When people hear the word “trust,” they often think of the trust funds that children of extreme wealth have set up for them by their parents. However, trusts can be used for many reasons, far beyond that.
Trusts are an important estate planning tool that helps distribute your assets when you are gone. Trusts fill in some of the gaps and problems that your traditional will does not address. There is much for you to consider when deciding if trusts are the route you want to go, so it is always advised to let an estate planning attorney help you.
What is a revocable trust?
A revocable trust, also commonly referred to as a living trust, is a trust that you make when you are living that will help you plan for and control your assets in the event you become incapacitated or pass away.
The person that creates the trust is called the “grantor.” In this legal agreement, they are essentially allowing a third party, any individual, group of individuals, or company of their choosing, to be the “trustee.” This entity can then invest and manage the assets in the trust. After the death of the grantor, the trustee is responsible for dispersing the assets and paying the claims and taxes.
To receive as much benefit as you possibly can from the trust, your assets must be transferred into the trust before you pass away. This includes bank accounts, real estate, and other investments. The transfer of assets is called “funding” the trust. It relinquishes ownership from the grantor to the trust completely. However, there are certain circumstances surrounding specific types of assets that can create problems with income tax if you transfer them into the trust, so it is always important to work with an estate attorney.
Benefits of a revocable trust
Avoid costly probate processes
One of the main benefits of a revocable trust is that you can avoid probate entirely, or at least in part. Avoiding probate is advantageous for a lot of people because it can be a long, extensive process. The reason probate is so long is that it must go through the courts of which the deceased person, the decedent, is under jurisdiction. The will is examined and there must be the opportunity for the will to be contested for its validity and the decedent’s mental capacity at the time the will was signed.
Additionally, if there is no will, the process can be even longer because the judge will then have to decide who gets which asset or how the assets should be divided. It usually takes several months, but it can take even longer than a year. The length of the process is part of the reason it can be so expensive. Paying attorney fees for months upon months can become very costly, very fast.
There are other costs that will fall into the hands of your loved ones during the probate costs as well. These include, but are not limited to:
- Accountant fees
- Court filing fees
- Executor bond fees
- Publication/notice fees
All that being said, doing your estate planning through a trust can take a large burden off of your family and other loved ones during a time in their life that is already very painful.
Effectively manage benefits
Another benefit of having a revocable trust is that, when used along with a Florida Medicaid Will, they can play a very beneficial role in effectively managing your benefits. In situations where there is a married couple with a healthy partner and a partner that is ill and receiving benefits from Medicaid, a revocable trust is particularly helpful to ensure that the living, ill partner maintains their benefits regardless of if the healthy partner was the sole beneficiary of their assets.
Maintain control of assets
Additionally, the revocable trust is very helpful if you want to make sure you maintain control of your assets in the event you lose the ability to manage them, mentally or physically. On top of that, they tend to be easier to manage than a will. You can choose anyone to be your trustee. Amending the documents is often easier, and there are fewer requirements for evidence of ownership.
It can be crucial to use a revocable trust if you have had multiple marriages or children from different spouses. It will lay out that whichever assets don’t go to the spouse you are currently with, go to your kids as opposed to the family of your spouse. It can even have your property or other assets go directly to your kids, skipping over your spouse.
Although a trust is very valuable for resolving estate planning matters related to your family, it can also be a useful tool when dealing with the ownership of businesses. If your business partner passes away or becomes incapacitated, a trust can resolve questions about ownership and leadership succession. With a trust, the trustee will be able to instruct a succeeding trustee to continue the operations of the business.
Revocable vs. irrevocable trusts
The major difference between them is in the name. You can’t revoke an irrevocable trust, but you can revoke a revocable trust. As previously established, you can change the terms or easily terminate a revocable trust.
So, an irrevocable trust on the other hand, is not flexible and you need to have a unanimous agreement between all the parties to amend or modify it. This difference changes a lot about what the trust can do and how it can be used. For example, a revocable trust is less complex to work with, but they do not offer the amount of asset protection that the more rigid irrevocable trust can.
If you want to learn more about irrevocable trusts, we have a blog about them as well! They are unique and have their own particular clauses and characteristics that really change the process of creating and finalizing the trust.
