Orlando Trust Attorney – Helping You Protect What Is Yours
On This Page
- Florida Trust Law and Types of Trusts
- The Advantages of Revocable Living Trusts
- The Disadvantages of Living Trusts
- When to Consider Other Trusts
- Trusts As Part of an Estate Planning Strategy
Florida trust law also allows property and assets to be transferred without the estate having to go through the sometimes costly and time-consuming probate process.
Florida Trust Law and Types of Trusts
There are many different types of trusts. However, all trusts fit into one of two categories. They are either irrevocable trusts or revocable trusts. Once you understand the basic differences between these trusts under Florida trust law, you will be better able to develop a plan with your Orlando trust attorney that best meets your goals.
What Are Irrevocable Trusts
Once an irrevocable trust is created, it cannot be altered or canceled—not even by the individual who created the trust. Once property is transferred to an irrevocable trust, it can only be distributed according to the terms laid out in the trust documents.
Irrevocable trusts can be used to shield assets from creditors, to benefit family members who are best served by having a regular flow of income instead of a large amount of money at one time, or to provide certain tax benefits. Irrevocable trusts can be used to distribute the proceeds of life insurance policies.
Typically irrevocable trusts are only in force for a set amount of time. Afterwards whatever remains in the irrevocable trust is distributed according to specific directions laid out in the trust documents.
Once property is transferred into an irrevocable trust, it no longer belongs to the person who placed it in the trust. This person is sometimes referred to as the grantor.
What are Revocable Trusts
Revocable trusts are created during the life of the grantor. They can be changed or even cancelled during the life of the grantor. When you place assets in a revocable living trust, you still retain control over the assets, and you are still the owner of those assets.
Sometimes revocable trusts are also called living trusts. However, it is also possible to have an irrevocable living trust.
These are one of the most common estate planning tools. They allow for property and assets to pass on without going through probate. When structured properly, revocable trusts can lower, or even avoid, estate taxes.
Revocable trusts will not shield assets from creditors. However, they can make it more difficult and costly for creditors to reach the assets.
When most people speak about trusts, they are referring to revocable living trusts. These trusts almost always are designed to change into irrevocable trusts once the maker of the trust has passed away.
The Advantages of Revocable Living Trusts
Revocable living trusts provide several advantages:
- Avoid probate
Revocable living trusts are extremely effective at avoiding probate. This allows your heirs to avoid having to pay probate fees and costs. Skipping probate also allows you to keep the details of your estate private. In probate you have to enter the contents of the will into the public record. With a trust, nobody who is not part of the trust has access to the document.
A revocable living trust is more efficient vehicle for distributing property upon the death of the trust make than a will is. Upon the death of the trust maker, the assets can be immediately available for the heirs for paying any costs related to things like funeral expenses, taxes, or fees. Often a probate judge has to approve these expenditures if there is only a will.
They also allow the creator of the trust to leave very specific instructions for how their assets are to be distributed after their death. They can order that all the property be given out, as it would in a will, or it can setup conditions and timelines for when assets may be distributed to the heirs.
Revocable living trusts are usually easier to amend than wills. Unlike a will, you can also have multiple originals of a trust. This means that lost paperwork will not subvert your estate plan.
Revocable living trusts allow people to continue to enjoy access to all their assets while they are alive and to change their minds about certain conditions of the trust. This type of trust is fluid. Property is often moved in and out of the trust during the lifetime of the trust maker.
If a trust maker becomes unable to manage their own assets due to illness or injury, a revocable living trust can allow for a handpicked trustee can step in and manage the assets for the benefit of the trust maker and keep the assets from being wasted.
Revocable living trusts can be used to limit estate tax exposure for larger estates. However, the Florida trust lawyer must setup the trust correctly to successfully avoid estate taxes. These types of trusts do not have the same tax advantages as an irrevocable trust.
Trusts also allow you to give decision-making power over the distribution of the assets to a third-party that is not emotionally involved. This allows for continuity in the management of the assets. It also ensures your instructions for the management of your legacy are faithfully followed.
The Disadvantages of Living Trusts
Revocable living trusts are not without some drawbacks. They are not the best solution for every situation.
