Mom’s will gives Son a piece of rental real estate and gives the rest of the estate to Daughter. The will doesn’t say who gets the money from the rental property or who pays for its expenses. After Mom dies, the estate gets $12,000 in rent and pays $2,000 in property taxes. It also has $200,000 in administrative expenses. The law says that if someone is given a specific property in a will, they get the money made from that property. So, Son gets the rental income from the property he was given. The personal representative can only charge the expenses of taking care of the estate to the rental property if there is not enough money in the estate to pay for the expenses. Regardless of when the property taxes were due and when the rent was paid, Son still gets the same amount of rental income. This is because the law looks at the money received or spent by the personal representative, not just the dates when things were due or paid. If the property left to Son in the will has a tax bill, he is responsible for paying it, even if there is no rental income from the property. This is because the will does not say that the estate will pay for it. It is important for the will to clearly state who is responsible for paying off any debts on specific properties. Example 2a:
A trust owns rental real estate and gives the money it makes to a beneficiary. The trustee can keep track of the rental income separately and use some of it for things like repairs and mortgage payments. This way, the beneficiary gets less money, but the property stays in good shape.
Example 2b:
The trustee puts the rental property into a company and becomes the manager. As the manager, the trustee can decide when to give money to the trust. The rules for how the money is divided between the trust’s income and principal depend on a different law.
Example 3:
If a trust gets cash from an investment company, the rules say that any profits from selling assets are considered as principal. But there’s another rule that can change that and make it count as income instead. Mom owned a company and when she passed away, the company was used to give money to a trust. The trust gives money to Stepdad, who gets it for the rest of his life, and then the rest goes to Son. The company sold some assets and made a profit, which was then given to the trust. According to the law, this profit is considered income and has to be given to Stepdad. If the trust had made the profit directly, it would have been considered savings and not given to Stepdad. Mom’s will created a trust with Stepdad as trustee and Son as the beneficiary. In 2007, Stepdad put all of the trust’s investments into a new LLC, which received $50,000 in dividends, $40,000 in interest, and made $100,000 from selling investments. The LLC then gave $250,000 to the trust. According to the law, the $190,000 from dividends and interest is considered trust income, while the $100,000 from selling investments is considered trust principal. This is to prevent Stepdad from trying to change principal into income. Mom’s S Corp business retained $2,000,000 in earnings in 2005 and 2006 to start a new line of business. After Mom passed away, Stepdad, who is in charge of the business now, decided not to pursue the new business and instead gave $2,000,000 to the trust that Mom set up. The law says that this money should be added to the trust’s savings, not given to Stepdad as income, because it comes from the business’s past earnings, not what the business earned while being part of the trust. When someone dies, their money and assets are divided up according to their will. In this case, the person who died had bonds worth $200,000,000. The money earned from these bonds is supposed to be given to the personâs husband for his lifetime, and then to their son. The law has specific rules for how this money should be divided and whether it should be treated as income or added to the total amount of money in the trust. These rules can change how much money each person ultimately receives. When someone dies, their money and assets can be divided into two categories: income and principal. Income includes things like interest and dividends, while principal includes the original amount of money and assets. The law determines how these categories are allocated based on when the money is received and the type of payment. For example, if someone dies before they receive a dividend payment, it’s considered part of the principal. If they die after the payment date, it’s considered income. The person in charge of handling the estate can decide whether to use income or principal to pay for expenses. In the first example, when Surviving Spouse died, the money from the rent that was already paid went to her estate, but the money from the rent that was paid after her death went to Son. In the second example, the money Mom left for Daughter and the money in the trust for Son will share the income from the estate. Daughter doesn’t get any of this money. Part one of this article explained some basics of the Florida Uniform Principal and Income Act. Part two will cover more complicated parts of the law. The act sets out rules for how trust income and principal are handled. It is important for trustees and beneficiaries to understand these rules to make sure the trust is managed properly. William C. Carroll and John W. Randolph, Jr., are lawyers who specialize in estate planning and trust matters. They are highly qualified and have received special certifications in their field. They thank other professionals for their help in writing this article, which is submitted on behalf of a section of lawyers focused on real property, probate, and trust law.
Source: https://www.floridabar.org/the-florida-bar-journal/things-that-may-surprise-you-about-floridas-principal-and-income-act-and-related-accounting-law-part-i/
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