How to Create a Living Trust in Florida

Quick Summary

• A living trust leaves one’s property to whom they want and how they want, without a public probate proceeding.
• A living trust in Florida does not provide any asset protection benefits.
• A person with a living trust still has a last will and testament—the will leaves everything to the trust (called a pour-over will).

What Is a Revocable Living Trust?

A revocable living trust is a contract agreement with a trustee who holds legal title to your assets during your lifetime and distributes them after your death. The living trust agreement controls the distribution beneficiaries.

This trust is referred to as a “living trust” because you create it during your lifetime. It is also “revocable” because you can amend or revoke it as long as you live.

Advantages of Living Trusts in Estate Planning

In our experience, the primary advantage of a living trust is its ability to avoid a probate of the trust assets. When an individual dies, most of the assets they own go through probate, a legal procedure that validates the deceased’s wills, pays all debts, and administers the distribution of assets to designated heirs.

Probate can be time-consuming, costly, and public. However, assets held in a revocable trust are not probated, and trust assets are distributed to named beneficiaries quickly and privately.

We tell our clients that a revocable trust is not a one-size-fits-all solution. While it avoids probate, it doesn’t offer the same asset protection or tax benefits as other trust types, particularly irrevocable trusts. During the grantor’s lifetime, the assets within a revocable trust remain a part of the grantor’s taxable estate, meaning they are subject to creditors and estate taxes.

Who Needs a Revocable Living Trust?

A revocable living trust helps those individuals who prioritize privacy in the distribution of their assets and those who wish to avoid the potentially prolonged and costly probate process.

Probate proceedings are visible in the public court records. A probate inventory filed with the court lists all your assets and their values. A living trust is not recorded or filed with the government. Your living trust assets and their distribution remain private.

A revocable trust can ensure children are cared for financially in their younger years. You can stipulate in your living trust agreement the ages or milestones your children will receive trust distributions. This is especially important for parents of minor children because your living trust agreement can establish guidelines for managing family assets until your children reach a suitable age.

Essential Parties To A Living Trust

A living trust involves at least three essential positions. A person may occupy more than one of these three roles:

1. Grantor (also known as Settlor or Trustmaker): The grantor is the individual who creates the trust. He decides what assets will be placed into the trust, how the trust should be managed, and how the assets will be distributed upon his death. The grantor can amend, modify, or terminate the trust as they see fit during their lifetime, provided they are mentally competent.
2. Trustee: The trustee is responsible for managing and administering the trust’s assets according to the terms set by the grantor in the trust document. The trustee has a fiduciary duty to act in the best interests of the trust beneficiaries. In revocable living trusts, the grantor typically also serves as the initial trustee, retaining control over the assets during their lifetime. If the grantor/trustee becomes incapacitated or upon their death, a successor trustee, named in the trust document, will take over trust management.
3. Beneficiary: Beneficiaries are the individuals or entities that will benefit from the trust through income and principal distributions. The typical revocable living trust agreement makes the grantor the sole beneficiary during his lifetime. The agreement names successor beneficiaries after the grantor’s death. The successor beneficiaries have no entitlement to any trust property during the grantor’s life because the grantor can always amend the trust to replace the successor beneficiaries. The trust document will detail how and when the trust will make distributions to the beneficiaries.

Important Differences Between a Living Trust and a Will

A will does not transfer the legal title of your property during your lifetime. You own your assets in your name as long as you are alive.

Your Will expresses how you want to give away your assets after your death. A court administers your Will in a probate proceeding. The probate court proceeding sees that any money you owe at the time of your death gets paid to your creditors. The title to your assets passes to your heirs after your assets are probated through a court proceeding.

A living trust estate plan conveys title and ownership of your assets while you are alive to a trustee of a trust. You do not retain legal title to trust assets. You transfer title to a trustee, and the trustee controls and administers your assets for your benefit. You usually serve as grantor, trustee, and lifetime beneficiary.

A Florida living trust has estate planning benefits compared to a Will. The most well-known benefits are avoidance of guardianship and avoidance of probate.

