Married Couple Can’t Split Residency to Retain Dual Homesteads

At the conclusion of our recently held client workshops we open the floor for questions. At all three of the venues a common question arose, “Can I be a Florida resident while my wife remains a resident of northern state?”

My follow up question in each case was, “Why would your wife still want to remain a resident of a state that has income taxes?”

The answer in each case was, “Because I declare our Florida home as our homestead here and she declares our home up north as her homestead there!”

Unfortunately, that is illegal.

Under our Florida law, specifically Florida Statutes §196.031 and Section 6(b) Article VII of the Florida Constitution state that no more than one exemption is allowed to any individual or family unit. Thus, not only can you not claim two Florida homestead exemptions, but you also cannot claim an additional residency-based exemption in another state. Because this applies not only to individuals, but to family units, a spouse cannot claim an exemption in another state while you claim an exemption here in Florida.

Assume, for example, that Harry owns a Florida home and his wife Sally owns their Michigan home, which they have previously homesteaded. Harry claims Florida residency while Sally remains a Michigan resident. Harry then applies for Florida homestead exemption. They have just broken the law, unless Sally renounces her Michigan homestead benefits.

The penalties for fraudulently claiming exemption are severe. According to §193.155 (9) and §196.161 of the Florida Statutes, owners who intentionally cheat on homestead and other exemptions will have a tax lien placed against their properties, be back taxed for up to 10 years (as applicable), be required to pay a substantial penalty (50% of the unpaid taxes for each year) and pay an interest rate of 15% per year.

 You don’t want those problems. There are hotlines established to report homestead exemption fraud, which is how most of the violators of these provisions are caught.

 Assuming that you have made an honest mistake that you want to correct, you would want to document the removal of other exemptions. You can do so by obtaining a statement from the jurisdiction indicating either that there are no residency based benefits applied, or if there were residency based tax credits or exemptions being applied, then evidence of their removal is required by filing an Out of State Exemption Removal Form.

 So, in Harry and Sally’s example, Sally would obtain a confirmation from Michigan that she has renounced her homestead, and would file an Out of State Exemption Removal Form with the county in which Harry is claiming his Florida homestead exemption.

 There are limited exceptions to the rules, such as when both spouses are working and must maintain their respective residences. Generally speaking, retired individuals will not qualify under these exceptions. If you have any questions, the Lee County Property Appraiser’s website has a plethora of information – Lee County General Exemption Information

The Sheppard Law Firm has its main in Fort Myers and also in Naples by appointment.

© 2017 Craig R. Hersch. Originally published in the Sanibel Island Sun.

The Difference Between a Will and a Revocable Living Trust

Occasionally I am asked a basic estate planning question that I will review today, and that is the basic differences between estate-planning with a will as opposed to estate planning with a revocable living trust.

First, let’s start off with the will. Many people wrongfully believe that if they have a will then their estate will avoid the probate process. Actually, all wills are subject to the probate process. Probate, you may not realize, is not a tax. It is the legal process wherein your last will is admitted to court, your personal representative is appointed, your estate is inventoried, your creditors are cleared, taxes are paid, accountings are filed and ultimately your beneficiaries receive their inheritance.

Every aspect of the probate process is administered in a probate court. This means that your will’s contents and all of the other aspects regarding your estate are mostly open to the public. Anyone can go down to the courthouse and review the probate filings. In some counties, the probate filings are also available on the Internet.

You may argue that your father, mother, spouse or other loved one died with a will and their estate did not go through a probate process. This might be true if everything was owned jointly. While in some estates joint ownership of assets might be a wise thing to do, joint ownership of assets often leads to more problems than it solves. Visit my firm’s web site www.sbshlaw.com and click on the Video Learning Center link to watch a video about the perils of joint ownership if you want to learn more about why placing all of your assets in joint name is generally not a wise idea if you are doing so to avoid the probate process.

Whereas wills are only useful upon your death, revocable living trusts can help you during your lifetime. A revocable living trust is a legal agreement made between a Settlor (you) and your trustee (also ‘you’). The agreement details how the trustee is to hold, invest and distribute the trust assets both during your lifetime and upon your death.

Many wrongfully assume that if they create a revocable living trust then they’ll lose control over the assets that they’ve put into the trust. But this is not the case. You usually serve as your own trustee, meaning that you control the assets. Because the terms of your revocable trust can be amended, you can change any of the terms governing the assets so long as you are alive and competent. You can spend every last dime of assets held in your trust and no one can object.

