Another Reason to Update Your Legal Documents to Florida Law

Posted on: January 30th, 2015 | No Comments

The Illinois Department of Revenue (IDR) recently attempted to tax a trust that had been moved from Illinois to Texas after the grantor’s death, even though the trust had been moved to Texas. The trustees of the trust had to expend considerable sums fighting off the IDR. This is a lesson that those who have moved to Florida but have not updated their trusts should consider.

Illinois trusts are subject to a five percent (5%) income tax and a 1.5% personal property tax. A non-resident trust is subject to the tax to the extent that the income is generated in Illinois or apportioned to Illinois. Resident trusts, on the other hand, are taxed on all income, regardless of the source. With respect to a trust, if the grantor was a resident of Illinois, at her death it is still considered an Illinois trust, even if none of the trustees or beneficiaries has a nexus to Illinois.

In Linn v. Illinois Department of Revenue, the case involved a trust established in 1961 by A.N. Pritzker, an Illinois resident. The trust was initially administered by Illinois trustees pursuant to Illinois law. In 2002, pursuant to powers vested in the trustee in the trust instrument, the trustee distributed the trust property to a new trust (the “Texas Trust”).

Although the Texas Trust generally provided for administration under Texas law, certain provisions of the trust instrument continued to be interpreted under Illinois law. The Texas Trust was subsequently modified by a Texas court to eliminate all references to Illinois law, and the trustee filed the Texas Trust’s 2006 Illinois tax return on a nonresident basis. At that time no non-contingent trust beneficiary resided in Illinois, no trust office holder resided in Illinois, no trust assets were outside Illinois and Illinois law was not referenced in the trust instrument.

The Illinois Department of Revenue (the “IDR”) determined that the trust was a resident trust and that, as such, the trust should continue to be subject to Illinois income tax. The trustee countered that the imposition of Illinois tax under these circumstances was unconstitutional as a violation of the due process clause and the commerce clause. The court sided with the trustee based on due process grounds (not reaching the commerce clause arguments), and recited the following requirements for a statute to sustain a due process challenge: (1) a minimum connection must exist between the state and the person, property, or transaction it seeks to tax, and (2) the income attributed to the state for tax purposes must be rationally related to values with the taxing state.

The IDR argued that significant connections with Illinois existed, maintaining that the trust owed its very existence to Illinois and listing numerous legal benefits Illinois provides to the trustees and beneficiaries. The court disagreed with the testamentary trust cases the IDR relied on, finding that an inter vivos (revocable – during life) trust’s connections with a state are more attenuated than in the case of a testamentary (after death) trust.

Further, the court found that the Texas Trust wasn’t created under Illinois law, but rather by a power granted to the trustees under the original trust instrument. The court proceeded to dismiss the trust’s historical connections to Illinois and focused on contemporaneous connections finding that “what happened historically with the trust in Illinois courts and under Illinois law has no bearing on the 2006 tax year.” For 2006, the court concluded that the trust received the benefits and protections of Texas law, not Illinois law.

Imagine if the trustees had never decanted the original Illinois trust into a Texas trust. Then Texas law would not have applied and it is likely that Illinois taxes would still have been imposed. Texas, like Florida, has no state income tax. The fact that the trustees were able to move the trust from a state that taxes trust income (Illinois) to a state that does not (Texas) resulted in significant savings for the trust beneficiaries.

This is an important lesson for those that have moved their residences to Florida but have not updated their wills and trusts to Florida law. Chances are, the former home state taxes income, and if the laws of that state are broad reaching (as many are) then taxes may be assessed.

©2015 Craig R. Hersch

IRA Beneficiary Designations

Posted on: January 23rd, 2015 | No Comments

According to recent U.S. Census data, approximately 31% of American households’ net worth is in IRA and 401(k) accounts. This is striking when you consider that our combined home equity constitutes a similar percentage of our net worth. In other words, most of us have as much or more equity in our IRA and 401(k) accounts as we have tied up in our homes.

Yet, when completing an estate plan, many of us don’t put a whole lot of consideration into our IRA designation of beneficiary forms. We may put our spouse down as the primary beneficiary and our children down as the contingent and think nothing more of it. And this might work fine.

