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Page 1: The Revocable Trust in Florida - Stokes McMillan Antú · PDF fileThe Revocable Trust in Florida ... on the instructions in your trust agreement. But, in general ... can be a family

The Revocable Trust in Florida

Page 2: The Revocable Trust in Florida - Stokes McMillan Antú · PDF fileThe Revocable Trust in Florida ... on the instructions in your trust agreement. But, in general ... can be a family

Page 3: The Revocable Trust in Florida - Stokes McMillan Antú · PDF fileThe Revocable Trust in Florida ... on the instructions in your trust agreement. But, in general ... can be a family

Therevocable,or“living,”trustisoftenpro-moted as a means of avoiding probate andsavingtaxesatdeath.Therevocabletrusthascertainadvantagesoveratraditionalwill,buttherearemanyfactorstoconsiderbeforeyoudecideifarevocabletrustisbestsuitedtoyouroverallestateplan.

What is a revocable trust? Arevocabletrust isadocument(the“trustagreement”)createdbyyou tomanageyourassetsduringyour lifetimeanddistribute theremainingassetsafteryourdeath.Thepersonwhocreatesa trust iscalled the “grantor”or“settlor.”Thepersonresponsiblefortheman-agement of the trust assets is the “trustee.”Youcanserveastrustee,oryoumayappointanotherperson,bankortrustcompanytoserveasyourtrustee.Thetrustis“revocable”sinceyoumaymodifyorterminatethetrustduringyourlifetime,aslongasyouarenotincapaci-tated. Duringyourlifetimethetrusteeinvestsandmanagesthetrustproperty.Mosttrustagree-ments allow the grantor to withdraw moneyor assets from the trust at any time, and inanyamount.Ifyoubecomeincapacitated,thetrustee is authorized to continue to manageyourtrustassets,payyourbills,andmakein-vestmentdecisions.Thismayavoidtheneedforacourt-appointedguardianofyourproperty.Thisisoneoftheadvantagesofarevocabletrust. Uponyourdeath,thetrustee(oryoursuc-cessorifyouweretheinitialtrustee)isrespon-sibleforpayingallclaimsandtaxes,andthendistributingtheassetstoyourbeneficiariesasdescribedinthetrustagreement.Thetrustee’sresponsibilities at your death are discussedbelow. Your assets, such as bank accounts, real

Page 4: The Revocable Trust in Florida - Stokes McMillan Antú · PDF fileThe Revocable Trust in Florida ... on the instructions in your trust agreement. But, in general ... can be a family

estateandinvestments,mustbeformallytrans-ferredtothetrustbeforeyourdeathtogetthemaximumbenefitfromthetrust.Thisprocessiscalled“funding”thetrustandrequireschangingtheownershipoftheassetstothetrust.Assetsthatarenotproperlytransferredtothetrustmaybesubjecttoprobate.However,certainassetsshouldnotbe transferred toa trustbecauseincometaxproblemsmayresult.Youshouldconsult with your attorney, tax advisor andinvestmentadvisortodetermineifyourassetsareappropriatefortrustownership.

What is probate? Probateisthecourt-supervisedadministra-tionofadecedent’sestate.Itisaprocesscre-atedbystate lawto transferassets fromthedecedent’snametohisorherbeneficiaries.Apersonalrepresentativeisappointedtohandletheestateadministration.Theprobateprocessensures that creditors, taxes and expensesarepaidbeforedistributionoftheestatetothebeneficiaries.Thepersonal representative isaccountabletothecourtaswellastheestatebeneficiariesforhisorheractionsduringtheadministration.Forprobateestateshavinglessthan$75,000ofnon-exemptassets,Floridalawprovidesasimplifiedprobateprocedure,knownassummaryadministration.

Are all assets subject to probate? No,onlyassetsownedbyadecedentinhisorherindividualnamerequireprobate.Assetsownedjointlyas“tenantsbytheentirety”withaspouse,or“withrightsofsurvivorship”withaspouseoranyotherpersonwillpasstothesurvivingownerwithoutprobate.This isalsotrueforassetswithdesignatedbeneficiaries,such as life insurance, retirement accounts,annuities,andbankaccountsandinvestmentsdesignatedas“payondeath”or“intrustfor”a

Page 5: The Revocable Trust in Florida - Stokes McMillan Antú · PDF fileThe Revocable Trust in Florida ... on the instructions in your trust agreement. But, in general ... can be a family

namedbeneficiary.Assetsheldintrustwillalsoavoidprobate.

