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FLORIDA 2011 PROBATE & TRUST CHANGES

     On April 14, 2011 and April 29, 2011, the Florida legislature enacted several significant changes to the probate and trust code (hereinafter referred to as “legislation”). The bill was signed by the Governor on June 21, 2011. Some of the key sections of the legislation became effective on July 1, 2011 and others will become effective on October 1, 2011. In essence, the legislation creates or substantially modifies the following subject matters: I) Intestate succession; II) Reformation of a will; III) Challenges to revocation of a will and trust; IV) Attorney-client privilege relating to fiduciaries; and V) Timing for requesting attorney’s fees in a trust matter. The author urges probate and trust litigators to review the entire legislation because it contains nuances not fully addressed in this article.

Intestate Succession

     When a decedent dies without a will, the assets are distributed according to the laws of intestacy. Currently, the intestate share of a surviving spouse where all of the decedent’s descendants are also descendants of the surviving spouse is the first $60,000.00 and half of the remaining estate. Effective October 1, 2011, the legislation amends Florida Statute § 732.102(2) so that the intestate share of a surviving spouse of a decedent where all of the decedent’s descendants are also descendants of the surviving spouse (or if there are no descendants) is the entire estate. The legislation also creates Florida Statute § 732.102(4) to provide that if the surviving spouse has descendants that are also the decedent’s descendants and has descendants not related to the decedent, the surviving spouse’s intestate share is half of the estate.

Reformation of a Will

     Reformation of a testamentary document is an effective, yet often times overlooked, probate litigator’s technique to reform a document to conform to the settlor’s intent. Since 1998, Florida case law permitted reformation of a trust instrument to correct a mistake. See In re Estate of Robinson, 720 So. 2d 540 (Fla. 4th DCA 1998). In 2007, the Florida legislature codified and expanded common law to permit reformation to correct a trust to cure a mistake as well as reformation of a trust to achieve a settlor’s tax objectives. (See Fla.Stats. §§ 736.0415 and 736.0416).

     Effective July 1, 2011, the legislation created Florida Statutes §§ 732.615 and 732.616. These statutes mirror the above-referenced trust code statutes to permit reformation of a will to correct a mistake and to modify a will to achieve a testator’s tax objectives.

The mistake statute, Florida Statute § 732.615, allows an interested person to seek reformation of the terms of a will to conform to the testator’s intent, and provides a burden of proof of clear and convincing evidence. The statute even permits reformation that is completely inconsistent with the apparent terms of the will.

     The tax modification statute, Florida Statute § 732.616, permits an interested person to seek reformation of the terms of a will to achieve a testator’s tax objectives in a manner that is not contrary to the testator’s “probable intent.” These statutes are significant because reformation of an unambiguous will was previously never permitted by case law or statute. In addition, the legislation creates Florida Statute § 732.1061 which requires that in actions under reformation of a will to correct a mistake and modification of a will to achieve tax objectives, the court must award attorney’s fees and costs to the prevailing party. Nonetheless, the statute also gives the court discretion in awarding and allocating fees using the concept of equity.

Challenges to Revocation of a Will and Trust

     Florida law provides that a will or trust is void if procured by fraud, duress, mistake or undue influence. A testator or settlor may revoke a will or trust by writing or act. Until the legislation, there was no mechanism to challenge a revocation of a will or trust by physical act based upon fraud, duress, mistake or undue influence. The legislation amends Florida Statutes §§ 732.5165 and 736.0406 to provide that revocation of a will or trust is void if procured by undue influence, fraud, duress or mistake. A challenge to the revocation of a testamentary document cannot take place until the instrument becomes irrevocable or at the settlor’s demise.

Attorney-client Privilege relating to Fiduciaries

     Florida law provides that communication between an attorney and the client is confidential if it is not intended to be disclosed to third parties. The legislation clarifies and expands existing law so that communication between a fiduciary client and the attorney is confidential and privileged. (See Fla. Stat. § 90.5021). The legislation also amends Florida Statutes §§ 733.212(2)(b) and 736.0813 which create new reporting requirements for personal representatives and trustees. The reporting requirement compels personal representatives and trustees to provide notice to the beneficiaries that an attorney- client privilege exists between the fiduciary and the attorney employed by the fiduciary. (See Fla. Stats. §§ 733.212(2)(b) and 736.0813).

Timing for Requesting Attorney’s Fees in a Trust Matter

     The Florida Trust Code provides that trust proceedings are governed by the Florida Rules of Civil Procedure. In civil litigation, Florida Rule of Civil Procedure 1.525 is commonly used which requires a party to serve a motion seeking fees or costs within 30 days after the filing of a judgment. By amending Florida Statute § 736.0201(1), the legislation clarifies and confirms that Florida Rule of Civil Procedure 1.525 applies to all judicial proceedings concerning trusts.