Living Trusts Avoid Guardianship

Living trusts avoid guardianship if you become incapacitated during your lifetime.

Generally, if a court decides you lack mental capacity the law requires someone to act as your legal guardian. The court appoints your guardian, and the guardian controls you and your property under court supervision through a guardianship legal proceeding. Guardianship is both public and costly. Guardianship requires attorneys to help the family navigate the guardian proceedings. We counsel our clients to avoid the possibility of guardianship proceedings.

A living trust avoids guardianship in the event of your incapacity. Your living trust agreement typically provides that if you lack the capacity to manage trust property, a successor beneficiary takes over the administration of trust property for your benefit.

Incapacity is a defined term within our trust agreement forms, and a living trust agreement should include procedures for determining your incapacity and recovery. The incapacity provisions of a living trust permit avoid public guardianship if you become unable to manage trust assets.

Living Trusts Avoid Probate

The living trusts’ primary estate planning advantage is the avoidance of probate upon your death.

Probate is a legal proceeding designed to pay your debts after your death and to administer property titled in your name according to the terms of your last will.

Property owned by a decedent’s living trust does not require probate. The appointed successor trustee may administer living trust property and transfer the property to trust beneficiaries without probate.

The mere creation of a living trust document does not avoid probate—only those assets whose title you transferred to your living trust can avoid probate upon your death.

Benefits of Living Trust For Property Outside of Florida

Living trusts benefit people owning property in multiple states. A separate probate proceeding is necessary in each state where a decedent dies with property titled in the decedent’s individual name.

If you have an interest in assets situated in states outside of Florida your living trust avoids multiple probate proceedings in the states where each property is located. The singular living trust administration can convey ownership of property throughout the U.S. after your death.

Living Trusts Preserve Government Benefits

Living Trusts Can Preservation of Medicaid Eligibility

A living trust can help preserve Medicaid benefits for your surviving family members.

A living trust can be designed to help a physically ill spouse retain Medicaid benefits after the death of the healthy spouse even when the ill spouse inherits the assets of the healthy spouse. For example, the living trust can specify an “elective share for Medicaid” that enables the ill spouse to retain benefits and reduce any applicable Medicaid penalty.

Living Trusts Can Protect Supplemental Security Income

Similarly, a living trust may be drafted to protect Supplemental Security Income (SSI) benefits. SSI regulations can deny benefits to persons who inherit significant sums of money.

Disclaiming (refusing) the inheritance does not resolve the issue. A customized living trust can incorporate a special needs provision that directs money allocated to a disabled individual to a separate sub-trust designated to receive government benefits. The beneficiary may then continue to receive SSI benefits notwithstanding the additional assets inherited via the special needs trust.

Business Succession Planning in a Living Trust

Business succession provisions may be incorporated into your customized living trust agreement. A customized living trust could nominate a special trustee whose primary role is to operate your family business in the event of your death or incapacity. The special trustee can continue business operations without interruption until the business is either sold or finds a new, long-term manager.

How to Set Up a Living Trust in Florida

Here are five primary requirements for setting up a living trust in Florida:

1. Be at Least 18 and Mentally Sound: The individual establishing the trust must be of sound mind and at least 18 years old. Being of sound mind typically means understanding the nature of the trust, the assets involved, and the identified beneficiaries.
2. Clear Intent: You must manifest the clear intent to create a living trust. This intention is usually outlined in the language of the trust document, indicating your desire to set specific assets aside for the benefit of designated beneficiaries.
3. Trustee Designation: A revocable trust needs a designated trustee responsible for managing the trust’s assets. You can act as your own trustee during your lifetime. It is best to nominate a successor trustee in the event of your incapacity or death.
4. Definite Property: The trust must be funded with identifiable assets, whether real estate, bank accounts, or other property types. A trust cannot merely exist in the abstract; it must have assets.
5. Ascertainable Beneficiaries: The trust needs to have clearly identifiable beneficiaries. These can be specific individuals or definable groups, such as “all my children.”

Lifetime Administration of Your Living Trust

Amending a Trust if You Change Your Mind

If you change your mind you can amend any part of your living trust while you are alive and mentally competent.

