over $1 million you should first consider a Family Trust or a Living Trust over a Will for your estate plan as a Trust that is properly funded will help avoid the bureaucratic legal processes known as guardianship and probate. Plus, the trust can provide strong protections for minor and adult children to make sure your hard-earned money is used in a smart way for your children’s future.

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For more information about the Family Trust or Living Trust see our short guide, Understanding Living Trusts by Miami Trust attorney Phil Rarick or contact our office at (305) 709-2858 for a consultation.

Notice: This article is intended for informational purposes only. It is important you consult with an experienced Miami Trust attorney. For more information contact attorney Phil Rarick at  (305) 709-2858 or by email prarick@raricklaw.com.

3 CREATIVE WAYS FAMILY LAW ATTORNEYS CAN USE TRUSTS

By: Phillip B. Rarick, Miami Trust Attorney, and Maria C. Gonzalez, B.C.C., Family Law Attorney

The following note is a brief review of three popular trusts that can help ensure compliance with future financial obligations set forth in a Pre-Nuptial Agreement or Marital Settlement Agreement.

Hypothetical #1. Husband and Wife plan to marry and are expecting their first child in 7 months. Husband has a net worth of $10 million; Wife $200,000. In addition to all support needs for their child, Wife wants assurance that she will have an independent source of funds during the marriage, and sufficient funds if the marriage is dissolved to maintain the same quality of lifestyle she enjoyed during the marriage. Husband wants assurance that funds set aside for Wife are not used for a lavish lifestyle during the marriage; if Wife dies such funds would continue to be wisely managed for their children.

Solution: Irrevocable Spousal Lifetime Access Trust. The Pre-Nup requires establishment of an irrevocable Trust with a third party as Trustee for the sole benefit of Wife for her lifetime. In addition to any child support obligations, Husband will commit to fund $1 million into an Irrevocable Spousal Lifetime Access Trust. The Pre-Nup requires the Husband to fund the Trust with $1 million cash and the Trustee is required to purchase a $5 million term life insurance policy with the Trust as the beneficiary. The “Triggering Event” is defined as the annulment, dissolution of marriage, divorce proceeding or similar proceeding between the Husband and Wife. Wife has liberal rights to all income produced by the Trust; therefore prior to the Triggering Event, the Trustee can distribute such amounts of income as the Wife requests for her health, education, maintenance, support, and reasonable comfort. After the Triggering Event, the Wife can direct the Trust to distribute all income and principal as she wishes provided sufficient funds remain to fund the Life Policy. Note: This type of Trust has excellent asset protection features for the funds in the Trust.

Hypothetical #2: Both Husband and Wife want to ensure that their children will receive not just a high-quality private education through high school, but also have no excuse not to secure a quality post-high school degree, including a graduate degree.

Solution: Children’s Educational Trust. The parties commit to paying $100 per child per month into an Irrevocable Children’s Educational Trust. The Trustee is required to invest the funds in the Florida Prepaid College Fund, Florida 529 Savings Plan, or similar 529 plan. Individuals can contribute as much as $90,000 to a 529 plan in 2024 if they treat the contribution as spread over a 5-year period. Such plans grow tax free and avoid the high tax rate of Trusts. These plans provide excellent income tax reduction planning plus help ensure a high quality education for the children.

Hypothetical #3: One or both parties is not a good money manager which has led to financial stress that is a primary cause for the couple’s divorce. Both agree for the need to purchase or continue payment offer existing life insurance policies upon death of the spouse who has been the main provider.

Solution: Children’s Safe Harbor Trust. The MSA provides for the establishment of an irrevocable Trust to own the policies and pay the premiums. See post Children’s Safe Harbor Trust. The parties agree to yearly funding to the Trust to cover the premium payments. The sole beneficiary of the Trusts are the children; distribution standards are health, education, support, and best interests of the child at the sole discretion of the Trustee. Note: The trustee’s discretion is absolute to protect the children from creditor claims or claims of their spouses if they marry.

Notice: This article is intended for informational purposes only. It is important you consult with an experienced Miami Trust attorney. For more information contact attorney Phil Rarick at  (305) 709-2858 or by email prarick@raricklaw.com.

More Resources:

• Practical Tips for Administration of a Florida Trust
• Florida Trustee Checklist

Here is the good news/bad news I received from my bank today regarding my Paycheck Protection Program (PPP) Application: The good news: your application has been approved; the bad: the SBA is out of money and you must wait for Congress to refund the program!

Although I have heard of a few small businesses that have received funding I am guessing that most persons reading this letter have encountered similar frustrations. Note: if you have received funding, please so reply.

