Pros and Cons of Living Trusts

What Is a Living Trust?

A living trust in Florida is a legal tool that allows you to manage your assets during your lifetime and transfer them to your beneficiaries upon your death, bypassing probate. You retain full control and use of the assets while you are alive.

In Florida, a living trust is the most customizable way to provide for beneficiaries. Living trusts are used to (1) avoid probate, (2) provide for children in a controlled manner, (3) reduce estate taxes, and (4) protect an inheritance from claims against the beneficiaries.

How Living Trusts Work

A Florida living trust is a legal tool that manages your assets during your lifetime, ensures they are distributed to your beneficiaries after death, and avoids probate for trust assets. A living trust in Florida is typically revocable, which means you can modify or terminate it at any time.

A living trust involves three key roles:

• Grantor – The person who creates the trust.
• Trustee – The person who manages the trust assets.
• Beneficiaries – The individuals who receive the assets.

Why Use a Living Trust?

The primary reason to set up a living trust is to avoid probate. Probate is the legal process of validating a will, paying debts, and distributing assets to heirs. However, probate can be:

• Time-Consuming – It can take months or even years to finalize.
• Costly – Court fees and attorney costs can significantly reduce the estate’s value.
• Public – Probate records are public, exposing details of the estate.

Assets held in a living trust bypass probate, allowing for quick and private distribution to beneficiaries.

Providing for Children with a Living Trust

A living trust is especially useful for parents of minor children or young adults. In your trust agreement, you can specify:

• The ages or milestones when your children will receive assets.
• Guidelines for managing assets to provide for their care, education, and well-being until they reach a suitable age.

This control ensures children are financially supported in their younger years and protects their inheritance from being mismanaged.

Limitations of a Living Trust

While a living trust avoids probate, it is not a one-size-fits-all solution. Consider the following limitations:

• No Tax Benefits – A revocable trust does not provide the estate tax advantages offered by irrevocable trusts.
• No Asset Protection – Assets in a revocable trust remain part of the grantor’s taxable estate and are vulnerable to creditors.

How to Create a Trust in Florida

Here are the steps to setting up a trust in Florida:

1. Decide on the Type of Trust. You can have an individual trust or, for married couples, a joint trust.
2. Choose a Trustee. Decide who will be the trustee—the person responsible for managing the trust assets. You can be your own trustee, or you can appoint someone else. Make sure to name a successor trustee who will take over if the initial trustee becomes unable or unwilling to serve.
3. Identify Beneficiaries. Decide who will receive the assets in the trust after your death. These can be people, organizations, or even pets.
4. Draft the Trust Agreement. This is the legal document that sets up the trust. You can draft this document using online templates or software or hire an attorney to help you. The trust document should include:
   • Name of the trust
   • Names of the trustee and successor trustees.
   • Detailed instructions on how the assets should be managed and distributed during your life and after your death.
   • You might also include provisions for specific beneficiaries, stipulations about how funds can be used (e.g., for education, healthcare), etc.
5. Sign the Trust Document. In Florida, the living trust document must be signed in the presence of two witnesses and a notary.
6. Fund the Trust. Transferring assets into the trust is crucial; otherwise, it will remain empty and ineffective. Each type of asset (real estate, bank accounts, etc.) has its own procedure for transfer. For example, real estate would involve deeding the property to the trust.

How to Fund a Living Trust

A living trust only works if you transfer your assets to the trust. The process of retitling your assets in the name of the trustee of your living trust is referred to as “funding the trust.” A living trust can be funded at various times, depending on your intentions and estate planning objectives. Here are the main ways:

1. At Creation: Sometimes, living trusts are funded completely upon their creation. By transferring assets into the trust soon after it’s established, you ensure that all your assets are managed according to the trust’s terms and are sure that probate will be avoided.
2. Over Time: Some people choose to fund their trust incrementally over time. This gradual funding approach can be influenced by various factors, including the grantor’s age, health, financial circumstances, or tax planning strategies.
3. Upon Incapacity: A living trust can be designed to remain unfunded or minimally funded until you become incapacitated. At that point, a previously designated person, operating under a durable power of attorney or another mechanism, transfers your assets into the trust. The successor trustee can then manage the assets for your benefit during incapacity. This approach keeps the assets outside the trust during your healthy years, potentially simplifying management, but still provides a mechanism for trusted management if incapacity occurs.
4. Upon Death (via a “pour-over” will): Some people use a pour-over Will to fund their living trust. The trust might be partially funded during your lifetime, and upon your death, the remaining assets titled in your name are “poured over” into the trust via the Will. The Will names the living trust as your heir. These assets will have to be probated, but once they pass through the probate, they’d be distributed according to the terms of the trust.

Regardless of when a living trust is funded, assets intended for the trust must be correctly titled in the name of the trustee. This might involve changing deeds, account titles, or beneficiary designations. An improperly funded trust can fail to achieve its intended benefits.