 You can change or add successor trustees. You can add or delete beneficiaries. You may withdraw property from the trust. You have complete lifetime control over your living trust and trust assets

However, when you become incapacitated or deceased your living trust becomes irrevocable in whole or in part, and the trust beneficiaries and successor trustees may not alter any of the trust provisions.

Living Trust is Not a Public Document

A Florida living trust agreement is not recorded in the public records and is not filed with any government agency. Instead, a living trust is a private document among the parties.

Do You Need a Tax ID Number for Your Living Trust?

A living trust in Florida does not need its own tax identification number as long as you are alive and your or your spouse serves as the trustee. All taxable income or tax losses generated by living trust assets flow through to you.

Do Signatures to a Trust Agreement Have to Be Notarized?

A living trust that directs your property distribution after your death (testamentary instructions) must be properly executed with the same formalities as a will. That is, the living trust must be signed before two witnesses and a notary.

When To Transfer Assets to A Living Trust

A living trust only works if you transfer your assets to it. Retiling your assets in the name of the trustee of your living trust is referred to as “funding the trust.”

 A living trust can be funded at various times, depending on your intentions and estate planning objectives.

1. At Creation: Sometimes living trusts are funded completely upon their creation. By transferring assets into the trust soon after it’s established, you ensure that all your assets are managed according to the trust’s terms and are sure that a probate will be avoided.
2. Over Time: Some people choose to fund their trust incrementally over time.. This gradual funding approach can be influenced by various factors, including the grantor’s age, health, financial circumstances, or tax planning strategies.
3. Upon Incapacity: A revocable living trust can be designed to remain unfunded or minimally funded until you become incapacitated. At that point, a previously designated person, operating under a durable power of attorney or another mechanism, transfers your assets into the trust. The successor trustee can then manage the assets for your benefit during your incapacity. This approach keeps the assets outside of the trust during your healthy years, potentially simplifying management, but still provides a mechanism for trusted management if incapacity occurs.
4. Upon Death (via a “pour-over” will): Some people use a pour-over Will to fund their revocable trust. The trust might be partially funded during your lifetime, and upon your death, the remaining assets titled in your name are “poured over” into the trust via the Will. The Will names the living trust as your heir. These assets will have to be probated, but once they pass through the probate they’d be distributed according to the terms of the trust.

Regardless of when a revocable trust is funded, assets intended for the trust must be correctly titled in the name of the trustee. This might involve changing deeds, account titles, or beneficiary designations. We explain to our estate planning clients that an improperly funded trust can fail to achieve its intended benefits.

The Choice Between Joint vs Separate Living Trusts For Married Couples

What is a “Joint Living Trust?

Technically, there is no such thing as a “joint trust.” A joint living trust is actually a trust agreement that incorporates the testamentary wishes of both spouses in a single document.

The joint living trust agreement provides terms and conditions for the administration of each spouse’s separately owned property as well as their joint property.

Think of the joint trust as containing several “pots” of assets. Each spouse has a pot within the joint trust that holds property they held in their individual names before the property was assigned to the trust. There is a third pot under the trust agreement that holds assets jointly owned before assignment to the trust. Upon the death of the first spouse to die, each pot is administered differently. At the second death, the joint trust usually implements an agreed testamentary plan for all trust property.

A joint living trust is more difficult to administer and account for than an individual trust. A joint trust must keep accounts for different types of marital property and different pots of assets.

How Are Separate Living Trusts Different from a Joint Living Trust?

If each spouse creates a separate living trust, instead of a joint trust, then each spouse’s living trust contains only the property they owned individually plus their share of any joint property.

Each spouse has no interest in or benefit from property conveyed to their spouse’s separate living trust. Joint property with rights of survivorship is severed and divided into separate and equal shares.

The choice of separate living trusts or joint trusts for married couples involves several issues and tax considerations. We make sure married couples understand the advantages and disadvantages of each living trust arrangement and decide on the solution they believe is practical and beneficial for their unique family situation.

What Do We Suggest?

