Florida Wills & Trusts: August 2001 Summary

Legal Developments

Tax Relief Act of 2001

On June 7th, President Bush signed The Economic Growth and Tax Relief Reconciliation Act of 2001, making a number of changes that will impact how estate planning is done. The Act accelerates the estate tax applicable credit amount to the following: $1 million in 2002 and 2003; $1.5 million in 2004 and 2005; $2 million in 2006, 2007, and 2008; and $3.5 million in 2009. The gift tax applicable credit amount is increased to $1 million in 2002 and does not increase thereafter. The GST exclusion amount remains at $1 million (subject to inflation adjustments) through 2003, and thereafter follows the estate tax phase-in. In addition, the Act reduces estate and gift tax rates during the phase-in.

The Act repeals the estate and GST taxes in 2010, but eliminates the step-up in basis, subject to a $1.3 million exemption and a $3 million spousal exemption. Both planners and their clients should be aware, however, that unless Congress acts to extend the provisions, the entire Act expires at the end of 2010, and the law currently in effect will be reinstated.

We have reviewed the Act and agree with other commentators that the uncertainty it creates presents difficult planning issues. Because of the Act's varied effective dates and staged changes, how best to resolve these issues is not yet clear. For example, the one-year "window" of repeal in 2010 does not mean we should abandon traditional marital planning; if the spouse survives until 2011, when estate taxes are reinstated, it still may be advisable to create a nontaxable entity such as the Family Trust. Another factor is the complicated set of rules dealing with basis adjustments in 2010.

Fortunately, most of the major changes are not effective for some time, and the biggest of them-repeal and the new version of carryover basis-are nine years away. Thus, we do not think major changes to the program are warranted now. The prevailing sentiment-including comments from influential members of Congress-is that the Act's estate tax provisions will not survive in their current form. Any changes made to accommodate the new law before it phases in could be more harmful than continuing the current approach. Most importantly (except for the impact of carryover basis), the program's options and language already accommodate both aspects of the increased exclusion amounts through the self-adjusting tax formula and the ability to direct a greater amount to the spouse outside that formula, if desired.

Perhaps the most important issue created by the Act's projected increases in the amounts exempted from tax deals with how (and why) plans are currently structured. Because many estates that are taxable under current law would become tax-free under the new provisions, care should be taken to discuss with clients the more immediate impact on the family's planning of creating a significantly larger "credit shelter" or generation-skipping trust. As the exclusion amount increases, smaller estates could be completely locked up in such trusts when clients would have preferred a direct gift to the spouse or children. As always, we will continue to monitor any new developments in this area and will update the product as the picture clears and thereafter when appropriate.

Modifications to Florida Probate Code

On June 13, 2001, Governor Bush signed into law the most extensive modification to the Florida Probate Code in almost 30 years (a hefty 212 pages). Though many of the provisions are cosmetic in nature, there are some significant changes, both in form and function, relating to probate administration (but few that affect drafting). In addition, a separate bill brought Florida into the ranks of states that allow a "springing" power of attorney. Both of these new laws take effect as of January 1, 2002 (excluding the elective share changes, which take effect October 1 of this year). Revisions to the Law & Strategy and limited changes to document language are in the works and will be incorporated in the next update; meanwhile, documents created under the existing law will be given full effect (as specifically provided in the new act).

The most significant change effective next year, however, is the use of springing powers of attorney; the law is not clear whether this feature, if included in a power of attorney executed in 2001, will merely be dormant until 2002, or invalidate the document ab initio. The safest course is to refrain from drafting documents that create springing powers until after January 1, 2002, but we believe that the power might be crafted in such a way as to permit a delayed springing power. Stay tuned for further developments.

Updated Product Features

Variables

Select "Insert Variables" on the Edit menu to see a list of Variables that you can insert into any editable text or fill-in answer. Variables include the client and spouse legal names, references to "my wife/husband," and references to this "Will/Trust." Unlike plain text, the text produced by these Variables can change based on a change to another answer. For example, rather than type in "my wife" as the name of the guardian in the Designation of Preneed Guardian (Question 1004), you can now insert the Variable "my/the grantor's spouse" or the Variable "spouse legal name." If you later switch from drafting the husband's documents to the wife's, the content of this Variable will automatically change as well, so that the wife's Designation of Preneed Guardian will automatically name the husband as guardian, without your having to revisit Question 1004 and change your answer. As another example, the default name of trust at Question 110 now uses a variable for the client's name, so that when you switch to a mirror trust for the spouse, the name of the trust will automatically change. Variables are also useful if you are customizing the family description (Questions 95 and 96). See the "How To" topic "Use Variables" for further discussion.

Certificate of Trust

As always, you can create a certificate of trust as a separate document generated from Lawgic. In addition, you can now mark selected articles in your trust instrument for later importing into a certificate of trust shell using a macro. This new feature is useful if you are planning to edit the trust instrument in your word processor. See the "How To" topic "Create a certificate of trust" for a full discussion and step-by-step instructions.

Longer Names for Dot/Sty Files

The dot (Word 97 and higher) and sty (WordPerfect 8 and higher) files associated with particular documents have all been renamed to provide longer, more understandable names that are easier to find and work with. All dot/sty file names now begin with "LG" and provide a full description of the associated document (e.g., the trust dot/sty file is now called "LG Trust"). In addition, the trust and certificate of trust now share a common dot/sty file to ensure consistency.

If you have modified your dot or sty files and wish to keep your changes, you can simply rename your files to the new names (after installing this update). However, you must add a new LGEList 4 to "LG Trust.dot" with hidden paragraph style if you want to take advantage of the new certificate of trust macro, and you must set your tabs to a single right tab at the right margin in LGEList 5 in "LG Trust" and "LG Will" dot/sty if you use footers in your Wills or trusts.

Successor Agents in Single DPA

In response to your requests, you can now name successor agents in a single DPA instead of creating a separate DPA for each successor.

Fiduciary Powers: Notify Beneficiaries Before Dispositions

You now have the option of requiring the personal representatives or trustees to notify beneficiaries before abandoning or disposing of property of little or no value.