Estate planning is much more than just signing a will. In fact, there are a myriad of estate planning tools available. Several of these options should be considered in tandem with using a will to dispose of assets as many of them offer benefits that a will cannot provide.

Trusts

Often dubbed “will substitutes,” living revocable trusts provide many benefits over wills – most notably, property in a trust may pass to a beneficiary without formal probate administration; whereas, a will requires probate administration.[1]

Let’s start with the basics:

What is a trust?

The fundamental concept behind a trust is that there is a split between legal and equitable title. That is, a trustee holds legal title to the property in a trust for the benefit of the     trust’s beneficiaries, who hold equitable title allowing them to reap the benefit of the property

How do you create a trust?

A trust has three distinct parties:

a. Settlor: the person creating the trust and transferring property (trust res) to the trust.

b. Trustee(s): the person/people in charge of administering the trust who holds legal title to the trust property.

c. Beneficiaries: the person/people reaping the benefit of the trust property.

In order to create a trust, the settlor must have capacity[2] and the intent to create a trust. The sole trustee cannot be the sole beneficiary.[3] And, for private trusts, the trust must be for a definite beneficiary or definite class[4] of beneficiaries.

Why do I care?

Confidentiality: If you want to dispose of property and keep the contents or beneficiaries of that disposition confidential, then a trust is a great way to accomplish this goal. This is a huge advantage over wills, which have to be deposited with the clerk of court within 10 days after receiving notice that the testator has died. After a will is deposited, it becomes public record – the value of your estate, the beneficiaries, and the awkward family drama of disinheriting a relative all become public. Revocable living trusts are not required to be deposited with the clerk of court so they never become public record as a result of the death of a settlor.[5]

Avoidance of Probate: Arguably, the greatest benefit of creating a trust is to avoid probate – why is this such a great benefit, though?

Less attorney fees: Florida statutes set forth reasonable attorney fees for representing a personal representative of a probate estate and a trustee of a trust. The reasonable attorney fee for representing a trustee is 75% of that of an attorney representing a personal representative of a probate estate.

Administration without (much) delay: although personal representatives of an estate may gain access to a decedent’s property quickly in a formal probate proceeding, the appointment of a personal representative may take a considerable amount of time (especially if the appointment of a personal representative is contested). However, with a trust, trustees take title immediately and can begin administration without court procedure – even if a trustee appointment is contested, a trustee may still be able to administer the trust in accordance with the trust document.

Less court oversight: unless a trust is brought into a court’s jurisdiction,[6] a court will not supervise administration of a trust. However, even when a will is not contested, a court will have to supervise administration.

Greater choice in fiduciary: In order to qualify as a personal representative of an estate, a personal representative must be a Florida resident; however, no such residency requirement is required for a trustee of a trust.

Your assets are not out of reach: revocable, living trusts are just that – revocable. You may revoke or amend a trust at any time. A common misconception, though, is that revocable, living trusts offer greater creditor protection for a settlor; this may be true in limited circumstances, but you should speak with an attorney to determine the extent of creditor rights n trusts that you create.

Trusts are just one tool in an arsenal of estate planning tools, and, again, these tools should be considered in tandem. The Kendrick Law Group is here to help you consider all of your options; feel free to contact us for a free consultation today.

 

 

[1] You can read more about the probate process at: https://kendricklawgroup.com/basics-of-the-probate-process/
[2] Be of sound mind and 18 years of age or older or be an emancipated minor.
[3] Remember, the purpose of a trust is to separate the legal and equitable title to property so if the sole trustee is the sole beneficiary, then there is no separation in title.
[4] For example, “for the benefit of my children.”
[5] It should be noted that if someone contests the validity of a trust, the contents of a trust may be disclosed in appropriate litigation.
[6] For example, a trustee breaches a duty to administer the trust appropriately.

 

Co-written by: Kyle Wilhelm, J.D.