We usually tell our clients that a joint trust is best for a typical married couple with common children in a longstanding marriage. In this case, most family assets are marital property acquired jointly during the marriage. The couple probably agree on their testamentary plan for their property after they are both deceased, and this plan usually leaves the property to their children.

In Florida, a joint living trust maintains asset protection for each individual spouse so long as the trust is drafted in a way that maintains tenants by entireties protection for joint property assigned to the living trust.

Our Recommendations For Separate Living Trusts

We believe that separate trusts are best used in blended families when each spouse has children from a prior marriage and where each spouse has acquired their separate assets before the marriage.

Each spouse wants to make sure their own children are provided for after they die. They may be reluctant to contribute their property to a joint trust agreement where the surviving spouse may modify or fail to carry out their testamentary plan for their own property and children.

Sometimes, separate trusts are appropriate for asset protection where, for example, one spouse is in a high-risk business or profession, and the other spouse is not significantly exposed to legal risk. The couple may want to divide assets equally between separate living trusts in a way that assigns the high-risk spouse ownership of exempt assets, such as homestead property, annuities, and retirement accounts, and assigns to the low-risk spouse non-exempt assets such as real estate investment, cash accounts, and non-qualified securities.

Even in a long-standing marriage with common children, separate trusts are preferred when one spouse has disproportionate family wealth. If one or the other spouse has acquired—or expects to inherit—a large sum of money from their parents, that spouse may want to segregate their inheritance in a separate living trust that controls the disposition of the inherited wealth money death.

Do People Need To Rewrite Their Living Trusts When They Move to Florida?

People moving to Florida do not necessarily have to rewrite their living trust for its testamentary provisions to be enforceable under Florida law.

Florida recognizes the validity of living trusts created in another state so long as the trust has been properly executed under the laws of the state of formation.

Asset Protection for Living Trusts in Florida

Asset Protection From Your Creditors

A living trust should not be used for asset protection; the living trust does not protect your property from your creditors.

A living trust is a “self-settled” trust. A self-settled trust is one where the person who creates and funds the trust is also a trust beneficiary. Florida law unequivocally provides that a trust that you create for your own benefit during your life is not protected from your lifetime creditors.

Asset Protection For Your Children and Other Future Beneficiaries

A living trust can be written to provide substantial asset protection benefits for future trust beneficiaries, such as your surviving spouse and your children. If a living trust agreement provides that upon your death the remaining trust property is held in continuing trust for the benefit of your spouse, children, or other beneficiaries, the money can be shielded from these beneficiaries’ creditors. A customized living trust may prohibit any payments to the beneficiary’s creditors or a former spouse.

Can A Living Trust Hold Tenants by Entireties Assets?

Spouses may lose tenants by entireties asset protection if they transfer their assets to a living trust.

If a husband and wife create two separate living trusts, any entireties assets transferred to either spouse’s individual trust will lose tenants by entireties protection as the property is no longer jointly owned by both spouses.

Transfers of entireties assets to a joint living trust can also forfeit entireties protection if the trust agreement is not properly drafted. We draft our clients’ joint living trust with “entireties savings” provisions. These provisions show your intent to retain tenants by entireties ownership as joint trustees of your joint living trust.

Customized Living Trusts Can Provide Some Asset Protection

There are special customized living trust plans that can provide some asset protection to married couples during their lifetimes. One such plan involves the spouses dividing their joint property into individual ownership, and then each spouse creating a separate irrevocable trust for the other spouse with asset protection provisions in the trust agreement.

Florida law permits each spouse to become a beneficiary of their own trust upon the death of the grantee spouse. The trust is not considered a “self-settled trust” at that point even though the trust was originated by the surviving grantor who becomes a beneficiary of the trust they first created. These special trusts protect marital assets from creditors and can also reduce estate tax.

Estate Tax Planning Through Living Trusts

How People Plan To Avoid Estate Tax

Property use of your basic estate tax exemptions can avoid estate tax in a living trust plan. Estate tax planning involves two fundamental principles: the so-called “unlimited marital deduction“ and the “unified estate tax credit.”

Unlimited Marital Deduction.

