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Friday, December 30, 2005

Getting More Assets to Family Members Under a CLAT

A Charitable Lead Annuity Trust (CLAT) is an estate planning tool, whereby a taxpayer transfers assets to a trust. The trust provides that a fixed annual amount will be paid to a charitable organization for some period of time, and then anything left in the trust at the end of the charitable term gets paid to the remainder beneficiaries, which are often members of the taxpayer’s family.

These trusts are typically structured as "nongrantor" trusts, so that the funding taxpayer does not have to pay the income taxes on the income of the trust during the trust term. However, by being a nongrantor trust, the funding taxpayer does not get an income tax charitable deduction for funding.

These trusts are also often structured to be "zeroed-out." This means that the amount to be paid to the charity during its lead interest is high enough, so that on an actuarial basis nothing is expected to be transferred to the remainder beneficiaries because it will have all been previously transferred to the charity. This is done to avoid an up-front taxable gift to the remainder beneficiaries. However, by structuring in this manner, there is a good possibility that if the investments of the trust do not outperform the applicable IRS interest rates, there will in fact be nothing left for the family members at the end of the charitable term.

In a recently published article, Glenn Kurlander discusses a method for getting more assets to the family remaindermen method without increasing the tax cost. His proposed structure is that the trust will be a grantor trust, so that the funding taxpayer receives an income tax deduction on funding. To the extent of the taxes saved on funding, he would structure the trust to not zero-out the remainder interest, but to allow a taxable gift that generates an amount in gift taxes equal to the income tax savings. Since the gift taxes and the income tax savings net each other out, there is no net cost to having a greater amount going to the family remaindermen. This enhanced gift to the family remaindermen occurs by lowering the amount paid to charity and thus increasing the actuarial value of the remainder interest, and thus also the amount that which will eventually pass to the remainder beneficiaries. While Mr. Kurlander indicates this technique is only useful to those who have already used up their gift tax unified credit so that the gift generates a gift tax, it should likewise provide the same net benefits even if the gift tax portion of the transaction is covered by some or all of the gift tax unified credit - in this situation, the income tax savings compensates the funding taxpayer’s estate for the loss of the unified credit and thus future increased estate or gift taxes.

What about the funding taxpayer now being taxed on the income of the trust? This tax is avoided by having the trust invest in municipal bonds, which are not taxable. A laddered portfolio would be used to maximize interest and reduce risk. While not discussed in the article, such investments may need to be specifically mandated in the trust instrument to avoid issues of allowable investments under the Prudent Investor Rule and similar state law concepts of fiduciary investment.

Kurlander, Glenn, The Family Centric CLAT Can Provide More for Remainder Beneficiaries, WGL Estate Planning Journal, January 2006

Thursday, December 29, 2005

You Be the Judge - Litigation Settlement Proceeds

Facts: Taxpayer-employee sued his employee for various damages. The employee and the employer settle the lawsuit, and taxpayer-employee is paid $40,000, less tax withholdings. The taxpayer claims the payment was to compensate him for a physical injury so that it was not taxable to him. The settlement agreement between the employer and the employee does not indicate the proceeds were paid to compensate the employee for physical injury.

The Law: Code Section 104(a)(2) provides an exclusion for "the amount of any damages (other than punitive damages) received (whether by suit or agreement and whether as lump sums or as periodic payments) on account of personal physical injuries or physical sickness."

The Issue: Can the employee deduct the payment if the settlement agreement doesn’t say it was for physical injury?

The Holding: No deduction allowed. The Court noted that a taxpayer seeking to exclude money damages from income bears the burden of proving that the exclusion applies. The fact that the settlement agreement did not indicate the payment was for physical injury meant the taxpayer did not bear his burden of proof.

The Lessons:

a. Make sure your settlement agreement describes what the settlement payment is for, if you are trying to claim that the proceeds received are of a type that are not subject to income tax.

b. Where the settlement agreement is silent, a court may look to the original complaint and pleadings to see what damages the claimant was originally seeking. Make sure your complaint has the description of the claim that you want the settlement proceeds (or indeed, an ultimate court judgment recovery) to be characterized as.

Rivera V. Baker West, Inc., 96 AFTR 2d 2005-XXXX, (CA9), 12/13/2005.

Wednesday, December 28, 2005

It's Not to Late for a 2005 Charitable Deduction!

