Copyright © 2019, The Law Office of Alain Roman, PLLC
In this article I will go over the Florida revocable living trust and all the important aspects that you need to know.
The term revocable living trust and living trust are one and the same. The terms are used interchangeably, but when I refer to a revocable trust or a living trust, I am referring to the revocable living trust.
A Florida revocable living trust is a legal fiction. While you are alive, you and the living trust are one and the same.
For the assets titled under your living trust, you will file your income taxes on your same tax return as you would do with any other asset that is giving you income.
The effect of putting an asset into the living trust is that it changes the title to the asset for legal purposes. Instead of the asset being in your individual name, now it will be under the name of your living trust.
For example, if your asset is titled under John Doe, after you transfer the asset to your revocable living trust, it will be titled as John Doe, as Trustee of the John Doe Revocable Living Trust dated _______ [execution date].
A Florida revocable living trust must have a trustee at all times. The trustee is the person in charge of administering the trust. During your lifetime, you will usually be your own trustee unless you designate someone else. Upon your incapacity or death, then you must designate a successor trustee to administer the trust on your behalf.
The trustee in Florida has a fiduciary duty to you. To administer the trust according to the provisions of the trust and to follow your intent and your wishes as much as reasonably possible. If the trustee fails to abide by these requirements, he may be liable to you or the beneficiaries for breaching his or her fiduciary duties.
There are 5 main purposes of a Florida revocable living trust: 1) avoid probate court; 2) avoid guardianship court; 3) give you control after death; 4) avoid guardianship court for minor children 5) asset protection for your beneficiaries; and 6) protection for individuals with special needs.
The first purpose of a Florida revocable living trust is to avoid probate court.
Assets that are titled individually under your name, which do not have a beneficiary designation or a survivor provision, pass through Florida probate court.
The key term is individually under your name. When the asset is transferred from your name individually, to the name of the living trust, for legal purposes the trust is a separate legal person.
This helps you avoid probate court because when you pass away, the asset will no longer be under name, but in the name of the revocable trust.
The second purpose of a Florida revocable living trust is to avoid Florida guardianship court.
If you become incapacitated to the point where you cannot longer make your own decisions or you need assistance for your daily needs, then a guardian may need to be appointed on your behalf.
There are two different type of guardians: 1) guardians of the person and 2) guardians of the property. The guardian of the person has the authority to make health care decisions on your behalf, while the guardian of the property has the authority to manage your finances.
The way a Florida revocable living trust helps you avoid guardianship is that if substantially all of your assets are titled under your Florida living trust, then no guardianship of the property will be needed because the “successor trustee” you designate in your revocable living trust will be in charge of administering the assets of the living trust according to the provisions in the trust.
The third purpose of a Florida revocable living trust is to give you control after death. Up until your death, you can make any changes to revocable living trust. However, upon your passing, the Florida revocable living trust becomes irrevocable and no other changes can be made unless with court approval.
The effect behind this is that upon your death, you can dictate how the assets will be distributed to your beneficiaries. You can select for your success trustee to immediately distribute your assets at death, after paying any creditors and expenses of your estate.
The other option is for your success trustee to make distributions periodically. We estate planning attorneys use this option a lot. We typically will recommend for the success trustee to make income distributions and authorize the successor trustee to make principal distributions for specified events like health, education, maintenance and support.
You can designate your trustee to hold the assets in trust until your children turn 35 for example, while periodically providing the income of the trust to your children, and giving the discretion to the trustee of making principal distributions at specified ages or at specified events in their lives.
In Florida, if a child receives more than $15,000 in an inheritance, a guardian of the property will need to be appointed even if the child’s biological parent is still alive. To learn more check out this page.
When you leave your children a major inheritance, the surviving parent or another individual will need to open up a guardianship in order to receive the inheritance.
The purpose of the guardianship is to appoint a guardian of the property for the child so that the guardian will administer the funds for the best interest of the child.
Up until the child turns 18 years old, the guardian will need to file annual accounting and request permission from the court for specified expenses of the inheritance funds. This can be a major hassle.
In addition to the accounting requirement, you will need to hire a guardianship attorney to help you with the process and also maintain that attorney throughout the guardianship process. In Florida all guardians must be represented by an attorney. Guardianship are usually expensive, usually ranging from $3,000 to $5,000.