A married person may leave unlimited amounts of assets to a surviving spouse without estate tax using the unlimited marital deduction. As to assets distributed to someone other than a surviving spouse, there is a so-called unified estate tax credit that shelters from estate taxation a specified amount of value that each person gives outright or in trust. Congress has been increasing the amount of the credit over time, but a future Congress may freeze or lower the credit.

For many years prior to 2013, living trusts for married couples were designed with estate tax in mind. Attorneys wrote living trusts in a way that each spouse took maximum advantage of their separate unified estate tax credits before applying the unlimited marital deduction to the balance of their taxable estate.

Living trust planning and design changed in 2013 when the American Taxpayer Relief Act of 2012 went into effect and then again with the 2017 Tax Cuts and Jobs Act. The 2012 estate tax law added the concept of portability, which makes it easier for a surviving spouse to elect to carry forward and apply any unused unified tax credit of the first spouse to die. Portability of the unified credit is available to a surviving spouse regardless of living trust design and trust provisions.

In 2017, Congress increased the unified credit exemption. Unified credit portability and the increased amount of the unified estate tax credit decrease the importance of estate tax planning for most families.

Current Unified Credit Limits

As of 2024, each U.S. citizen can transfer estate and gift tax free approximately $13 million, and a married couple has a combined unified credit of approximately $26 million (these amounts will increase with inflation). With the larger federal estate tax exemption and portability, most of our firm’s clients are not concerned about the federal estate tax.

Income Tax and Asset Protection Issues in Living Trust Planning

Asset Protection Issues in Living Trust Design

A typical living trust for married people leaves the trust assets to the surviving spouse using the marital deduction from estate taxation. The assets may be left to your spouse outright or in a marital deduction trust. In either case, the value of the assets is not subject to the estate tax because of the unlimited marital estate tax deduction. This typical plan presents asset protection issues.

Trust assets left directly to your surviving spouse are vulnerable to the surviving spouse’s judgment creditors. Even assets held in a marital trust that uses the marital deduction are not creditor-protected; tax law requires the marital trust to distribute all income to the surviving spouse. Your spouse’s creditors can serve the trustee with a writ of garnishment to claim the mandated distributed income.

Instead of leaving assets to your spouse outright or in a marital trust, you may also leave your spouse the same assets in a different type of trust know as an irrevocable “credit trust” or “family trust.” Money left for your surviving spouse in an irrevocable credit trust is not exposed to the surviving spouse’s creditors because a credit trust does not require income or principal distributions to the beneficiary spouse.

Income Tax Issues in Marital Trust Design

A bequest to an irrevocable credit trust has asset protection advantages but the bequest may increase your surviving spouse’s income tax liability.

In cases where your living trusts leaves assets to your surviving spouse under the marital deduction and then to your children, the Internal Revenue Code provides that the children apply a new tax basis, or stepped-up basis, if the children subsequently sell the inherited assets.

Consider an example where you and your spouse bought stock for $10 per share, and when the first parent dies, the stock is valued at $50 per share. The first parent leaves the stock in a marital deduction trust to the surviving spouse., Then, at the second parent’s death, the same stock is worth $60. The parents’ estate plan leaves the stock to their child. The parents’ child inherits the stock with a new income tax basis equal to its $60 date-of-death value. If your child sells the same stock for $70, your child’s taxable capital gain would be the difference between the $70 sale price and the $60 date-of-death value rather than the parent’s original $10 cost basis (a $10 capital gain).

In the above example, your child has received an income tax benefit from a $40 tax basis increase at the first parent’s death and another $10 basis increase at the second death—this is referred to as a “double step-up” of tax basis. When assets are left to your spouse in an asset-protected credit shelter trust, there’s a “step-up in basis” at your death, but there’s no step-up in basis for your children after your surviving spouse’s death.

 In the above example, if you left the stock in a credit shelter trust, your child would pay upon sale a capital gain on the difference between the sale price and the single basis step-up at your death. (tax imposed on a $20 capital gain).

Therefore, a living trust that leaves assets to a surviving spouse in a credit shelter trust for the spouse’s asset protection may impose additional income tax on children who inherit property from the surviving spouse.