Some of the major disadvantages of a revocable living trust include:
- Additional maintenance
- May not shield estate from estate taxes
- Will not shield assets from creditors
Revocable living trusts must be continuously maintained to make sure they are fully effective. New assets must be transferred into the trust. This often means paying additional fees for transfers of title. Where a will would automatically handle the acquisition of most assets, the assets have to be added to the trust for the document to have any power of their distribution.
When your life circumstances change, the terms of the trust have to be manually updated. For example in the case of a divorce or the death of an heir, a trust may have to be amended if you want the distribution of the assets changed.
While a revocable living trust may shield an estate from some estate taxes, they are not as effective as irrevocable trusts. The larger the estate, often the smaller tax savings can be had through a revocable living trust.
Creditors can still get to assets in a revocable living trust. It will require additional work on their part, but the assets are not shielded. In an irrevocable trust, creditors typically have no recourse against the assets.
A revocable living trust is an effective estate planning tool in many circumstances, but it is not right for every situation. Sometimes a revocable living trust works best when paired with other trusts or estate planning strategies.
When Should You Consider Other Types of Trusts?
Orlando trust attorneys can offer clients a variety of different trust choices depending on their circumstances. Often, an irrevocable trust is used when there is a specific need that needs to be addressed.
Special needs trusts
One of the biggest worries of parents with children suffering from severe disabilities is how to make sure these children are properly provided for in the event of the death of the parents. These same issues can also apply to people caring for their aging parents.
A special needs trust is created specifically for people who lack the mental or physical ability to manage their own finances. Often it is usually setup as an irrevocable trust so that the beneficiary can still qualify for need-based government assistance such as SSI or Medicaid.
A special needs trust can give the creator of the trust the peace of mind of knowing that their loved ones will still have all of their medical needs seen to, even after the passing of their primary caretakers.
A testamentary trust is an irrevocable trust setup as part of a will. These trusts do not avoid probate. There are often funded from the proceeds of life insurance policies. A testamentary trust can be setup to make sure that young children who are unable to manage their own finances are provided for.
Testamentary trusts can also cause additional tax issues, and are often only appropriate in a very limited set of circumstances.
Instead of laying out specific amounts or percentages that should be distributed to the heirs of the estate, a discretionary trust allows the trustee discretion in how to distribute the proceeds.
The trustee is not given unlimited discretionary. Instead, the terms of the trust instruct the trustee when and to whom to make disbursements depending on circumstances.
For example, a discretionary trust may instruct the trustee to only distribute funds to pay for higher education. The trust could also make funds only available for starting a business, or any other priority important to the creator of the trust.
Discretionary trusts give much more flexibility than a will when deciding how your legacy will be protected and managed. These trusts are irrevocable trusts. They are often used in tandem with a revocable living trust.
Sometimes people may be old enough and free from disabilities that would impede their ability to manage their own finances, but they still lack the skills to successfully handle a sudden inheritance.
A spendthrift trust is an irrevocable trust that puts assets beyond the reach of creditors. A trustee is responsible for managing funds on behalf of the heir and only distributing money in limited circumstances such as for essential living expenses.
Adults with significant debts, substance abuse issues, or young adults without enough experience to successfully manage a large inheritance often benefit from a spendthrift trust.
Spendthrift trusts sometimes are created for a limited time duration, such as until a child reaches age 25.
Considerations for Using Trusts as Part of an Estate Planning Strategy
Every family has a different situation. Estate planning is never a one-size fits all solution. Often, it is not a matter of simply choosing between a will and a trust, or even choosing a specific kind of trust. Often, the most effective estate plans require a mixture of different trusts.
The first step is having an accurate financial picture. You and your estate planning attorney must know what all of your assets are and if any already have designated beneficiaries. Some assets can be passed on to the heirs without a will or trust. Life insurance is one of these. However, often it would be better for the heirs if these assets were placed into a trust instead of being passed on directly.
The second step in deciding what trusts, if any, are appropriate in a situation is to consider your goals. Usually, one of the major goals is to avoid as many taxes as possible. Trusts are almost always part of an effective estate tax management strategy. However, other goals may influence what specific type of trust is needed. Families with one special needs child and other healthy children will likely need several different estate planning documents to make sure everyone is fully taken care of.
One of the last considerations when choosing a trust as part of your estate planning strategy is your needs. You will not want to lock up too many of your assets in an irrevocable trusts while you are still living. But, in some circumstances it may make sense to put some assets in an irrevocable trust to fully shield them for a period of time.