Living Trusts in Florida – How Do They Work and Do I Need One

A living trust in Florida is a revocable trust, established by the trustmaker with himself as trustee and lifetime beneficiary. As trustee and lifetime beneficiary, the trustmaker retains control over the properties in the living trust and has the flexibility to revoke the trust or sell and encumber the properties in the living trust.

Once the trustmaker dies, the revocable trust becomes irrevocable. A successor trustee steps in to manage the trust property and the trust property passes to the successor beneficiaries without going through probate.

Benefits of Living Trusts in Florida

The major benefits of living trusts in Florida are: (a) retaining control over the trust property; (b) flexibility to revoke the trust at any time; (c) avoiding probate and maintaining privacy; (d) providing more control on the distribution of property after death; and (e) plan for incapacity.

Most people execute living trusts because this allows them to retain control over the trust property during their lifetime, avoid the costly and time-consuming probate proceedings upon death, and control the distribution of the property after death. Parents, especially those who have children from a first and second marriage, execute trusts to allow them more control on who receives what property and when that property is given. When a person passes away and leaves a minor child, the successor trustee can take care of the financial needs of the minor child until the minor reaches legal age. In contrast, without a living trust, if a person passes away leaving the minor child with an inheritance of more than $15,000, a guardian of the minor’s property needs to be appointed by the court, even if the other biological parent is still alive, resulting to more costs just to inherit property.

Similarly, when the trustmaker becomes incapacitated, whether temporarily or permanently, the successor trustee can step in to take care of the trustmaker’s financial needs. This cannot be done in a will, because a will takes effect only upon death. The trustmaker cannot also sign a power of attorney authorizing another person to be responsible for his financial interests when he is already incapacitated. In the living trust, the trustmaker can provide for these scenarios while he is still capacitated.

Living Trust as an Estate Planning Tool

A living trust is only one type of estate planning tool in Florida. Florida recognizes several estate planning documents, and it is important to consult with a Florida attorney to know which type of estate planning tool is better for one’s properties.

For example, homestead property is subject to very liberal asset protection provisions under Florida law. In fact, homestead property, or property used as a primary residence, is fully exempt from creditor’s claims (subject to a few exceptions and conditions). If the homestead property is transferred to a revocable living trust, it is possible that the homestead property loses these asset protection exemptions. In addition, transferring homestead property to a living trust is more complicated due to restrictions provided by Florida law on the rights of the surviving spouse and minor children to inherit homestead property. For these reasons, the ladybird deed is more commonly used to transfer homestead property in Florida. For more information on ladybird deeds, you can click here.

On the other hand, if one’s purpose is to protect property from creditors, the revocable living trust will not be of good use. Courts will not consider the property in a revocable trust to be someone else’s property that will be free from the creditor’s claims, because the trustmaker still exercises control over the property as trustee and lifetime beneficiary. In this case, an irrevocable trust that offers flexibility to modify the provisions with the assistance of a trust protector is a more viable option in Florida to protect one’s assets from creditors. For more information on these types of irrevocable trusts in Florida, you can click here.

If one’s purpose is to avoid costly and time-consuming probate proceedings, then the nature of the assets to be transferred to the trust should also be considered. Not all assets in Florida are subject to probate. Assets owned with another person, such as those owned by spouses jointly as tenants by the entirety or those with rights of survivorship, will pass to the surviving owner without need of probate. These include assets with designated beneficiaries, such as annuities, retirement accounts, life insurance, and bank accounts or investments designated as “pay on death” or “in trust for” a named beneficiary.

Clearly, assets held in trust will also avoid probate, and this is one of the reasons why living trusts are a popular estate planning tool in Florida.

Procedure for Establishing a Trust

It is important to strictly follow the procedure in establishing the trust and in transferring properties to a trust so that these trust properties will avoid probate when the time comes.

First, the trustmaker has to execute the trust document. Although many websites offer do-it-yourself trust documents, there is no one-size-fits-all trust document. A qualified estate planning attorney in Florida might have to use different types of documents to accomplish a client’s estate planning goals. Drafting a trust document requires a thorough investigation of one’s assets and legal expertise to know which properties to be included in the trust for all the reasons already discussed above.

In creating a trust document, one must provide the attorney with his estate planning goals and list of assets in order for the attorney to, not only adequately draft a trust document but to, create an estate plan for the individual. In the trust document, it’s important to select a successor trustee and beneficiaries. The trustee will be responsible for distributing the assets to the beneficiaries, and for this reason, it is important to discuss this role first with the selected trustee and obtain his acceptance of the responsibility before designating him as such in the trust document. In addition, the beneficiaries also have to be selected. Usual beneficiaries are the spouse, children, and grandchildren. Spendthrift provisions are normally included in the trust document to prohibit beneficiaries from assigning their interests in the trust to somebody else or for creditors to claim the beneficiary’s interest in the trust.

Other scenarios can also be listed in the trust document, such as when distribution will be made, how distribution will be made, how distribution shall be calculated, whether income and/or principal is distributed and when it will be distributed, what to do when the trustmaker becomes incapacitated, and so on.

Once the trust document has been signed and notarized, the trust has to be funded by property. In order for assets to avoid probate, it is important to designate the property as part of the trust. For this reason, even if the trustmaker and the initial trustee will be the same person in the trust document, a transfer should still be made from the trustmaker’s name to the trustmaker’s name, as trustee of the name of the trust. For example, John Smith will transfer the property to John Smith, as Trustee of the John Smith Trust. This will enable the courts to determine which properties will be included in the probate estate, and which properties are trust properties and thus, excluded.

Even if a living trust is executed, it is still advisable to execute a will. The will will dispose of other properties not included in the living trust, or subsequent properties purchased after the execution of the living trust.

Should you need assistance in drafting a trust document or wish to consult with respect to estate planning of your properties, we, at the Law Offices of Albert Goodwin, are here for you. You can call us at 1-800-600-8267 or send us an email at [email protected].