October 4, 2012 – Using Designated Representatives in Trust Documents, Do Your Real Estate Leases Properly Insulate the Landlord and the Rest of the Story on Mitt Romney
Providing updates and comments on Florida estate planning and creditor protection developments and insight for lawyers, CPAs, and other planning professionals.
1. ARE YOU USING DESIGNATED REPRESENTATIVES IN YOUR TRUST DOCUMENTS?
2. DO YOUR REAL ESTATE LEASES PROPERLY INSULATE THE LANDLORD FROM POTENTIAL LIABILITY FOR TENANT ACTIVITIES AND LACK OF MAINTENANCE?
3. MITT ROMNEY’S TAX RETURN – NOW WE KNOW THE REST OF THE STORY!
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We welcome all questions, comments, and suggestions.
ARE YOU USING DESIGNATED REPRESENTATIVES IN
YOUR TRUST DOCUMENTS?
The Florida Trust Code requires that all “qualified beneficiaries” of an irrevocable trust receive annual accountings. Despite the rule’s important goal of providing a means to monitor a trustee or trustees, it may be the least followed rule in the Florida Trust Code.
Many clients do not want beneficiaries to have access to information about an irrevocable trust they have formed. Who wants to remind young beneficiaries that they may not have to work hard or that they shouldn’t have to expect to support themselves because of a trust that was set up for estate tax or other purposes? Furthermore, why should children and grandchildren of people who have set up an irrevocable trust have the right to trust accountings when grandma and grandpa are still alive and their chosen trusted individual is handling the trust to their satisfaction?
In addition, trust accountings can be expensive to prepare. Meeting the accounting requirements of Florida Statute Section 736.08135 may entail a significant amount of analysis and detailed reporting, depending on the size and complexity of the trust. Many clients may wish to avoid the fees and costs required to prepare full annual accountings.
Fortunately, Florida law creates the opportunity for some balance between the privacy of the settlor and the interests of the beneficiaries in receiving information about the trust. Florida Statutes Section 736.0306 provides for the naming of a Designated Representative who can stand in the shoes of one or more beneficiaries for the purpose of waiving trust accounting requirements and/or receiving trust accountings and information so that there is some degree of assurance that someone is looking over the shoulder of the trustee.
Our Florida Trust Code Manual section on Designated Representatives with sample language and a copy of Florida Statute Section 736.0306 are attached. Click here to view our Florida Trust Code Manual. Click here to see a copy of Florida Statute Section 736.0306.
It is not too late if your clients haven’t already taken advantage of the use of a Designated Representative. Existing trusts may be reformed by court order to add a Designated Representative.
The Tricks
To take advantage of Section 736.0306, a settlor should name in the trust instrument an acting and an alternate Designated Representative. The client is probably in the best position to name a Designated Representative who is completely trusted and will be able to handle interpersonal situations that might arise with beneficiaries who become problematic in the future.
In the alternative, a trust instrument can authorize any person or persons other than the trustee to select a Designated Representative. This option may offer greater flexibility for a client, particularly with respect to trusts that may not become irrevocable for some time in the future, such as a revocable trust.
Additionally, clients may consider one of the other qualified beneficiaries as the Designated Representative for one or more of the remainder of the beneficiaries. A dual role as a beneficiary and a Designated Representative is permissible provided the dual role was specified by name by the settlor. If not named by the settlor, a qualified beneficiary may take on a dual role provided he or she is the other beneficiary’s spouse or a grandparent or descendant of a grandparent of the beneficiary or the beneficiary’s spouse.
The Traps
When a Designated Representative does not monitor a trustee’s actions, a trustee may have the opportunity to steal or otherwise not live up to the duties of a trustee, which can obviously result in a not so good scenario. Just like a qualified beneficiary, a Designated Representative can ignore or even waive the right to annual accountings, leaving a potentially unscrupulous trustee to run amok.
Make sure you think through how the Designated Representative situation might impact the trust arrangements you set up, and let us know if you have any suggestions for improving our sample language.
DO YOUR REAL ESTATE LEASES PROPERLY INSULATE
THE LANDLORD FROM POTENTIAL LIABILITY
FOR TENANT ACTIVITIES AND LACK OF MAINTENANCE?
Plaintiff lawyers have been very successful over the years in enabling juries to determine that a landlord is responsible for dangerous conditions on property caused solely by a tenant unless there is specific language in the lease which permits the tenant to make all decisions relating to the use of the property without approval of the landlord.
Our writeup on the case law can be viewed by clicking here and a copy of one of the key cases Russ v. Wollheim can be viewed by clicking here.
A provision to limit landlord liability that we commonly use is as follows:
IT IS ACKNOWLEDGED THAT LESSEE IS SOLELY RESPONSIBLE FOR THE OPERATION, SAFETY, INSPECTION, USAGE AND WITH RESPECT TO ALL OTHER ASPECTS OF THE PROPERTY THAT RELATE TO OWNERSHIP, MAINTENANCE, SUBLEASING, AND OCCUPYING THE PROPERTY DURING THE LEASE TERM, AND THAT LESSEE SHALL HAVE THE FULL AND EXCLUSIVE RIGHT TO OCCUPY AND USE THE PROPERTY AND TO LEASE AND SUBLEASE. THEREFORE, LESSEE SHALL BE SOLELY RESPONSIBLE FOR ANY AND ALL LIABILITIES OR OBLIGATIONS INCURRED RELATING TO THE PROPERTY AND THE USE THEREOF, EXCEPT AS OTHERWISE EXPLICITLY SET FORTH UNDER THIS LEASE, AND SHALL INDEMNIFY AND HOLD HARMLESS LESSOR WITH RESPECT THERETO.