Contrary to popular believe, the Florida revocable living trust does not provide any asset protection while you are alive. As mentioned earlier, you and the living trust are one and the same during your lifetime.
Upon your passing, the Florida revocable living trust becomes irrevocable and at that point, if properly drafted, asset protection provisions can be added to the living trust to protect your beneficiaries.
The living trust should be drafted in a way that gives the successor trust discretion to make distributions. If the trustee is required to make distributions then that living trust will have less protection.
The reason for this is that the creditor of your beneficiary cannot force the trustee to make distributions. The creditor can only attack the distribution once it is made to your beneficiaries.
Another provision that can be added is an “spendthrift provision.” The spendthrift provisions makes it so that your beneficiaries cannot assign their interest in the trust to anybody else, thus providing protection against creditors. Although the spendthrift provisions has some exceptions, it is still an useful tool to provide creditor protection to the beneficiary.
If you have a child with special needs or if you intent to provide with your inheritance for someone that is receiving Medicaid or governmental benefits, then you must set up a Florida revocable living trust with a special needs trust built into it.
If a child with special needs or a disabled person receiving governmental benefits like Medicaid receives an inheritance, then that inheritance will be counted against them for the purpose of qualifying for the governmental programs.
The purpose of the special needs trust is supplement the governmental benefits and not eliminating the need for it. A lot of the time, there is no inheritance that will be large enough to cover for the expenses of health care that the person will need.
Like I mentioned above, only assets that are titled under your own individual name, which do not have a beneficiary designation or a survivorship provision pass through Florida probate court.
If your main goal is to avoid probate court, so long as you have assets that will not pass through probate then you will not need a trust. However, if you have assets that will pass through probate, the a Florida revocable living trust will be a good idea.
When thinking of whether to create a Florida revocable living trust, we have to think about the purpose of creating a revocable living trust.
For example, a bank account which has a proper beneficiary designation will not pass through Florida probate. However, upon your death, the beneficiary will receive all the funds in that account. This might not be the best thing, specially if the beneficiary is a minor or someone that does not know how to manage their finances.
But most assets can be placed in the name of a Florida revocable living trust. The two assets that you must beware before you place them in a revocable trust are your Florida Homestead and Individual Retirement Accounts (“IRA’s).
Homestead has many restrictions, which I cover in this Article. But to give you a brief overview, if you transfer your Homestead to your revocable living trust and pass way prior to your child’s turning 18 years old, then that will be an invalid devise of the Homestead and it will pass according to the Florida Homestead Statute and not according to the provisions of your revocable living trust.
In addition, if you have a spouse, you need your consent of your spouse before transferring the Homestead into your trust, and she will also need to sign a spousal waiver.
Usually, is best to leave your Homestead as it is unless you have not married and have no minor children. There are other options that can also be looked into like a “Lady Bird Deed.”
IRA’s usually are also left untouched. They are a creature of federal law and in order to be placed into a trust strict requirements must be followed. IRA’s are outside of the scope of this article, but I will prepare another article telling you more about this topic. Make sure to subscribe to my Newsletter to find out more.
The Florida revocable living trust requirements is governed by Section 736.0402 of the Florida Trust Code. In order to create a valid revocable trust in Florida, the following elements have to be present:
The element that most estate planning attorneys concentrate on is the first element, the capacity to create the trust. The capacity to create a revocable trust is the same capacity required to create a last will and testament in Florida.
In Florida, any person 18 years or older with a sound mind may create a last will and testament. The capacity to create a last will and testament or a revocable living trust must be there at the time that the document is executed.
A person is of sound mind if the person generally understands the nature and extent of the property to be disposed of, the relation between the person and those who would naturally claim a benefit from the last will and testament, and the nature and effect of the testamentary act. In re Wilmott’s Estate, 66 So. 2d 465, 467 (Fla. 1953).
To put it in simpler terms, you must have general knowledge of the assets you own and their values, you must understand who stands to inherit under your last will and testament, and understand the purpose of the testamentary act.
The key element is a general understanding. You do not have to know each person that is entitled to inherit or the values and list all of your specific assets, but you do not need to have a general knowledge of what you have and who is going to. Obviously, the better your understanding, the less likelihood it will be challenged later on in court.
If you are ready to set up your Florida revocable living trust or have any further questions or concerns contact my office at (305) 489-1415. You can also complete the contact form included in this page to reach me directly. Rest assured that your communication will be kept confidential.
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