Until it doesn’t.

Allow me to give you a few examples where a simple beneficiary designation may not work out as you plan:

Intent is for IRA to Benefit Spouse First then Children

When it is your desire to leave your IRA to your spouse, then after his or her death have the IRA go to your children, be aware that your spouse is going to “roll over” the IRA into his or her own IRA at your death. At this point, your spouse could name whomever he or she wants to name. This could include a new spouse (who may have rights to the IRA even if not named as a beneficiary) or in second marriage situations, your children may easily be disinherited.

Minor Children

Minor children cannot legally sign their names to any documents with an IRA or 401(k) plan custodian. So if a minor child becomes a direct beneficiary of the IRA, then the Custodian will usually require a court imposed guardianship proceeding to have a named guardian sign on behalf of the child and account for the use of IRA or 401(k) monies that are withdrawn. This is true even if the minor has a parent who can sign for him or her. The court process protects the Custodian from a future claim by the minor child (once grown) that the adult who withdrew the IRA funds for the minor’s benefit used the funds for some other purpose. Here it is wise to create a separate trust for the minor’s benefit where a trustee can be named (that could be the minor’s parent if you so desire) who would have all legal authority to act and spend on behalf of the minor.

Beneficiaries with Creditor Problems

A beneficiary who has creditor problems could lose their IRA inheritance to that creditor upon your death. While under Florida law IRAs are protected from the claims of creditors for the plan participant, they are not exempt assets to the beneficiaries and are therefore subject to garnishment. Here, a special retirement plan trust can be designed to protect the assets for those that you intend.

Beneficiaries with Divorcing Spouses

The above also holds true for beneficiaries who are in divorce proceedings. While inheritance is usually not a “marital asset” subject to division, IRA withdrawals are income that could be used to determine and satisfy alimony or child support claims.

Spendthrift Beneficiaries

An IRA beneficiary can withdraw the entire balance after your death, even though it is not wise to do so. The withdrawal would first trigger income tax, and if the beneficiary resides in a state that has a state income tax, more than half of the IRA could immediately be lost to taxes. Unless a special retirement plan trust is implemented naming an independent trustee as the gatekeeper to the funds, there is nothing to stop a spendthrift beneficiary from making a complete withdrawal, spending it all on goods, services or travel, and at the end of the year discovering that they have a giant tax bill to boot.

Retirement Plan Trusts

Designing a special type of trust to address the above issues might be wise in many situations. You should be aware, however, that the trust must meet very specific IRS criteria known as the “identifiable beneficiary” rules in order to stretch the Required Minimum Distribution withdrawals over the beneficiaries’ lifetimes. Failure for the trust to meet the criteria could result in all of the IRA being taxed as ordinary income in the year following the plan participant’s death. Moreover, the designation of beneficiary form document must usually be supplemented for it to comply with the criteria as well.

I hope this brings to light things you might not have thought of when completing your IRA and 401(k) beneficiary designations.

©2015 Craig R. Hersch

Estate Planning Clean Up for the New Year

Posted on: January 16th, 2015 | No Comments

Now that 2015 is upon us, allow me to remind you what estate planning “clean up” tasks you may need to pay attention to:

Wills and Revocable Living Trusts – If you have moved from a different state and have not updated your estate planning documents to Florida law, now is the time to consider doing that. Get copies of your old documents to your attorney, and provide him with an updated balance sheet including how your assets are owned and who the designated beneficiary of your IRA, life insurance and annuity accounts may be;

Durable Powers of Attorney – Likewise, if you have become a Florida resident and have not updated your Durable Power of Attorney documents, put that on the agenda as well. Even if you are a Florida resident, the Durable Power of Attorney statute changed significantly in 2011. If you haven’t updated since the change to the law, visit with your estate planning attorney to update this rather important document;

Health Care Surrogates and Living Wills – Make sure that who you have named to make important health care decisions is still the person you want in that position of authority. Similarly, your end of life decisions should also be made clear and kept up to date. The living will document is important if there is no hope of your recovery, and you are unable to direct if life support should be continued or not. Many of us wouldn’t want to lay comatose indefinitely hooked up to machines that are only artificially prolonging the process of dying.

