A revocable living trust is a crucial component of a comprehensive estate plan in Florida. This legal arrangement allows you to have control over how your assets will be managed during your lifetime and distributed after your death. Here, we’ll explain what a revocable living trust is, how it works, the pros and cons, and why you need one as part of your Florida estate plan.
What is a Revocable Living Trust?
A revocable living trust, sometimes called a revocable trust, is a legal document you create to determine how your assets should be managed and distributed after your death. It is called “revocable” because you retain the right to modify or terminate the trust during your lifetime.
With a revocable living trust in place, you can avoid the time-consuming and expensive Florida probate process. When you pass away, assets moved into your trust go straight to your beneficiaries; they don’t go through a probate court. This saves your loved ones stress, delays, and legal fees associated with the probate process.
A revocable living trust is an arrangement between the grantor (you), the trustee, and the beneficiaries.
- The individual who establishes the trust and gives ownership of their belongings to it is known as the grantor.
- The trustee is responsible for managing the assets in the trust according to the trust instructions. The grantor typically names themselves as the initial trustee.
- The beneficiaries are the individuals or entities who will inherit the assets held in the trust after the grantor’s death.
While you are alive and able, you maintain full control over the assets in your revocable living trust. You can buy, sell, trade, or give away the trust assets as you wish. You can also modify the terms of the trust, change trustees, or remove assets from the trust at any time.
How Does a Revocable Living Trust Work?
Here are the main steps involved in setting up and funding a revocable living trust in Florida:
- Create the trust document: This written legal agreement names you as the grantor and initial trustee. It designates successor trustees in case you are unable to serve and names your beneficiaries. The document outlines how you want the trust assets managed and distributed. A trust attorney can draft this document for you.
- Assign assets to the trust: Retitle your assets like bank accounts, investments, and real estate from your personal name to the name of the trust. All assets transferred to your trust avoid probate.
- Designate beneficiaries: Name the individuals or entities who will inherit assets from your trust after your lifetime. You can update the beneficiaries any time.
- Appoint a successor trustee: Choose a trusted person or corporate trustee to take over managing the trust if you become incapacitated or pass away.
- Revoke or modify the trust: Make changes to the trust terms and assets as your circumstances change. You retain full control while you are alive and able.
- Transfer assets at death: Upon your passing, the assets in your revocable living trust are transferred immediately to the designated trust beneficiaries without probate delays.
The Pros and Cons of Revocable Living Trusts
Like any major decision, establishing a revocable living trust has both advantages and potential drawbacks.
Pros of Revocable Living Trusts
- Avoid Probate: The biggest benefit of a revocable living trust is avoiding probate for assets placed in the trust, potentially saving your beneficiaries time, legal costs and hassles.
- Privacy: Trusts are not public records like wills in probate court. The details and distribution of your assets remain private.
- Control: A revocable trust allows you to provide detailed instructions on how you want assets managed and distributed.
- Incapacity Planning: If you become incapacitated, your successor trustee can immediately step in to manage the trust assets.
- Out-of-State Real Estate: Having assets like real estate outside Florida in your trust avoids multiple probate processes.
- Estate Tax Minimization: Trusts allow for estate tax reduction strategies unavailable with wills alone.
Cons of Revocable Living Trusts
- Upfront Costs: Drafting a customized revocable trust may cost between $1,500 – $5,000, more than a basic will.
- Administration: Funding the trust and managing assets involves more work than owning assets yourself.
- Less Protection: Revocable trusts provide fewer legal protections if you are sued or have creditor issues compared to irrevocable trusts.
- Estate Tax: No federal estate tax benefits exist for revocable trusts alone. Proper additional planning is required to reduce estate taxes.
- Complexity: These legal arrangements are more complex than wills and require specialized expertise.
Revocable Living Trust vs. Irrevocable Trust
The biggest difference between a revocable living trust and an irrevocable trust is in the amount of control you retain.
With a revocable living trust, you remain in full control of the assets during your lifetime. You can modify the trust terms, change beneficiaries, or dissolve the trust at any time for any reason.
An irrevocable trust cannot be changed or amended once created, without the agreement of the beneficiaries. You relinquish complete control over the assets transferred. However, assets in an irrevocable trust are generally protected from creditors and tax liabilities.
For most Florida residents doing straightforward estate planning, a revocable living trust makes better sense than an irrevocable trust. The flexibility to make changes down the road is important for most people.
Revocable Living Trust vs. Will: What is the Difference?
While a last will and testament and a revocable living trust serve some similar purposes in estate planning, there are several key differences:
- Probate: A will must go through probate to transfer assets. Assets in a living trust avoid probate.
- Privacy: Wills become public records once filed with the probate court. Trusts remain totally private.
- Control: Wills allow limited control. Trusts allow detailed control over asset management and distribution.
- Incapacity provisions: A living trust remains operational if you become ill or incapacitated. A will only takes effect at death.
- Out-of-state property: Multiple probates may be required for property owned outside Florida. Trust assets automatically avoid ancillary probate.
- Tax planning: Trusts allow additional tax reduction strategies compared to wills alone.
A will suffice for simple estates without tax issues or special needs. But a living trust is usually the better option for larger, complex estates. An experienced estate planning lawyer can advise you on the best strategies.
How to Create a Revocable Living Trust in Florida
If you decide a revocable living trust is right for your estate planning needs, here are key steps:
- Hire an estate planning attorney – Creating a properly drafted trust customized for your situation is crucial. A knowledgeable lawyer can build the right revocable trust to carry out your wishes.
- Make a list of assets – Inventory all your assets to transfer to the trust – bank accounts, brokerage investments, real estate, etc. Titling them correctly is important.
- Name beneficiaries – Determine who will receive assets from your trust after your lifetime. Be specific about shares and distributions.
- Select successor trustees – Appoint one or more trusted individuals or a corporate trustee to manage the trust when you no longer can.
- Fund the trust – Work with your attorney to retitle assets in the name of your trust to avoid probate. This is essential to make it effective.
- Revoke or amend the trust – You can modify the trust document or transfer assets in and out while you are still alive and competent.
It’s wise to review your revocable living trust annually and make any needed adjustments based on life changes. This keeps it current and aligned with your wishes.