We predicted in my first letter regarding PPP that the $349 billion fund would run out of money and this Thursday it did. It lasted two weeks! For an interesting map on where the funds were distributed nationwide see PPP Loan Allocation Map.

My message to you now is don’t give up. Yes, many small businesses with average monthly payroll over $1 million got preferential treatment by the big banks. However, the banks are incentivized under the SBA program to make small loans under $1 million.

And more encouraging: there is strong bi-partisan pressure to refund the program. (If only Congress could stop the bickering and see the urgency of the threats to millions of small businesses.) Regardless, if you have applied and are waiting to get approval, keep checking with your bank to make sure they have all necessary documentation and try to get confirmation your application has been approved. If you have not applied, do so immediately.

My son-in-law is a senior manager for a major regional bank in the western states and is working over-time this weekend to continue to process applications. My bank advisor also tells me she is working this weekend on her bank’s back-log of applications. Both banks believe the program will be refunded. I think that is a good bet.

Here is an updated calculator from Turbotax: Stimulus Check Calculator When Will Checks Arrive?

If you signed up for direct deposit on either your 2018 or 2019 tax return, the IRS reportedly will start issuing electronic deposits on April 9 and they should show up in your bank account by April 14. However, remember, this program is fluid and these target dates are subject to change.

If you receive Social Security Benefits and usually don’t file a tax return, the IRS will use the information from your Social Security benefits statement to calculate the stimulus check amount. They will send the check electronically if that is how you typically receive your Social Security payments.

Note: For persons who don’t file a tax return, the IRS plans to create an on-line portal where you can file a “simple return” to provide your bank account information. This portal should go live within the next few weeks.

If the IRS has to send you a paper check, priority will be given to lower income persons; higher income persons will wait longer to get their checks.

Quick Tip: If you want to try to get your check sooner, then file your 2019 tax return as soon as possible and sign up for direct deposit.

In these challenging times, we are here to help you, your family and small business successfully navigate this massive but temporary storm. We will get through this together! Look for our future alerts.

______#2. Successor Trustee. This is the person you have appointed to step into your legal shoes if you become incapacitated – in other words, one of the most important decisions you can make. Who have you appointed to take charge if you are incapacitated? What is the order of succession of trustees who will take over management of your financial affairs if you are unable to do so? If you have any question whatsoever about your order of succession, please call the office.

______#3. Transitions. Has there been a marriage, divorce, or separation of anyone named in your will or trust? Has there been a birth or adoption of a child or grandchild? If so, your estate plan may need to be amended.

______#4. Asset Protection. The recession may be over, but will your business survive the recovery? Do you know which assets you own that are protected and which are exposed? NOTE: While a living revocable trust helps avoid probate and keep legal control in your family, it does not protect your assets. We have a number of other legal tools to help make you an unattractive target for a lawsuit. If we have not done a recent asset protection analysis, now may be a good time to do so.

_____ #5. Life Insurance. When is the last time your checked (a) the owner of your life insurance policies; and (b) the beneficiary designations for those policies? Most life insurance either should be owned by an irrevocable life insurance trust or name your trust as the primary beneficiary. Why? If the policy is owned by a life insurance trust that is properly maintained, you protect the full value of the policy by avoiding estate taxation if you have a taxable estate. If the policy does not name your trust as a beneficiary, all the instructions in your trust to safely manage that money will be useless.

______#6. Corporate Minutes. If you have an incorporated business, when is the last time that you filed corporate minutes? It is important, at the least, to keep annual minutes. Remember, the corporate veil can be pierced and your personal assets attacked if you do not follow the corporate formalities. We will review your corporate minutes at no charge; if the record needs to be updated, we will advise you of the total cost to bring the record current.

______#7. $13,000 Gift Allowance. Do you wish to consider making gifts to family members to reduce your estate tax exposure? Current law allows you to make gifts of $13,000 per person per year ($26,000 if married) with little or no tax consequence to you or the recipient. For many persons, this is an effective tool to reduce your estate tax liability. However, see the warning in Point #8 for gifts to minors. NOTE: Gifting must be done prior to January 1; preferably November or early December. ______#8. Gifting To Minors. Beware of UGMA accounts! The full name is Uniform Gift to Minors Act. Unless your child is a future Warren Buffet, it is not advisable to give minors any substantial gifts without placing those funds in a trust. UGMA accounts should be used for only small amounts – such as $1,000 or less. Otherwise, the minor can have complete access to the funds when he or she turns 21.

______#9. Estate Tax Check. Do you know your current estate tax exposure? Absent congressional action the exemption will fall back to $1 million per person with a top rate at 55% on January 1, 2011. Following the Republican mid-term election successes, Congress may act to change the estate tax law. Stay tuned – we will be sending out an Alert via e-mail if Congress does so act. Note: If you have a trust with a Marital and Family Trust (technically called a credit shelter trust) and we have not recently reviewed your estate plan, we should run the numbers to see if the funding formula in the trust allocates the exemption to achieve appropriate tax planning for your family.

