Trusts are a great tool for accomplishing a vast range of financial goals. They can help reduce tax liability, avoid the expense and inconvenience of probate, establish or maintain eligibility for government benefits, or any number of other specialized objectives.
Indeed, a robust familiarity with trusts is an integral component of any experienced estate planner’s toolbox.
It’s important to remember, though, that not all trusts are created equal. And no single trust can do everything. That is to say: you need to have the right trust for the job. You wouldn’t use the same trust to preserve assets for a loose-spending heir that you would use to hold a life insurance policy or qualify for long-term care assistance.
Overview of Irrevocable Trusts in Florida
A fundamental distinction among trusts involves the level of control the grantor (the person establishing the trust) has over the trust after it is created. There are two principle categories: “revocable” and “irrevocable.” As the names imply, revocable trusts allow the grantor greater control, and vice versa for irrevocable trusts. When it comes to financial affairs, all things being equal, more control is usually better. Crucially, though, there are some things you can accomplish with an irrevocable trust vs. a revocable trust in Florida. With that in mind, this article focuses on irrevocable trusts, their relative benefits and drawbacks, and how they can be useful for financial planning in Florida.
What Makes a Trust “Irrevocable”?
A trust is irrevocable if it cannot be revoked. But what does that mean, right? If a trust is irrevocable, the grantor lacks the power to take back (or “revoke”) assets transferred to the trust. By definition, all testamentary trusts in Florida (trusts created through a will) are irrevocable because, by the time the trust formally comes into being, the grantor is deceased. The grantor of an irrevocable living trust cannot unilaterally amend or modify the trust instrument, change the trust beneficiaries, or terminate the trust. Conversely, revocable trusts let grantors to do some or all of those things.
The revocable vs. irrevocable distinction raises the question of why you would ever want a trust to be irrevocable. Why relinquish the power to change your mind down the road? The answer is that sometimes it is simply better not to have control. For instance, if your goal is to minimize inheritance (estate) taxes, transferring assets to an irrevocable trust effectively removes them from your estate. But, if those same assets are held in a revocable trust, they will be counted. From the IRS’ perspective, if you have the power to withdraw property from a trust and use it for your own benefit anytime you want, practically speaking, it is your property. A trustee might technically hold legal title – and that’s good enough for some purposes – but the IRS is more interested in who actually controls the property. The use of specialized irrevocable trusts in Florida to remove assets from Medicaid and SSI resource-test consideration is based on the same idea and may, with restrictions, allow for Florida income only trust planning for Medicaid.
It’s important to note that the grantor of an irrevocable trust still makes the important decisions at the outset – naming the trustee, deciding who will be beneficiaries, and defining which assets are held in trust and how they are used. But those original decisions are much more permanent than with a revocable trust.
In some limited circumstances, an irrevocable trust can be altered after inception, but almost never by the grantor unilaterally. In Florida, an irrevocable trust can sometimes be modified through a Florida power of appointment incorporated within the declaration of trust, or by a court if all beneficiaries agree or circumstances have changed so that the underlying purpose of the trust is being frustrated. But the grantor cannot do it him or herself on a whim.
How Do Florida Irrevocable Trusts Work?
Even among irrevocable trusts, individual trusts can vary immensely. Generally speaking, once an irrevocable trust is formed and the grantor transfers property to the trust, the trustee named by the grantor takes over – managing assets for the beneficiaries’ benefit and making distributions in the manner instructed by the grantor in the trust instrument. The discretion afforded to a trustee can be broad or narrow, but the trustee always has to act in the beneficiaries’ best interests and in accordance with the trust’s terms. Beneficiaries are usually (but not always) third parties (i.e., someone other than the grantor), but the grantor can also be a beneficiary. However, an irrevocable trust’s functions are limited when grantor and beneficiary are the same person (more on that later).
What can an Irrevocable Trust Accomplish?
There are literally dozens of different types of irrevocable trust designed for a variety of financial planning objectives. They can reduce or eliminate estate taxes by removing trust property from the grantor’s taxable estate. If appreciating or income-earning assets are involved, a trust could reduce income and capital gains taxes as well. Depending on how the trust is set up, income tax is still owed by the beneficiary who ultimately receives the income or by the trust itself, but the grantor can avoid tax liability, which can sometimes result in a lower overall tax bill.
For seniors in Florida, preserving or establishing benefits eligibility is often the most practical use for irrevocable trusts. Due to the ever-increasing costs of Florida long-term care, many seniors are in the unfortunate position of being unable to afford nursing home care but financially ineligible for Medicaid assistance. An irrevocable Miller trust or Qualified Income Trust in Florida can help seniors qualify for benefits in a manner that, under the right circumstances, allows heirs to eventually inherit some remaining assets.
