A revocable trust (or a “living trust”) is a popular estate planning tool because it provides benefits not available with more traditional will based planning. A Florida living trust, like any other trust, is an agreement between three parties: the settlor (or grantor), the trustee, and the beneficiary. The settlor is the individual who forms the trust and generally contributes property to the trust. The trustee is the individual or entity that administers the trust for the benefit of certain beneficiaries. The trustee must administer the trust property pursuant to the directions in the written trust agreement. The trustee has a fiduciary duty to the settlor and the beneficiaries to carry out the intent of the settlor in a fair and reasonable manner.
The term “living trust” refers to the fact that this estate planning trust can be amended or revoked during the grantor’s life. The grantor or settlor (the trustmaker) can add or withdraw assets from the trust as he pleases at any time until his death. Because the grantor is also the trustee during his lifetime, he has complete control over management of trust assets. For tax purposes, all taxable income or tax losses generated by trust assets flow through to the grantor while he is alive. A living trust has negligible effect over a person’s management and enjoyment of his property during his lifetime. When the grantor dies the living trust becomes irrevocable and the trust beneficiaries and successor trustees may not alter any of the trust provisions.
The terms of a living trust are set forth in a written document. The trust document does not have to be recorded in the public records and does not have to be filed with any government agency. It is, therefore, a relatively private document between the parties. A revocable living trust does not need its own tax identification number so long as the grantor is alive and either the grantor or his/her spouse serve as the Trustee. To be given full legal effect upon the death of the grantor, the trust document must be properly executed with the same formalities as a will.
Florida recognizes the validity of a living trust created in another state so long as the trust has been properly executed under the laws of the state of formation. Therefore, people moving to Florida do not necessarily have to redo their living trust for it to be enforceable under Florida law.
Benefits of a Florida Living Trust
The two most often cited advantages of a living trust are its role in the event of the grantor’s incapacity and the avoidance of probate upon the grantor’s death.
The living trust agreement typically provides that in the event of the grantor’s incapacity a successor beneficiary takes over the administration of trust property for the grantor’s benefit. Incapacity is a defined term within the trust document, and specific procedures for determining the grantor’s incapacity are also set forth in the trust. The incapacity provisions of a living trust permit the grantor and his family to avoid a public guardianship in the event that the grantor becomes unable to manage trust property he contributed to his trust.
The other primary attraction of a living trust is avoidance of probate upon the grantor’s death. Probate is avoided because living trust property is not titled in the name of grantor at the time of death and therefore the property is not part of a probate estate. As long as property is properly titled in the name of the trust, the property an be administered and transferred to trust beneficiaries without probate. The mere creation of a living trust document provides no benefit to the grantor unless the trust is properly funded with the grantor’s assets. Only those assets whose title is transferred to the trust are protected in the event of incapacity or death.
In addition to provisions for incapacity and avoidance of probate, living trusts have other estate planning benefits. For clients with property located in multiple states, a living trust owning all of the client’s property avoids multiple probate proceedings in the states where each property is located. The administration of a client’s real property is consolidated through the use of a single trust document.
Asset Protection and Living Trusts
Some people mistakenly believe that living trusts provide asset protection for the trustmaker. In fact, a living trust provides no asset protection of assets conveyed to a living trust. It makes no difference that the living trust has a spendthrift clause which states that creditors cannot reach the interests of a trust beneficiary. The reason a living trust is not effective asset protection is that a living trust is a“self-settled” trust. A self-settled trust is one where the person who creates and funds the trust (the trustmaker) is also a trust beneficiary. Florida law unequivocally provides that the beneficiary of a trust created for the beneficiary’s own benefit is not protected from the beneficiary/trustmaker’s creditors even if the trust has a protective spendthrift provision.
A living trust may have substantial asset protection benefits for future trust beneficiaries. If a living trust provides that upon the trustmaker’s death the remaining trust property is retained in the living trust for the benefit of the trustmaker’s spouse, children, or other beneficiaries, the money is protected from these beneficiaries’ creditors if the trust document has a properly drafted spendthrift clause. An interest of a beneficiary other than the trustmaker is protected even if there is not a proper spendthrift clause if the trust is a “discretionary trust.” A discretionary trust is one where the trustee has complete discretion over the amount and timing of distributions of income and trust principal to the beneficiaries.
A living trust should be drafted by an experienced attorney. In fact, the Florida Supreme Court has held that preparation of a living trust by anyone other than a licensed lawyer constitutes the unauthorized practice of law.