How to Fund a Revocable Living Trust in Florida

Key Takeaways on How to Fund a Revocable Living Trust

• Having a revocable living trust in Florida is key to a comprehensive estate plan, but without “funding” the trust it is not effective for its main purposes.
• A Florida revocable living trust assists with probate avoidance, ensuring privacy and allowing seamless management of assets.
• “Funding” may include transferring assets, such as real estate, into the revocable living trust, retitling bank accounts or changing designated beneficiaries on life insurance policies etc.
• Funding a revocable living trust does not provide asset-protection from creditors.

An Introduction to Funding a Revocable Living Trust

We’ve heard it time and time again: a revocable living trust is one of the most powerful estate planning tools in Florida. But there’s one small catch! A revocable living trust alone does not provide the intended protection unless it’s “funded”.

In fact, trusts that are not properly funded do not necessarily avoid probate or ensure privacy, which are the main purposes of creating a revocable living trust in the first place.

For this reason, we often explain to our clients that creation of their trust-based estate plans has two phases: first, the strategizing and creation of the trust document and secondly, the funding of the trust.

This following article provides a guide as to the importance of funding a revocable living trust and how to do so successfully.

What is a Revocable Living Trust in Florida

In Florida, a revocable living trust (or, simply, living trust as it is sometimes called) is a document created by a person (known as the settlor) to hold their assets during their lifetime while appointing and allowing a successor trustee to manage assets in the event the settlor dies or becomes incapacitated.

One of the main benefits of such a document is that it avoids the need for probate administration.

What does “funding” a Revocable Living Trust mean in Florida?

Funding refers to transferring ownership of assets to the name of the trust.

When this is done, the trust, rather than the individual, becomes the legal owner of the particular asset.

Why does properly funding a Revocable Living Trust matter in Florida?

When a trust is not properly funded, the assets outside of the trust will likely have to be administered through the Florida probate court, thereby defeating the purpose of the trust itself.

The advantages of properly funding a revocable living trust in Florida are

1. Probate avoidance: Probate administration can be a time-consuming and expensive process. In most cases, revocable living trusts are created specifically to avoid this process as well as ensuring privacy and seamless asset management. Assets that are safely titled in the name of a revocable living trust will be managed and distributed according to the trust terms without the need for probate court.
2. Privacy: When a last will and testament is administered through the probate court system, it becomes publicized. Conversely, the terms of a revocable living trust are generally not publicized, leaving both beneficiaries and assets private.
3. Reduction in unintended consequences: Assets that are not titled in the name of the revocable living trustand have to go through the probate process may result in unintended beneficiaries receiving the assets due to the application of Florida statutes rather than the terms of the trust.
4. Simplification of asset management and Maintenance of control: Having all assets under the name of the trust will streamline management of all the assets within the estate by allowing a successor trustee to step in seamlessly as needed.

How to fund a Revocable Living Trust in Florida?

The following is a practical process to funding a revocable living trust in Florida:

Step 1 – Strategize and Create a Revocable Living Trust

Prior to considering funding a trust, one must first strategize with their legal advisor to create a revocable living trust document that properly reflects their intentions and protects their interest. This process involves properly identifying the trust, naming successor trustees to serve after you, and identifying the beneficiaries and their respective inheritances. For a more robust overview of revocable living trusts in Florida, explore our prior article on “Considerations when creating a Revocable Living Trust in Florida”.

Step 2 – Itemize your Assets

It is important to have a clear understanding of all the assets that may need to be titled in the name of the revocable living trust. Such assets may include real estate property, financial accounts (checking, savings or investments), life insurance policies, retirement accounts, personal property/collectibles, and even business interests. Knowing the complete list of assets to transfer will help your process be must more seamless.

Step 3 –Determine which assets need to be formally transferred

While certain assets merely need to be named in the revocable living trust, others must be formally transferred into the trust. Personal property and collectibles may be specifically listed in the trust document or through the use of an assignment, but real estate, business interests and financial accounts must be formally transferred.Vehicles and boats, on the other hand, may be transferred in accordance with the procedures provided by the relevant agencies (i.e. Florida DMV etc).

• Address Real Estate assets

In Florida, a transfer deed, such as a quitclaim or warranty deed, transferring title of the property from the individual to the trustee of the trust is required. The transfer deed must then be recorded in the county in which the property is located. It is important to note that, in Florida, special steps must be taken to preserve the homestead tax exemption and creditor protections. (The Florida Bar)

• Retitle Financial accounts

This step is usually done by following the internal procedures required by the respective financial institutions.

• Business Ownership

Interest in business entities such as limited liability companies may be transferred by assignment or by retitling the ownership into the revocable living trust. It is important to ensure that any governing documents related to such business entity do not prohibit such a transfer.

• Designated Beneficiaries

There are some assets in which ownership cannot be retitled such as life insurance policies or retirement accounts. In such cases, such assets may flow to the revocable living trust by listing it as a primary or contingency beneficiary. This way, a settlor is assured that their asset will be transferred to the intended beneficiary after their death.

Step 4 – Secure Documentation of each Transfer

It is important to maintain all transfer documents, assignments and designated beneficiary changes in a safe and accessible place. Typically, these documents are kept together with the trust document itself making it easier to administer when the time comes.

Step 5 – Ongoing review and updating of Trust Funding

Just as the drafting of the revocable living trust itself is not a one-time event, neither is funding it. Yearly audits, as well as revisiting the document after major life events, are necessary. Similarly, ongoing review of assets funded to the trust is essential, particularly after events such as purchases or sales of real estate, business ownership changes etc.

How to Avoid Common Mistakes

When funding, it is important to consult with professional advisors such as estate planning attorneys, financial advisors, bankers etc. to ensure that assets are properly titled in the revocable living trust. Doing so will avoid some of the most common mistakes when funding and finalizing a revocable living trust such as:

• Failing to transfer all assets intended to be in the revocable living trust. This inevitably leads to the estate having to go through probate administration for the assets that were not transferred.
• Failing to update beneficiary designations on life insurance policies and retirement accounts. As beneficiary designations govern when administering an estate, it is imperative that they are properly named to avoid such assets being transferred to unintended beneficiaries.
• Failing to title newly acquired assets in the name of the trust. Forgetting to correctly title new assets leave them susceptible to probate administration.
• In Florida, improper transferring of homestead property may lead to unintended consequences that affect tax exemptions or creditor protections.
• Believing that funding a revocable living trust also provides creditor protection. In Florida, revocable living trusts are created to ensure probate avoidance not creditor protection.

What are the Next Steps?

For Florida families, real estate investors or small business owners who have already created a revocable living trust, or who may be looking into creating on, they must look at the process in two phases: first, strategizing and creating the trust with their legal professional and, second, organizing the “funding” of the trust by including their financial professionals in the process when necessary.

Frequently Asked Questions

Conclusions on How to Fund a Revocable Living Trust

At ASR Law Firm, we regularly assist clients with reviewing their list of assets and determining which need to be retitled, drafting necessary deeds or assignments, as well as providing ongoing support related to funding revocable living trusts in Florida.

Contact us to learn more about how we may assist with the funding process and other estate planning needs.