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Thursday, July 12, 2018

A Safe Harbor for Waiver-by-Deed of Spousal Homestead Interests [Florida]

Under the Florida Constitution, a decedent owner of Florida homestead property with a surviving spouse can only devise that property to the surviving spouse (although if there are surviving minor children then no devise can be made at all). Fla.Stats. §732.702 allows for written waivers of homestead rights by spouses. That statute requires “fair disclosure” of assets be made if the waiver occurs after marriage.

Recent case law, most notably Stone v. Stone, 157 So.3d 295 (4th DCA 2014) allowed a deed from a spouse to constitute a waiver for this purpose. The correctness and scope of this decision have been debated by practitioners.

By reason of Stone and other decisions, Florida has enacted Fla.Stats. §732.7025 (effective on July 1 of this year) that provides a safe harbor method of having a spousal waiver-by-deed. If a spouse enters into a deed that has specific statutory language, then the deed will constitute a valid waiver of spousal homestead rights for descent and distribution purposes (but not for creditor protection purposes or for purposes of avoiding spousal joinder on inter vivos transfers of homestead).

For those with an interest, I have a more extended commentary in the Waiver section of my treatise, Rubin on Florida Homestead (www.rubinonfloridahomestead.com). This commentary addresses whether fair disclosure is still needed, the “safe harbor” nature of the new provision, the effect of such a waiver, and the question whether the new statute applies if the deeding spouse has no legal or equitable interest in the homestead. If of interest, you can download a copy of that Section from Microsoft OneDrive at this link: https://1drv.ms/b/s!AvIWUWY7Se4ogaUrVjPseSkvCL9yvQ

Sunday, July 08, 2018

Supreme Court Upholds Changes to Beneficiaries Upon Divorce

Married persons often name the other spouse as beneficiaries of their estate, life insurance, pensions, IRA’s, annuities and other contractual arrangements upon the death of the first spouse. Upon divorce, they often do not get around to changing these beneficiary designations, either intentionally or unintentionally. Many state legislatures have reached the conclusion that the spouse that died would likely have wanted to change the beneficiary from the former spouse, but just never got around to it (whether intentionally via procrastination or unintentionally). They have enacted revocation-on-divorce statutes that treat a divorce as voiding one or more of testamentary bequests and beneficiary designations. In 2002, Minnesota adopted such a statute that applied to will and various will substitutes, including life insurance and annuity contracts.

The Contracts Clause of the U.S. Constitution restricts the power of States to disrupt contractual arrangements. It provides that “[n]o state shall . . . pass any . . . Law impairing the Obligation of Contracts.”  U. S. Const., Art. I, §10, cl. 1. In a recent case, the U.S. Supreme Court addressed the issue whether Minnesota’s revocation-on-divorce statute was unconstitutional as violative of the Contract Clause. The dispute arose between the claims of a divorced spouse, and alternative beneficiaries, as to entitlement to life insurance proceeds when a former spouse died and did not remove the surviving spouse as beneficiary of the insurance policy.

The Supreme Court ruled against the surviving spouse and held these types of laws do not violate the Contracts Clause. That Clause restricts the power of States to disrupt contractual arrangements, but it does not prohibit all laws affecting pre-existing contracts. The two-step test for determining when such a law crosses the constitutional line first asks whether the state law has “operated as a substantial impairment of a contractual relationship.” In analyzing that question, the Court has considered the extent to which the law undermines the contractual bargain, interferes with a party’s reasonable expectations, and prevents the party from safeguarding or reinstating his rights. If such factors show a substantial impairment, the inquiry turns to whether the state law is drawn in an “appropriate” and “reasonable” way to advance “a significant and legitimate public purpose.”

The Supreme Court ruled based on the first step, and never had to address the second step. The Court noted that the law is designed to reflect a policyholder’s intent—and so to support, rather than impair, the contractual scheme. It applies a prevalent legislative presumption that a divorcee would not want his or her former partner to benefit from a life insurance policy and other will substitutes. Thus the law often honors, not undermines, the intent of the only contracting party to care about the beneficiary designation. Also, the Court reasoned that the law is unlikely to disturb any policyholder’s expectations at the time of contracting, because an insured cannot reasonably rely on a beneficiary designation staying in place after a divorce.This is because divorce courts have wide discretion to divide property upon dissolution of a marriage, including by revoking spousal beneficiary designations in life insurance policies or by mandating that such designations remain. Because a life insurance purchaser cannot know what will happen to that policy in the event of a divorce, his reliance interests are next to nil. Further, the law supplies a mere default rule, which the policyholder can undo in a moment by redesignating the divorced spouse as beneficiary through a change-in-beneficiary form.The Court noted it has long held that laws imposing such minimal paper-work burdens (like recording statutes) do not violate the Contracts Clause.

The decision threatened to have a substantial impact if the Court had ruled these laws to be a violation of the Contracts Law, but that has dissipated with the conclusion that such laws are not a Contracts Clause violation.

Sveen v. Melin, 584 U.S. ____ (2018)


GOT HOMESTEAD? www.rubinonfloridahomestead.com

Sunday, July 01, 2018

Taxpayers Could Not Rely on IRS Correspondence Waiving Penalties

In a recent U.S. District Court decision, the taxpayers were audited, and ultimately received a letter from the auditing agent that “the penalties had been waived.” The taxpayers signed a Form 4549 document which did not assess penalties.

Subsequently, the IRS sent a Form 4549-A assessing a civil penalty under §6707A for failure to disclose a listed transaction. The taxpayers argued that the IRS had waived penalties and could not assess this new penalty, or alternatively the IRS was equitably estopped from asserting the penalty. The court ruled in favor of the IRS and allowed the penalty.

Code §7121(a) authorizes the IRS to enter into agreements in writing as to tax liabilities of a taxpayer. Treas. Regs. § 301.7121-1(d)(1) provides that closing agreements must be executed on forms prescribed by the IRS. Rev.Proc. 68-16, Section 6 provides that the appropriate forms are Form 866 or Form 906. Since neither of those Forms were issued by the IRS, the court held that there was no binding closing agreement as to penalties, and thus allowed the new penalties. The court noted that a Form 4549 is not an authorized closing agreement.

The court also noted that since the IRS had not asserted a §6707A penalty at the time of its waiver offer, that penalty was not waived.

While there is case law allowing valid closing agreements to arise outside of a Form 866 or Form 906, the court noted that the precedent in this area applies only to settlement of pending litigation in docketed cases, which was not the case for the taxpayers.

The court also disposed of the equitable estoppel claim by finding a lack of “affirmative misconduct” on behalf of the IRS.

Hinkle, 121 AFTR2d Para. 2018-861( DC New Mexico)

GOT HOMESTEAD? - www.rubinonfloridahomestead.com