The Florida legislature made several changes to the Probate and Trust Codes this year. The following is a brief summary of three 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 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. Often the trustee of the ILIT is not qualified to perform those functions, but failure to do so is a violation of the Prudent Investor Rule and can expose the trustee to liability. New Fla. Stat. § 736.0902 relieves the trustees of any 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 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 trusts with formula 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 to petition the court to construe the terms of a will or trust which allocate shares 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 the estate and generation-skipping transfer taxes are reinstated by Congress. If so petitioned, the courts may consider a broad array of evidence to determine the decedent’s “probable intent.” Importantly, the statute allows the court to consider evidence “even though the evidence contradicts the apparent plain meaning of the [will/trust].”
Homestead property rights: In the past, when a married person with children or other descendants died in Florida owning a primary residence in his or her sole name and failed to make a qualified devise of the property in accordance with Fla. Stat. chapter 732, the homestead automatically passed 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 instead can elect to take a 50% tenancy in common interest with the descendants owning the other 50%. The election must be filed within 6 months of the decedent’s date of death, and once made, the election is irrevocable.