USA – FLORIDA Law and Practice Contributed by: Jennifer Jordan McCall, Drew Reitz and Christine Tsai, Pillsbury Winthrop Shaw Pittman LLP
5. Wealth Disputes 5.1 Trends Driving Disputes
voting interests to trusts for the benefit of their family members. These gifts utilise the senior family mem - ber’s available gift tax and GST tax exemptions, but they transfer the underlying assets at a marketability and control discount which then appreciate outside of the taxable estate. Note that this structure requires careful planning to avoid inclusion in the senior family member’s taxable estate. Experienced counsel should be consulted in any event. A third mechanism, which is particularly useful for real estate investors, is to create a “freeze partnership”. A freeze partnership is generally a limited liability com - pany (LLC) that is designed to hold all of the sen - ior family members’ real property assets through a holding company. The LLC will issue preferred and common interests in the LLC to the senior genera - tion family member. The preferred interest must pay a distribution each year (called a “coupon”) at a fair market value rate, on a cumulative basis, and at a fixed rate. Assuming these requirements are satis - fied, the payment should qualify for special treatment under the Internal Revenue Code so as not to create an imputed gift under Section 2701. This structure permits “freezing” the value of the preferred interest. The common interest, or a portion of it, is generally given to an IDGT, allowing the common interests to grow gift and estate tax free. Voting control can be given to either the common interests or the preferred interests or to both of them, which provides flexibility to achieve business succession goals, again subject When a non-controlling interest in a private entity is transferred either during an individual’s lifetime or at their death, the fair market value of the interest is gen - erally entitled to a discount for lack of control. If such interest also lacks liquidity, it generally will qualify for an additional discount for lack of marketability as well. An appraisal from a qualified appraiser should gener - ally be obtained to value the underlying asset(s) and the fractional interest for gift or estate tax purposes. Publicly traded securities do not qualify for these dis - counts. to evolving tax laws in this area. 4.3 Transfer of Partial Interest
Wealth disputes can arise when a child or other poten - tial heir is excluded from a decedent’s will or revocable trust or otherwise receives less than other children or heirs. In many jurisdictions, it is standard for a will or revocable trust to have a “no contest” provision. Such a provision states that if a potential heir challenges a will or trust, they are disinherited entirely. Often, a decedent will leave such an heir a smaller bequest or devise to incentivise the heir not to challenge the will or trust. Florida does not recognise no contest provisions and so they cannot be used effectively in Florida. This eliminates a useful planning mechanism for deterring potential will or trust challenges. Numerous additional scenarios can lead to wealth disputes. These include the multiple marriage fact pattern (disputes between the children from a prior marriage and the current spouse), conservatorship proceedings, and intestate estates. 5.2 Mechanism for Compensation There are numerous forms of damages or other rem - edies in Florida for wealth disputes. These can take the form of injunctions, money damages, and trust reformation, among others. Litigation unique to a dis - crete fact pattern is common, and compensation can include compensatory damages, award of attorney’s fees, and possibly punitive damages. 6. Roles and Responsibilities of Fiduciaries 6.1 Prevalence of Corporate Fiduciaries The use of corporate fiduciaries is prevalent. Florida law allows certain entities, including trust companies and banking institutions, to act as corporate fiduciar - ies, exercise fiduciary powers, and serve as personal representatives of estates. Certain fiduciaries may be held to the standard of their specialised skills or expertise. A personal representative must be either a resident of Florida or a family member.
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