Bank and Brokerage Accounts – Aside from ensuring that these accounts are titled correctly in the name of your trust if you have one, you should make sure that you don’t have too many accounts scattered about. When one of my clients becomes incapacitated and they have an account here and an account there and an account everywhere, it becomes an administrative nightmare for the person who is going to be their successor trustee or agent under a durable power of attorney document. When you can, work to consolidate accounts so that your financial affairs are well organized.

IRAs, 401(k), Pension Accounts – Similarly, we’ve had difficulty with clients who have passed away with a multitude of different retirement plan accounts. Where possible, rollover and consolidate those accounts. When doing so, work with your estate planning attorney to ensure that the beneficiary designations conform to what you would want to have happen in your estate plan. By consolidating your accounts, you will have an easier time determining how much and from where you should take your Minimum Required Distributions, and your investment strategy can be molded to better reflect your goals and risk tolerance.

Real Estate – If you own more than one residence, now is a good time to organize all matters related to each residence, so if you should become incapacitated your successor trustee or your agent under your durable power of attorney document will know what expenses are due when (such as insurance, mortgage payments, taxes, utilities, etc.) and from where you draw funds to pay those expenses. Similarly, work with your estate planning attorney to ensure that all of the deeds are properly titled into your trust.

Life Insurance – Most people don’t perform an annual review on their life insurance policies. You should check on the rate of return and expected future premiums to keep the policy active, and whether any change of course if warranted due to the underlying performance or health of the insurance company itself. If your life insurance is held in an Irrevocable Life Insurance Trust, then it will be important to send the “Crummey notice” letters when you contribute premium payments to the trust account.

I hope this general laundry list helps you keep your legal and financial affairs in order.

©2015 Craig R. Hersch

New Year’s Message – How Far Does Free Speech Go?

Posted on: January 9th, 2015 | No Comments

Patti and I have the pleasure of having all of our children home for the holidays, and over a recent dinner we had an insightful family conversation covering reaction to the Ferguson shooting of Michael Brown and the New York Police Department’s choking death of Eric Garner.

Of particular interest during our family discussion was the social media controversy surrounding Khadijah Lynch, an African-American student leader at Brandeis University who tweeted, among other things, that she had no sympathy for the innocent NYPD officers shot execution style in their police cruiser in Queens, NY. The conjecture is that the gunman, who killed himself shortly after the murders, acted in retaliation for perceived police brutality on African Americans.

Ms. Lynch tweeted on November 25th, “I have no sympathy for the NYPD officers who were killed today. The fact that black people have not burned this country down is beyond me,” adding “I am in riot mode. F**k this f***ing country. Lmao [laughing my a$$ off], all I just really don’t have sympathy for the cops who were shot. I hate this racist f****ng country” [edited]

Shocking – beyond words.

Brandeis University was quick to condemn Ms. Lynch’s words, calling them inconsistent with their institutional values. She was also forced to resign from a student leadership position as Undergraduate Department Representative in African and Afro-American Studies.

A social media maelstrom ensued, including threats on Ms. Lynch’s life, racial slurs, and calls for Brandeis to permanently expel her from school. Brandeis University expressed concern for her well being, indicating that young people sometimes have a tendency to take things too far, and that the physical protection of any student, regardless of their political or social views, is paramount. Brandeis also said that “it remains a community built to support social justice and embrace intellectual inquiry. We encourage a fair and thoughtful discussion on these issues, free of threats.”

Why this topic, including the tweets of a college student is of such interest to my family is due to the fact that my eldest daughter Gabrielle attends Brandeis University. Although she does not know Ms. Lynch personally, she is active in the Brandeis Bridges Fellowship, which is a student organization committed to the mutual interaction and understanding between Jewish and African-American students. While Gabi was quick to voice her disgust with Ms. Lynch’s views, which also include anti-Semitic posts, Gabi also explained to us how her fellowship colleagues describe the differences still found here for African-Americans, despite the advances that have been made since the civil rights movements of the 1960s.

