A living trust can be an extremely useful estate planning tool for Florida residents who want to maintain control over their assets while alive and smoothly transfer them to beneficiaries after death. Living trusts allow you to avoid the lengthy probate process in Florida by transferring property outside of probate. In this guide, we’ll explain what a living trust is, how it works, and its advantages and disadvantages compared to wills.
What is a Living Trust?
A living trust, also called an inter vivos trust, is a legal arrangement created during your lifetime where you designate a trustee to manage the assets you transfer into the trust. The trustee handles the assets for the benefit of the trust’s beneficiaries according to your instructions laid out in the trust document.
Living trusts take effect as soon as you create and fund them. The main purposes are to maintain control over your assets while living, avoid probate at death, and dictate how assets are distributed to your chosen beneficiaries.
A properly drafted and funded living trust serves as your primary estate planning tool. It provides instructions for asset distribution and names beneficiaries and trustees to carry out your wishes when you pass away or if you become incapacitated.
How Does a Living Trust Work?
Here is a brief overview of how a basic living trust works in Florida:
- You work with an estate planning attorney to draft a living trust agreement. This tailors the trust to your specific situation and wishes.
- Assets titled in your individual name, like bank accounts, real estate, and vehicles, are re-titled in the name of the trust. This transfers legal ownership to the trust.
- You designate one or more trustees to manage the assets while you are alive and competent. Most people name themselves as the trustee initially.
- If you become incapacitated, your successor trustee takes over management based on the instructions you provided.
- When you pass away, the successor trustee distributes assets to beneficiaries as outlined in the trust. This avoids probate.
- Your successor trustee can be your spouse, child, family member, friend, or corporate trustee like a bank or trust company. Whoever you choose should be trustworthy, responsible, and good with finances.
The living trust document lays out exactly how you want the trust managed and assets distributed. As long as you are alive and competent, you retain full control over the trust and can amend it or revoke it any time.
Types of Living Trusts
There are two main types of living trusts – revocable and irrevocable. The type of trust you choose depends on your goals and needs.
Revocable Living Trust
A revocable living trust is the most common type of trust used in estate planning in Florida. As the name implies, you can revoke or terminate a revocable trust at any time. You also remain in complete control over the trust assets and can modify the trust terms whenever you want.
The main advantages of revocable trusts are:
- Avoid probate for assets transferred into the trust
- Assets can be easily accessed if needed
- Flexibility to modify or revoke the trust
- No tax benefits
Revocable trusts generally convert to irrevocable trusts after your death.
Irrevocable Living Trust
An irrevocable trust cannot be changed or reversed once created. You relinquish ownership and control over any assets placed into the trust. Irrevocable trusts offer several benefits:
- Assets are protected from creditors and lawsuits
- Reduces estate taxes by removing assets from your taxable estate
- Allows you to dictate long term distributions for your beneficiaries
- Can protect assets if you need long-term care
However, their inflexibility is the main downside. You cannot terminate an irrevocable trust or make changes once it’s executed.
Pros and Cons of Living Trusts
Living trusts have several advantages that make them a favored estate planning tool over simple wills. However, they also come with some drawbacks to consider.
Advantages of Living Trusts
- Avoid probate – The main benefit of a living trust is avoiding probate for assets transferred into the trust. This saves time, money, and privacy compared to a will.
- Control over assets – You retain complete control over assets in a revocable living trust. An irrevocable trust limits your control but provides other benefits.
- Prevents guardianship – If you become incapacitated, your successor trustee can immediately step in and manage assets according to your instructions, avoiding court-ordered guardianship.
- Privacy – Trusts allow you to handle asset distribution privately compared to the public process of probate.
- Protection for beneficiaries – Trust assets are legally protected from creditors, lawsuits, divorces, etc. that your beneficiaries may face.
- Estate tax planning – Certain trusts can be used to shield assets from estate taxes.
Disadvantages of Living Trusts
- Higher upfront costs – Creating a properly drafted living trust costs more than a simple will. You’ll likely need an attorney to set up a trust.
- Administration responsibilities – Funding and administering a trust takes more time and effort than a will. You need to re-title assets, file taxes, keep accurate records, etc.
- Less control with irrevocable trust – Once you transfer assets to an irrevocable trust, you permanently lose control over those assets.
- No court supervision – Trusts operate privately without court oversight. This puts more responsibility on your trustee to manage according to your wishes.
- Dying intestate – If you only have a living trust without a pour-over will, any assets not transferred into the trust may go through probate.
Living Trust vs. Will in Florida
Living trusts and wills serve different primary functions in estate planning, but can work together to manage your estate fully. Here is a quick comparison:
|Avoids probate for assets transferred into trust
|Assets passing by will go through probate
|Can provide control of assets if you’re incapacitated
|No control if you’re incapacitated
|Allows private transfer of assets after death
|Estate must go through public court process
|Harder to contest
|Easier to contest in court
|More expensive and complicated to set up
|Simple and inexpensive to create
|Administered by your successor trustee
|Administered by an executor you name
As you can see, wills and living trusts complement each other in an estate plan. Even with a living trust, you should have a pour-over will to handle any stray assets not transferred to your trust.
How to Create a Living Trust in Florida
If you decide a living trust is right for your situation, here are the key steps to create one in Florida:
- Determine your goals – Decide what assets to put in the trust, who will manage the trust, and how you want assets distributed. Consider revocable or irrevocable trust based on your needs.
