Generally speaking, Trusts, also known as a “Trust Agreements,” are documents created by you to manage your assets during your lifetime and to appoint a Trustee to distribute your assets after your death. The Trustee is responsible for managing the Trust assets. Usually, you will nominate yourself as in the Initial Trustee. Then, you nominate a Successor Trustee to take over when you can no longer manage your assets, or you pass. A Trustee can be in individual, a professional or an entity. If you create a “Revocable” Trust, you can amend it at any time as long as you have capacity.
Once you pass, your Successor Trustee handles your estate, which includes paying all claims and taxes. Then the Trustee will distribute your estate according to your wishes that are well defined in your Trust Agreement. You should retain experienced legal counsel when you are ready to create your estate plans. Contact the Horton Law Group, P.A. to schedule a free 30-minute consultation today.
What are the top 5 benefits of a Trust?
There top 5 benefits of having a Trust are:
- Avoiding probate
- Avoiding guardianship Court
- Controlling who administers your trust and who receives your estate after your death
- Avoiding guardianship Court for minor children
- Asset protection
There are several different Trusts available to you in the state of Florida. After you understand which one of the Trusts best suits your needs, the next step is to retain an experienced estate lawyer to draft your plans for you.
What are the most common Trusts in Florida?
- The Revocable Living Trust. The most common Florida Trust is the Revocable, or inter vivos, Trust. When you create this type of Trust, you fund your assets in the Trust for you to manage as the Initial Trustee. You nominate a Successor Trustee to manage the assets once you no longer can. You can amend the Trust as many times as you want as long as you have capacity. Properly creating your Revocable Trust and properly funding your Revocable Trust can avoid probate and the cost associated with probate.
- Irrevocable Living Trusts. Irrevocable Trusts are just as they sound, irrevocable. This means once you create an Irrevocable Trust and you fund assets into this Trust for your benefit or the benefit of another, you cannot amend it. The assets you put in this Trust are no longer legally yours and you cannot control them. Said assets are controlled by the Trustee of the Irrevocable Trust for the benefit of the beneficiaries. There are many advantages to Irrevocable Trusts, including probate avoidance, avoidance of real property or estate taxes on the property and if you get sued, your assets within this Trust are free from creditor attachment.
- Land Trusts. Land Trusts are Trusts that protect real property, including your homestead, land, commercial properties and other real property that you might own. These types of Trusts are created to keep the ownership of said assets private. If the Trusts are created and executed properly, you can prevent your land and real property assets from becoming part of a lawsuit filed against you. Property properly funded into a Land Trust will avoid probate.
- Testamentary Trusts. Testamentary Trusts are part of a person’s Will and these Trusts become effective upon your death. These types of Trusts are most commonly used if you want to leave your assets to another person, but you do not want that person to receive the assets until a certain point in time, after you die. For example, I leave $100,000 to my grandchild when she attains the age of 30. Testamentary Trusts are irrevocable.
- Medicaid Trusts. These Trusts are often used to ensure that your children will receive your estate, even if you incur large amounts of debt due to long-term care, assisted living or nursing home care. Under a Medicaid Trust, assets are sheltered, and cannot be taken to cover such costs. There are strict rules when creating these types of Trusts. There are also strict timelines for when you have to create them to obtain the shelter benefits. Lastly, once you place assets into this Trust, you will no longer have access to these assets during your lifetime.
- Special Needs Trusts. These Trusts are set up for a person with special needs to supplement any benefits that person with special needs may receive from government programs (such as SSI or SSDI benefit programs). A properly drafted Special Needs Trust will give the special needs beneficiary additional monies every month to survive while allowing that beneficiary to continue to receive government benefits. There are three main types of Special Needs Trusts: the First-Party Trust, the Third-Party Trust, and the Pooled Trust. All three Trusts name the person with special needs as the beneficiary of the Trust. A “First-Party” Special Needs Trust holds assets that belong to the person with special needs, such as an inheritance or an accident settlement. A “Third-Party” Special Needs Trust holds funds belonging to other people who want to help the person with special needs. A Pooled Trust holds funds from many different beneficiaries with special needs.
- QTIP Trusts. QTIP stands for Qualified Terminable Interest Property. To understand QTIP, one must first understand the marital deduction. Under 26 USC 2056 and 2532, transfers of property between spouses, be it during life or at death, are afforded an unlimited deduction from the donating/devising spouse. Thus, if one spouse were to gift or devise $15,000,000 to the other spouse, the entire amount would be deductible. The one exception to the marital deduction is terminable interest property. 2056(b) and 2531(b) provide that any property passed to a spouse, where said property passes to another person other than the spouse at some point, will not qualify for the marital deduction. For example, supposed spouse A transfers a $15,000,000 home to spouse B through spouse A’s will. However, the Will states that upon the death of spouse B, the home transfers to son C. The home would be considered terminable interest property and no deduction would be allowed for spouse A’s estate. The rationale behind this rule is that in the above supposition, spouse A would avoid having the value of the home reduce his unified estate and gift tax credit. When the property transfers at spouse B’s death, it would avoid inclusion in her estate as well. The code does provide a work-around to this issue. Defined under 26 USC 2056(b)(7) and 2053(f)(2), QTIP election allows a spouse to transfer terminable interest property while still receiving a deduction for their estate. The catch here is that the property will be included in the surviving spouse’s estate.