How does a revocable trust avoid pro-bate? Arevocabletrustavoidsprobatebyeffectingthetransferofassetsduringyourlifetimetothetrustee.Thisavoidstheneedtousetheprobateprocesstomakethetransferafteryourdeath.Thetrusteehasimmediateauthoritytomanagethetrustassetsatyourdeath;appointmentbythecourtisnotnecessary. The“funding”ofarevocabletrustiscriticaltosuccessfullyavoidprobate.Thosepersonswhodonotfullyfundtheirtrustsoftenneedbothaprobateadministrationforthenon-trustassetsaswellasatrustadministrationtocompletelydistribute theassets.Because the revocabletrust may not completely avoid probate, asimple “pour over” will is needed to transferanyprobateassetstothetrustafterdeath.

How do I know if my assets are properly titled to my revocable trust? Theaccountstatement,stockcertificate,titleordeedwillmakesomereferencetothetrustortoyouastrustee.Youmightalsoelecttofundyourtrustbynamingthetrustasabeneficiaryoflifeinsuranceorothersimilararrangements.Yourattorneyandfinancialadvisormayassistyouwiththetransferofassetstoyourtrust.Ifyourtrustwillownrealestatethenitisimportanttohavethedeedpreparedbyanattorney.Theattorney will consider the impact of existingmortgages,titleissuesandhomesteadrestric-tionswhenthedeedisprepared.

Can the trust hold title to my homestead? Insomesituationsyourhomesteadpropertycanbetransferredtoyourtrust.MostFloridacountieshavespecialrequirementstomaintain

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thehomesteadtaxexemptionandspeciallan-guagemayberequiredinthetrustagreementandthedeed.However,homesteadpropertymay lose its exemption from creditors whentitleisheldinarevocabletrust—thebankruptcylawonthispointisunsettled.Yourattorneycanadviseyouonwhetherplacingyourhomesteadinyourtrust isappropriate,andifso, there-quirementsforavalidtransfer.Do I benefit by avoiding probate? Avoiding probate may lower the cost ofadministeringyourestateandtimedelaysas-sociatedwith theprobateprocess.However,manyofthecostsandtimedelaysassociatedwithprobate,suchasfilingafederalestatetaxreturn,willalsobenecessarywitharevocabletrust.Theadministrationofarevocabletrustaf-terdeathissimilartoaprobateadministration.Thetrusteemustcollectandvaluethetrustas-sets,determinecreditorsandbeneficiaries,paytaxesandexpenses,andultimatelydistributethetrustestate.Atrusteeisentitledtoafeeforadministrationofthetrust,asisthepersonalrepresentativeofanestate.Totheextentpro-fessional services of attorneys, accountantsandestateliquidatorsareusedtocompletetheprocess,thesavingsmaybemarginal. Ontheotherhand,avoidingprobateinmul-tiplestatesisadefinitebenefit.Becauseofthenatureofrealestate,probateisusuallyrequiredineverystateinwhichyouownrealestate.Thiscanusuallybeavoidedbytransferringowner-shipoftherealestatetoyourtrustduringyourlifetime.

How are creditors satisfied? Florida’strustlawdoesnothaveaspecificprocedureforidentifyingandpayingcreditorsatdeath.Thecreditorshaveupto2yearsfromthedecedent’sdeathtofileclaimsagainstthe

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estate.Thetrusteemaybereluctanttodistrib-ute the trust assets to thebeneficiariesuntilheorsheissatisfiedthatallclaimshavebeenpaid,and2yearsisalongtimetowait.Forthisreason,someclientschoosetoopenaprobateestateinadditiontothetrustadministrationtotakeadvantageoftheprobateclaimprocess.The probate law limits the time for creditorsto file claims against the estate (generally 3monthsfromthedateofnotice),andalsopro-videsaprocessforobjectingtoclaims.

Does the trust provide protection from creditor claims? InFlorida,thetrustassetsarenotprotectedfromtheclaimsofyourcreditors.Duringyourlifetime the assets in a revocable trust aretreatedasownedbyyou,andsubject to theclaimsofyourcreditorasifyouownedtheminyourpersonalname.Ifthetrustassetsre-mainintrustafteryourdeath,theinterestsofthebeneficiariesmaybeprotectedfromtheircreditorsbya“spendthrift”provisioninthetrustagreement.Floridalawprovidesspecialprotec-tionformanytypesofassets,includingassetsownedbyahusbandandwifeas“tenantsbythe entirety.” Consideration should be giventotheseassetswhenyoudecidehowtofundyourrevocabletrust.Yourattorneycanadviseyouonthetypesofassetsthatoffercreditorprotectionandtheeffectoffundingyourtrustwiththem.

Does the trust provide protection from the elective share? Floridalawprovidesthatasurvivingspouseisentitledtoaminimumportionof thedece-dent’sestate.Thiselectiveshare isequal to30% of the estate, including certain assetspassingoutsideofprobate.Generally,assetsheldinarevocabletrustwillbesubjecttothe

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electiveshare.Therearesomeexceptionstotheelectiveshare,andtherighttoreceiveanelectivesharecanbewaivedbythespouse.Youshouldconsultwithyourattorneyregard-ingtheapplicationoftheelectivesharetoyourparticularsituation.