Irrevocable trusts can also be used to take advantage of tax incentives for charitable giving while preserving an income source for the grantor. With a Charitable Remainder Trust (CRT) in Florida, the grantor transfers assets to the trust and then receives distributions for life or a defined period, after which the remainder goes to a designated charity. At the time the trust is funded, the grantor receives a partial tax deduction based upon the anticipated value of the eventual donation to the charity. A similar structure can be used to reserve income (in the form of an annuity, for example) and ultimately transfer the remainder to a non-charity third party. Of course, there is no charitable-giving deduction if the recipient is not a charity.
Another specialized trust, the Irrevocable Life Insurance Trust (ILIT) in Florida, serves the narrow purpose of holding a life insurance policy and thereby keeping the policy’s eventual proceeds out of the Florida probate court system and out of estate-tax calculations. Moreover, instead of proceeds going directly to third-party beneficiaries or to the estate and distributed to heirs, the money is paid to the trust itself. This allows the grantor to provide advance instructions to the trustee as to how the money will be used – an important feature for grantors concerned about less-than-frugal heirs.
Another option to guard against irresponsible spending, spendthrift trusts are irrevocable trusts designed to shield assets from grantors’ and beneficiaries’ creditors – or from beneficiaries’ own spending habits. Because the grantor no longer controls how the assets are used, creditors cannot reach trust assets to satisfy the grantor’s debts. Likewise, because beneficiaries cannot direct distributions, their interests cannot be attached until funds are actually distributed (and therefore are no longer within the trust). Crucially, Florida law requires spendthrift trusts to expressly prohibit beneficiaries from assigning their interests in the trust, voluntarily or involuntarily. If a beneficiary has the power to transfer his or her interest in the trust to someone else, then creditors can attach that interest, even if the power isn’t exercised.
Like most other states, Florida exempts certain classes of creditors from spendthrift trust protection. Trust assets can be attached to satisfy claims for child support and alimony, certain governmental claims, and judgments for services provided to the beneficiary relating to the trust. And Florida has another, massively important, exception to the protections provided by spendthrift trusts…
Self-Settled Irrevocable Trusts in Florida
A trust is “self-settled” if the grantor is also the beneficiary. That is, the grantor transfers assets into the trust, and the trustee uses those assets for the benefit of the grantor. There are plenty of good, legitimate uses for self-settled trusts. But, in Florida, avoiding creditors and Florida asset protection is not one of them.
Many a comment-maker has noted that, by creating an irrevocable spendthrift trust and naming yourself as beneficiary, you can enjoy the benefits of property that is effectively immune to creditor claims. Florida courts have noticed as well and have decided that the practice is void as against public policy. The idea is that, even if a trustee holds legal title, the equitable title retained by the grantor as a beneficiary has legitimate value. As a consequence, in Florida, assets held in a self-settled irrevocable trust can be attached by creditors up to the amount the trustee could distribute to the grantor, even if the trust includes a spendthrift clause. It doesn’t matter if the trustee actually would distribute the assets; if the trustee has the theoretical power to make the distribution, creditors can attach the assets.
Domestic Asset Protection Trusts in Other States
A few states, including Nevada, Delaware, and West Virginia, authorize Domestic Asset Protection Trusts (DAPT), which allow grantors to shield assets in a self-settled irrevocable trust that creditors cannot attach. As noted, though, Florida is not one of them, and Florida courts are unlikely to enforce a DAPT made by a Florida resident under the laws of a DAPT state, particularly if the trust holds property located in Florida. Self-settled trusts in general are valid and can be quite useful for other purposes – just not for avoiding creditors.
The Importance of Skilled Drafting [Avoiding Boilerplate Documents]
To accomplish its objectives, a trust needs to be precisely tailored to satisfy all legal requirements of the state in which it is created. For Florida residents, this means creating a trust that achieves its specific goals while complying with all of the particularities of Florida trust law. Because trusts – and particularly specialized irrevocable trusts – can be complicated, anyone thinking about forming a trust in Florida should consult with an experienced Florida trust and estate planning attorney and avoid do it yourself (DIY) estate planning in Florida.
Steve Gibbs, Esq.
The Trustee Wishes to remove a beneficiary …Her husband is deceased and would not have wanted any funds to pass to this nonprofit organization, because of changes in the principal ideas, originally believed…
Hello Bett, interesting comment. Whether a beneficiary could be replaced would generally depend on the language of the trust and the Trustee’s discretionary rights as well as whether a Trust Protector was appointed to make these kinds of major changes.
