The heirs and beneficiaries of a Florida trust as well as the accountants, financial advisers and trustees are all impact by trust funding in Florida or the lack thereof. This is one of the most important aspects of creating a functional Florida estate plan and this article will focus on why trust funding in Florida is critical is AND how to make sure it is done properly. Even if you’re not in Florida, most of these concepts should apply to your state of residence.
Simply put, if a trust in Florida was never “funded” then the entire Florida estate plan is at least temporarily derailed and, rather than pursuing a simpler Florida trust administration, the estate must go through a more complex and expensive Florida probate administration.
What is Florida Trust Funding?
For our purposes, trust funding in Florida usually refers to a Florida revocable living trust and is defined as the process of re-categorizing your Florida assets so as to place them in the name of the revocable living trust whenever possible rather than the owner’s individual name/s.
Certain assets may be simply re-titled and other assets may be “pointed” toward the trust by changing the beneficiary designations in a life insurance policy.
For example, when you create your family living trust your assets will be titled in the manner of John Doe or John Doe and Jane Do. When you create your revocable living trust, it will be given a name like the John and Jane Doe Family Living Trust, or whatever you decide in cooperation with your experienced estate planning attorney. So to re-title an asset you could re-name it as John and Jane Doe, Trustees of the John and Jane Doe Family Living Trust.
Changing the Actual Title vs. Changing the Beneficiary Designation
The general rule is that “non-qualified” assets may be re-titled in various ways in Florida for estate planning purposes such as in the name of a Florida revocable living trust and that “qualified” assets and other contractual assets to be discussed below should be “pointed” or connected to the revocable living trust through changing the beneficiary designations.
For example, non -qualified assets that could be re-titled would include such things as bank accounts, CD’s, stock accounts, bonds, real property and other assets that do not receive special tax treatment or subject to contractual conditions.
In contrast, assets that receive special tax treatment are Florida IRAs and 401k accounts, 403bs, 529 plans for college planning in Florida, and other retirement accounts. Insurance products such as annuities may carry certain “surrender charges” or tax ramifications and so these products are often not “re-titled” but rather pointed toward the revocable living trust through the use of TOD and POD beneficiary designations in Florida. Whole life insurance may be either retitled or pointed to the revocable trust as determined on a case by case basis.
When you change a beneficiary designation, you generally are obtaining a beneficiary designation change form from your account administrator or agent and inserting the name of the revocable living trust as beneficiary.
Corporate stock may be re-titled into the name of a revocable trust or may be transferred by virtue of a “transfer upon death” provision which would need to be specifically drafted in the corporate agreements.
I CANNOT STRESS ENOUGH that trust funding in Florida, or any state, requires expert legal counsel. There are exceptions and unique aspects to every rule, regarding identifying a revocable trust as the contingent beneficiary of IRA accounts or life insurance policies.
Beneficiary designations for IRA accounts should be titled a certain way so that each trust beneficiary’s lifespan may be used for purposes of the required beneficiary IRA distributions.
All of this assumes that your revocable living trust was properly drafted so as to accommodate all kinds of assets such as IRAs, 401ks, life insurance proceeds, and “S Corporation” stock in Florida.
I will repeat my mantra that all of this is case by case specific and requires careful assistance by your experienced Florida estate planning attorney.
Steve Gibbs, Esq.