For all procrastinators out there, it is not too late to make a charitable deduction in 2005 and receive an income tax deduction. If you put a charitable deduction on your credit card in 2005, you can deduct it in 2005, even though you do not pay your credit card bill until 2006. (Rev.Rul. 78-38)
For assistance in finding charities that accept credit card donations, check out the website of Network for Good.

Tuesday, December 27, 2005

No Deduction for Religious Education Expenses

In a recent Tax Court case, the taxpayers paid tuition to an Orthodox Jewish day school. The tuition was allocable in part to religious education, and part to secular education. The taxpayers sought to take a charitable deduction for the portion attributable to the religious education.

The basis for this claim was Code Section 170(f)(8). Generally, taxpayers cannot receive a charitable deduction for contributions when they receive something back of equal value - a "quid pro quo." When something is received back of lesser value than the contribution, rules apply to get documentation from the charity as to the value of what was received back. Code Section 170(f)(8) provides that payments for "intangible religious benefits" are deductible without such documentation. The taxpayers argued that under this provision the religious education given their children was an "intangible religious benefit" and thus deductible without being limited by the quid pro quo rules.

The Tax Court dodged the issue on a technicality by finding that Code Section 170(f)(8) did not apply and thus the tuition was not deductible because the school was not engaged EXCLUSIVELY in religious activities (a requirement of the applicable of the "intangible religious benefits" exception). Therefore, it left open for another day the question whether payments for religious instruction to an organization that does not engage in any secular activities would be deductible.

Where does this leave things under the law?

-amounts paid to organizations for secular, or combined secular and religious education, is not deductible

-amounts paid to organizations for religious education, if the organization conducts only religious activities - unknown deductibility

-amounts paid to wholly religious organizations as outright gifts or dues should be deductible

Sklar v. Comm.
, 125 TC No. 14 (12/21/05)

Saturday, December 24, 2005

More Abuse In Regard to Automobile Contributions to Charity

Under recent changes in the law, the charitable deduction of a taxpayer who contributes an automobile to charity cannot exceed the sales proceeds received by the charity. This was to shut down a perceived abuse - that taxpayers were contributing their old cars to charity and taking a charitable deduction in excess of the true value of the automobile.

There is an exception to this rule - if the automobile is sold by a charity to a needy individual at a price less than fair market value, the limitation to the sales price will not apply. The IRS now believes that this exception is giving rise to further abuse. They believe that charities that sell automobiles at auction are improperly claiming the application of this exception.

The IRS has announced that it will not accept acknowledgments by a charity that the exception for sale to a needy individual apply in regard to sales at auction. They further warn charities that they may be subject to penalty for providing such acknowledgments.

Friday, December 23, 2005

Gulf Opportunity Zone Act of 2005

Earlier this week, President Bush signed the Gulf Oportunity Zone Act of 2005. The law originated as additional relief for Hurricane Katrina, and was expanded to include relief for Hurricanes Rita and Wilma and now includes some other miscellaneous tax relief. Some of the key provisions include:
  • Tax incentives to encourage rebuilding of the areas hardest hit by Hurricane Katrina (designated as the Gulf Opportunity Zone. These include 50% bonus first-year depreciation, a substantially increased Code Section 179 expensing allowance, a five year net operating loss carryback, partial expensing of demolition and cleanup costs, increased rehabilitation tax credits, and boosted higher-education credits for those attending school in the Gulf Opportunity Zone.
  • Some of the KETRA tax breaks from Hurricane Katrina are extended to areas affected by Hurricanes Rita and Wilma. These include retirement plan relief measures (e.g., exemption from the 10% penalty tax for up to $100,000 of qualified distributions), eased casualty loss rules, larger corporate charitable contribution limits for donations to hurricane aid, and a special employee retention credit.
  • New bond provisions designed to stimulate rebuilding in the affected areas, such as new authority for Louisiana, Mississippi and Alabama to issue a special class of bonds outside of the normal state volume caps.
  • Extensions of some expiring provisions, such as the special rule giving military personnel the option of treating their tax-free combat pay as income when computing their eligibility for the earned income credit.
  • Technical corrections to a number of earlier laws from 2003-2005.

Wednesday, December 21, 2005

IRS User Fees to Jump

IRS user fees are about to change - and the direction is up of course. On a percentage basis, some of these increases are quite substantial. At a time when the IRS response time on many ruling requests is longer than ever, the fee increases remind us that government enterprises are immune from the competitive market pressures that keep prices under control in the private sector.