Best,
Steve Gibbs, Esq.
the settlor has pass away. how could the truss be terminated and pass the property to the beneficiary only one
Hello Jim, thanks for your interest and comment. In order to help you, would need to review the trust otherwise am only guessing. Feel free to contact our Legal Director Gene at admin@gibbslawfl.com to schedule a review meeting. Best!
Steve Gibbs, Esq.
Hello Mr Gibbs;
My parents left me an irrev. trust, on of the entities is a Fla condo. I thought I might rent it out so I formed an LLC that is now owed by the Trust (the trust owes the LLC?) but now I want to be a resident of Fla and save money on homesteading my condo. I also did not pay the 2019 Annual Report so the LLC is disolved until I pay the $400.00 late fee. Can My irrevocable trust own the condo and still allow homesteading? Please advise me the best way to handle this.
Can a condo held in an irrevocable trust become homesteaded?
Hello Lisa, thank you for reading and commenting and sorry for the delayed response. In general I would say a condo in an irrevocable trust wouldn’t qualify for homestead because in irrevocable trust is an independent entity with its own tax id number, etc. However, you might check with the county recorders office where the condo is located just to be sure. And yes, if you want to keep an LLC active after it expires, you need to pay the $400 reinstatement fee in FL. All of this is of course only for education purposes, as we cannot offer legal advise or create an attorney client relationship in a blog post. There may be other factors that I’m not aware of here. If you decide that you’d like formal legal advise, feel free to e-mail Gene at admin@gibbslawfl.com and leave your best contact phone number.
Best, Steve Gibbs, Esq.
See previous response, thanks Lisa.
Best, Steve Gibbs, Esq.
Mr. Gibbs,
We have a problem with our Trust. I’ll be concise as I can. Basically, My Grandfather established a Revocable Trust Investment in 1989.
He passed away in 1998, nd the Trust became Irrevocable.
There’s two Trustee’s (His Sons). One Trustee never paid attention to the Trust and the other has IMO, abused his powers grossly as a Trustee.
The Trust was split into two accounts in 1999. One half sits in large cash balances, the other half invested in the NASDAQ. After 20 plus years of Investment..the Trust value has remained the same.
The Taxes were not paid for 5 years.
There’s Swiss Bank accounts tied to the Trust by the unethical Trustee.
The Trust was to go to Beneficiary’s for dissolution in 2009. This did not happen. I’m a descendent of my Father who passed away two years ago. Trust states to go from Beneficiary to descendant. This has not happened as my Step Mother feels it’s hers.
Magically, the unethical Trustee came up with an Amendment that locks the Trust and keeps it under his control. My Grandfather was a good and ethical person. He did not sign the Amendment and the unethical Trustee signed it himself as “Attorney in Fact!”
He’s the only on to benefit from the Trust Asset.
Hello Andy, thanks for reading and commenting. It’s difficult and not advisable for me to comment on a scenario like this in a blog post, both for privacy and professionalism reasons. This concern would lend itself to a private confidential consultation. Let us know if you’d like to do that by e-mailing Gene at admin@gibbslawfl.com. One thing I can point out is that a power of attorney is only valid while the person who gave the power is alive and it expires upon his/her death. It does appear that some impropriety has occurred so probably worth exploring.
Best,
Steve Gibbs, Esq.
1) Trustee loaned money to Family Trust because his wife (beneficiary) asked him to due to her exceeding the agreed $40k budget for renovation of property. Other beneficiaries were unaware of the loan until it reached $25k (now much higher amount). Is this type of loan legal?
2) When does the Trustee have to present an Annual Financial Report to the beneficiaries? (We still have not received the 2018 Tax Report and have requested it numerous times).
Hello Susan, thanks for reading and commenting. It’s tough to answer without reviewing the trust; however, in general that would appear to not be an “arms length” transaction between the trustee and the trust – concerning the loan. Under the FL trust code, you’re entitled to an annual accounting. Let us know if we can help further e-mailing Gene at admin@gibbslawfl.com.
Best, Steve Gibbs, Esq.
Assuming real estate is owned by an LLC. The LLC currently has two members (in Florida). Can one member substitute an irrevocable trust for him-/herself as a member? Or, could a third member (the irrevocable trust) be added to the LLC? In doing so, could you achieve the advantages of a spendthrift trust? Thanks in advance.