Her fellow students describe frustrations with being pulled over by police while driving through white neighborhoods for no apparent reason, or that young black children – boys in particular – are coached by their fathers how to react if they are ever confronted by law enforcement. This apparently is necessary to limit their danger when interacting with the police.

I believe that it’s fair to say that in the United States today, African Americans do still have a greater uphill climb in almost all areas – including social advancement and economic opportunity. That obviously doesn’t excuse the actions of Michael Brown, or of the community violence that ensued following that incident. It certainly doesn’t excuse the tweets of Khadijah Lynch.

What I wonder, however, is how far free speech goes. Are Khadijah Lynch’s tweets protected under our Constitution’s First Amendment? Should Brandeis take harsher action against the student?

In law school we learned that free speech does not extend to words that are intended to result in a crime and posed a “clear and present danger of succeeding.” The 1919 United States Supreme Court case covering this issue is Schenck v. United States. In that case, Justice Oliver Wendell Holmes wrote a groundbreaking opinion concluding that the defendants who distributed leaflets to draft-aged men urging resistance to induction could be convicted of the crime of attempting to obstruct the draft and therefore be punished.

Do the tweets of Khadijah Lynch rise to the level of “intending to result in a crime that pose a clear and present danger of succeeding?” Smarter minds than mine would have to figure out the answer to that question.

A point that I made during our dinner conversation was that “words matter.” When travelling by way of commercial airlines in our nation’s airports, the reason that we have to empty our bags before being x-rayed, and take off our shoes and expose ourselves through body-image scanners is because of the words of various jihadist leaders proclaiming that America is the devil. Those same words resulted in more than 3,000 American deaths on September 11, 2001, many in a most gruesome manner. Similar words result in beheadings of Americans and other westerners in the Middle East.

Are Khadijah Lynch tweets intended to incite violence? Because she was a student leader at the time of her tweets, do they pose a clear and present danger of succeeding? Or are these tweets instead a symptom of a growing frustration that our society is treating a large segment of its population unfairly on a routine basis?

Something to think about as we head into 2015. I wish you a peaceful, happy and healthy 2015.

©2014 Craig R. Hersch

Secrets to a Successful Marriage

Posted on: January 2nd, 2015 | No Comments

As my Chanukkah and Christmas present to you I am sharing the wisdom from clients who have successfully navigated many years of successful marriage. I’m grateful that Patti and I have twenty five years behind us, which, I suppose is a great accomplishment these days.

Nevertheless, all of us have a lot to learn from those who have travelled a longer path. So over the years, I wrote down these nuggets from those who had been married fifty years or more:

1. Be a good listener and don’t offer an opinion unless asked.
2. If you think marriage would have been easier with someone else, think again.
3. Grow together. You’re both going to change, but do so on the same path rather than taking separate paths.
4. While you want to grow together, also have some separate interests and friends. It’s okay to take some time away from one another every now and then.
5. Everyone has their own quirks that make us difficult to live with. Do your best to minimize your own, and accept those of your spouse.
6. Marriage is an “on the job training” proposition. When the going gets rough, it’s a sign that we may need new skills, not a new spouse.
7. Remind yourself daily why you fell in love in the first place.
8. Don’t let the kids become the number one priority. Your marriage is your first responsibility.
9. When you’re angry it is not the time to fight.
10. If you are thinking “I really shouldn’t say this” – Don’t.
11. Be the first to apologize and the first to forgive.
12. Try new things together. Don’t do the same thing over and over.
13. Trying new things also applies to the bedroom.
14. Surprise your spouse in a good way every now and then. Whether that means to bring her flowers for no reason, book a trip ‘just because’ or do something nice for her parents – those things go a long way.
15. When you screw up, don’t blame your spouse. Take responsibility for your own mistakes.
16. Be willing to compromise but also realize some situations can’t be compromised – e.g. – where you live, how many kids you have, etc. – realize that when your spouse gives in on such a matter it is both a gift to you, and potentially dangerous. Before acting you should be certain that both of you can live with the consequences.
17. Don’t always make your spouse give in when compromise isn’t possible.
18. Don’t rehash the past.
19. Don’t hold grudges – accept apologies graciously and move on.
20. Keep a good sense of humor.
21. Don’t take yourself too seriously.
22. Realize that even tragic times will end.
23. None of us are happy 24/7 – nor do we need to be.
24. Trust is more valuable than all the money you could possibly save.
25. Most good marriages have one person who brings up difficult subjects, or stays hopeful in difficult times. While you may wish that both of you take on this role, be grateful when one of you is willing to do it.
26. Marriage can make you a better person or a worse person – your choice.
27. Better to request a change than to complain and criticize.
28. Fights are usually not about the content of the argument du jour. It’s usually better to define the underlying issues of what is really upsetting and address those rather than continue arguing over trivial matters.
29. Learn how to make up properly as two people can’t be in a marriage without upsetting one another from time to time.
30. Enjoy life together – and appreciate the small things.