Some key changes:
  • The fee for IRS Chief Counsel private letter rulings will increase from $7,500 to $10,000. Under the new fee schedule, taxpayers earning less than $250,000 can request a private letter ruling for a reduced fee of $625 while a fee of $2,500 will apply to requests from taxpayers earning from $250,000 to $1 million.
  • The fee for requests for changes in accounting methods for businesses will increase from the previous $1,500 to $2,500.
  • For corporate taxpayers, the cost of a pre-filing agreement will increase from the previous three-tiered structure, which was capped at $10,000, to a new flat fee of $50,000. Also, Advance Pricing Agreements, which previously cost from $5,000 to $25,000, will now cost from $22,500 to $50,000.
  • For employee plans, fees for opinion letters on prototype IRAs, SEPs, SIMPLE IRAs and Roth IRAs, which were previously $125 to $2,570, will now range from $200 to $4,500. Fees for exempt organizations rulings, which previously cost $155 to $2,570, will now range from $275 to $8,700.
  • User fees for exempt organization applications and requests for group exemption letters, which currently range from $150 to $500, will increase to $300 to $900.
Hurry up and get those rulings in - most of these increases are effective on February 1.

Tuesday, December 20, 2005

You Be the Judge - Insurance and Divorce

It is time for a round of "You Be the Judge," this time dealing with a divorced husband who failed to change the beneficiary designation on his life insurance policy from his former wife.

FACTS. Husband and wife divorce. The marital settlement agreement described certain life insurance policies on the life of the husband and provides, "Husband shall receive as his own and Wife shall have no further rights or responsibilities regarding these assets." Ex-wife was named as beneficiary of the life insurance policies, and husband never bothers to change this after the divorce. Husband dies. A dispute arises whether the ex-wife waived her rights to receive the insurance proceeds at death, or whether she is still entitled to receive them.

DECISION: Ex-wife wins- she gets the insurance proceeds.

WHY: The Court acknowledges that under Florida law the ex-wife can waive her rights to receive the insurance proceeds as part of a divorce settlement, but that the settlement must specifically refer to rights to the "proceeds" of the policy to be an effective waiver. Since there was no such waiver of "proceeds" here, the ex-wife gets to keep the policy payout.

LESSONS? Make sure your marital settlement agreement specifically includes rights to insurance "proceeds" if a waiver is intended, and/or make sure the divorcing spouse files a change of beneficiary form to remove the former spouse. This is probably also good advice in regard to a prenuptial or postnuptial agreement.

Smith v. Smith, 30 Fla.L.Weekly D2845b (5th DCA 2005)

Monday, December 19, 2005

Applicable Federal Rates - Update for January 2006

December 2005 Applicable Federal Rates Summary:

-Short Term AFR - Semi-annual Compounding - 4.33% - (4.29%/Dec. -- 4%/Nov.)

-Mid Term AFR - Semi-annual Compounding - 4.43% - (4.47%/Dec. -- 4.19%/Nov.)

-Long Term AFR - Semi-annual Compounding - 4.68% - (4.73%/Dec. -- 4.52%/Nov.)

Saturday, December 17, 2005

Corporate Return Audit Triggers

Potential audit triggers for corporate tax returns from a former IRS field agent:

Refunds in excess of $2 million. Congress' Joint Committee on Taxation must review all refunds over a prescribed amount, arising from net operating loss carrybacks and credit carrybacks. In 2005, the prescribed amount was $2 million. Agents are required to contact such corporations and request information to verify the accuracy of the refund, as well as its origin .

Balance sheet "loans to shareholders" (the IRS may try to recharacterize these as "constructive dividends") .

Agents check for Schedule M-1 line items such as travel and entertainment expenses. The absence of such Schedule M-1 line items could trigger an audit.

Schedule M-1 line items such as "tax-exempt" or "tax-deferred" income could also be a red flag.

Friday, December 16, 2005

European LLC's Deemed Corporations for U.S. Purposes

Since the enactment of the check-the-box regulations, taxpayers have a substantial amount of flexibility in electing to characterize non-U.S. entities as “associations” (taxable as a corporation), or as pass-through entities (taxable as a partnership or sole proprietership). However, taxpayers do not have absolute discretion in this regard - certain listed entities are “per se” corporations that must almost always be taxable as a corporation.

The IRS has now updated its list of “per se” corporations. It now includes the European Union’s new business entity known as the Societas Europaea (SE), which is essentially a European LLC. Also now characterized as “per se” corporations are the Aktsiaselts of Estonia, the Akciju Sabiednba of Latvia, the Aktiengesellschaft of Liechtenstein, the Akcine Bendroves of Lithuania,and the Delniska Druzba of Slovenia.