Hello Mike, thanks for reading and commenting. The short answer is yes and yes; however, you should know that FL does not allow “self settled” asset protection trusts, so if you’re the beneficiary of the irrevocable trust, it may not be enforceable in FL unless FL would decide to uphold the law of another jurisdiction in which that trust was created. For a more in depth discussion, feel free to connect with Gene to schedule a consultation at admin@gibbslawfl.com.
Thank you for your informative site. I have a question regarding our familys irrevocable trust taxes. Executed a death put from an IRA that was distrubuted to the amount of $53,000 to 6 beneficiaries, the IRS form 1099-R says the trust owes $17,000 for this distribution, is that the trust rate on funds to be distributed at 31%? That seems very high. Your comments pleas
Hello Patrick, thanks for commenting. Yes, trust tax rates are usually higher than individual rates – one of the facts of life when it comes to trusts. You might check with the Trustee or CPA if you have more questions about it.
Best,
Steve Gibbs, Esq.
In Florida, does an irrevocable trust during a divorce keep ones financial assets from other spouse? if not, is there a trust of some sort that would?
Thank you
Hello Joyce, thanks for commenting. The short answer is that an irrevocable trust “can” offer protection in a divorce. However, a few factors would be considered, such as whether the trust existed and was “funded” prior to the marriage with non-marital assets. Ultimately, the best protection from divorce is a nuptial agreement, check out: https://www.gibbslawfl.com/prenuptial-agreements-in-florida-for-estate-planning/. I hope this offers some direction as just general education. An individual attorney-client discussion would be needed in order to offer something more concrete in the form of legal advice.
Best, Steve Gibbs, Esq.
Question. 3 rd marriage for both. Have kept assets and liabilities separate except for buying of one condo that was titled as right of survivorship then sold to buy triple in price condo. Second condo was apparently bought by husbands LLC which is now in a revocable trust that become irrevocable upon his death. Just discovered that the condo (my permanent residence). He lives in another state because of work restrictions but spends a third of year in Florida. Problem. I am given life estate but when I die the house is his sons who is also the trustee. If I move, I get 150,000 from trust and that’s it. I absolutely want nothing else and all other properties and assets can stay in trust to his son. But there was no prenuptial agreement and until I found the papers assumed the house belonged to both of us as the first one did as marital property. Can he do this and if yes how can I fight it to get at least half if I sell. My children are elsewhere and I don’t want to be forced to stay here which I feel this will make me do.
Hello Janette, thanks for commenting. If this is important for you to resolve, I recommend that you engage an estate litigation attorney. We are exclusively focused on planning and thus don’t handle these matters. Also, I want to be sure you’re comfortable with sharing this in a blog post which is a public forum. I will approve this comment; however, let me know if you’re not OK with it being posted and I will remove it.
Best
If a trust is established in 1992 comprised of funds received from an inheritance (back in 1979) and the person remarries in 1999, then subsequently dies in 2020, and the family cannot locate the trust documents. I am presuming it will go to the estate, but does the his spouse have any entitlement to it? I believe that inheritances are protected as premarital assets (although they are in the trust). Thank you kindly
Hello Louise, it is difficult to comment on a complex situation without reviewing whatever documents are available. Where trusts are concerned, the spousal entitlements could vary widely depending upon the trust agreement.
Best, Steve Gibbs, Esq.
Thank you mr. Gibbs for such a comprehensive article on trusts. I have a question on irrevocable trust. Is it possible for Florida irrevocable trust to have 3 beneficiaries to be the trustees as well?
Hello John, you’re most welcome. Generally, with irrevocable trusts, the trustee cannot be the same individuals as beneficiaries in FL which does not generally allow “self settled” asset protection trusts. Let us know if we can help further.
Best,
Steve Gibbs, Esq.
My house in Florida is titled in an irrevocable trust. I didn’t realize I had to put my name on the Homestead Exemption in order to qualify and now they are going to reassess my home. I just want to make sure I can receive homestead if my home is in an irrevocable trust? The Property appraiser won’t tell me.
Hello Margaret, generally a homestead residence wouldn’t be able to be titled in an irrevocable trust because this is a separate entity and homestead is for an individual. For this same reason a “revocable” trust can be used for a homestead; however, this is not alawya advisable based upon your specific circumstances. More information is needed.
Best, Steve Gibbs, Esq.
Hello,
I have a general question regarding Miller Trusts. When the beneficiary is a Medicaid resident of Florida, is a non-domestic Miller Trust conform to Medicaid/Medicare and other rules for such trusts?
Thank you.
Hello, I’ve not heard of a “non-domestic” Miller trust being used; however, because Medicaid is both state and federal in nature, I would want to rely on Florida specific documents in Florida Medicaid.
