Considerations when creating a Revocable Living Trust in Florida

An Introduction and Overview to the Revocable Living Trust in Florida

In Florida, a living revocable trust is a helpful tool used to effectively and efficiently transfer assets after death while allowing individuals, known as grantors, to control such assets throughout their lifetime.

Further, as an added benefit trusts generally avoid the arduous probate process.

However, creating a living trust involves strategic planning and thorough consideration to make sure that the grantor’s intentions are carried out correctly and effectively.

The following article provides a list of important considerations that should guide the drafting of any living trust in Florida.

The Basics of a Revocable Living Trust in Florida

While many are familiar with the general purpose of living trust in Florida, particularly as it pertains to probate avoidance, it is imperative that each grantor understands how their trust works and the effect of each provision.

A living trust is a legal contract in which an individual (the “grantor” or “settlor”) transfers ownership of their assets to the trust in which they are allowed to retain control during their lifetime as the trustee.

A living revocable trust may be modified or revoked at any time during the lifetime of the grantor. However, upon the death or the incapacity of the grantor, a named successor trustee steps into the role of the grantor trustee to carry out the terms of the trust.

At death, the trust becomes irrevocable and cannot be modified or changed.

Revocable versus Irrevocable Living Trust

Florida law offers various types of living trusts to accommodate different needs and purposes. The two most common types of living trusts are revocable living trusts and irrevocable living trusts.

While revocable living trusts appear to be more popular, it is imperative to know the difference between the two when customizing an estate plan and consider factors such as the grantor’s testamentary goals, asset protection objectives and tax planning needs.

A revocable living trust allows the grantor to control the trust assets and make changes to the trust document throughout their lifetime. The trust may also be revoked entirely. Revocable living trusts afford more flexibility for grantors.

Alternatively, an irrevocable trust cannot be modified or revoked by the grantor after it has been created. Benefits of the irrevocable trust include asset protection, reduction in estate taxes, as well as preserving government benefit eligibility. Despite these benefits, the biggest drawback to irrevocable trusts is that the grantor loses much control over the trust assets.

Identifying Assets and Beneficiaries of the Trust

When the type of trust has been decided, the next step would be to identify the desired beneficiaries who will receive the assets held in the trust.

In most cases, beneficiaries are typically family members or close friends. However, charitable organizations and pets are also often named as beneficiaries.

Furthermore, grantors should always consider naming contingent beneficiaries in the event the primary beneficiaries predecease them or are somehow unable to inherit the assets.

Since a trust is only useful if it holds assets, identifying such assets and ensuring that they are properly titled in the name of the trust is an important step in this process.

Any asset not named in the trust is susceptible to being administered through the probate process.

Assets such as personal property, real estate, bank accounts, financial investments, and even business interests are often placed in the name of living trusts to avoid the probate process.

Selecting a Trustee

In a revocable living trust, the trustee is typically the grantor during the grantor’s lifetime with a named successor trustee upon the death, disability, or inability to serve as trustee of the grantor. The trustee has an important role in managing the assets for the benefit of the beneficiaries and making sure that the terms of the trust document are carried out pursuant to the grantor’s wishes.

While most grantors select close family members or friends to serve as their trustees, it is imperative to consider the following factors when selecting this fiduciary:

• Capability and Capacity: needless to say, the trustee must be an adult who can legally carry out the terms of the trust. Further, this person should also be familiar with handling financial matters related to the trust assets or, at the very least, have the capacity to understand and learn the process needed to administer the trust.
• Trustworthiness: it is always advisable to select a person who is reliable, responsible and trustworthy.
• Avoid any conflicts of interest: the role of the trustee requires that the party act impartially and in the best interests of the beneficiaries. As such, it is important that the trustee does not have a conflict with what would be considered in the best interest of the beneficiaries.

Planning for Incapacity

While most view estate planning as planning for the distribution of assets upon the death of an individual, living trusts allow for the planning and management of assets in the even the grantor becomes incapacitated. This is often one of the more compelling reasons for establishing a comprehensive estate plan. 

The first step would be to select a successor trustee to step in and manage trust assets. This is one way in which a living trust may help avoid the need for court intervention pertaining to the guardianship of the grantor.

The living trust should also address how incapacity will be determined, as well as provisions that govern how the successor trustee or trustees may assume control of the trust assets.

Accounting for Minors and other Dependents

In Florida, it is common for grantors to provide for the care and support of minor children or other dependents (especially those with special needs) in their trusts.

This is done by naming specific guardians to care for minor children or establishing trusts to manage assets specifically for their benefit until such beneficiaries reach a certain age.

Factors to consider when drafting such provisions may be the age of the children or dependent, their medical needs, financial requirements, as well as any special circumstances that may require customized attention.

Specific Florida Trust Laws and Regulations to Consider

As with many other states, Florida has certain laws that should always be considered when creating a living trust. Some of the more common laws are:

– Considering the Florida Homestead Exemption: Florida is well known for its homestead exemption laws that protect a grantor’s primary residence from creditors.

This law includes prohibitions against certain types of transfers for grantors who may be married or have minor children. It is imperative that the terms of the trust do not violate these laws to avoid unintended consequences and the need for court intervention upon the passing of the grantor.  

– Trustee Qualifications and Trust Administration: Florida laws clearly delineate the duties and responsibilities of trustees, which include duties towards the beneficiaries, accounting requirements, as well as certain investment standards. These legal obligations should be familiar to all those who hold a fiduciary role such as being the trustee of a living trust.

Further, Florida requires specific procedures for administering trusts. These steps include certain requirements for notifying beneficiaries, filing tax returns and methods in which to distribute trust assets. The purpose of these guidelines is to avoid legal disputes and to ensure that a grantor’s intentions are being carried out properly.

While many smaller estates may be administered solely by the trustee, larger or more complicated estates oftentimes require the assistance and guidance of an estate planning attorney experienced with administering trusts. 

Regularly Updating Living Trust Documents

As life changes, living trusts must be updated to reflect those changes.

It is important to acknowledge that drafting a living trust, as with most other estate planning documents, is not a one-time event and it requires regular review.

Having an outdated trust may lead to unforeseen and unfortunate consequences for the grantor’s estate.

Conclusions about a Living Trust in Florida

Working with an experienced estate planning attorney who considers all factors to drafting documents on behalf of their clients is the first step towards ensuring your living trust best suits your needs and will achieve your intentions.

To learn more about how we may be of assistance with creating or revising your living trust, contact us here.