The Revocable Trust in Florida

The revocable, or “living,” trust may be an appropriate document for your individual circumstances. In some instances, it is recommended in an effort avoid the necessity of probating a will and to save on certain taxes at the time of death.  The revocable trust has certain advantages over a traditional will, but there are many factors to consider before you decide if a revocable trust is in your best interest for your estate plan.

What is a revocable trust?

A revocable trust is a document (the “trust agreement”) created by you to manage your assets during your lifetime and distribute the remaining assets after your death.  The person who creates a trust is called the “grantor” or “settlor.”  The person responsible for the management of the trust assets is the “trustee.”  You can serve as trustee, or you may appoint another person, bank or trust company to serve as your trustee.  The trust is “revocable” since you may modify or terminate the trust during your lifetime, unless you are declared to be incapacitated.

During your lifetime the trustee invests and manages the trust property.  Most trust agreements allow the grantor to withdraw money or assets from the trust at any time, and in any amount.  If you become incapacitated, the trustee is authorized to continue to manage your trust assets, pay your bills, and make investment decisions.  This may avoid the need for a court-appointed guardian of your property.  This can be one of the financial benefits of implementing a revocable trust.

Upon your death, the trustee (or your successor if you were the initial trustee) is responsible for paying all claims and taxes, and then distributing the assets to your beneficiaries as described in the trust agreement.  The trustee’s responsibilities at your death will be discussed in greater length herein.

Your assets, such as bank accounts, real estate and investments, must be formally transferred to the trust before your death to get the maximum benefit from the trust.  This process is called “funding” the trust and requires changing the ownership of the assets to the trust.  Assets that are not properly transferred to the trust may be subject to probate.

What is probate?

Probate is when the court must intervene and supervise the administration of a decedent’s estate.  It is a process created by state law to transfer assets from the decedent’s name to his or her beneficiaries.  A personal representative is appointed to handle the estate administration.  The probate process ensures that creditor’s, taxes and expenses are paid before distribution of the estate to the beneficiaries.  The personal representative has an obligation to report to and provide necessary accounting to the court, as well as to the estate beneficiaries for his or her actions during the administration.  For probate estates having less than $75,000 of non-exempt assets, Florida law provides a simplified probate procedure, known as summary administration.

Are all my assets subject to probate upon my death?

No, only assets owned by a decedent in his or her individual name require probate.  Assets owned jointly as “tenants by entirety” with a spouse, or “with rights of survivorship” with a spouse or any other person will pass to the surviving owner without the necessity of a probate proceeding.  This is also the case for assets with designated beneficiaries, such as life insurance, retirement accounts, annuities, and bank accounts and investments designated as “pay on death” or “in trust for” a named beneficiary.  Assets held in trust will also avoid probate.

How does a revocable trust avoid probate?

A revocable trust avoids probate by effecting the transfer of assets during your lifetime to the trustee.  This avoids the need to use the probate process to make the transfer after your death.  The trustee has immediate authority to manage the trust assets at your death and therefore, appointment by the court is not necessary.

The “funding” of a revocable trust is critical to avoid the need for probate.  When a trust is not fully funded, the testator’s estate may require both a probate administration for the non-trust assets and a trust administration to completely distribute the assets.  Because the revocable trust may not completely avoid probate, a “pour over” clause may facilitate the transfer any residual probate assets to the trust after death.

How do I know if my assets are properly titled to my revocable trust?

The account statement, stock certificate, title or deed will make some reference to the trust or to you as trustee.  You might also elect to fund your trust by naming the trust as a beneficiary of life insurance or other similar arrangements.  Your attorney and financial advisor can assist you with the transfer of assets to your trust.  If your trust will own real estate, then it is important to have the deed prepared by an attorney.  The attorney will consider the impact of existing mortgages, title issues and homestead restrictions when the deed is prepared.

Is there a benefit by avoiding probate?

Avoiding probate may lower the cost of administering your estate and time delays associated with the probate process.  However, many of the costs and time delays associated with probate, such as filing a federal estate tax return, will also be necessary with a revocable trust.  The administration of a revocable trust after death is comparable to probating a will, considering the trustee must collect and value the trust assets, determine creditors and beneficiaries, pay taxes and expenses, and ultimately distribute the trust estate.

How are creditors satisfied?

Florida’s trust law does not have a specific procedure for identifying and paying creditors at death.  The creditors have up to 2 years from the decedent’s death to file claims against the estate.  The trustee may be reluctant to distribute the trust assets to the beneficiaries until he or she is satisfied that all claims have been paid, and 2 years is a long time to wait.  For this reason, some clients choose to open a probate estate in addition to the trust administration to take advantage of the probate claim process.  The probate law limits the time for creditors to file claims against the estate (generally 3 months from the date of notice), and also provides a process for objecting to claims.

What are the trustee’s responsibilities?

Serving as trustee is no simple task and should not be taken lightly.  It is important to consider what your intentions are and have a professional draft your will and/or trust so that you can be sure your wishes are followed and there are no misunderstandings or contestable issues that can financially drain your estate and require excessive probate proceedings.

When you are considering who to appoint as the Trustee of your estate, you should consider the following:

The trustee’s specific responsibilities and duties will depend on the instructions in your trust agreement.  However, in general, your trustee will:

  • Hold trust property
  • Invest the trust assets
  • Distribute trust income and/or principal to the beneficiaries, as directed in the trust agreement
  • Make tax decisions concerning the trust
  • Keep accountings and records of all trust transactions
  • Issue statements of account and tax reports to the trust beneficiaries
  • Answer any questions you and the beneficiaries may have concerning the trust

Your trustee may have broad powers or very limited powers depending on what you decide.  In either case, your trustee is acting as your fiduciary and must follow a strict standard of care when performing trust functions.

Who may act as trustee or successor trustee?

The choice of a trustee is extremely important and may have tax consequences.  You can name almost anyone as your trustee.  You can name yourself or any other individual (subject to tax considerations), or a corporate trustee, such as a bank or trust company.  The individual trustee can be a family member, friend or professional advisor.  Many individuals appoint family members or friends as successor trustee, to assume responsibility for the trust management and distribution after their death.  When a family member or friend is chosen, consideration must be given to the person’s qualifications, the potential for friction with other beneficiaries, and the potential burden you are placing on that individual.  The trust agreement should allow these individuals to hire qualified professionals to assist them in their duties, such as attorneys, accountants and financial advisors.