- Hire an experienced lawyer – Have a qualified trust lawyer draft your living trust agreement according to Florida law and your wishes.
- Name trustees and beneficiaries – Designate one or more trustees to manage assets and beneficiaries to inherit. Outline instructions for successor trustees if you’re incapacitated.
- Transfer assets – Retitle eligible assets like financial accounts, real estate, vehicles, etc. into the name of the trust.
- Store documents safely – Keep original trust documents secure but accessible to trustees. Provide copies to your trustees.
- Review regularly – Periodically review the trust with your attorney and update it if your circumstances change.
Choosing the Right Trust for Your Needs
Living trusts are not one-size-fits all. The best trust depends on your specific goals, assets, family situation, and preferences.
Young families with children should consider setting up a revocable living trust to:
- Name guardians for minor children
- Avoid probate which can take over 2 years in Florida
- Allow a spouse or other family member to manage assets if you pass away unexpectedly
For individuals who want maximum protection of their assets, an irrevocable trust provides benefits like:
- Shielding assets from lawsuits or creditors
- Preserving eligibility for long-term care benefits
- Reducing estate taxes
The tradeoff is lack of flexibility and loss of control over the assets.
Remarriage and Blended Families
Remarried couples with children from previous relationships often use trusts in estate planning to:
- Ensure assets pass to your own children, not just your spouse
- Provide for a surviving spouse while keeping assets separate
- Prevent disputes between stepchildren
Special Needs Dependents
Families with dependents with disabilities or special needs can set up special needs trusts to:
- Provide for quality of life while preserving government benefits
- Designate trustees to manage finances on the dependent’s behalf
- Dictate customized treatment, care, and living arrangements
Leaving a Legacy
For those with significant assets who want to leave a lasting legacy, trusts allow you to:
- Pass on valuable assets like real estate, family businesses, investments to heirs
- Create inheritance funds that distribute assets over time
- Dictate long-term use of assets for causes you care about
- Minimize estate taxes to maximize the inheritance
With proper planning, living trusts can help you accomplish many estate planning goals beyond just avoiding probate.
Naming a Trustee and Successor Trustees
Choosing a trustee is one of the most important decisions when creating a living trust. Here are some tips for selecting the best trustee:
- Trustee duties – Understand the responsibilities like managing investments, distributing income, filing taxes, working with beneficiaries.
- Trustee qualifications – They should be ethical, financially savvy, organized, responsible. A professional trustee may be best for larger, complex trusts.
- Friends or family – Consider choosing a relative or friend you trust. But evaluate their skills honestly.
- Financial institutions – Banks, trust companies, or law firms offer professional trustee services for a fee.
- Co-trustees – You can designate co-trustees with complementary skills like a family member and a financial advisor.
- Successor trustees – Name backup successor trustees in case your initial trustee cannot serve.
- Trust protector – An independent third party who oversees the trustee and can modify or terminate the trust.
Take time to select the right trustee and successor trustees to carry out your wishes. Discuss your options with your estate planning attorney.
Maintaining and Funding a Living Trust
After you create your living trust, proper maintenance and funding is essential for it to function as intended. Here are some tips:
- Title assets correctly – Formally re-title bank accounts, real estate, investments, vehicles, etc. in the name of the trust.
- Transfer ownership – Change beneficiary designations on retirement accounts and life insurance to the trust.
- Open accounts – Open financial accounts like checking, savings, investment accounts in the name of the trust.
- Record keeping – Maintain detailed records of assets, titles, transactions, tax filings.
- Manage assets – Invest assets appropriately, distribute income, file taxes for trust assets.
- Review regularly – Reevaluate the trust periodically and amend it if needed for life changes.
Proper funding, paperwork, and asset management are key to ensure your living trust functions smoothly when needed.
Using Living Trusts to Avoid Probate in Florida
Avoiding Florida probate is the top reason many people choose living trusts. The probate process to settle an estate can drag on for months or even years. It also invites the court’s involvement in your private financial matters.
Living trusts allow you to avoid probate using these probate-avoidance techniques successfully:
- Transfer assets to trust – Retitling accounts and property into the trust pulls them out of probate.
- Pay-on-death accounts – Assets like bank accounts and vehicles with POD beneficiaries go directly to heirs.
- Joint tenancy – Joint bank accounts, real estate pass to the surviving owner automatically.
- Beneficiary designations – Life insurance and retirement accounts with named beneficiaries avoid probate.
- Gifting – Giving away assets during your lifetime removes them from your probate estate.
Living trusts, when properly funded, can allow you to keep the distribution of most or all assets out of Florida probate. But make sure you have a pour-over will to catch any stray assets not transferred into your trust.
Let Stivers Law Help You Avoid Probate and Transfer Your Legacy
A living trust can be an extremely effective way to maintain control of your assets while living and ensure their orderly transfer to beneficiaries after death while avoiding probate. But setting up a properly drafted and funded trust takes expertise.
Stivers Law in Coral Gables has helped numerous Florida families establish customized living trusts to fit their unique needs and assets. We can provide trusted advice on whether a living trust is right for your situation and how to set it up correctly. Take the first step and contact us today to start planning your legacy. We are here to provide guidance every step of the way.