The Florida legislature made several changes to the Estate and Trust Codes this year. The following is a brief summary of the most notable changes.
Trustee’s responsibility for life insurance policies: Irrevocable life insurance trusts (ILITs) are a common estate planning technique used to avoid paying estate taxes on life insurance proceeds. Often, the settlor of the trust selects the insurance policy, but Fla. Stat. § 518.11, known as the Prudent Investor Rule, imposes complete responsibility on the trustee to determine the quality and appropriateness of the policy, as well as to monitor the policy to ensure it remains a viable investment for the ILIT. Many times family members or friends act as trustees of the ILIT and they are not in a position to perform those functions, but failure to do so is a violation of the Prudent Investor Rule and can result in the trustee being liable to the beneficiaries of the trust. New Fla. Stat. § 736.0902 in part provides that trustees are under no duty to determine whether the policy is, or remains, a proper investment of the trust.
For the statute to apply to policies in the ILIT, either the ILIT must expressly make the statute applicable to policies owned by the trust, or the trustee must give qualified beneficiaries advance written notice that the statute will apply to the trust. Beneficiaries have 30 days to object if they wish; otherwise the statute will automatically apply.
Judicial construction of wills and irrevocable trusts with federal tax provisions: In order to deal with the uncertainty created for decedents dying in 2010 when there is no estate tax in effect, new Fla. Stat. §§ 733.1051 and 736.04114 allow a personal representative, trustee, or a beneficiary of a trust to petition the court to construe the terms of a will or trust which allocate shares to beneficiaries based on a formula using the federal estate or generation-skipping transfer tax exemptions. This statute is effective as of January 1, 2010, and terminates on the earlier of December 31, 2010, or the date upon which the estate and generation-skipping transfer taxes are reinstated by Congress. If so petitioned, the courts “shall consider the terms and purposes of the [will/trust], the facts and circumstances surrounding the creation of the [will/trust], and the [testator’s/settlor’s] probable intent.”
Homestead property rights: When a married person with children or other descendants dies in Florida owning a primary residence in his or her sole name, the homestead automatically passes to the spouse and descendants, with the spouse taking a life estate and the descendants taking a vested remainder interest. Under new Fla. Stat. § 732.401(2), the spouse can elect to be a 50% owner of the homestead with the descendants owning the other 50%. The election must be made by filing a form with the clerk of the court within 6 months of the decedent’s date of death, and once made, the election is irrevocable.