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7 Ways to Fine Tune a Florida Living Trust

7 Ways to Fine Tune a Florida Living Trust

Would you believe that of the thousands of people each year who create a Florida living trust, a very small percentage will know how to use it or take the steps necessary to do so? So, to follow are 7 ways to fine tune a living trust in Florida to make sure you’re getting maximum benefit from this powerful estate planning tool. If you’re in another state, many of these tips may apply to you; however, it is important to understand your state’s trust laws and this is most often accomplished by working with an experienced estate planning attorney.  

Merely having a Florida living trust will offer you and your family “zero” benefits if you do not use it correctly.  Worse yet, many attorneys fall short by either failing to advise clients, or improperly advising clients, as to how to implement and maximize the many benefits offered by a revocable living trust in Florida.

This article will discuss what revocable living trust planning in Florida is AND offer 7 ways to “fine tune” your Florida living trust in order to get the maximum protection and benefit from it.

A great Eric Clapton song applies to today’s topic.  For Revocable Living Trust planning, “It’s In The Way That You Use It”.  

Revocable Living Trust Uses in Florida

What is a living trust?

As a bit of background, a living trust (AKA revocable trust, revocable living trust, inter vivos trust) is a contract between the person who sets up the trust, namely the “settlor” (or “grantor”), and the beneficiaries…who are also typically the settlor during his/her lifetime. Because these trusts are governed in each state by its own laws, this discussion will focus on those that directly work with a Florida living trust.

Upon the settlor’s death, the “beneficiaries” are those who are appointed in the trust by the settlor.  The settlor also appoints a trustee (a manager) to oversee the administration of the trust assets on behalf of the beneficiaries.  Initially, the settlor is often also the trustee, followed by as successor trustee who is appointed to serve if the settlor can no longer manage their own affairs.

A revocable living trust in Florida may be changed or revoked (terminated) by the settlor at any time and this is why it is defined as “revocable”.  It is also created during the life of the settlor and this is way it is defined as “living” or in latin as an “intervivos trust”.

So, this is a very flexible type of trust that is primarily designed to accommodate events such as the disability or death of the settlor AND avoid the Florida probate process.

7 Ways to Fine Tune Your Living Trust in Florida

First, make sure your Florida revocable living trust is properly “funded”.

What is “funding” your Florida revocable living trust?  

So, if the trustee is responsible for the trust assets, the next question is whether the trust has any assets AND how does it receive assets?  Now we can answer the “trust funding” question…

A revocable living trust without assets is an empty shell.  

Funding a revocable living trust in Florida means that assets are appropriately titled in the name of the Trust.  For various assets, “titling” means different things.  For example, if the settlor owns real property, it should be transferred to the trust by a deed.  If this is not accomplished, the intent of the settlor to avoid probate will backfire.  Similarly, for bank accounts and other “non-qualified” accounts such as CDs, stocks or bonds, the name of the trust may be placed on the account to replace the individual name of the settlor.  For qualified accounts such as IRAs and annuities, the beneficiary or “contingent beneficiary” (after the spouse) may be designated as the trust.  If these steps are not taken for all the settlor’s assets in some manner, there will be complications upon the death of the settlor and the advantages inherent in the trust will not be realized because the assets will need to go to probate in Florida. 

On the other hand, if a revocable trust is properly funded, the estate beneficiaries can opt for a much simpler, more economical and private Florida trust administration process rather than probate.

Second, a Florida revocable living trust can offer asset protection for beneficiaries.

Trust planning often provides that, upon the death of the settlor, all of the assets will be distributed immediately to the beneficiaries.  An important question to ask is whether this is the best use of a trust that can provides an “asset protected” account for the beneficiaries?

 As I’ve often mentioned, we live in a litigious society and there is a huge benefit in having assets reserved which are beyond the reach of creditors.  An asset protected revocable living trust in Florida can offer a huge benefit to beneficiaries.  A properly drafted Florida revocable living trust provides asset protection to beneficiaries but understand that this benefit does NOT extend to the settlor because he/she can still revoke the trust.  Although asset protection is not available for the settlor, when the trust becomes irrevocable upon the death of the settlor, the asset protection benefits kick in.  However, many have wasted this benefit because they have not been properly advised as to utilizing the trust for maximum benefit.