     The legislation also creates Florida Statute § 736.0201(6) which states that Florida Rule of Civil Procedure 1.525 applies to all judicial proceedings concerning trusts, but provides the following two exceptions:
A trustee’s payment of compensation or reimbursement of costs to persons employed by the trustee from assets of the trust and
A determination by the court directing from what part of the trust fees or costs shall be paid, unless the determination is made under s. 736.1004 in an action for breach of fiduciary duty or challenging the exercise of, or failure to exercise, a trustee’s powers.

Read more at: Tax Times blog

U.S. readies papers v. Swiss banks on tax evasion

Sat Sep 10, 2011 12:50am BST
(Reuters) - The United States is drafting legal documents that seek to force nearly a dozen Swiss banks and international banks with Swiss branches to disclose the identities of American clients evading billions of dollars in taxes, sources briefed on the matter said. The drafting of the documents -- grand jury subpoenas and broad requests known as John Doe summonses -- is a fresh U.S. shot across the bow at Switzerland and its battered tradition of bank secrecy.

The Alpine country, a noted tax haven that is the global capital of offshore private banking, has been under attack from U.S. Justice Department and Internal Revenue Service officials conducting a broad criminal investigation into private banking services that U.S. authorities say enabled wealthy Americans to evade billions of dollars in taxes.

The documents could be served within a month or so on 10 banks, including some with headquarters outside Switzerland, these persons said.

The legal pressure signals a new front in Washington's fight against Swiss bank secrecy, a battle that in recent years has resulted in scores of Swiss bankers and advisers being charged, dozens of American clients indicted and several large banks investigated.

The Justice Department served a target letter in July on Credit Suisse AG (CSGN.VX), Switzerland's second-largest bank, notifying it that it was the focus of a criminal investigation. American authorities also are probing HSBC (HSBA.L) and smaller Swiss private banks and cantonal banks, including Basler Kantonalbank, Wegelin and Julius Baer (BAER.VX).

Talks between the Swiss and U.S. governments to resolve the broad investigation broke down in June. Switzerland wants its banks to pay a multi-billion dollar fine, but the U.S. side wants client names as well.

For more information go to http://uk.reuters.com/article/2011/09/09/uk-usa-swissbank-subpoenas-idUKTRE7887BH20110909 

Read more at: Tax Times blog

OVDI Ends Today – The Going Gets Tougher!

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More Tax Problems for U.S. Citizens with Foreign Bank Accounts in Israel

On August 28, 2011, the Supervisor of Banks at the Bank of Israel and the supervisory authorities in the US––the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation––signed a Statement of Cooperation. The Governor of the Bank of Israel, Prof. Stanley Fischer, confirmed the signing of the document.

The signing of the Statement of Cooperation is intended to formalize and strengthen the cooperation between the Banking Supervision in Israel and the supervisory authorities in the US, in order to facilitate the process of supervising banks incorporated in both countries for purposes of cross-border activity, and to promote the safe and sound functioning of those banks. The Statement of Cooperation also reflects the commitment of the above mentioned authorities to the principles of consolidated supervision and cooperation among banking regulators.

 The Statement of Cooperation establishes a mechanism for the transfer of information between the authorities in the context of the authorization process of establishing cross-border banking activity in the US or Israel, and in the context of their ongoing function as regulators of banking activity.

 The Statement of Corporation also regularizes the cooperation in supervisory processes carried out by each of the authorities, including those related to planned inspections of cross-border establishments, the identification of suspected money-laundering activity or the financing of terrorism, and banking activity without a permit. The Statement of Cooperation also deals with the sharing of information about banks in Israel and the US under common ownership or control.

The Supervisor of Banks, David Zaken: "The arrangements set out in the Statement of Cooperation are expected to boost cooperation with the US authorities with regard to the supervision of Israeli overseas banking offices operating in the US and the overseas offices of US banks operating in Israel."

The announcement didn't specifically mention FBAR or foreign bank accounts, however, it appears that this will be just one more avenue for the Internal Revenue Service to pursue in locating U.S. citizens who have unreported bank accounts in Israel. According to the press release the Statement of Cooperation establishes a mechanism for the transfer of information between the authorities in the context of the authorization process of establishing cross-border banking activity in the US or Israel, and in the context of their ongoing function as regulators of banking activity.

When added to the ongoing grand jury investigations of Israeli banks, and the implementation of FATCA in 2013 it demonstrates the danger of continued non-reporting of foreign bank accounts-especially for dual Israeli citizens.

Read more at: Tax Times blog

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