When considering creating a trust, you must evaluate which aspects, whether it’s tax benefits, asset protection, or flexibility, are most important to you to figure out what kind suits your needs, and an attorney can help you do that.
Who should get a revocable trust? When should one be used?
Trusts can be beneficial to many different types of people, but it is not always clear if it is right for you. There are a few specific examples of people that would benefit from a revocable trust. Some of which include:
If you are someone who has children
A trust is a way to make certain that there will be money set aside for your children, even when they are adults. In the future, it can help them access their inheritance.
If you have a legacy that you want to pass on
When you work hard for a long time to form a large estate, collections of valuables, or another legacy that is built upon assets you have acquired over the years, you want to ensure it will last even after you are gone. Having a trust is a very efficient way to maximize the benefit of your legacy for your loved ones and the values you hold dear to your heart.
If one of your loved ones struggles with mental illness and/or addiction
Sometimes, people are worried that the impairment that mental illness and addiction have on the mind of someone they care about will cause them to make poor decisions with their inheritance.
A trust can be helpful in these situations because you can provide the trustee with specific instructions to send payments to medical institutions, educational institutions, landlords, or other similar organizations. It allows you to still support your loved one financially with their inheritance while keeping the assets safe and ensuring it is used in a way that will help them.
If one of your loved ones has a disability
If you have spent a long time caring for someone that has a disability and want to make sure they will continue to be given quality care after you pass, creating a trust with a trustee you know will give as much care as you did is a good way to do it.
Now,, this is not an exhaustive list. There are plenty more situations where a trust is a great option. That is why it is advised that you consult an attorney for estate planning. A trust can be used for many different situations as well. If any of these sound like you, it might be a good idea to look into a trust:
A large or complex estate
If there are a lot of different variables, for example, if you identify with more than one of the categories listed above or have complicated investment accounts, a trust will allow you to create more rigid and extensive plans. You will be able to communicate your intentions for each specific asset and when you want them to be dispersed.
Dispersing assets during your lifetime
Trusts do not have to be made to go into effect after death. You can have your assets dispersed at any stage of capacity in your life.
Keeping your estate plans private
Probate and wills are public records, which means that once you pass away, anyone can visit the courthouse and see your will in full. A trust, on the other hand, is private.
Again, there are many different scenarios that could warrant the use of a trust and it varies from case to case. Doing your research and seeking advice from an attorney is always a good idea when it comes to trusts of any kind and estate planning altogether.
Some things to keep in mind
Although a revocable trust has all the aforementioned benefits, there are a few things to keep in mind when deciding if it is right for you.
Creating a trust can sometimes be a more expensive option upfront. There is a lot of work involved with setting up a trust. You must create deeds, transfer titles, and work with attorneys for trusts. All of this comes with additional payments and fees, which can be extremely daunting when you are initially paying for it. However, when you factor in the time and money that you are saving by avoiding probate, it can be worth it.
Something else that is important to note is that there is not as much protection of your assets as other options, like irrevocable trusts. In a revocable trust, your assets will not be completely safe from creditors. This means that a lender, that has a claim of credit through a contract or loan agreement, would have the ability to file a debt in probate or bankruptcy court.
The final major drawback of a revocable trust is that there aren’t any tax benefits directly. Since you still have ownership of the assets while you are living, the income on those assets continues to pass through you.
Our Orlando revocable trust attorneys are ready to help
Here at the Orlando Law Group, we have outstanding Orlando estate planning attorneys with years of experience in trusts and estate planning. If you have questions about anything discussed in this article, give our office a call at (407) 512-4394 or fill out our online contact form to schedule a consultation.
Estate planning isn’t the only thing we are equipped to handle. We are a full-service firm, meaning we cover several areas of law, including real estate, association law, family law, probate law, litigation, and many more. It is also common for areas of law to overlap and bleed into one another.
We have an office conveniently located at 12301 Lake Underhill Rd, Suite 213, Orlando, FL 32828, as well as offices in Seminole, Osceola, and West Orange counties to assist you if you are in any of the following cities or their surrounding areas: Winter Garden, Altamonte Springs, Casselberry, Chuluota, Fern Park, Forest City, Geneva, Goldenrod, Heathrow, Lake Mary, Lake Monroe, Longwood, Mid Florida, Oviedo, Sanford, Wekiva Springs, and Winter Springs.