T.D. 9235, December 16, 2005

Wednesday, December 14, 2005

Interest Rates For tax Overpayments and Underpayments

The IRS has announced that the interest rates for tax overpayments and underpayments for the calendar quarter beginning Jan. 1, 2006, will remain the same as last quarter.

Thus, for noncorporate taxpayers, the rate for both underpayments and overpayments for the first quarter of 2006 will be 7%.

For corporations, the overpayment rate for the first quarter of 2006 will be 6%. Corporations will receive 4.5% for overpayments exceeding $10,000. The underpayment rate for corporations will be 7%, but will be 9% for large corporate underpayments.

Tuesday, December 13, 2005

U.S. Tax Competitiveness

In November 2005, the Congressional Budget Report issued a report on how U.S. corporate tax rates compare to other developed countries. So how do U.S. rates compare?

According to the Report, the top statutory corporate rate in the U.S. is one of the highest among all developed countries. Nonetheless, it is comparable to the rates in other similar, large industrialized economies (members of the Group of Seven).

The Report notes that the relatively high rate creates incentives for U.S. and foreign multinational companies to use international tax planning to reduce their U.S. taxable income by shifting it to low-tax countries. The rate also affects the incentives for business investment.

Also according to the Report, historical trends suggest that countries do not choose their tax rates independently of one another. After the U.S. and the United Kingdom reduced their corporate tax rates in the 1980's, other OECD countries reduced theirs, apparently in response and perhaps out of concern that they would otherwise lose investment or a portion of their tax base to other nations. Those other countries eventually reduced their own tax rates by even more than the United States.
An implication of the Report - U.S. corporate tax rates can use some lowering to remain competitive in the search for international investment capital.

Sunday, December 11, 2005

Real Estate Investor vs. Developer - More "Development" Allowed?

Individuals and pass-through entities owning undeveloped real property desire to be characterized as "investors" for federal income tax purposes - that is, that their real property holdings are treated as capital assets that incur capital gain on sale. The alternative is usually developer/ordinary income treatment. Ordinary income rates can be twice as much as capital gain rates.

Under the Internal Revenue Code, undeveloped real property will lose its capital gain character if it is “property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business.” For 60 years, the IRS and taxpayers have disputed what level of development activity a taxpayer can undertake without crossing the line from investor to developer.

A recent article by Ira Feldman, CPA posits that in recent years, a passive investor in undeveloped real property generally has to undertake more preliminary development-type activities to realize value from its investment, and that the IRS may be acknowledging this by allowing some level of development activity without the taxpayer being treated as a dealer. [PLAN NOW TO AVOID DEALER STATUS FOR 'INVESTMENT' REAL ESTATE, Practical Tax Strategies, Nov 2005, Practical Tax Strategies / Taxation for Accountants (WG&L)]

Mr. Feldman cites several recent Private Letter Rulings in which the IRS has allowed certain development activities without imposing dealer status, including:

-subdivision of parcels to smaller parcels
-multiple sales
-entry roadway built
-development agreement with town
-land planning
-preliminary engineering.

See PLR's 200510029, 200242041, 200530029.

Friday, December 09, 2005

Equity Increases Are Not "Acquisitions" Under New Bankruptcy Rules

Under the Florida Constitution, the homestead of an individual is generally not subject to claims of creditors of that individual. Other states also provide exemptions for homestead interests. However, under the recent revisions to the bankruptcy law, homestead interests acquired within 1215 days of a bankruptcy filing cannot receive the benefit of these state homestead protections (beyond $125,000 in protection). Generally, this is aimed at making it more difficult for debtors to acquire a protected interest to shield themselves from existing creditors.

So what happens if a homestead is acquired more than 1215 days before a bankruptcy filing, but the homestead is encumbered by a mortgage and mortgage payments (and thus equity increases) occur within the 1215 days? Are these equity payments the acquisition of a homestead interest such that they are subject to the 1215 day rule?

In a case of first impression that is favorable to debtors, a Texas bankruptcy court has held that such regular loan payments within 1215 days of filing are NOT homestead acquisitions for purposes of these rules. It remains to be seen whether other bankruptcy courts similarly interpret the law, and whether non-regular loan payments will be similarly treated.

