Digital Assets Part 1: Estates – Who’s in Control and the Consequences

In Part 1 of Digital Assets I cover who’s in control of digital assets such as Facebook, online photos, Pay Pal, iTunes and how to be protected. The short video below discusses complying with the Florida Fiduciary Access to Digital Assets Act (FFADAA) to avoid liability issues – and what the Personal Representative, Power of Attorney, Trustee and Guardian can and can’t do.

This new digital act applies to estate planning documents created before and after July 1, 2016, even if digital assets were not referenced in the estate planning.

 

When does a trust terminate and the assets distributed to the beneficiaries?

BaskinFleece lawyer Jay Fleece

By Attorney Jay Fleece

In Florida, a common estate planning scenario is for someone to create a revocable trust, sometimes referred to as a “Living Trust” and place all or most of his or her assets into the trust. The Settlor, the one setting up the trust, is typically named the initial trustee and deals with the trust property in the same fashion as if the assets were still owned by and in the name of the Settlor, with the absolute right to amend or revoke the trust and without having to account to any beneficiary.

Upon the death of the Settlor, everything changes. As the Settlor can no longer amend the trust, it becomes “irrevocable” at which time the beneficiaries named in the trust become established or vested.

Living TrustMany of these “Living Trusts” are set up to provide that upon the death of the Settlor the trust terminates and distribution is made of the trust assets to the named beneficiaries, similar to a will, but without court supervision.

Before anything can be done with the assets in a Living Trust which terminates after the death of the Settlor, a successor trustee must assume the trusteeship of the trust. Typically, the Settlor has identified and nominated someone – someone highly trusted – to be the successor trustee to take over the trust upon the Settlor’s death. Many times, a Trust Company is named as the successor trustee. The nominated successor trustee should immediately engage an attorney to guide him or her through administering a trust.

Trustee has 60 days

The Florida Trust Code then requires that a successor trustee, within 60 days after finding out that a formerly revocable trust has become irrevocable (which usually means within 60 days of the Settlor’s death), to give notice to the beneficiaries of the trust’s existence, the identity of the Settlor or Settlors, the right to request a copy of the trust instrument and the right to accountings under that section of the Code.[i]

Once the successor trustee is in place to discharge the duties as trustee, are the assets then immediately distributed to the beneficiaries named in the trust? The answer is usually no even though the successor trustee is under a fiduciary duty to make distribution when the trust terminates.

Trustee an TrustThe termination date of a trust means the time at which it becomes the duty of the trustee to wind up administration of the trust. “The period for winding up the trust refers to the period after the termination date and before trust administration ends by complete distribution of the trust estate”.[ii]

Following a trust’s termination date, the trustee has a duty within a reasonable time to distribute the trust property to the persons entitled to it, and to make preliminary distributions as appropriate within the windup period.[iii]  The Florida Trust Code provides that the successor trustee shall proceed expeditiously to distribute the trust property to the persons entitled to the property, subject to the right of the trustee to retain a reasonable reserve for the payment of debts, expenses, and taxes.[iv]  The Code also provides that on termination of the trust, the successor trustee continues to possess the powers appropriate to wind up the administration of the trust and distribute the trust property to the persons entitled to the property, subject to the right of the trustee to retain a reasonable reserve for the payment of debts, expenses, and taxes.[v]  Many practioners refer to this period between the Settlor’s death and final distribution as the “windup” period, or the “windup” trust.

The common law is clear that a successor trustee’s powers and duties do not end on the trust’s termination but continues for a reasonable amount of time to wind up the administration of the trust prior to making distribution in a manner consistent with the purposes of the trust and the interests of the beneficiaries.[vi]

Living trust wind up periodWhat is a reasonable amount of time to wind-up the administration of a trust and make distribution? This question has no clear answer as each case is different depending on the assets held in the trust, whether those assets are easily valued and distributable and determining and satisfying any trust obligations including any tax liabilities. Each trust would be judged by the facts unique to its administration. There should be a legitimate reason for the trustee to have a long “windup” period, other than wanting to collect additional fees and remain in control of the trust assets. On the trust’s termination, the assets belong to the beneficiaries only subject to the “windup” period.