Happy Channukah, Merry Christmas, and a Healthy and Happy New Year to everyone.

©2014 Craig R. Hersch

Judgment Creditors and Fraudulent Transfers

Posted on: December 26th, 2014 | No Comments

From time to time someone will visit with me in my office with a serious problem. They have lost a lawsuit and have a judgment creditor attempting to satisfy the judgment against their assets. Once someone already knows of a potential liability, then any subsequent transfers could be voided under Florida’s Fraudulent Transfers Act. Many other states have similar laws. When a transfer is voided, the money or assets must be returned to the original transferor and are often subject to satisfy the judgment creditor’s claim.

There are a few defenses to a deemed Fraudulent Transfer, such as there was a valid business or estate planning purpose behind the transfer. Beware – those defenses are hard to prove. Take, for example, a recent case that originated in Arizona but followed the defendant to Michigan where he resided. Here, attorney Mark E. Schlussel owed his former business partner, Terrace Dillard, $500,000. The business at issue was not related to any law practice.

When Dillard attempted to collect his judgment against Schlussel, Schlussel claimed that he had spent all of his money despite having significant income as evidenced from his income tax returns from the years leading up to the judgment. When it was discovered that he had actually saved some of his income but had transferred it to his wife, Schlussel claimed those transfers were made to pay for ordinary and necessary living expenses, and for estate planning purposes. Dillard quickly filed a motion to claim those transfers as fraudulent under Michigan’s Fraudulent Transfers Act.

Schlussel offered two defenses to Dillard’s claim of fraudulent transfer. First, he said, the transfers to his wife were used to pay household living expenses which were exempt under the Michigan Fraudulent Transfer Act. The Michigan Court of Appeals rejected that assertion because of the large monthly amounts as well as examining Schlussel’s intent.

The Court held that making the transfer wasn’t to cover his normal living expenses but instead to evade Dillard, his creditor. They pointed to the fact that deposits that were normally made into Schlussel’s checking account instead went directly into his wife’s account only after the judgment was entered.
This was largely a facts and circumstances finding based upon the testimony of the parties and how credible they seemed in Court. The Court deflated the “living expenses” defense. Here, the Schlussel’s were trying to claim that their bare living expenses were north of $250,000 per year, something which seemed to really infuriate the Court. While that defense has sometimes taken flight, it has always been in cases where the debtor and his spouse were using the money for bare subsistence living.
Common sense posits that if a debtor is going to claim that he is flat busted broke, he’d better live a lifestyle like he is flat busted broke. Few things will make a judge more irate and willing to throw the book at a debtor than word that the debtor is both not paying his debts, and continuing to live an extravagant lifestyle just as he did before the judgment. Such a debtor can expect no sympathy from the court, and yet time and again we see where debtors continued to live the high life while pleading poverty — and usually coming to serious grief at some point (as here).
Schlussel then offered his second defense that the transfers were made for estate planning purposes. Here again the Court found no credible evidence that the transfer was made for estate planning purposes other than evading the creditor.