In re: Kevin Blair and Susan Blair, US Bankruptcy Court, N.D., Texas, Dallas, No. 05-35922-HDH-7

Thursday, December 08, 2005

Business Mileage Reimbursement Rate Changed Again

Many people use their personal automobile to conduct business activities. Such use can be deducted on a "per mile" basis.

Due to the run-up in gasoline prices in recent months, the per mile deduction was increased from 40.5 cents to 48.5 cents. With gas prices backing down, the IRS has set the rate at 44.5 cents for 2006.

Note that if you are taking a mileage deduction, one of the first things the IRS may look at on audit is whether you are counting miles when you are commuting between home and work. Generally, these are not deductible except at times in regard to a temporary work location.

Wednesday, December 07, 2005

How NOT to Structure an Offshore Trust

U.S. persons often establish offshore trusts to hold assets to protect them from future creditors. Generally, to be effective for this purpose the settlor of the trust needs to give up power over the trust assets - otherwise a U.S. court can force the settlor to direct the payment of the trust assets to his creditors if a judgment creditor arises. Instead, most of the power over the trust is vested in a foreign trustee.

To maintain some control over the trust, the settlor often retains the power to remove and replace the trustee. That way, if the trustee starts investing in assets the settlor does not like, or is not applying the trust assets in a favorable manner, the settlor can fire him and find another trustee that is more accommodating.

A recent case in South Florida illustrates that even this apparently innocuous remove and replace power can open the door enough for a creditor to exploit. In this case, the creditor happened to be the IRS. Since the taxpayer had a remove and replace power over the foreign trustee, the Court directed the taxpayer to exercise that power and appoint a U.S. trustee. Since the Court could then exercise jurisdiction over a U.S. trustee, the effect of this will be to bring the assets within the Court's jurisdiction and allow for its application to the creditor/IRS. The trust also had the problem of having the law of the trust change to the law of the jurisdiction of the trustee in the event of a change of the trustee, which further compounds the creditor protection problem.

How should the trust have been structured to avoid this exposure? At a minimum, the trust should have not allowed for the appointment of a trustee in the U.S. Prudent use of a "trust protector" to exercise powers such as these might also diminish the exposure.

As an aside, offshore asset protection trusts are NOT recommended for purposes of avoiding federal income tax obligations.

United States v. Grant,
96 AFTR 2d 2005-270 (SD Fl., Sept. 2, 2005)

Tuesday, December 06, 2005

Greenspan Would Not Rule Out Tax Increases for Entitlement Reform

Both Social Security and Medicare have long term fiscal challenges in front of them - not enough taxes are or will be collected to fully fund expected benefits as benefits continue to grow and the working population ages. There are two principal ways out of the problem - cut benefits, or raise taxes (or some combination of both).

Federal Reserve Board Chairman Alan Greenspan has weighed in on the issue, and surprising some he indicated that tax increases should not be ruled out. In a recent speech, he indicated, however, that he would still prefer that reforms come primarily, if not wholly, from spending cuts and not taxes. A principal focus of the speech was that reform be addressed sooner, rather than later, before the problem gets too large.

Monday, December 05, 2005

Motorcycles and Administrative Discretion Do Not Always Mix

Generally, amounts withdrawn from an Individual Retirement Account (IRA) are taxed to the recipient. However, if the withdrawn amount is paid into another IRA or eligible retirement plan for the recipient within 60 days of the original withdrawal, taxation is avoided.

If the 60 day period is violated, the IRS does have discretion to extend the 60 day period. In an attempt to test the limits of a kinder, more gentle IRS, a taxpayer who had withdrawn substantial funds from his IRA and not recontributed them to another IRA or retirement plan within 60 days tried to get the IRS to extend the 60 day period. Noting that the taxpayer never told anyone at any of the involved financial institutions that he intended to recontribute the funds, that the taxpayer did not have any desire to recontribute until his tax advisor told him he was taxable on the withdrawn, and that he used some of the proceeds to buy a motorcycle, the IRS refused to grant an extension.

For those that may be in similar straits, Section 408(d)(3)(I) of the Internal Revenue Code provides that the Secretary may waive the 60 day requirement where the failure to waive such requirement would be against equity or good conscience, including casualty, disaster, or other events beyond the reasonable control of the individual subject to such requirement. Revenue Procedure 2003-16 provides that in determining whether to waive, the IRS will consider all relevant facts and circumstances, including: (1) errors committed by a financial institution; (2) inability to complete a rollover due to death, disability, hospitalization, incarceration, restrictions imposed by a foreign country or postal error, (3) the use of the amount distributed (for example, in the case of payment by check, whether the check was cashed); and (4) the time elapsed since the distribution occurred.

