Your Estate May Benefit From a Revocable Trust Prepared by Sarasota Attorneys
A revocable trust provides a way for you to control your assets during your life time while at the same time making it possible for your heirs to avoid probate and save on taxes when you die. Even though there are many advantages to this type of trust, and fits some estate planners perfectly, there are important factors to consider before deciding whether or not it will work for you.
Basically, the trust is the owner of your assets. During your lifetime, you control how the assets are managed. At your death, your personal representative distributes your assets in the way you described in the trust agreement.
In order to be effective, your eligible assets must be transferred to the trust so the trust is the owner of them instead of you. Although it is a good approach for assets like bank accounts and real estate to be owned by the trust, there are assets that should not be owned by the trust in order to avoid income tax problems.
At our Wills, Trusts, Probate and Elder Law Firm, PLLC, in Sarasota, Florida, we review your entire estate plan and help determine whether you and your heirs will benefit from a revocable trust. We prepare all the necessary documentation to make certain it will be legally valid and that only the appropriate assets are transferred to the trust.
IMPORTANT FREQUENTLY ASKED QUESTIONS ON LAST WILL & TESTAMENTS
There are many types of trusts. The one most people are familiar with is the Revocable Trust also known as a “Living Trust”; Revocable Living Trust”; or, an “Inter-Vivos Trust”. These trusts are governed by Chapter 736 of the Florida Statutes, also called the “Florida Trust Code”.
The revocable, or “living,” trust is often promoted as a means of avoiding probate and saving taxes at death. The revocable trust has certain advantages over a traditional will, but there are many factors to consider before you decide if a revocable trust is best suited to your overall estate plan.
WHAT IS A REVOCABLE TRUST?
During your lifetime the trustee invests and manages the trust property. Most trust agreements allow the grantor to withdraw money or assets from the trust at any time, and in any amount. If you become incapacitated, the trustee is authorized to continue to manage your trust assets, pay your bills, and make investment decisions. This may avoid the need for a court-appointed guardian of your property. This is one of the advantages of a revocable trust.
Upon your death, the trustee (or your successor if you were the initial trustee) is responsible for paying all claims and taxes, and then distributing the assets to your beneficiaries as described in the trust agreement. The trustee’s responsibilities at your death are discussed below.
Your assets, such as bank accounts, real estate and investments, must be formally transferred to the trust before your death to get the maximum benefit from the trust. This process is called “funding” the trust and requires changing the ownership of the assets to the trust. Assets that are not properly transferred to the trust may be subject to probate. However, certain assets should not be transferred to a trust because income tax problems may result. You should consult with your attorney, tax advisor and investment advisor to determine if your assets are appropriate for trust ownership.
WHAT IS PROBATE?
ARE ALL ASSETS SUBJECT TO PROBATE?
HOW DOES A REVOCABLE TRUST AVOID PROBATE?
The “funding” of a revocable trust is critical to successfully avoid probate. Those persons who do not fully fund their trusts often need both a probate administration for the non-trust assets as well as a trust administration to completely distribute the assets. Because the revocable trust may not completely avoid probate, a simple “pour over” will is needed to transfer any probate assets to the trust after death.
MAY A PERSON DISPOSE OF HIS OR HER PROPERTY IN ANY WAY HE OR SHE WISHES BY A WILL?
- Except in certain very specific circumstances a homestead (that is, the residence and adjoining lands owned by a person who is survived by a spouse or minor child up to one-half acre within limits of an incorporated city or town or up to 160 acres outside those limits);
- A life estate : property owned only for the life of the owner;
- Any property owned jointly with another person or persons with right of survivorship (a tenancy by the entireties, which is limited to joint ownership between a husband and wife, would be one of these).