Generally speaking, you usually transfer most of your assets into your trust upon its creation. Failure to fully fund your assets into your revocable living trust could end up in a probate administration on those assets. This is why it is so very important to make sure that the titles on your bank and brokerage accounts, as well as the legal title on the deeds to your real estate indicates the trust (by way of the trustee of your trust) as the proper owner.

If you should become disabled, your trust names a successor trustee who can step in for you to write your checks, pay your bills and manage your investments. Your successor trustee can be your spouse or other loved one. You may also name a bank or financial institution to help with these duties if you wish, although this is not a requirement.

Whenever you have a revocable living trust you usually also have a will, but the will doesn’t usually say who gets what at your death. Instead, it “pours into” your trust. These are known as “pour over wills”.

One of the advantages to a revocable living trust is that they are private, and are usually not subject to court supervision. While Florida law imposes requirements that your successor trustee must satisfy in the event of your death, most of those requirements do not require court filings. There is no trust inventory filed with a court, for example.

Anyone with any degree of net worth should consider implementing a trust. If you are a Florida resident, your trust should conform to Florida law. But that’s another topic entirely.


The Sheppard Law Firm has its main in Fort Myers and also in Naples by appointment.

© 2017 Craig R. Hersch. Originally published in the Sanibel Island Sun.

A Different Way of Looking at Estate Planning

Nobel Prize winning economist Friedrich (FA) Hayek (1899 to 1992) once commented that it’s a shame that capitalism is so named. He noted that the tragedy of capitalism is that it was named by its enemies who hated it. “Capital – money,” Hayek said, “isn’t the central point of capitalism. Rather, capitalism is the never ending system of increased cooperation among strangers.”

This never ending system of cooperation is all around us. I’m always amazed by technology, so even something as simple as an Automatic Teller Machine (ATM) tends to engage my imagination. ATMs have been around a long time, as they became popular in the early 1980s, and their capabilities have been exponentially expanding ever since. When I was recently overseas, I needed some local currency and wanted to get the best exchange rate. The hotel clerk advised that the best rates are found at the ATM, and there happened to be one conveniently located around the block.

I found the ATM, inserted my bank debit card to withdraw about $200 worth of the local currency, punched a few buttons and out it came. Talk about a system of cooperation among strangers! Here I was in Europe, and within moments had local currency in hand, with an appropriate amount deducted from my checking account here in Florida at a favorable exchange rate!

So please allow me to relate Hayek’s definition of capitalism to your estate plan. Most people tend to limit their view of estate planning as handling the transfer of wealth upon their death. In other words, that pile of paper that you signed in my office is merely a means to transfer your hard earned capital to your spouse, children or other loved ones when your time on Earth is finished.

If instead you view your estate plan as the capitalistic endeavor that it truly is, you see it as a never ending system of increasing cooperation among your loved ones with strangers. It begins with the creation of your estate plan, which requires the work of your estate planning attorney. But he’s not the only one working on the creation of your documents. He has legal assistants, clerks, and a host of others (and even far off computer programmers) who are necessary to provide you this service.

Assuming that his system assists with the transfer of your assets to your trust, his team then interacts with your financial advisors, banks and trust companies to ensure that all of your assets are properly titled into your revocable trust and that the proper beneficiary designations have been named. To prove my point that your estate plan is something more than the transfer of capital wealth upon your death, if you should become disabled then you can see how more cooperation among strangers becomes beneficial.

A good estate plan will put into motion the installment of your successor trustee and perhaps your agent under a durable power of attorney document who will now interact with your financial institutions to write your checks, pay your bills and manage your assets. Your trustee may be a loved one or it may be a professional. In either event many others will be cooperating to ensure that your affairs are kept in proper order and that you are well taken care of.

I make the argument that a good estate plan is worth more to the client than it is to the client’s beneficiaries for this very reason. That’s why it’s so important to have the triumvirate of a good estate planning attorney, CPA and financial advisor because, at some point, we all decline and become vulnerable. Waiting until something tragic happens is asking for what I call a “transition in a time of crisis,” which nobody wants to have happen.