Third, a Florida revocable living trust with an added “Florida special needs trust” can allow disabled beneficiaries maintain eligibility for public benefits.

Estate planning often involves planning for one or more disabled beneficiaries.  Yet did you know that if a beneficiary receives a lump sum, they can be disqualified from certain kinds of disability benefits?

However, adding a Florida special needs trust to your revocable living trust in Florida can allow the beneficiary to continue receiving public benefits for disability while providing a supplemental fund for that beneficiary.  This is an extremely effective tool because Special Needs Trust can only be established (currently) by a parent, grandparent legal guardian or a Court.  So, a Trust established by a parent for an adult child or grandchild can accomplish this protection for the beneficiary on disability.  Sadly, this Trust benefit is also often missed.

Fourth, a Florida revocable living trust can provide key estate planning protection for those in second marriages with children from prior marriages.

With today’s divorce rates and increased life expectancy, it is a very common estate planning concern to plan for both a current spouse and children from prior marriages.  What a well drafted Revocable Living Trust can do, is provide certainty that upon the death of the Settlor, the surviving spouse will be contractually obligated to comply with the Settlor’s wishes.   If desired, the surviving spouse from a second marriage can be prohibited from changing the Trust and prevented from disinheriting the children of the first marriage.  Another possibility to create a Florida elective share trust as part of the revocable living trust that will effectively limit the spouse’s share of the estate to that amount that is required by the state statutes.   The point being, the trust allows many options for managing your legacy and protecting all of your loved ones.

Fifth, a Florida revocable living trust can provide options for allowing an ill spouse to qualify for Medicaid long term care benefits.

Under the federal Medicaid rules, spouses may (generally) transfer assets to one another (within certain parameters) in order to allow an ill spouse to qualify for Florida Medicaid for long term medical care.  A problem can occur when the well spouse unexpectedly passes away first and the ill spouse is the sole heir to the marital estate assets.  By using “elective share” provisions, discussed above, as well as other “Medicaid friendly” provisions allowing the Trustee to manage the estate, an ill spouse can often remain qualified for Medicaid or at least suffer a lesser penalty than would have been the case without this key trust planning benefit.

Sixth, a Florida revocable living trust can provide estate tax planning strategies that can offer substantial tax savings.

It may be surprising that I left this one near the end; however, federal estate tax planning with a revocable trust is probably the most commonly known strategy of the above.  Also, the due to the changes in “portability” and the currently high estate tax exemption of $5,43o,000 per spouse, this advantage may be somewhat outweighed by the others.  This is an area that lends itself to expert estate planning counsel as do the others above.  What you need to know is that a Florida revocable living trust can offer key tools needed to coordinate the transfer of assets between spouses in order to maximize the roughly 11 million in Federal estate tax exemptions available to a married couple.  For single people, a revocable living trust in Florida may be used to manage the Generation Skipping Tax (GST) and may also be used for tax strategies such as Florida charitable trust planning.

Seventh, a Florida revocable living trust can offer key advantages for business succession planning.

Most small business owners in the United States have no business continuity succession plan.  Yet, it is critical to plan ahead for business succession concerns such as a key family member or business partner dying or becoming disabled.  When such events occur, it can force a business to shut down due to the federal death tax or other reasons that result in lack of capital to fund the operations.  

A Florida revocable living trust can direct the successor trustee to continue operating the business and may provide instructions for how to proceed AND other estate documents such as a Florida buy-sell agreement can coordinate the purchase of a deceased owner’s interest so the company can continue to operate.  The revocable living trust should include the necessary provisions to allow the successor trustee to manage small business interests, subchapter S corporations and investment entities such as Florida LLCs and limited partnerships.

Remember, a detailed discussion of your priorities and needs may reveal other trust benefits that have not been specifically discussed here.

Steve Gibbs, Esq. 

1 comment… add one
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