What is a Revocable Living Trust?
A revocable living trust (also known as an “inter vivos” trust) is a special type of estate planning tool in which the person creating the trust (settlor or grantor) has the authority to alter the terms, change the beneficiaries, or revoke the trust at any given time during his or her life.
While all trusts are legally binding documents that allow a trustee to hold the property and assets of one or more beneficiaries until certain conditions are met (conditions specified in the trust), a revocable living trust is unique in the sense that it can be changed by the grantor, assuming he or she is still alive.
A living trust is a legal document in which your assets are placed during your lifetime for your benefit and upon your death, these same assets are then transferred by your chosen representative, called a “trustee,” to the designated beneficiaries stated in your living trust.
Trusts allow individuals to name a person who will control their assets in the trust. The individuals or beneficiaries who inherit certain assets, will be named in the trust itself. It also states how the beneficiaries will receive inheritances upon certain circumstances happening or upon demise.
In order to have your assets placed into this trust, the trust should state which assets are included in the trust, but more importantly, to fund the trust, any assets that you wish to place into the trust must be titled in the name of the trust. A trust is not considered valid if it has zero assets.
Assets that you wish to distribute upon your death must be specifically stated in the trust, how you want them distributed. You may wish to distribute an item half to one person and half to another. This is possible, but it must be stated in the trust.
Creating a Trust
F.S. §736.0401 states that a trust maybe created by:
1) Transfer of property to another person as trustee during the settlor’s lifetime or by will or other disposition taking effect on the settlor’s death;
(2) Declaration by the owner of property that the owner holds identifiable property as trustee; or
(3) Exercise of a power of appointment in favor of a trustee.
F.S §736.0402 provides the requirements for creating a trust:
The requirements for creating a proper trust are that, the settler has to have the capacity to create the trust and he should have an intent to create a trust. Also, the trust needs to have a definite beneficiary and should mention the duties the trustee has to perform. It must also mention whether the same person is not the sole trustee and the sole beneficiary. However, If the trust is a charitable trust or a trust created for animals, as provided in F.S. §736.0408, then a definite beneficiary is not necessary.
F.S. §736.0601 states that capacity required of the grantor to make a trust or change is the same as that of a Last Will and Testament legal declaration.
Different Types of Trusts
#1) Revocable Trust
The most common type of trust, a revocable trust, lives up to its namesake in the sense that it can be revoked by its creator (known as a settlor or grantor) during his or her lifetime. Also referred to as a “living trust,” the grantor transfers part or all of their property to a trustee, whom then holds it for the trust’s beneficiaries. If the grantor wishes to revoke the trust, he or she may do so during their lifetime. Revocable trusts avoid probate courts, which is one of the reasons why so many people choose them for their estate planning needs.
#2) Irrevocable Trust
On the other side, is an irrevocable trust, which differs from its revocable trust counterpart by prohibiting the grantor from revoking it. After transferring property to an irrevocable trust, neither the grantor nor anyone else may alter, change, modify or revoke it. It becomes the property of the beneficiaries, as the grantor forfeits their ownership rights. Assets may not be moved out of the trust after created the assets belong to the beneficiaries according to the instructions in the trust and the grantor is no longer considered the owner of the assets inside the trust.
An irrevocable trust maybe used for asset protection purposes, the assets in the irrevocable trust are protected from creditors of the grantor because the grantor is no longer considered to be the owner of the assets. However, beware of fraudulent conveyance that is attempts to avoid debt and protect assets by transferring legal title to either real or personal property to a third party.
An irrevocable trust also can be used to decrease estate taxes for the same reason, assets placed into an irrevocable trust are no longer considered owned by the grantor.
#3) Special Needs Trust
This type of trust is designed specifically for persons who are disabled and who are receiving or may receive government benefits. A Special Needs Trust allows the beneficiary to use a trust-held property while still receiving government benefits. They are frequently used in cases involving inheritance and personal injury settlements. The disabled person may obtain these assets while still preserving his or her rights to government benefits
#4) Charitable Trust
A charitable trust is created for the purpose of transferring property to a charity organization. The grantor decides which charity he or she would like to give their property to, and the trustee makes sure the charity receives it. Charitable trusts have certain tax benefits that make them an attractive choice over other types of trusts. Keep in mind, however, that the use of charitable trusts are restricted to charity organizations and the public in general, meaning you cannot transfer property to a friend or relative via this trust.
#5) Totten Trust
A totten trust, this type of trust is created during the grantor’s lifetime. With a totten trust, the grantor generally makes small deposits into the bank as the trustee for another. Totten trusts are classified as revocable trusts, meaning the grantor may modify or revoke it at any time during their lifetime. Totten trusts are most commonly used with financial instruments and securities. To create a Totten Trust, the title on the account should include identifying language, such as “In Trust for”, “Payable on Death To”, “As Trustee For”, or the identifying initials for each like, “IFF”, “POD”, “ATF”.
Revocable Living Trust Pros
A living trust offers many of the same benefits as a traditional last will and testament, including peace of mind knowing that your assets and property will be distributed to the appropriate beneficiaries in the event of your passing or if you become severely ill or debilitated.
The grantor of a revocable living trust can change the trust’s terms at any given time during his or her life. If you want to add or remove a beneficiary, a revocable living trust can be amended.
With a revocable living trust, the beneficiaries of your estate are protected with a higher level of privacy. If you want to pass your belongings to family members or friends without public scrutiny, this may be the right solution for your needs.
Revocable living trusts bypass the probate court because trust assets are not considered part of the grantor’s probate estate.
The grantor of a Revocable Living Trust maintains control and can change the Trust’s terms at any given time during his or her life, if competent to do so. If you want to add or remove a beneficiary, a Revocable Living Trust can be amended or even revoked. You can act as Trustee of your own Trust, which most people choose to do, thereby allowing you to manage the Trust assets as you wish.
Revocable Living Trust Cons
The grantor of a revocable living trust is still required to pay estate taxes on the estate or property of the trust. Even if the estate or property has been transferred to a trust, the court places the tax burden on the grantor. Revocable living trusts do not save on federal or state estate death taxes.
Although useful to avoid probate, a revocable trust is not meant to be an asset protection technique as assets transferred to the trust during the grantor’s lifetime will remain available to the grantor’s creditors. Assets titled in a revocable living trust are not protected from the claims of creditors because the grantor is still considered to be the owner of the trust assets due to the revocable nature of the trust.
Bypassing the probate court may offer greater privacy to the beneficiaries of a revocable living trust, but it also means there is a lack of judicial oversight, which could result in fiduciary lapses. These types of issues are easily avoided, by hiring the right lawyer or legal team to handle your trust.
Creating a revocable living trust also requires a great deal of legal and administrative work. In the beginning, you will need to pay for the fees to create the living trust. This is a complicated document and time and care must be taken to include all assets you would like to distribute. Also, you must transfer your assets through separate paperwork to be in the name of your living trust. While prices of such services vary on a case-by-case basis, drafting a revocable living trust generally costs more than a traditional last will and testament.
If you are considering creating a living trust, contact the Judy-Ann Smith Law Firm, P.A.. Our team is well versed in trusts and can help you decide if this option is right for you. If so, we will work with you to develop a trust that meets all your needs. Call 904-562-1369 today.