In the second part of the article, the authors use examples to explain how the Florida Uniform Principal and Income Act allocates trust and estate expenses between income and principal. In one example, if a person leaves their vacation condo to their spouse for life and then to their child, the spouse is responsible for paying the mortgage interest, maintenance assessments, property taxes, and routine repairs. The child is responsible for paying the principal portion of the mortgage payments. If there are hurricane damage repairs, the cost is divided between the spouse and child based on how long the repairs are expected to last. Homeowner’s and windstorm insurance premiums must be paid by the life tenant (the spouse). Example Two: The trustee bought some shares in a mutual fund and got a distribution of $20,000. This distribution is considered part of the original investment.
Example Three: (Bond discount) The trustee bought a bond for $76,000 and gets yearly interest of $7,450. After five years, the bond was redeemed for $90,000, $14,000 of which is considered a gain. The income beneficiary complains about not getting enough interest, but the trustee says that Florida law doesn’t allow for extra money from bond discounts.
(Bond premium) The trustee bought a bond for $105,000 and gets yearly interest of $7,000. The remainder beneficiary claims that $5,000 should be spread out over the years, but the trustee says Florida law doesn’t allow for that. Basically, Florida law might make it hard for trustees to buy certain bonds, which could affect how they manage the trust’s money. But the person who wrote the trust document can give the trustee permission to do what they need to do with the bonds. As for a different situation with someone’s will, the executor wants to use a tax deduction to avoid estate taxes when the person died. The PR can choose to pay fees from the estate’s income or principal, as long as it doesn’t affect the marital deduction for estate taxes. Generally, these fees are considered transmission expenses, which are paid by the trust. Son’s gift is not affected by these expenses. In simpler terms, the allocation of administration expenses to income or principal does not affect the estate tax marital deduction. The person in charge of the estate has the power to decide where to take these expenses from, and it can impact how much income is left for the surviving spouse. It might be a good idea to revise the rules to make sure all administration expenses are taken from the principal of the estate. When managing a trust, the person in charge (the trustee) must pay for expenses like property taxes from the rent collected. They can set aside some money as a reserve for future expenses, like the property tax bill that comes once a year. This helps make sure there’s enough money to cover all the expenses and still pay out the required income to the beneficiary. The trustee is responsible for paying the property tax bill and setting aside money from the trust’s income to cover it. They also have to make mortgage payments on a rental property, even though they plan to sell it eventually. The trustee can use the trust’s income to make these payments, but they need to keep track of the amount so they can get reimbursed when the property is sold. If the beneficiary of the trust passes away before the property is sold, their right to be reimbursed also ends. The payments made from the trust’s income don’t create a claim on the trust’s assets. The Florida Principal and Income Act has different rules for how the income from a trust or estate should be used. It’s important for lawyers to understand these rules in order to balance the interests of everyone involved. For example, if a property is put into a trust, the trustee might consider using different parts of the law or transferring the property to a different type of legal entity, like an LLC. This could help the trustee use the rent from the property to pay for things like taxes and mortgage payments. But the trustee has to be careful to follow the rules and make sure they’re being fair to everyone. The Florida law was updated in 2002, and it’s based on a national law from 1997. If you want to learn more, there’s a detailed article about how the law applies to property that was left to a surviving spouse. This text discusses different methods for managing estate accounts and the professionals who specialize in this area of law. The Florida Bar wants its members to learn about doing the right thing and helping the public. They also want to make the legal system better and improve their knowledge of the 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-ii/
Leave a Reply