The Court distinguished between “actual fraudulent transfer” which is defined as one of intent, as opposed to “constructive fraudulent transfer” where intent may be hard to find but two other questions are asked. First, was the debtor insolvent at the time of the transfer? Second, did the debtor receive anything of reasonable equivalent value from the transfer? If the answer to the first question is “Yes” and the answer to the second question is “No”, then even if intent cannot be found expressly, a Court could nevertheless find that a fraudulent transfer constructively occurred.

Indirect, noneconomic benefits that preserve a family relationship were not found to provide reasonably equivalent value. Thus, any promise that Schlussel made to support his wife for household expenses had no bearing on the Court’s finding.

As for the estate planning defense – the Court found that ridiculous because with all of his unpaid debts, Schlussel had no estate to worry about taxes or otherwise transferring.
If somebody with a legitimate estate planning issue does planning well in advance of creditor difficulties, then they should normally be able to claim that they lacked the intent to defeat creditors because they had other significant motivations for their planning. The Court may ultimately reject the defense if there is evidence that the debtor’s motivations were otherwise, but at least the claim has a chance of winning.
The bottom line here is that to protect assets from the claims of creditors, a good asset protection strategy has to be implemented well before trouble arises.

©2014 Craig R. Hersch

Major Changes Under Duress Not a Good Idea

Posted on: December 19th, 2014 | No Comments

It’s not uncommon to panic under extreme pressure. And there’s no pressure like when a loved one is very sick or near death. There’s a temptation to “tie up loose ends” and to direct our financial advisors and attorneys to make “last minute adjustments” before it’s too late.

Resist that temptation, especially if you’ve recently updated your planning.

I’ve seen families make irrational decisions that can be attributed to a lack of understanding about their estate plan. Even though they may have revocable living trusts, for example, they title everything in “Pay on Death” or “Transfer on Death” accounts. This is absolutely the wrong thing to do. Most trusts have continuing trusts, either for the surviving spouse or sometimes for the children or even grandchildren. By transferring assets to “Pay on Death” accounts defeats all of the estate protections and tax planning thought that went into the creation of the documents.

Sometimes panicked families will collapse trusts before the sick spouse dies and put everything in the well spouse’s name. As I pointed out in the preceding paragraph, doing this will likely defeat the tax planning and asset protection features of the estate plan that was put into place.

Other times families will reposition assets between the trusts just before the sick spouse dies. This can also lead to problems related to capital gains taxes. Normally, when a person dies holding appreciated assets, the assets receive a “step up” in tax cost basis, equal to the date of death value. If I purchased Coca Cola Company stock at $1/share and when I died it was worth $10/share, then my beneficiaries will normally inherit the stock at the step-up value of $10/share. If they sold it shortly after my death for $10/share, then the capital gains tax that would have been realized had I sold the stock the day before my death disappears.

But if the family tries to transfer appreciated assets into a dying person’s name in an effort to receive the step-up in tax cost basis, they have an unpleasant surprise. The tax law anticipates people trying to take advantage, so there’s a rule that disallows step-up if the asset was transferred within one year of death. So making last minute changes here could actually do harm to the family.

Should a family therefore not worry about last minute planning if a loved one is gravely ill? Certainly if that person’s documents haven’t been updated in quite some time it makes sense to review them with competent counsel. But the family would be wise to carefully think through any choices that they have, and consider the time it would normally take to implement those choices successfully. If the health and mental stability of the sick person isn’t expected to hold out for long, then it makes sense to “triage” the strategies in such a way as to take care of the most important things first.

Another important thought in late-stage planning includes the fact that any significant changes might be subject to challenge. If a sick person suddenly disinherits someone in favor of another family member, undue influence and competency issues might arise.

If this is a possibility, the family might want to ask attending physicians for statements regarding the sick person’s competency, carefully document all of the medications that are being administered (with an eye towards whether any might affect decision making) and take steps to ensure that the sick person visits alone with counsel rather than having family members who might be or become beneficiaries present at the meetings.

Dealing with the loss of a loved one is almost always stressful. No one wants to compound the stress by having to deal with legal, tax and financial issues at the end of life. The best way to avoid that problem is to take care of things well ahead of time. But if you or a loved one find yourself in this situation, be very careful that you don’t cause more harm than you solve.

