Most people know they need a Will, Power of Attorney, Health Care Surrogate and Living Will. However, most people do not realize that a Will sends your property and assets to Probate. Avoiding probate, efficiently transferring assets and providing for minor children are the paramount reasons for using a Revocable Trust as part of your estate planning.
Who needs a Trust?
Anyone who meets one or more of the following factors should consider a Revocable Trust:
A business owner has shares in a corporation or partnership, units in an LLC, or individual assets in a sole proprietorship. All of these types of business ownership will go through probate (most likely a formal probate) unless assigned to a trust during the lifetime of the business owner.
Leaving life insurance directly to a spouse or child could be problematic. If the child is a minor, this will result in Guardianship of the money by the courts. If a beneficiary is being sued upon your passing then the assets could be subject to your beneficiary’s creditors. Lastly, ask yourself if you are comfortable having the named beneficiary inherit the entire death benefit outright and with no restrictions. A trust can provide for a measured payout over time.
Estate Planning documents should work in Florida. However, local institutions are not familiar with out of state documents and there could be practical problems with their use. Florida laws, especially our lack of an Estate Tax, are beneficial. If you have permanently moved to Florida then you should have Florida documents. Do not give your old state any reason to “pull you back in” to their state and subject you to their laws. Florida documents are further proof you have made Florida your homestead even if you spend much of your time in another state.
Your primary Florida residence (or homestead) usually does not go through a formal probate because it is a creditor-protected asset under the Florida Constitution that automatically passes to your surviving spouse and legal heirs. Most title insurers require an Order of Determination of Homestead Status for marketable title purposes. Attorneys usually charge a small fee to petition the court for a homestead determination, which normally takes no longer than a few weeks.
If, however, you own real property other than your homestead, then a formal probate administration is almost always required in every county where there is real property in your individual name. By utilizing a trust as owner of any real property other than your homestead, you can bypass probate altogether.
5. Is married and has a net worth (including the death benefit value of life insurance) exceeding $5.4M*
*THIS AMOUNT IS SUBJECT TO CHANGE
Through use of the marital deduction and the $5 million exemption for federal estate taxes available to both spouses, attorneys can use what is called an “A-B Revocable Trust” to protect married couples from federal estate tax liability on estates valued as high as $10 million on the date of death of the first spouse. Keep in mind, however, that the $5 million per spouse exemption will expire at the end of 2012 and we will most likely end up with a lower threshold in 2013.
Florida trusts (both revocable and irrevocable) do not provide asset protection benefits for either the individual or spouses who create the trust. Trusts may, however, provide a level of asset protection for beneficiaries other than the creator(s) of the trust by incorporating what is called a “spendthrift clause” prohibiting a beneficiary from assigning his or rights in a trust to a creditor. Trusts also provide a level of asset protection for beneficiaries other than the creator(s) by allowing the trustee to make discretionary rather than mandatory distributions to a beneficiary under creditor attack.
Attorneys also use the A-B Revocable Trust to segregate and protect assets for children from a prior marriage while also ensuring that the surviving spouse is taken care of financially during his or her lifetime.
Florida law requires the appointment of a guardian to look after the best interests of a minor child whenever a minor receives an inheritance of more than $15,000 in assets. The guardian-appointment process can be even more expensive than a formal probate when you consider that a guardianship administration lasts until a minor child reaches the age of eighteen (18). A trust can designate a trustee to look after a minor child’s inheritance in exactly the same way as a court-appointed guardian at a fraction of the cost and at a fraction of the burdensome reporting requirements.
10. Does not want their assets passed to their children in an immediate lump sum but rather over a longer period of time to ensure creditor protection and proper money management
Most young adults lack the maturity and financial acumen to handle receiving all of their inheritance at once. A prudently-invested trust can provide adequate income over time while distributing assets to the beneficiary at various age intervals or at milestones such as graduating from college, getting married, or buying a first home.
11. Wants to avoid a formal probate that could take over a year to complete and can cost 3-4% of the gross value of all assets subject to probate administration
Probate is simply a court-ordered process directing the change of title of your assets to your legal heirs or designated beneficiaries. Not all probate is bad. If you pass away with less than $75,000 in your individual name then it’s possible to go through what is called a “Summary Administration.” With a revocable trust, you may spend a little money on the front end to save a lot more money on the back end avoiding the burdensome costs and extended time frame of formal probate.
Funding Your Trust
Remember that a Trust is just a stack of papers. It is useless unless you retitle assets into your trust name and/or change the beneficiary on your assets to your Trust. A Trust that is not coordinated with your assets (the legal term is to “Fund your Trust”) does not control your assets and your assets will end up in Probate.
Trust based planning allows for flexibility, control, protection and an ease of transfer that simple Will based planning does not offer.
Please call or email me with any questions you have regarding the proper way to plan your estate.
Ian S. Giovinco, P.A.
Bay Street Commercial Center
611 West Bay St. STE 2B
Tampa, FL 33606