Therefore, if you missed the 60 day deadline but fall within the above criteria (and, apparently, you did not use any of the proceeds to buy a motorcycle), you may be able to get relief from the IRS.

PLR 200548030, December 2, 2005

Saturday, December 03, 2005

When the IRS Tells its Examiners What to Look For, You Ignore that Guidance at Your Own Risk

To help its auditors when conducting a tax audit, the IRS often provides written guidance regarding what the auditor should focus on. This information is often available to the public. If you are a taxpayer in a field or area that is subject to such guidance, it is prudent to review that information. If an auditor comes in the door, you can be assured he will be consulting those guidelines in conducting the audit. By having part of the IRS' "game plan" in advance of an audit, the taxpayer can more closely comply with what the IRS desires and thus limit the risk of an audit examination.

For example, earlier this week the IRS issued a "Field Directive on the Planning and Examination of Cost Segregation Issues in the Biotech/Pharmaceutical Industry." This examination guidance deals with the issue of putting the various assets typically owned by biotech and pharmaceutical industries into the proper depreciation categories. Since different categories of assets give rise to different periods of depreciation, placement into the proper category is needed for computing the correct depreciation deduction. While it is obvious into which category some assets belong, others can be more difficult to categorize. Taxpayers who want to minimize audit risk on this issue are well served to consult the Field Directive in making its categorizations.
To see the table itself, go to link.

Thursday, December 01, 2005

Non-Mortgage Waiver of Florida Homestead Protection Allowed!

Florida provides an exemption against forced sale for homestead property. This arises under Florida’s Constitution, which provides:

"There shall be exempt from forced sale under process of any court, and no judgment, decree or execution shall be a lien thereon, except for the payment of taxes and assessments thereon, obligations contracted for the purchase, improvement or repair thereof, or obligations contracted for house, field or other labor performed on the realty, the following property owned by a natural person:

(1) a homestead, if located outside a municipality, to the extent of one hundred sixty acres of contiguous land and improvements thereon, which shall not be reduced without the owner's consent by reason of subsequent inclusion in a municipality; or if located within a municipality, to the extent of one-half acre of contiguous land, upon which the exemption shall be limited to the residence of the owner or his family[.]" Art. X, § 4(a), Fla. Const. (2004).
Generally, a homestead owner can get around this limitation and provide an interest which can be reached by a creditor by providing the creditor with a mortgage on the homestead property. The question arises whether the homestead owner can be waived outside of a mortgage - for example, in a provision under a contract?

Florida’s Third District Court of Appeal recently had reason to address this issue, when a law firm included a provision in a retainer agreement with its client that the client waived homestead protection in regard to collection of attorney’s fees. The Florida Supreme Court has previously ruled that such waivers would not be enforceable (Sherbill v. Miller Mfg. Co., 89 So. 2d 28 (Fla. 1956)) , so one would expect the Third DCA to follow this precedent and disallow the waiver. However, the Court instead said that the Supreme Court case was based on a prior version of the Constitution, and under the current homestead provision the homestead protection can be waived outside of a mortgage. Demayo v. Chames and Heller & Chames, P.A., 3rd District. Case No. 3D04-117. L.T. Case No. 01-7497. Opinion filed November 30, 2005. Thus, the Court gave effect to the waiver in the retainer agreement.

If allowed to stand, the consequences of this decision may be far reaching. The dissenting opinion notes the likely consequence if the Florida Supreme Court does not reverse the appellate court:

"This brings me to what I fear most about the change the majority has wrought today. That is that the waiver of the homestead exemption will become an everyday part of contract language for everything from the hiring of counsel to purchasing cellular telephone services. The average citizen, who is of course charged with reading the contracts he or she signs, as this court knows all too well, often fails to read or understand boilerplate language detailed in consumer purchase contracts, language which the contracts themselves often permit to be modified upon no more than notification in a monthly statement or bill. Nonetheless, under the majority's application of article X, section 4, such consumers may lose their homes because of a "voluntary divestiture" of their homestead rights for nothing more than failure to pay a telephone bill. This inevitably will result in whittling away this century old constitutional exemption until it becomes little more than a distant memory."
Seeing how the appellate court has effectively overidden Supreme Court precedent (something which is not supposed to happen, at least without good cause), we can probably expect an appeal to the Supreme Court - thus, the last word on this issue has probably not yet been heard.