©2014 Craig R. Hersch

Lyons Case Illustrates Florida Homestead Peculiarities

Posted on: December 12th, 2014 | No Comments

I’ve long preached that conveying Florida homestead is tricky given the peculiarities of Florida law. A recent court case out of the 4th District Court of Appeal in Florida illustrates this point. So I thought that I would share it with you today.

In Lyons v. Lyons, Norma was married to Richard. In 1993, Richard conveyed his interest in the homestead to Norma so that she owned it individually. Norma then transferred the homestead into a Qualified Personal Residence Trust (QPRT) that upon its expiration would distribute the home to all of her five children, Valerie, Dorothy, Sanford, Timothy and John. Norma signed the deed transferring the homestead to the QPRT individually and Richard did not sign the deed. A Qualified Personal Residence Trust is an irrevocable trust that cannot be undone once signed.

Richard then died in 2007. In 2010 Norma went to her attorney and deeded the homestead from her name to her daughter Valerie. You might think that she had no power to do this since she had already irrevocably transferred the homestead to the QPRT. Norma’s attorney reasoned that the original deed to the QPRT was void, based upon Florida law that requires both spouses to sign a deed of conveyance, even if only one spouse owns the residence in her name individually. So he reasoned that because Norma’s 1993 deed to the QPRT was void, she had the power to convey the homestead to her daughter Valerie, bypassing the other children.

The three sons, who were the acting Trustees of the QPRT sued Norma, Valerie and the attorney to set aside Norma’s conveyance to Valerie.

In 2002, Richard had signed a Will in which he acknowledged the existence of the QPRT. While the trial court sided with Norma, Valerie and the attorney, on appeal the 4th District Court of Appeal (DCA) reversed. It determined that Norma’s assertions that her own deed was void were absurd, as Richard was the only party who could assert the Florida law protections governing the disposition of the homestead without his signature.

In other words, Norma could not attack her own 1993 deed based upon a technicality that only harmed her spouse, who was already deceased and made no objection when the residence was originally transferred to the QPRT. The law in question is found in the Florida Constitution, and is there to protect a spouse (or minor child) from a conveyance of their Florida homestead without their consent.

Despite the decision in Lyons, the Constitutional and statutory protections surrounding the conveyance of homestead remain strong. Even if a Florida homestead residence is in the name of only one spouse, the other spouse needs to sign the deed in order to convey the residence to a third party. What the 4th DCA
held was that the party objecting must have legal standing to void a faulty deed. Here that party was a deceased spouse. So the QPRT ended up owning the residence and all five children shared in the bounty.

This case highlights the importance of understanding the peculiarities of Florida homestead law within any estate plan. That’s one of the many reasons why individuals who move here from another state should review their estate plans with competent Florida counsel

When to Throw it Out

Posted on: December 5th, 2014 | No Comments

My eldest daughter is in college, my second is on her way this next fall and my youngest is a freshman in high school. All of my children have grown up in the house that we built about twelve years ago, and the closets and our garage are filled with clothes, toys and other items from their childhood that they no longer use, want or need.

So it’s time to clean it all out. Now that the weather has cooled down, it’s not a bad time to do it.

Which leads me to today’s topic – how long should you keep your legal, tax and financial records? As a general rule, you should keep your tax records and supporting documentation until the statute of limitations runs for the filing of returns or for the filing of a refund. For most taxpayers that means three years following the date of filing the return.

But keep in mind that if you underreport your income by more than 25% the statute of limitations is six years, and that the statute never runs on fraudulently filed returns. Those of you who file fraudulent returns should hold on to tax records forever!

If you claim depreciation, amortization or depletion you should keep the records for as long as you own the property, including cost basis records. If you claim a bad debt deduction, it’s a good idea to hold on to those records for seven years.

As far as your wills and trusts go – you should hold on to the most recent version of your documents. If, for example you had a trust dated January 1, 1972 and it was amended in 1978, 1988 and 2000 you would keep all of the related documents. If the trust was subsequently restated in 2014 in its entirety, you could keep the restatement in hard copy but make sure that you have electronic copy backups of the documents it replaced.