Too often clients rely simply on family members rather than developing relationships with “strangers” such as attorneys, CPAs, trust officers, bankers and financial advisors. When you engage these professionals for a mere transaction – drafting an estate plan for example rather than developing an ongoing relationship with you on a constant basis to keep your estate plan up to date – you are not using all of the true resources in our capitalistic society.

There’s an inherent problem with working with professionals on a strictly transactional basis while relying solely on family members. Your adult children and other loved ones lead busy lives and may reside hundreds, if not thousands of miles away. The better course of action is to transform strangers into confidants who will be there to support you and your family when they are most needed. This way, your team of professionals can cooperate and support you and your family.

Capitalism and the technology supporting it are only going to improve over the coming years and decades. Like a good capitalist, look at your estate plan in a different way – as a valuable tool to preserve and protect what you’ve worked so hard to earn over the course of a lifetime.

The Sheppard Law Firm has its main in Fort Myers and also in Naples by appointment.

© 2017 Craig R. Hersch. Originally published in the Sanibel Island Sun.

Retaining Your Trusted Financial Advisor

What many clients don’t realize is that they may lose their trusted financial advisor when they become disabled, although it doesn’t have to be that way. Allow me to explain.

Assume that Jerry has a revocable living trust. He serves as his own trustee, and then ABC Trust Company is his named as successor trustee. Further, Jerry has a longstanding relationship with Lisa, his financial advisor. She works at XYZ Brokerage Firm. Lisa has been through the ups and downs with Jerry and his family, and Jerry has great confidence in Lisa.

If Jerry should become disabled and unable to make financial decisions, his successor trustee, ABC Trust Company, steps in and assumes the role of trustee. Because ABC Trust has the legal responsibility for all of the investment decisions, they will move all of the assets in the account from XYZ Brokerage Firm to ABC Trust Company.  This is common practice.

Sometimes, the Jerrys of the world don’t realize that’s what they’ve set up when they name a corporate (bank or trust company) as their successor trustee. There are alternatives. Some trust companies, for example, will serve only as the administrative trustee, and allow the investments to remain with the client’s preferred investment advisor. As administrative trustee, the trust company will write checks, pay bills and decide upon distributions. The investment advisor retains the assets in this scenario, and is responsible for the day to day investment decisions. This is possible due to “directed trust” laws that allow the liability associated with the different responsibilities to be bifurcated.

Florida enacted directed trust legislation so the ABC Trust Company, if they are so willing, can take on only the administrative role and allow XYZ Brokerage Firm to continue to manage the investments after Jerry resigns from serving as his own trustee. You should know, however, that these split duties don’t just happen. The attorney drafting the trust needs to be familiar with the directed trust laws and include the necessary language to segregate financial investment responsibilities from the distribution responsibilities. Not only must the trust be drafted correctly, but the trust company and the financial firm must both be willing to serve in their respective roles. Further, there should be a clear understanding on Jerry’s part as to what the charges and fees will be from both ABC and XYZ. Since the responsibilities are bifurcated, usually the fees are also divided.

Oftentimes, the financial firms will have required language that must be drafted into the trust instrument before they will agree to serve in the limited role provided. This required language commonly includes indemnification provisions that not only exonerate the trustee from the investment advisor’s actions (and vice versa), but also allows the trustee to use trust funds to defend itself if it is sued by the grantor or by a trust beneficiary.

Yet another common issue confronting investment advisors is a tug-of-war between the advisor and their own trust department. Suppose in my example with Jerry that Lisa, an advisor with XYZ Brokerage Firm advises Jerry that he can name the affiliated XYZ Trust Company as his successor trustee, and not worry about the assets moving if Jerry should become incapacitated or die.  When Jerry does become incapacitated, sometimes there is a struggle between Lisa and her brokerage firm against their own affiliated trust company over who manages the assets and gets paid to manage the assets. Some companies work well with their own advisors while others don’t. Then there is another issue as to how much the client gets charged. You don’t want to be charged full freight by both the advisor and the trust company in this example. If Lisa suspects that her trust company may step on her toes, she may look into affiliating with another company that will agree to perform the administrative tasks in a directed trust scenario.

Finally, there’s the issue of naming your spouse or children as successor trustee. In Jerry’s example, if he wants Lisa to continue on as his financial planner, he should express his expectations to whomever he names as his successor trustee. I’ve seen several children of clients move the client’s brokerage account to the child’s trusted broker and away from their parent’s broker when the child takes over as trustee.