Best, Steve Gibbs, Esq.
Hello, RE: Florida Irrevocable Trust. My Father left a Trust. Irrevocable upon death naming his wife as beneficiary during her lifetime with my brother and myself as beneficiaries after her death. My father named his business partner CPA and financial planner as trustee . This individual was to serve as trustee along with my stepmother as coach Rusty after my dad died. But what my stepmother did was fire my dad named friend fellow CPA and fellow cfp . Then my stepmother who has no experience or qualifications to serve as trustee signed on by an attorney to serve herself and help herself I believe . My stepmother made herself Trustee a few years after his death. My brother and I have not seen an annual accounting report since she took Trustee Duties over 7 years ago. My stepmother has just communicated herself from my brother and I. She wants nothing to do with either one of us and make that very clear and she does so very rudely. This is the most painful and rather personal problem that I have:
My dad died after a long painful battle with cancer at age 59 in 1999. While my dad was dying, he called me one day and told me he thought his wife – my stepmother, – was having an affair. It turned out that his suspicion was right. She I was with another man and in fact she had already moved him into the family home….the home that I was raised in…. my dad’s home… and she put Dad in a hospice facility. My stepmother would not allow my dad to come home and die in his own bed because she stated she couldn’t live in the house that she loved so much if dad died there. My dad and I discussed he could come and live with me and I at my house and allow me to be with him during his passing my dad wanted this very much since he couldn’t go home. Yes to come to my home and allow me to care for him while he was dying. But stepmother said no to that as well. Dad had to die in a hospice center. The truth was that my stepmother had already moved her new boyfriend into my dad’s house the house that my brother and I grew up in. When I came to my father’s memorial service and stayed the night in my old bedroom, I found my stepmother’s boyfriend’s clothing, shoes, all of his colognes….clear evidence that she had already had him living there the whole time my dad was dying. She has had that man living with her for 20 years since then. She will be 71 years old this week. My brother and I do not receive any benefits monies from the trust until after her death. She gets a monthly check from the Trust of the Net Income, plus $5,000.00 annually.. That is what she used to receive however I don’t know what’s going on since she has began to withhold the trust accounting from me and my brother . I believe that if my father had known what she was up to, that he would have made drastic changes to her benefit provided under the trust. Do I have a case of any kind in a court of law? I am sending her a demand letter for a trust accounting dating back to when she assumed Trustee Duties. I am 100% disabled now with spinal stenosis. I don’t have any money to hire an attorney. Do you have any advice for me?
Sorry I cannot offer legal advice via a blog post due to ethical concerns. I recommend that you seek a legal consultation, whether it be legal aid or someone who will offer a free consultation.
Best, Steve Gibbs, Esq.
I want to purchase a condo in trust, so my name doesn’t appear on the deed, just the business name is this possible? If so what are the steps?
Hello Marcella, step one, schedule a consultation with an experienced asset protection attorney.
Best, Steve Gibbs, Esq.
I am a single woman and quitclaim deeded a property that was homesteaded for tax purposes in FL in 2022 to my FAPIT trust. I am the sole trustee. However, I have learned that since it is now rental property, my mortgage company will not allow the property to be in the trust. Can I quitclaim deed it back as trustee to me as an individual or should I deed it to someone else who I trust and than have them deed it to me individually? I am concerned that I am violating the terms of the trust if I deed it back from the trust to myself but also concerned that if I deed it to someone else I am violating the terms of my mortgage and the loan may be called.
Hi Linda, unfortunately, this is something you’ll need to consult with an attorney about.
Best, Steve Gibbs, Esq.
My parents, as Grantors, created and funded a Florida revocable trust in 1994. As to its distribution, the trust instrument states:
“After the death of both Grantors, the trust estate… shall be distributed to the Grantors’ descendants, then living, per stirpes.”
My parents died in 2010, leaving my sister, my brother and myself as their descendants. In 2022 my brother, who never had any children, died, willing his entire estate to his girl friend.. No distribution of the trust estate has ever been made. Since my sister and I are now my parents’ only living descendants, is my brother’s girl friend now legally entitled to what would have been my brother’s share of my parents’ trust estate? (I believe she is NOT, since the method of distribution sentence meant to my parents and to myself that distributions were to be made to biological descendants who were living at distribution time, and not to anyone else; ie, a distribution to his girl friend violates the trust’s intent.)
Hello Robert, I can’t comment on this as you really need the trust reviewed and a detailed consultation since there may be claims pending.
Best, Steve Gibbs, Esq.
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