As part of the wind-up process, the successor trustee should provide a final accounting which should include a plan of distribution for any undistributed assets shown on the final accounting.[vii] The successor trustee cannot be held liable for not making distributions before the expiration of the six-month limitation period within which beneficiaries can challenge the final accounting, provided the beneficiary receives a limitations notice with the final accounting. The beneficiaries can always waive the six-month period by approving the accounting and releasing the successor trustee from liability as providing a final accounting is the only mechanism available to the trustee to determine and limit liability. As an alternative, the trustee may request judicial approval of the accounting but this procedure would invariably take longer than six months and be an unnecessary expense to the trust.

When these “Living Trusts” terminate upon the Settlor’s death, a successor trustee whoTrust in Tampa and St. Petersburg fails to distribute assets and bring the trust administration to a conclusion in a timely fashion after the death of the Settlor has committed a breach of fiduciary duty and can be held accountable.[viii]

The breach of the fiduciary duty to timely make distribution is usually not done in isolation but typically involves other breaches committed by the successor trustee, including failing to provide an annual accounting and either mismanaging the trust assets or using those assets for his or her own benefit.


[i] Fla. Stat. §736.0813(1)(b).
[ii] 89 Restatement of The Law on Trusts 3d, comment b.
[iii] 89 Restatement of The Law on Trusts 3d, comment (e).
[iv] Fla. Stat. §736.0817
[v] Fla. Stat. §736.0816(25)
[vi] Restatement of the Law Third, Trusts §89; Bogert’s The Law of Trusts and Trustees §1010.
[vii] Fla. Stat. §736.08135(2)(f)
[viii] DeBello v. Buckman, 916 So.2d 882 (Fla. 4DCA 2005)


This blog is designed for general information only. The information presented at this site should not be construed to be formal legal advice nor the formation of a lawyer/client relationship. Because the law is continually changing, some provisions in this blog may be out of date. It is always best to consult an attorney about your legal rights and responsibilities in your particular case.

Pitfalls of Using Joint Ownership to Avoid Probate

Randall D. Baskin

By Attorney Randall D. Baskin

Many clients come into this office and ask whether they should title all of their bank accounts jointly with their children, as joint tenants with right of survivorship, in order to avoid probate and quickly pass ownership of assets to their children upon their passing.

Joint tenancies with right of survivorship are established when two or more people title assets, such as bank accounts or real property, in their joint name, as joint tenants with right of survivorship. With this form of shared ownership, upon the passing of a co-owner, the deceased co-owner’s interest in the property ends and title passes directly to the surviving co-owner(s). This process would continue until there is a single owner of the account. While this method of passing ownership in assets avoids probate, it can present a new set of issues which should be considered prior to taking any action.

Estate planning and joint accountsTax Consequences: The moment you add another person on an account as a joint tenant with right of survivorship, you are effectively making a gift of one-half of the value of the account.  If the gift is more than $14,000 (meaning the account contains more than $28,000), then you effectively just made a taxable gift to the newly added joint owner, which gift should be reported to the IRS.

Liability Issues: An account titled with another individual as joint tenants with right of survivorship is now no longer your solely owned asset. One-half of this account is now vulnerable to judgments and creditors of the joint owner.

Estate PlanningUnintended Estate Planning Consequences: When a parent adds one or more, but not all, of their children to an account as a joint tenant with right of survivorship, upon the parent’s passing, some children may end up inheriting more than others. While the parent may intend for all of the children to receive an equal share of the assets upon their passing, the surviving co-owners of the account have no obligation to share with their siblings. And, if the surviving co-owner of the account does choose to share with their siblings not named on the account, it would be considered a gift.

In order to avoid the outcomes discussed above and create the most effective estate plan for your situation, it is important to consult with an estate planning attorney prior to retitling your assets.

For additional information please contact BaskinFleece at 727.572.4545.