A trust is a document where a person or entity (the trustee) manages the property of another (the trustor, grantor, or settlor) for the benefit another (the beneficiary). Trust instruments can be created while the trustor is alive (an irrevocable or living trust) or substitute for a will (a revocable living trust) to provide for the distribution of assets upon death.
A properly drafted trust agreement can be utilized to accomplish many different goals. Revocable living trusts are often created in conjunction with a will as part of a comprehensive estate plan. Florida law establishes the framework for determining the validity and limits for all trusts and a competent Florida attorney is a necessity when establishing such a plan.
There are many other areas of our lives that can benefit from the proper use of a trust. Gun trusts, charitable trusts, and Medicaid trusts are all examples of legal instruments that can help us to accomplish our goals and meet our desires. However, careful drafting and attention to detail are required in order to achieve the desired beneficial results and avoid harsh legal consequences.
Contact Ourednik Law Offices today to discuss how a professionally constructed trust can help meet your needs.
What is a trust?
In its most basic form, a trust is a legal relationship whereby property, whether real or personal, tangible or intangible, is held by one party for the benefit of another. In Florida, the following requirements are necessary for the creation of trusts:
- A “settlor” (also known as a “grantor”) who possesses the legal capacity to create a trust;
- Intent on the part of the settlor or grantor to create the trust;
- A definite beneficiary (unless the trust qualifies under the Florida Statutes as a charitable trust, noncharitable trust, or animal trust);
- A trustee with duties to perform; and
- The trustee cannot also be the sole beneficiary of the trust.
If these basic formalities are followed, then a trust will be created. It is generally not required that the trust be in writing, however it is often advisable and may be a requirement for certain types of trusts, such as a foreign trust or a testamentary revocable trust. A trust that is not in writing must be established by “clear and convincing” evidence, which can often be a difficult evidentiary standard to maintain.
What are some common types of trusts?
Trusts can be broadly broken down into two categories, revocable and irrevocable.
A revocable trust is a trust whereby the settlor can make changes to trust provisions, as well as transfer assets into and out of the trust, at the settlor’s discretion. During the life of the settlor, income earned by the trust is generally taxed to the settlor and the trust does not obtain a separate employer identification number (EIN) or otherwise establish its own tax identity. Upon the death of the settlor, the revocable trust is usually designed to become irrevocable and any trust assets are distributed according to the terms of the trust document. Often, the settlor serves as the trustee of their revocable trust during their lifetime, with a successor trustee taking over in the event of death or incompetency and serving a function that is akin to that of a Florida personal representative (also known as an “executor”) or a guardian.
Revocable trusts are beneficial for estate planning because, when the trust is fully funded, the assets that are owned by the trust pass to the beneficiaries named in the trust agreement (or to trusts for their benefit) without the need for probate. Probate avoidance means that revocable trusts are more effective at maintaining the privacy of the decedent and can also save the estate time, court costs, and attorneys’ fees.
Revocable trusts are also useful for avoiding “living probate.” Living probate, occurs when a person (called a “ward”) is declared mentally incapacitated or incompetent, and court intervention is sought in order to appoint a guardian to act on that person’s behalf. This guardian is often empowered to make financial, legal, and healthcare related decisions for the ward for as long as the court determines is necessary. Since a revocable trust allows a successor trustee to step in and manage the trust should the settlor’s capacity become an issue, this inconvenient process can often be avoided. Thus, a revocable trust is often utilized in conjunction with a durable power of attorney as well as designation of health care surrogate in order to accomplish a full and comprehensive estate plan which contemplates the possibility of guardianship.
A Florida revocable trust requires additional formalities for formation if the trust contains provisions in the trust document that dispose of the trust property on or after the death of the settlor, other than to the settlor’s probate estate. These trusts are invalid unless the trust instrument is executed by the settlor with the formalities required for the execution of a will in Florida. This generally means that the trust document must be signed at the bottom by the settlor and acknowledged by two witnesses before a Florida notary. Subsequent amendments to the trust should also follow the same formalities.
An irrevocable trust is different than a revocable trust. Once the settlor has established and funded an irrevocable trust, it generally cannot be modified or terminated without the consent of the beneficiary. With an irrevocable trust, the settlor has usually transfers away all rights to ownership to the trust property. Irrevocable trusts are often seen as separate legal entities and may apply for and receive their own EIN. Depending on how the trust is formed, irrevocable trusts may also pay their own income taxes and have their own federal income tax brackets.
When it comes to irrevocable trusts, the available options tend to only be as limited as the wishes of the settlor. Thus, a full description of all possibilities is best approached by direct conversation with a professional who is knowledgeable in matters of trust law. Irrevocable trusts are often formed for estate tax and asset protection considerations. These types of trusts should always be constructed with the assistance of a Florida attorney who is knowledgeable in matters of tax law and asset protection, as careful consideration must be taken to achieve the desired result while minimizing unintended, and potentially harmful, consequences.
Should a trust be a part of my estate plan?
As indicated above, there are many options to consider when utilizing a trust as part of your estate plan and it is best to speak with an experienced Florida attorney who can help advise you on the type of trust that may benefit your circumstances. At Ourednik Law Offices, our attorneys have experience in trust formation, tax law, and asset protection and we are always prepared to assist you in discovering what a well-drafted trust can provide for you and your family.