Who pays federal income tax on trust in-come? Inmostinstances,therevocabletrustisig-noredforfederalincometaxpurposesduringthegrantor’slifetime.Theincomeanddeduc-tions are reported directly on your individualincometaxreturn.Thetrustwilluseyoursocialsecuritynumberasitstaxidentificationnum-ber. Arevocabletrustbecomesaseparateentityfor federal income tax purposes when it be-comesirrevocable,orstopsreportingincomeunderyoursocialsecuritynumberforanyotherreason.Thetrusteeisthenrequiredtofileanannualfiduciaryincometaxreturn.Taxablein-come,deductionsandcreditsaredeterminedinmuchthesamewayasforanindividual.Trustsarealsoallowedadeductionfordistributionstobeneficiaries.Inthisway,thetrustpassesonincomeanddeductionstothebeneficiariestobetaxedontheirpersonalincometaxreturns.Incomethatisnotdistributedtothebeneficia-riesistaxabletothetrust.

Does a revocable trust save estate taxes? Revocabletrustsareoftencreditedwithsav-ingestatetaxes,butthisisnotentirelyaccurate.Yourretainedinterestandpoweroverthetrustassets will cause the trust to be included inyourtaxableestateatdeath.Thetrustcanbedraftedtominimizetheeffectofestatetaxes,butthesameestateplanningtechniquesareavailabletopersonswhochoosetouseawillasthosewhochoosearevocabletrust.

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What are the trustee’s responsibilities? Servingastrusteeisnosimpletask.Whileveryimportant,theprudentinvestmentoftrustassetsisnotatrustee’sonlyresponsibility.Yourtrustee’sexactpowersanddutieswilldependontheinstructionsinyourtrustagreement.But,ingeneral,yourtrusteewill:

• Holdtrustproperty• Investthetrustassets• Distributetrustincomeand/orprincipalto

thebeneficiaries,asdirected in the trustagreement

• Maketaxdecisionsconcerningthetrust• Keeprecordsofalltrusttransactions• Issue statements of account and tax re-

portstothetrustbeneficiaries• Answeranyquestionsyouandthebenefi-

ciariesmayhaveconcerningthetrust

Yourtrusteemayhavebroadpowersorverylimitedpowers.Ineithercase,yourtrusteeisafiduciaryandmustfollowastrictstandardofcarewhenperformingtrustfunctions.

Who may act as trustee or successor trustee? Thechoiceofatrusteeisextremelyimpor-tant,andmayhavetaxconsequences.Youcannamealmostanyoneasyourtrustee.Unliketheappointmentofapersonalrepresentativeofaprobateestate,atrusteedoesnothavetoliveinFloridaorberelatedtoyou.Youcannameyourselforanyotherindividual(subjecttotaxconsiderations),oracorporatetrustee,suchasabankortrustcompany.Theindividualtrusteecanbeafamilymember,friendorprofessionaladvisor.Manyindividualsappointfamilymem-bersorfriendsassuccessortrustee,toassumeresponsibility for the trust management anddistribution after their death. When a family

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memberorfriendischosen,considerationmustbegiventotheperson’squalifications,thepo-tentialforfrictionwithotherbeneficiaries,andthepotential burdenyouareplacingon thatindividual.The trust agreement shouldallowtheseindividualstohirequalifiedprofessionalstoassistthemintheirduties,suchasattorneys,accountantsandfinancialadvisors.

How do I know what I need? This brochure is intended to give you abasic understanding of revocable trusts, butitcannotsubstituteforathoroughreviewwithyourestateplanningattorney.Arevocabletrustmust be implemented as part of an overallestateplan.Ownershipofassetsmustbeco-ordinatedbetweentheindividualandthetrust.Decisionsmustbemadeastowhatassetsareappropriatetofundthetrust,thetransfersmustthenoccur,andtheassetallocationshouldbeperiodicallyreviewed.Taxconsiderationsmustbediscussedwithqualifiedprofessionals.Thetrust agreement should reflect your family,economicandtaxgoals.Arevocabletrustcanhelpyouaccomplishthesegoalswhenproperlypreparedandimplemented.

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Rev.8/0953-TheRevocableTrustinFlorida(Eng).indd

This pamphlet is published by The Florida Bar Public In-formation and Bar Services Department as a service for consumers. Single copies of this pamphlet and others are free upon request by sending a self-addressed, legal size stamped envelope for each pamphlet requested to Con-sumer Pamphlets, The Florida Bar, 651 E. Jefferson St., Tallahassee, Florida 32399-2300. To view a list of the entire consumer pamphlet series, visit The Florida Bar’s Web site www.FloridaBar.org. Ordering information and the full text of each pamphlet is available in the Public Information section of the Web site.

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ThispamphletpublishedasapublicserviceforconsumersbyTheFloridaBar