If you have a will from 1972 that was subsequently rewritten in its entirety in 2014 you only need to retain the 2014 copy.

Occasionally a client might create a Durable Power of Attorney (DPOA) then decide to have someone else serve in that role. Rather than simply throwing out the old DPOA, you need to discuss how it is properly revoked with your attorney. If the document has been provided to any bank or brokerage firm, for example, Florida law provides specific direction how that DPOA is revoked and who needs to be notified of its revocation. If, on the other hand, the DPOA was never given to any third party, it’s probably safe to destroy.

If you have a new law firm draft wills, trusts and advanced directives, it is usually a good idea to tell your former law firm that the documents they have on file have been updated by another firm.

Hopefully this helps you clean out your desk and home office shelves! I wonder if I can sell some of my kids’ stuff on Ebay!

©2014 Craig R. Hersch

Does Money Buy Happiness?

Posted on: November 29th, 2014 | No Comments

Three weeks ago I finished my first full Ironman triathlon competition. I’ve finished plenty of half-Ironmans, Olympic and Sprint distance triathlons before, but never the full – until now. I turned fifty years of age this year, and promised myself that this would be the year to tackle some big goals.

The full Ironman distance includes a 2.4 – mile open water swim followed by a 112 – mile bike race and concluding with a 26.2 – mile run. Competitors have 17 hours to finish, or else they are pulled off the course with a “DNF” (Did Not Finish).

While many might call an experience like that painful (and believe me, it was!), nevertheless it was one of the more emotionally rewarding athletic events I’ve ever had the good fortune to participate in. I’m sure that I’ll remember the feeling of elation I had when I crossed that finish line for the rest of my life. My wife Patti was at the finish line to give me a big hug (despite my odor from nearly 12 hours of continuous exertion), and I am fortunate enough to have had several friends there as well who journeyed all the way to Panama City Beach to see me do this.

And that got me thinking about what makes me happy – because it seems counterintuitive to put oneself through a grueling endurance event to find happiness.

Many people crave money – thinking that it will make them happy. Why else would people buy lottery tickets when the odds are so stacked against them? A lot has been said or written about whether money buys happiness. A recent Wall Street Journal article concluded that while having good income does help, recent research indicates that using your money to purchase experiences usually results in greater happiness and satisfaction than purchasing material goods.

The research surrounding material purchases indicates that while initial satisfaction is high, most people adapt to owning the item and therefore the happiness associated with its purchase diminishes over time. The new dress or fancy car provides that brief thrill of ownership, but the process of “hedonic adaptation” takes over and we soon take owning the item for granted.

When we purchase the new iPhone 5, for example, we are happy with it for a while until our neighbor boasts of all the new features he has in his iPhone 6. On the other hand, it is hard to compare experiences with the neighbors. They enjoyed their trip to Italy, you enjoyed the weekend in New York. People are a lot less likely to be jealous of other’s experiences.

The irony found in the research is that while experiences give us more lasting pleasure than things, people often deny themselves the special vacation over making the special purchase. They may believe that the experience only lasts for the moment while purchasing the object will be something that they own forever.

But that would be the wrong choice according to the experts who study such things. Psychologists say that experiences tend to meet more of our underlying psychological needs. Experiences are often shared with other people, giving us a greater sense of connection and therefore help form our identity. When you look at it that way, the choice becomes more obvious. Would you rather buy that new diamond bracelet or spend the money on plane tickets to visit your grandchildren in Ohio?

Personally, I’ve always valued experiences – whether they are family gatherings, vacations, going to the theatre or participating in sporting events. If my house caught fire I want to save all the photographs first – as those are all about my experiences and memories that can’t be replaced as opposed to the material possessions in my home that can always be replaced.

I’ve found that being grateful for the things that you do have in life also helps build happiness. During the toughest part of my Ironman when my legs wanted to give up I consciously made the decision to think about all of the good things that I have in my life. And you know what? It really did help.

I’m interested in whether those who read this column share the feeling that experiences trump material goods when looking for happiness. Shoot me an email sometime and tell me what you think.

©2014 Craig R. Hersch .Learn more at

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