How To Plan For Income Tax Effect of Living Trust Design

We prepare living trust agreements that permit the surviving spouse to decide whether the deceased spouse’s assets are left in a unified credit trust or a marital trust.

This way, your spouse may consult with legal and tax professionals, examine the value of assets at the time of transfer, evaluate asset protection issues, and fund the marital and credit trusts in a manner that best serves the family’s legal and tax goals.

Does Florida Living Trust Affect Income Tax Liability?

We are frequently asked whether a living trust affects income tax. A living trust does not affect your income tax liability. Here’s why:

1. A Living Trust Is A Grantor Trust: A revocable trust is typically considered a “grantor trust” under the Internal Revenue Code for income tax purposes. This means that the living trust is transparent for tax purposes. All trust income, deductions, and credits are reported directly on your personal income tax return (Form 1040) as if the trust did not exist. The trust itself does not pay separate income taxes during your lifetime.
2. Does a Living Trust Need A Tax Identification Number?: As long as it is revocable your living trust uses your own Social Security number as its tax identification number. Your living trust does not need a separate Employer Identification Number (EIN) until the your death, or when you decide to make the trust irrevocable for some planning reason.
3. Tax ID is Required After Your Death: Your living trust generally becomes irrevocable at your death. At this point, the trust becomes a separate tax entity and must obtain its own EIN. The trust will also start filing its own tax return, Form 1041 (U.S. Income Tax Return for Estates and Trusts). Income retained by the trust will be taxed at trust income tax rates, which tend to be higher and reach the top tax bracket at much lower income levels than individual tax rates. Income distributed to beneficiaries is typically reported on their individual tax returns.
4. Estate Tax Considerations of Living Trusts: For estate tax purposes, assets held in a living trust at the time of your death are included in your gross estate. This is because you maintained control over these assets during your lifetime. The estate tax effect depends on your total estate size and the estate tax laws in effect at the time of death.

Can a Living Trust Own Subchapter S Corporations?

Many of our estate planning clients own S-Corps. A living trust may have adverse income tax consequences for owners of a small business taxed as a Subchapter S corporation (S-Corp) unless the trust agreement is properly drafted.

An owner of a small, family business taxable as an S-Corp typically wants to own his stock in a living trust so that the stock will pass to his heirs without probate. A prolonged probate proceeding may substantially interfere with a smooth business continuation after the owner’s death.

Your living trust can own S-Corp stock during your lifetime because the IRS considers you, individually, to be the stock owner for tax purposes. But, there are income tax issues when your living trust becomes irrevocable after your death.

What are the IRS Rules About S Corps Owned by Irrevocable Trusts?

The IRS tax code limits ownership of S-Corp shares to individuals or to grantor trusts taxed as individuals. The Code generally prohibits ownership by an irrevocable trust. An exception to this general rule where the trust is a qualifying subchapter s trust (“QSST”). A QSST must hold no assets other than S Corp stock and the trust must provide for mandatory distribution of income.

Your living trust that holds S Corp stock together with your real estate and publicly traded stocks would not qualify as a QSST. You would lose S-Corp treatment of your stock and may suffer adverse income tax effects.

You can have more than one living trust. You may consider a separate living trust to hold your S Corp stock. Alternatively, a living trust agreement should provide that after your death the stock is segregated into a separate sub-trust that qualifies as a QSST.

Homestead Exemption in a Florida Living Trust

You can put your home into a Florida revocable living trust and still qualify for the Florida homestead exemption.

 This is true for both the homestead tax exemption and for the exemption of the homestead from judgment creditors.

There are simpler ways to transfer a homestead upon death to beneficiaries, such as a lady bird deed.

Do You Need an Attorney to Prepare a Living Trust in Florida?

Yes, you do need an attorney to prepare a living trust in Florida. In fact, the Florida Supreme Court has held that the preparation of a living trust by anyone other than a licensed lawyer constitutes the unauthorized practice of law.

There are many options in designing and drafting a living trust agreement, and the choices made can have significant tax and asset protection consequences for you and your children.

Frequently Asked Questions