Setting up a trust in the State of Florida requires a number of steps that are best taken in partnership with an estate planning attorney with experience setting up trusts in Florida. Trusts are legal entities that allow for grantors property to be distributed by trustees to beneficiaries, usually after the grantor’s death or incapacitation. There are several different types of trusts and many individual reasons to set up a trust, but first, it is important to understand the four key components of a trust: the grantor, the property, the beneficiaries and the trustee.
“Trusts must be meticulously managed and administered to prevent losses due to taxes as well as to ensure that beneficiaries receive assets and income as intended.“
The Four Components of a Trust
The Grantor is the official creator of the trust. Usually, it is a person or entity that creates the trust in order to distribute assets to certain people or organizations in a specific way.
The property consists of the assets in a trust. These are the financial instruments, cash value and real property that are to be distributed from the trust to specified recipients.
These are the recipients of the assets in a trust.
Is a designated person or entity responsible for administering the trust and carrying out the written requests of the grantor. The trustee of a trust is often the grantor when she is alive. However, the grantor should appoint a successor trustee to administer the trust should she die or otherwise become incapacitated.
Types of Trusts
Revocable trusts. One major advantage of a revocable living trust is that the parameters of who receives what property or assets can be changed. As mentioned earlier, that means that a grantor can alter or even void the trust whenever and however they want. The grantor can remain as the trustee and so have the ability to make any and all decisions as she sees fit. If the grantor decides to no longer want to give assets to a specific beneficiary, she can remove that beneficiary. Another important characteristic of revocable trusts comes with taxes. The assets in a revocable trust remain the grantor’s and thus the grantor will pay taxes in the same way she would if the assets were not in the trust. That includes any income taxes, inheritance taxes or estate taxes. In fact, a revocable trust will even have the same Social Security number as the grantor. The effect is that any income from assets in the trust would be considered the grantor’s own income. Upon the death of a grantor-trustee, a revocable trust becomes an irrevocable trust.
Irrevocable trusts. With an irrevocable living trust, the grantor cannot modify or terminate the trust without approval from the beneficiaries and the trustee legally named in the trust. So if a grantor wants to remove a beneficiary from an irrevocable trust, that beneficiary needs to agree and sign off. The reason for this inflexibility is that as soon as the grantor signs the documents for an irrevocable living trust, he removes all ownership rights to the assets. Therefore, in irrevocable trusts, the assets are no longer grantors. They belong to the trust and all taxes apply to the trust itself (the trust has its own tax ID number unlike in the case of a revocable trust)
Living trusts are trusts set up to become effective during the lifetime of the grantor. Testamentary trusts are set up to go into effect as part of the estate – or in other words after the death – of a grantor. Education Trusts specify that the disbursements of the trust must be used to cover academic expenses. Spendthrift trusts also limit how beneficiaries can use their funds as well as how they’re distributed. Special-needs trust helps allocate an inheritance or income to people with disabilities. Charity trusts help grantors bequeath gifts to non-profit organizations.
The type of trust created depends on the circumstances of the grantor, the beneficiaries and the usage intended. How a trust is structured depends on the state in which it is registered and the type of trust it is. Because of the nuances of individual cases, it is highly recommended that grantors retain an experienced estate planning attorney in the state that the trust is registered.
The Importance of Counsel in Estate Planning
Setting up and maintaining a trust can be very complex and include important reporting and other regulatory requirements with which the grantor must remain compliant. Trusts must be meticulously managed and administered to prevent losses due to taxes as well as to ensure that beneficiaries receive assets and income as intended.
Before setting up a trust, it is highly recommended that you seek the advice of an estate planning attorney with experience setting up trusts in your state of residence. An experienced estate planning attorney can record what assets you’ll place in the trust fund, how the assets will be managed and distributed, and who the beneficiaries and trustees will be. Also consider how long the trust will last and under what conditions it will terminate.
South Florida Law, PLLC is a law firm with estate planning professionals licensed to practice law in the State of Florida. Are you a Florida resident considering setting up a trust? If so, contact South Florida Law today using our contact form or by phone (954) 900-8885.