Requirements for Living Trusts in Florida

Here are the primary requirements for a Florida living trust to be valid:

1. It must be in writing. Florida does not recognize oral trusts for assets meant to be transferred after the grantor’s death.
2. You must have legal capacity. The person creating the trust (often called the “settlor” or “grantor”) must be of sound mind.
3. It must have a beneficiary. There must be a definite beneficiary or beneficiaries unless the trust is a charitable trust, a trust for the care of an animal, or another non-charitable trust with a specific purpose.
4. It must have a proper purpose. The trust must have a lawful purpose. A trust won’t be valid if its purpose is illegal or against public policy.
5. It must appoint a trustee. The trust must have a named trustee. This can be the person creating the trust (for a living trust) or another individual or entity. The trustee must accept the responsibility, and there must be some duties for the trustee to perform (no “honorary” trusts). If a trustee is not named or the named trustee declines to serve, a court may appoint one.
6. It must be funded. While not a requirement for the trust’s creation, for the trust to be effective, it needs to be “funded.” This means that assets (like real estate, bank accounts, or other property) must be legally transferred into the trust. If assets are not transferred to the trust, they will not be governed by its provisions.
7. It must be properly executed. For a revocable living trust to be valid in Florida, it generally needs to be executed with the same formalities as a will in Florida. This means the settlor must sign the trust document, and the signing must be witnessed by two witnesses, all being in the presence of each other. The execution must also be notarized.
8. You do not need court approval: Unlike some legal documents, a living trust doesn’t need court approval to be valid. However, after the settlor’s death, certain notifications may need to be provided, and if there are disputes, the court might be involved.

Pros and Cons of Establishing a Living Trust

Advantages

Here are the key benefits of establishing a living trust in Florida:

1. Avoids Probate: One of the primary benefits of a living trust in Florida is avoiding probate. Probate can be time-consuming, expensive, and public. By transferring assets into a living trust, they can be distributed to beneficiaries upon the grantor’s death without going through probate.
2. Adds Privacy: Since probate is a public process, all documents, including the will and the list of assets, become part of the public record. On the other hand, a living trust remains private, ensuring that details about the grantor’s assets and to whom they’re distributed remain confidential.
3. Allows Asset Management During Incapacity: If the grantor becomes mentally incapacitated due to illness, injury, or other reasons, the named successor trustee can manage the assets in the trust without needing a court-appointed guardian or conservator.
4. Provides Flexibility: A living trust can be modified during the grantor’s lifetime. This flexibility allows the grantor to make changes in response to life events such as marriage, divorce, births, deaths, or other changes in personal or financial circumstances.
5. Avoids Ancillary Probate: For Florida residents who own real estate or tangible assets in another state, transferring those assets to a living trust can avoid ancillary probate (probate in another state). This can save time and money after the grantor’s death.
6. Allows Continuous Management: Upon the grantor’s death or incapacitation, the successor trustee can immediately take over the trust’s management without court intervention, ensuring continuity and avoiding potential disruptions.
7. Can Provide Tax Benefits: Revocable living trusts don’t offer direct tax advantages, but they can be structured to maximize estate tax exemptions, especially for married couples. Additionally, they can be paired with other estate planning tools that offer tax benefits.
8. Can Protect Beneficiaries: Living trusts can be structured to include provisions for beneficiaries who might not be ready or able to manage their inheritances directly, such as minors, individuals with special needs, or those who might be financially irresponsible.
9. Avoids Challenges: While wills can be challenged in probate court, contesting a living trust is more difficult. Establishing a living trust can reduce the likelihood of successful legal challenges and disputes among heirs.
10. Streamlines Process: With a living trust, the administrative process after the grantor’s death can be simpler and more streamlined than a will, leading to faster distributions to beneficiaries.

Disadvantages

A living trust in Florida can have certain drawbacks. The main ones are:

1. Higher initial setup and maintenance costs compared to a will.
2. Requires ongoing management and funding of the trust.
3. Offers no specific tax benefits or asset protection during the grantor’s lifetime.

Updating Your Living Trust

If you change your mind, you can amend any part of your trust while you are alive and mentally competent. You can change or add successor trustees. You can add or delete beneficiaries. You may withdraw property from the trust. You have complete lifetime control over your living trust and trust assets.

However, when you become incapacitated or deceased, your living trust becomes irrevocable in whole or in part, and the trust beneficiaries and successor trustees may not alter any of the trust provisions.

Frequently Asked Questions

How does a living trust work in Florida?

A Florida living trust allows you to transfer your assets to other people upon your death without probate. The trust must be signed by two witnesses and a notary. Living trusts are private documents and are not filed or recorded.

Is a living will the same as a living trust?

A living will is not the same thing as a living trust. A living will gives medical instructions for life-sustaining treatment and machinery in Florida. A living trust is a way to distribute assets to beneficiaries without probate.

How much does a living trust cost?

A typical cost for an attorney to prepare a living trust in Florida is between $2,500 and $4,500, depending on the attorney’s experience. The cost should include preparing a living trust, pour-over will, health care directive, declaration of preneed guardianship, living will, and designation of health care surrogate.

Does a living trust protect your assets?

No. A living trust is considered a self-settled trust and provides no asset protection of assets owned by the trust. Only certain irrevocable trusts provide asset protection for the trust beneficiaries.

What is the purpose of a living trust?

The purpose of a living trust is to control assets while you are alive and distribute the assets to beneficiaries upon your death without probate.

Do You Need a Tax ID Number for Your Living Trust?

A living trust in Florida does not need a tax identification number as long as you are alive and you or your spouse serves as the trustee. All taxable income or tax losses generated by living trust assets flow through to you.

Do You Need To Rewrite Your Living Trust When You Move to Florida?

People moving to Florida do not necessarily have to rewrite their living trust for its testamentary provisions to be enforceable under Florida law. Florida recognizes the validity of a living trust created in another state so long as the trust has been properly executed under the laws of the state of formation.

Is a living trust public?

A Florida living trust agreement is not recorded in the public records or filed with any government agency. Instead, a living trust is a private document among the parties.