PROBATE AND PUMPERNICKEL LUNCHEON APRIL 24, 2014

Transcription

1 FLORIDA, A COMMUNITY PROPERTY STATE? PRESENTED AT THE PROBATE AND PUMPERNICKEL LUNCHEON APRIL 24, 2014 BY: Keith B. Braun, Esq. Comiter, Singer, Baseman & Braun, LLC 3801 PGA Boulevard, Suite 604 Palm Beach Gardens, Florida Telephone: (561) Facsimile: (561) kbraun@comitersinger.com

2 FLORIDA, A COMMUNITY PROPERTY STATE? TABLE OF CONTENTS I. WHAT IS COMMUNITY PROPERTY?... 1 II. COMMUNITY PROPERTY JURISDICTIONS III. ESTATE AND GIFT TAX IMPLICATIONS OF COMMUNITY PROPERTY IV. INCOME TAX IMPLICATIONS OF COMMUNITY PROPERTY FROM AN ESTATE PLANNING PERSPECTIVE V. FLORIDA UNIFORM DISPOSITION OF COMMUNITY PROPERTY RIGHTS AT DEATH ACT, SECTIONS VI. PLANNING... 3 Page ii

3 Florida, a Community Property State? April 24, 2014 I. What is Community Property? a. All property acquired during the marriage (other than by gift or inheritance) is community property. b. Each spouse has an equal and undivided interest in the community property. c. Generally, either spouse may act alone in managing community property. II. III. IV. Community Property Jurisdictions. a. Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. Maybe Alaska which allows spouses to opt into the community property system. b. Puerto Rico. c. Generally civil law countries and Quebec. Estate and Gift Tax Implications of Community Property. a. With a gift of community property, each spouse is deemed to have given onehalf of such property. b. When the first spouse dies, his or her gross estate includes one-half of each item of community property. This facilitates exemption planning and also creates the possibility for discounts for lack of marketability and lack of control in valuing property. Income Tax Implications of Community Property from an estate planning perspective. a. Internal Revenue Code Section 1014(b)(6): In the case of decedents dying after December 31, 1947, property which represents the surviving spouse's one-half share of community property held by the decedent and the surviving spouse under the community property laws of any State, or possession of the United States or any foreign country, if at least one-half of the whole of the community interest in such property was includible in determining the value of the decedent's gross. b. A double basis adjustment. c. Rev. Rul : The IRS has ruled that the Section 754 basis adjustment applies to the entire partnership interest owned as community property, including the portion owned by the surviving spouse. Page 1

4 V. Florida Uniform Disposition of Community Property Rights at Death Act, Sections (the Act ). a. Section Application. Sections apply to the disposition at death of the following property acquired by a married person: (1) Personal property, wherever located, which: (a) Was acquired as, or became and remained, community property under the laws of another jurisdiction; (b) Was acquired with the rents, issues, or income of, or the proceeds from, or in exchange for, community property; or (c) Is traceable to that community property. (2) Real property, except real property held as tenants by the entirety, which is located in this state, and which: (a) Was acquired with the rents, issues, or income of, the proceeds from, or in exchange for, property acquired as, or which became and remained, community property under the laws of another jurisdiction; or (b) Is traceable to that community property. b. Section Rebuttable presumptions. In determining whether ss apply to specific property, the following rebuttable presumptions apply: (1) Property acquired during marriage by a spouse of that marriage while domiciled in a jurisdiction under whose laws property could then be acquired as community property is presumed to have been acquired as, or to have become and remained, property to which these sections apply. (2) Real property located in this state, other than homestead and real property held as tenants by the entirety, and personal property wherever located acquired by a married person while domiciled in a jurisdiction under whose laws property could not then be acquired as community property and title to which was taken in a form which created rights of survivorship are presumed to be property to which these sections do not apply. c. Upon death, the decedent may dispose of one-half of the community property and the other one-half belongs to the surviving spouse. Section d. Where property to which the Act applies is held by the surviving spouse, the personal representative may institute an action to perfect title to such property; however, the personal representative has no duty to discover whether any property held by the surviving spouse is subject to the Act, unless a written demand is made by a beneficiary within 3 months after service of a copy of the notice of administration on the beneficiary or by a creditor within 3 months after the first publication of the notice to creditors. Section e. Where property to which the Act applies is held by the decedent, title of the surviving spouse may be perfected by an order of the probate court or by execution of an instrument by the personal representative or the beneficiaries Page 2

5 of the decedent with the approval of the probate court. The probate court has no duty to discover whether property held by the decedent is subject to the Act, and the personal representative only has a duty to discover whether property held by the decedent is subject to the Act if a written demand is made by the surviving spouse or the spouse s successor in interest within 3 months after service of a copy of the notice of administration on the surviving spouse or the spouse s successor in interest. Section f. Married persons may sever or alter their interests in community property. Also the reinvestment of community property in real property which is or becomes homestead conclusively terminates the community property status. Section VI. Planning a. When estate planning, be alert for community property. i. Take steps to segregate such property and do not hold such property, if real property, as tenants by the entirety or allow such property to become homestead. ii. Add typical community property provisions to estate planning documents. iii. Consider written agreements to memorialize the character of property. iv. Ensure that clients keep good records tracing the character of property. v. Consider the use of a separate revocable trust to own community property. b. On death, be alert for community property. c. Community property is specifically excluded from the elective estate under Florida s elective share statute. d. ERISA preempts state community property laws. Boggs v. Boggs, 520 US 833 (1997). e. What about an IRA or a life insurance policy? f. What about homestead? i. Appears not to be community property as a result of Section , but what about Section ? L:\DOCS\1250\70\ DOC Page 3