Trusts-For those that Seek Privacy and Probate Avoidance

Revocable Trusts (Living Trusts)

You have likely heard a lot about Revocable Trusts.  Often, our clients come in and tell us their neighbors told them to get a Revocable Trust.  Their next question is, what is it?  This illustrates that although the term “trust” is used quite frequently, many still do not understand how and why they are used.  

Trusts have become very popular through the years.  They are not the solution for everyone, however, despite what your neighbor may say!  Many factors should be considered as we “plan” what to do with your “estate” (now do you understand the term “estate planning?”).

Many people choose trusts to keep their families out of Court and out of conflict, in the event of your death or incapacity.  A Trust is usually the best way to ensure assets will be transferred to your heirs with the most ease and convenience possible with no court involvement.  

First, let’s go over some trust basics so that you may understand the parties involved in a typical trust.  Next we will go over some benefits and distinguish between different types.  Contact us for your free telephone consultation to discuss if a trust may be right for you.  

Trust Basics

A trust is a written document whereby the Grantor (owner of the property) transfers legal title to the Trustee (usually the owner himself, or another person).  The Trust is held for the benefit of, at first the Grantor, and then the beneficiaries.  We add a Trust Protector that can make changes to the Trust if necessary. 

When you think of a trust think of the words “seamless transition.”  This means that because the Trustee is the legal owner of the Trust, if the Grantor (original owner of property) becomes incapacitated or dies, the Trust will still manage the property and either hold it in Trust for the benefit of the Grantor or distribute to the beneficiaries according to the Trust provisions.

Mechanics of a Trust

Trust Mechanics-The Why

A person making a revocable trust decides how their assets will be used when they are living and also how they will be distributed when they are deceased. When you fund the trust, you transfer title of your assets into the name of the trust. Real estate is deeded into the name of the trust. Personal property that does not have a title is transferred into the name of the trust by assignment or a bill of sale.

A trust goes into effect as soon as you create it. It can be used to begin distributing property before your death, at your death, or afterwards. A trust usually has two types of beneficiaries; one that receives income from the trust during their lives and another that receives whatever is left over after the first set of beneficiaries dies.  A trust can be used to plan for disability or to provide saving on taxes. It can also be used to provide assets to a disabled heir or an heir with liens placed against them (the trustee could pay for the benefit of that heir instead of just distributing money). 

A trust is not only a tool for the wealthy. They are also helpful in subsequent marriages when there are also children from the first marriage. They can effectively distribute an inheritance to a minor, or even a young adult.

Benefits of a Trust During Your Life

  1. Continuity of management throughout life. Trusts can last a really long time with freedom to amend the trust.  This is a major benefit.
  2. Self-protection. Trusts help your loved ones take control to protect you as the funds are already in the trust.  Thus, you can better avoid exploitation.
  3. Avoid guardianship (The guardianship process is very messy and presents a huge headache!). It involves court check-ins but, most importantly, it removes the rights of the individual. That is a scary situation. 

Benefits of a Trust After Your Death

  1. Avoid probate. Keep in mind that probate is the court’s way of making sure someone’s wishes are honored and debts paid.  Probate is more expensive than trust administration. 
  2. Avoid ancillary probates if have real property in other states. Otherwise, you are duplicating the time and expense of probate, in every state where you have property!
  3. Convenience and assurance of gifting according to your plan.
  4. Privacy and control (unless being litigated). With probate, interested persons have broad rights to step into that action.  With trusts, if someone is unhappy, they have to initiate a civil suit and prove they have a right to step in.  There is no longer that open door.  This can be a very strong deterrent for a somewhat difficult beneficiary. 
  5. Reduce or avoid taxes.
  6. Provide for special or supplemental needs. There may also be special/supplemental needs concerns.  Unfortunately, siblings may not take care of your kids the way the parents would.  It is important to set things up properly for your special needs child.  
  7. Reduce probability of litigation.

Controlled Gifting

One major benefit of a Trust is that you will have “controlled gifting” to certain beneficiaries.  For example, when it comes to minors, most of us can agree that no minor should get cash in hand the day they turn 18. If children are named as beneficiaries on a life insurance policy, for example, then it is for the court to address.

Children cannot inherit over $15k without appointment of a guardian (if there is no revocable or testamentary trust in place). Even if a guardian is appointed, at 18 the kids will demand the money. 

Multiple distributions, as provided in trusts, are also a great idea.  Often times, receiving a distribution is like winning the lottery!  With multiple distributions, even if the kids blow through the first distribution, there is still money in the trust to wake up and get smart for future distributions.  You definitely want to control the funds because you want the money to your kids to be a blessing, and not a curse.  There may also be drug and alcohol issues someday where there is a need for testing or that the child comply with certain restrictions to provide they can responsibly handle the money.  

Types of Trusts

Thousands of options exist when you draft Trusts.  The uses are nearly unlimited. There are four major types that people discuss, but some are really the same.  Please note: A married couple need only have one trust that they use together, but depending on property ownership, you may want to each form a trust. 

Revocable

This is the most common type of trust. Imagine that a revocable trust is a treasure chest where you put your valued possessions. You can open the treasure chest and take out the items whenever you want. No one can see into this chest but your family. But if something ever happens to you, you have the ability to say when your family will get items out of the chest. It is your way of always caring for your spouse and children. Unlike a Will, a trust grows with you. As your assets raise, the trust will grow to accommodate them. 

Irrevocable

If you can put items in the treasure chest but never take them out, and they will eventually go to another person, that is called an irrevocable trust. These trusts cannot be changed after they are made. They are used for removing assets from your estate. In doing so you can fund legacies for children or grandchildren, or make gifts of property or life insurance.

Testamentary

This trust is typically included in a person’s Will. It goes into effect only after its maker has deceased. After the testamentary trust is funded by probating the deceased person’s assets into it, it acts as a revocable trust would act after the maker is deceased. Before death, it also acts like a revocable trust as the Will can be changed at any time during your lifetime. The assets must be probated into the Trust.

Living Trust

This is any trust that takes effect during the maker’s lifetime. The revocable trust is typically a living trust, but an irrevocable trust can be a living trust as well. 



Disclaimer:  The Law Office of Lori Vella’s website contains general information directed to Florida residents.  This firm does not intend to give legal advice through its pages and/or blog.  If you need legal advice, we encourage you to find an attorney licensed in your state.  This language on this website website does not create an attorney-client relationship between you and this firm. Review our legal disclaimer page.