So there’s a lot to think about when you name a successor trustee in your documents, including some very specific coordination with your long-term financial advisor. If this is an issue for you, bring it up with your estate planning attorney so that he can discuss it with the parties involved, and draft the appropriate language into your trust documents.

The Sheppard Law Firm has its main in Fort Myers and also in Naples by appointment.

© 2017 Craig R. Hersch. Originally published in the Sanibel Island Sun.

Changes to Your Estate Plan Necessary When You Become a Florida Resident

Many people move to Florida or establish residency here not only for the sunshine but also to minimize their tax burden. When you move to Florida, it’s wise to consider an update to your estate plan.

Florida residency offers several advantages. Since Florida does not have a state income tax, the tax on unearned income that may have occurred in the former home state is saved. Further, with the Save Our Homes property tax assessment caps, one can achieve tremendous property tax savings over time.

When folks declare Florida residency, I am frequently asked whether one should update their estate planning documents when declaring they make such a declaration. I often hear something along these lines of, “My Illinois attorney prepared my trust, and when I told him we were becoming Florida residents he told me my trust is just fine.” When I challenge what they understood to be their attorney’s advice, sometimes I’ll hear “Well his law partner is also licensed in Florida, and they both said I’m fine.”

I believe this is bad advice. Allow me to explain.

Each state has different laws that apply to estate planning documents, including wills, trusts, durable powers of attorney, health care surrogates and living wills. While the federal transfer (estate and gift) tax systems apply to everyone in the United States, some states have a death tax. Florida does not.

More importantly, for those that have created Revocable Trusts in northern jurisdictions and own a Florida home, unintended consequence might arise if the estate plan is not updated. This is due to Florida’s descent and devise laws surrounding Florida homestead. This can be explained by example.

Assume that Bob and Sue bought a home on Sanibel many years ago. When they purchased the home, it was a vacation property, and their Chicago attorney advised them to put the home in Sue’s Revocable Living Trust. The attorney explained that Bob and Sue should balance their estates for federal estate tax purposes by putting some assets in Bob’s trust and some assets in Sue’s. Since no one knows who is going to die first, by placing the home in Sue’s trust they have used its value against Sue’s federal estate tax exemption should she predecease Bob.

Fast forward several years. Bob and Sue have retired from their occupations and have declared themselves Florida residents. They make application to treat their home as Florida homestead. Bob and Sue are quite pleased that the Save Our Homes property tax assessment cap will finally apply to their Sanibel residence.

Bob and Sue also better update their Revocable Trust documents. Recall that if Sue dies first, her trust assets will first be “funded” into a credit shelter or family trust to be used against her estate tax exemption. Assume that the credit shelter trust is held solely for Bob for the rest of his life.

Florida homestead descent and devise law says that if you are survived by a spouse, absent any nuptial agreement waiving certain rights, you must devise the home outright in fee simple to your spouse. If you do not, then your will or trust contains what is known as an “invalid devise.” In that event, your spouse receives a “life estate” interest in the home, and the children of the deceased receive a present “remainder” interest.

Despite the fact that Sue’s trust says the home would be funded into a credit shelter trust held for Bob, Florida law treats this as an invalid devise. It therefore does not matter whether Bob is the primary beneficiary of Sue’s trust. So Sue’s children receive a present remainder interest and Bob receives a life estate. Again, this occurs despite any contrary intent expressed in Sue’s documents.

Bob is consequently responsible for the taxes, expenses and upkeep of the home. If Bob wants to sell the home, however, the children must agree with Bob and must sign any listing agreements, contracts to sell or deeds. Further, the children are entitled to part of the proceeds of the sale of the home.

If Sue and Bob are in a second marriage, only Sue’s children receive a remainder interest. Not Bob’s. Again, this is the case despite any contrary intention in Sue’s will or trust.

Furthermore, if Sue’s children get divorced, have creditor issues or other problems, those problems may cloud the title to the residence.

This can all be avoided through proper planning with Florida documents.

This is only one example of how Florida law is different. Our laws surrounding the administration of trusts, the apportionment of taxes and expenses after one dies, durable power of attorney, health care surrogate and living will laws are all different than other states.

The Sheppard Law Firm has its main in Fort Myers and also in Naples by appointment.

© 2017 Craig R. Hersch. Originally published in the Sanibel Island Sun.