USA – FLORIDA Law and Practice Contributed by: Jennifer Jordan McCall, Drew Reitz and Christine Tsai, Pillsbury Winthrop Shaw Pittman LLP
4. Family Business Planning 4.1 Asset Protection
as a Donor Advisor to direct how contributions to the DAF are distributed to one or more charities. 3.2 Recognition of Trusts Florida recognises and respects many different types of trusts, including but not limited to revocable and irrevocable trusts, land trusts, and community prop - erty trusts, all of which are commonly created and used in Florida. 3.3 Tax Considerations: Fiduciary or Beneficiary Designation With respect to foreign trusts through which a US resident serves as a fiduciary, there are extensive and complicated reporting rules for foreign trusts at the federal level in the US. Anyone seeking advice with respect to such trusts should seek experienced legal and accounting advice. 3.4 Exercising Control Over Irrevocable Planning Vehicles Generally, irrevocable trusts cannot be amended after execution without court intervention, but there are exceptions to this rule. Florida has enacted two statutory methods for modifying irrevocable trusts. The first method is through “decanting” where, in certain cases, the trustee may distribute trust assets to a new trust pursuant to Florida’s decanting stat - ute or pursuant to the terms of a trust. The new trust may include more desirable provisions, but there are numerous restrictions on how the new trust can be structured. Decanting is a useful tool for modifying irrevocable trusts within the limitations permitted by the statute or by the trust agreement. A second method of modifying a trust is through a “non-judicial settlement agreement” (NJSA) but its use is limited to those modifications that could be properly determined by a court. In other words, an NJSA cannot modify a trust in any manner unless a court could otherwise do so, and any modification must be consistent with the Florida Trust Code. An NJSA requires the signature of all interested parties, unlike a decanting, which generally only requires the consent of the trustee (although it is often prudent for the trustee to require the beneficiaries of the trust to consent to the decanting for protection of the trustee).
Asset protection strategies in the US and Florida include, but are not limited to, the use of limited lia - bility companies, use of irrevocable trusts, gift and estate tax planning, nuptial agreements, and insur - ance policies, such as private placement life insurance and umbrella policies, among others. Additionally in Florida, certain primary residence properties qualify - ing for Florida homestead exemption (as described in 1.2 Exemptions ) are also protected from certain creditors. The protections can extend to one half-acre of contiguous land (if located within a municipality) or 160 acres of contiguous land (if located outside a municipality). 4.2 Succession Planning Family businesses can be transferred in many ways. One method is to transfer a minority interest in the family business to an irrevocable trust (often an IDGT) for the benefit of future generations. It can be pos - sible to recapitalise a business entity into voting and non-voting equity interests, such that the senior family member may retain voting control in certain cases, if desired, but taking into account the evolving tax law in this area. A significant portion of the non-voting interests can be transferred to a trust through vari - ous planning mechanisms, with the voting interests passing at death generally through a revocable trust. This is a highly efficient business succession planning strategy. Care must be taken to comply with recent Tax Court cases and evolving statutes, so that any control retained by the grantor does not cause the business assets, although transferred, to neverthe - less be includable in his or her estate for estate tax purposes. Another mechanism is to transfer assets into a “family limited partnership” (FLP). A FLP is generally a lim - ited liability company structured to be a partnership for income tax purposes by having multiple members (often the parent and their children). The senior fam - ily member makes the most significant contribution to the FLP, generally receiving a majority or perhaps voting and non-voting interests. The senior family member then makes gifts of minority interests/non-
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