A person may not disinherit his or her spouse without a properly executed marital agreement. The law gives a surviving spouse a choice to take either his or her share under the will or a portion of the decedent’s property determined under Florida’s “elective share” statute. This statute uses a formula to compute the size of the surviving spouse’s elective share, which includes amounts stemming from the decedent’s jointly held and trust property, life insurance, and other non-probate assets. Because this formula is very complicated, it is usually necessary to refer this matter to an attorney with extensive experience in this area of law. Also, if your will was made before the marriage and the will does not either provide for the spouse or show your intention not to provide for him or her, then your spouse would receive the same share of your estate as if you had died without a will (at least one-half of your estate) unless provision for the spouse was made or waived in a marital agreement.
HOW DO I KNOW IF MY ASSETS ARE PROPERLY TITLED TO MY REVOCABLE TRUST?
CAN THE TRUST HOLD TITLE TO MY HOMESTEAD?
DOES A WILL INCREASE PROBATE EXPENSES?
DO I BENEFIT BY AVOIDING PROBATE?
On the other hand, avoiding probate in multiple states is a definite benefit. Because of the nature of real estate, probate is usually required in every state in which you own real estate. This can usually be avoided by transferring ownership of the real estate to your trust during your lifetime.
HOW ARE CREDITORS SATISFIED?
DOES THE TRUST PROVIDE PROTECTION FROM CREDITOR CLAIMS?
DOES THE TRUST PROVIDE PROTECTION FROM THE ELECTIVE SHARE?
WHO PAYS FEDERAL INCOME TAX ON TRUST INCOME?
A revocable trust becomes a separate entity for federal income tax purposes when it becomes irrevocable, or stops reporting income under your social security number for any other reason. The trustee is then required to file an annual fiduciary income tax return. Taxable income, deductions and credits are determined in much the same way as for an individual. Trusts are also allowed a deduction for distributions to beneficiaries. In this way, the trust passes on income and deductions to the beneficiaries to be taxed on their personal income tax returns. Income that is not distributed to the beneficiaries is taxable to the trust.
DOES A REVOCABLE TRUST SAVE ESTATE TAXES?
WHAT ARE THE TRUSTEE’S RESPONSIBILITIES?
- Hold trust property
- Invest the trust assets
- Distribute trust income and/or principal to the beneficiaries, as directed in the trust agreement
- Make tax decisions concerning the trust
- Keep records of all trust transactions
- Issue statements of account and tax reports to the trust beneficiaries
- Answer any questions you and the beneficiaries may have concerning the trust
Your trustee may have broad powers or very limited powers. In either case, your trustee is a fiduciary and must follow a strict standard of care when performing trust functions.
WHO MAY ACT AS TRUSTEE OR SUCCESSOR TRUSTEE?
HOW DO I KNOW WHAT I NEED?
Simply put, a Revocable Trust is a legal document where you make a written declaration of who should handle your affairs for you when you die, and who should get your assets. Very similar to a Last Will & Testament.
You, the person creating/signing the document are called the “Grantor” or “Settlor”. You are also in charge of the trust so you are called the “Trustee”. You nominate someone to handle your trust assets should you become incapacitated or pass away, this person is called the “Successor Trustee”. Just like with a Last Will & Testament, those who are to inherit your assets when you die are called “beneficiaries”.
After a person dies, the job of the Personal Representative in a Last Will & Testament and of the Successor Trustee in a Revocable Trust are essentially the same: collect and gather the assets, pay the final bills and expenses of the decedent; and, distribute the assets to the beneficiaries.
Amending or Changing the Revocable Trust.
Who Should Draft Your Revocable Trust
The drafting of a trust involves making decisions that require professional judgment which can be obtained only by years of training, experience, and study. Only the practicing lawyer can avoid the innumerable pitfalls and advise the course best suited for each individual situation. In addition, an experienced attorney will be able to coordinate the use of other skilled professionals, such as an investment advisor, actuary, insurance specialist, and tax accountant to complete a proper estate plan.
Moreover, there is no such thing as a “simple trust.” Even smaller estates can have complexities only foreseeable by the experienced attorney.
Please contact us to discuss any specific situation or needs you may have to see how we may be able to assist in reaching a resolution. We offer a free thirty (30) minute consultation to see if we can help.