The Trick
Giving a tenant carte blanche authority to make changes to property can be dangerous, but also necessary to insulate a lessor from premises liability.
These clauses almost always make sense between related parties where there is complete trust. These clauses also make sense when the lease is with a well-
The Traps
Do not let your clients give total control to a tenant who may cause significant financial liability as the result of this type of authority.
Clients might consider other ways of protecting real estate and the ownership group from potential liability, including having plenty of liability insurance, checking regularly to make sure that the tenant is maintaining the required liability insurance, keeping the property leveraged with debt, and making sure that the property is owned by a liability limitation entity, such as an LLC or a limited liability limited partnership, rather than being owned individually.
Triple net does not have to mean triple threat.
MITT ROMNEY’S TAX RETURN
NOW WE KNOW THE REST OF THE STORY!
We have obtained a copy of Mitt and Ann Romney’s 2011 tax return and it can be viewed by clicking here.
It is noteworthy that Mr. Romney had $6,889,432 of ordinary income and $6,810,176 of capital gains income.
Despite a humorous Saturday Night Live Weekend Update joke last weekend, Mr. Romney did not claim 47% of the U.S. population as dependents. Click here to see the Weekend Update segment.
Some of the more interesting things we found in the returns and from around the news:
1. This Return Was Much Different Than What He Estimated in January 2011: There is a big difference between Mitt’s preliminary tax return that was released in January 2011 and the actual filed return. He had almost $7.2 million less in income than originally estimated. His income was $13,696,961 instead of the estimated $20,901,075. Total tax paid was $1,300,000 less than he had estimated. He did not use H & R Block. The return was prepared by Pricewaterhousecoopers, LLP.
2. Mitt’s Generosity: The Romneys donated almost 30% of their income to charities in 2011—over $4 million!
3. Mitt Intentionally Paid More Taxes than Required: Mitt is estimated to have paid over $250,000 more than required by taking fewer deductions than he was entitled to. Had he taken the deductions, his effective tax rate would have been around 9%.
4. Mitt’s Retirement Package from Bain: Mitt is receiving his retirement from Bain as hedge fund carried interest instead of ordinary income, placing those monies under capital gain taxation rates instead of ordinary income. This treatment is estimated to have saved Mitt $1.2 million in taxes in 2011! This is the loop hole that Warren Buffet has been attacking –
5. Going Above and Beyond Legal Requirements: Despite all the hullabaloo and political positioning, no law requires that a presidential candidate release his or her tax returns. The Federal Election Commission only requires the filing of a personal financial disclosure.
Applicable Federal Rates
Please click here for the Applicable Federal Rates Chart.
NEWS AND UPCOMING EVENTS
TUESDAY, OCTOBER 9, 2012 12:00 p.m. – 1:00 p.m.
Please join us for a replay of our webinar on Avoiding Disaster on Highway 709 with a LIVE Question and Answer Session to follow. To register for this webinar please visithttps://www2.gotomeeting.com/register/131053122 or email Janine Ruggiero at janine@gassmanpa.com to be registered.
WEDNESDAY, OCTOBER 17, 2012 12:30 p.m. – 2:00 p.m.
Professor Jerry Hesch, Alan Gassman, Esq. and Christopher Denicolo, Esq. will be speaking on a Bloomberg BNA webinar entitled Interesting Interest. To register please visithttp://www.bna.com/interesting-
THURSDAY, OCTOBER 18, 2012
Alan S. Gassman, Esq. will speak at the The Tampa Bay Research Institute, Inc. 2nd Annual Estate Planning Seminar, in partnership with the Pinellas Community Foundation. Alan Gassman’s topic is Trust Planning for 2013 and Beyond – How to Keep Wealth in the Family. The seminar will take place at TBRI, 10900 Roosevelt Boulevard in St. Petersburg, Florida. Additional Topics and presenters include, Panel Discussion on Conflict of Interest Issues for Estate Planning Professionals. The moderator for the panel discussion is Sandra F. Diamond, J.D., and the panel consists of Angela Adams and Jeffrey Goethe; and Charitable Estate Planning in a Changing Tax Environment by Christopher Pegg, J.D., LL.M., Taxation. For more information please contact Tom Taggart at ttaggart@tampabayresearch.org.
Christopher Denicolo, J.D., LL.M. is a partner at the Clearwater, Florida law firm of Gassman, Crotty & Denicolo, P.A., where he practices in the areas of estate tax and trust planning, taxation, physician representation, and corporate and business law. He has co-
Kenneth J. Crotty, J.D., LL.M., is a partner at the Clearwater, Florida law firm of Gassman, Crotty & Denicolo, P.A., where he practices in the areas of estate tax and trust planning, taxation, physician representation, and corporate and business law. Mr. Crotty has co-
Thank you to our law clerks who assisted us in preparing this report:
Kacie Hohnadell is a third-
Alexandra Fugate earned her B.A. in English from the University of Florida in 2008, and J.D. from Stetson University College of Law in 2012. She has been a Guardian ad Litem for the past two years, a judicial intern for the Twelfth Circuit in Bradenton, and was recently admitted to the Florida Bar. She wants to pursue a career in Business, Employment, and labor law. Her email is Alexandra@gassmanpa.com
Eric Moody is a third-