- Irrevocable Life Insurance Trusts. Under an ILIT, the Grantor transfers a life insurance policy to an Irrevocable Trust. Life insurance proceeds on a decedent are generally included in the decedent’s gross estate. The ILIT attempts to remove the insurance proceeds from the decedent’s estate by surrendering ownership of the policy to the Irrevocable Trust. There is an important caveat to this type of Trust, however. Section 2035 provides that transfers of an interest in property made within three years of a person’s death are clawed back into the person’s estate for federal tax purposes, this includes life insurance policies. So, if a decedent establishes an ILIT and transfer their insurance policy to the ILIT, but dies two years after the transfer, the proceeds of the life insurance policy will still be included in the decedent’s gross estate. It is important to be confident the Grantor of the ILIT will probably live more than three years after funding the Trust. An ILIT also provides an opportunity for the Grantor to make use of their annual exclusion amount. The annual exclusion amount allows a person to transfer up to the exclusion amount to any number individual in a year without incurring gift tax (i.e., using any of the exclusion amount). (26 USC 2503(b)). In 2020, the annual exclusion amount is $15,000. The Grantor of an ILIT can make annual exclusion gifts to the trust as a means of reducing the value of the grantors estate and providing a means for the Trust to pay the insurance premiums. If the ILIT has three beneficiaries, the Grantor could gift up to $45,000 in annual exclusion amount.
- Credit Shelter Trusts. Because of the advent of portability, Credit Shelter Trusts are not as common as they once were. Before describing what a Credit Shelter Trust is, it is important to understand the current landscape of portability. Portability is the concept that a surviving spouse may elect to use the unused exclusion amount of the decedent spouse for the surviving spouse’s own estate. (26 USC 2010(4)). This portable amount is known as the deceased spousal unused exclusion amount (DSUE). Thus, if a decedent spouse dies with half of the exclusion amount unused (after accounting for exclusion used on the value of lifetime gift and the value of decedent’s estate), the surviving spouse can elect to port the remaining half to their estate on the decedent spouse’s Form 709. However, portability is a recent addition to the United States wealth transfer scheme. Before portability, when a spouse died with unused exclusion amount, that unused amount was lost upon the death of the spouse. The detriment here is obvious. To avoid the loss of the DSUE amount, estate planners created Credit Shelter Trusts as a method to use a person’s entire exclusion amount before their death. The concept is fairly simple. At some point before the settlor’s death, the settlor will put a value up to their unused exclusion amount into Trust. Thus, the settlor will have used their entire exclusion amount and will not have wasted any upon their death.
- SLATs. A Spousal Lifetime Access Trust is similar to a Credit Shelter Trust. One spouse will transfer into Trust up to the unused exclusion amount and will name their spouse as beneficiary to the Trust. The theory goes that even though the settlor transferred a significant portion of their assets into Trust that they themselves can no longer access, they will ostensibly still have access to those assets via their spouse.
- GRAT/GRUTs. A Grantor Retained Annuity Trust is an irrevocable Trust where the Grantor transfers assets to the Trust and retains an income interest, to be paid at lease annually, for a fixed period of time. At the time the GRAT is funded, the Grantor is deemed to have made a gift of the actuarial values of the remainder. The Trust will name beneficiaries who take the remainder interest upon the expiration of the annuity period. Any appreciation in the assets over the applicable rate will transfer to the beneficiaries tax free. GRATs have become particularly popular in recent years because of the low interest rates which translates to a higher value of assets which will transfer tax free at the end of the annuity period. A Grantor Retained Unitrust (GRUT) is a very similar concept to a GRAT. Under GRUT, the Grantor receives a unitrust amount rather than an annuity. The unitrust amount is a percentage of the assets in the trust and is re-evaluated on an annual basis. Like a GRAT, the unitrust amount must be paid at least annually.
There are many other types of Trusts that are recognized in Florida. However, the above referenced as the most common. For help determining which Trust is right for you, please contact the Horton Law Group, P.A. to schedule a free 30-minute consultation. We will advise you of the benefits and risks of each type of Trust so we can select one that best suits your needs and the needs of your family.
Why Hire the Horton Law Group, P.A?
The principal partner at the Horton Law Group, P.A., Attorney Sommer C. Horton, has been drafting quality estate plans for 20 years. She is also an experienced and aggressive estate litigator. She is highly regarded for her creativeness, strategic judgment and her uncanny ability to deliver persuasive legal arguments in the courtroom. She has a tremendous skill for being an aggressive advocate for her clients, while being one who understands and appreciates how trying litigation can be, thus, she is extremely sensitive to her clients’ needs.
Ms. Horton is passionate about the law and believes in seeking justice for her clients in an ethical and economic manner. Ms. Horton fights for each and every one of her clients – every step of the way. Ms. Horton will spend time with you to make sure you understand the law, understand your rights and she will draft your estate plans for you so that you and your family are protected. In addition, she can assist you with your business planning, estate planning and asset protection needs too.
The Horton Law Group, P.A. is a boutique civil litigation law firm that only takes on a limited number of cases so that personal attention can be given to every client. Make the right call – schedule a free 30-minute consultation with Ms. Horton. You can make an appointment by calling 561-299-0018 or emailing [email protected].