______#10. Health Care Surrogate. If you have a child over 18 who is now in college it is highly recommended that he/she give you legal authority to make medical decisions on their behalf. Remember, once your child turns 18, he/she is sui juris, and you have no legal authority to make any legal decision on their behalf. Also note, if we have not met to review your estate plan since 2004, it is likely that your health care surrogate is not current.

______#11. Estate Plan Review. Has it been more than two years since we sat down and reviewed your estate plan? If so, I recommend we schedule a meeting before the end of the year to assess whether it continues to meet all the needs of your family.

APPOINTMENT: To schedule an appointment to review or update your estate plan or the funding of your trust, call Rarick & Associates at (305) 709-2858 or email Phil at prarick@raricklaw.com.

Anyone with ownership interest in a single member Florida limited liability company (LLC).

Executive Summary:

On June 24, 2010, the Florida Supreme court held that a single member Florida limited liability company does not protect against an outside creditor with a judgment against the sole member of the LLC. Olmstead V. F.T.C., — So. 3d.—, 2010 WL 2518106 (Fla. June 24, 2010.)

Analysis: Facts: The facts in this case could not have been worse for the debtor. Shaun Olmstead, the debtor, ran a credit card scam operation, and the creditor in this case was the ultimate gorilla, the Federal Trade Commission (FTC). The FTC sued Olmstead and his corporate entities for deceptive trade practices and obtained a judgment. Olmstead’s assets were frozen and placed in a receivership. To partially satisfy a 10 million dollar judgment against Olmstead the FTC obtained an order compelling Olmstead to endorse and surrender to the receiver all of his right, title and interest in his various single member LLCs.

Issue: May a court order a judgment-debtor to surrender all interest in a single member LLC to satisfy an outstanding judgment pursuant to F.S. 608.433(4), or is a charging order the exclusive remedy available to a creditor of a single member LLC?

Holding: Florida law permits a court to order a judgment debtor to surrender all right, title, and interest in the debtor’s single member LLC to satisfy an outstanding judgment and does not limit a creditor to a charging order as its sole remedy. Note: Justice Lewis wrote a strong and detailed dissent.

Discussion: The majority’s opinion rests on the uncontested right of the owner of the a single member LLC to transfer the owner’s full interest in the LLC, and the absence of any specific basis in the LLC act for negating the creditors remedy of levy and sale pursuant to Fla. Stat. § 56.061. The sole member of a single member LLC does not have to seek approval of the other members of the LLC to assign his interest in the LLC to a third party. The ownership interest is therefore fully alienable because there are no other members to fulfill the requirement of “approval of all members” for participation in management. The charging order is only a remedy for creditors when the debt is not freely transferable, but is subject to the right of other LLC members to object to the assignee becoming a member and exercising management rights that come with membership status.

In the Florida Partnership Act, which governs partnerships, a charging order is the exclusive remedy for a judgment creditor. In the LLC Act such language is omitted. Without the expressed language limiting the remedy of a judgment creditor to a charging order in the LLC Act the court reasoned there is no reasonable basis for inferring that the provision authorizing the use of charging orders under §608.433(4) establishes the sole remedy for a judgment creditor against a judgment debtor’s interest in a single member LLC.

Take Away Points For Clients:

1. If you have a single member LLC, consider adding an additional member, even if only a 5-10% interest.

2. If adding an additional member is not feasible, (a) convert to a limited partnership or specifically, a limited liability limited partnership (LLLP); or (b) consider an off-shore LLC, such as a Nevis LLC.

3. Every LLC should have a robust Operating Agreement that limits a creditor’s rights to a charging order, and has numerous other provisions preventing a creditor from interfering in the business operation of the LLC. If you do not have an up-to-date asset protection operating agreement, talk to your attorney immediately.

4. Prior to choosing an entity, consider the two primary advantages of the LLLP over the LLC: (a) A charging order is clearly the exclusive remedy against an LLLP; (b) In a LLLP, a bankruptcy filing by a debtor limited partner does not trigger a right to withdraw causing monetization of Partner’s interest; in an LLC such a filing does cause such a monetization absent contrary language in Operating Agreement.

5. Don’t mess with the FTC.

Conclusion:

If you have a single member LLC, contact your attorney to discuss options to restructure the company to provide a higher quality of asset protection. Whether you have a single member or multi-member LLC, make sure you have a strong Operating Agreement that severely limits a creditor’ rights to interfere in your business.