Legal trusts are documents where a person or entity (the trustee) manages the property of another (the trustor, grantor, or settlor) for the benefit of another (the beneficiary).
Instruments of legal trusts can be created while the trustor is alive (an irrevocable or living trust) or substitute for a will (a revocable living trust) to provide for the distribution of assets upon death.
Additionally, gun trusts, charitable trusts, and Medicaid trusts are all examples of legal instruments that can help us to accomplish our goals and meet our desires.
However, careful drafting and attention to detail are required in order to achieve the desired beneficial results and avoid harsh legal consequences.
Requirements of Legal Trusts
In Florida, the following requirements are necessary for the creation of trusts:
- A “settlor” (also known as a “grantor”) who possesses the legal capacity to create a trust;
- Intent on the part of the settlor or grantor to create the trust;
- A definite beneficiary (unless the trust qualifies under the Florida Statutes as a charitable trust, non-charitable trust, or animal trust);
- A trustee with duties to perform; and
- The trustee cannot also be the sole beneficiary of the trust.
If these basic formalities are followed, then a trust will be created. It is generally not required that the trust be in writing, however it is often advisable and may be a requirement for certain types of trusts, such as a foreign trust or a testamentary revocable trust.
A trust that is not in writing must be established by “clear and convincing” evidence, which can often be a difficult evidentiary standard to maintain.
Common Types Of Trusts
Revocable Trusts
A revocable trust is a trust whereby the settlor can make changes to trust provisions, as well as transfer assets into and out of the trust, at the settlor’s discretion.
During the life of the settlor, income earned by the trust is generally taxed to the settlor and the trust does not obtain a separate employer identification number (EIN) or otherwise establish its own tax identity. Upon the death of the settlor, the revocable trust is usually designed to become irrevocable and any trust assets are distributed according to the terms of the trust document.
Often, the settlor serves as the trustee of their revocable trust during their lifetime, with a successor trustee taking over in the event of death or incompetency and serving a function that is akin to that of a Florida personal representative (also known as an “executor”) or a guardian.
Revocable trusts are beneficial for estate planning because, when the trust is fully funded, the assets that are owned by the trust pass to the beneficiaries named in the trust agreement (or to trusts for their benefit) without the need for probate. Probate avoidance means that revocable trusts are more effective at maintaining the privacy of the decedent and can also save the estate time, court costs, and attorneys’ fees.
Revocable trusts are also useful for avoiding “living probate.” Living probate, occurs when a person (called a “ward”) is declared mentally incapacitated or incompetent, and court intervention is sought in order to appoint a guardian to act on that person’s behalf.
This guardian is often empowered to make financial, legal, and healthcare related decisions for the ward for as long as the court determines is necessary.
Since a revocable trust allows a successor trustee to step in and manage the trust should the settlor’s capacity become an issue, this inconvenient process can often be avoided.
Thus, a revocable trust is often utilized in conjunction with a durable power of attorney as well as designation of health care surrogate in order to accomplish a full and comprehensive estate plan which contemplates the possibility of guardianship.
Irrevocable Trusts
An irrevocable trust is different than a revocable trust. Once the settlor has established and funded an irrevocable trust, it generally cannot be modified or terminated without the consent of the beneficiary.
With an irrevocable trust, the settlor has usually transfers away all rights to ownership to the trust property. Irrevocable trusts are often seen as separate legal entities and may apply for and receive their own EIN. Depending on how the trust is formed, irrevocable trusts may also pay their own income taxes and have their own federal income tax brackets.
Irrevocable Trusts
An irrevocable trust is different than a revocable trust. Once the settlor has established and funded an irrevocable trust, it generally cannot be modified or terminated without the consent of the beneficiary.
With an irrevocable trust, the settlor has usually transfers away all rights to ownership to the trust property. Irrevocable trusts are often seen as separate legal entities and may apply for and receive their own EIN. Depending on how the trust is formed, irrevocable trusts may also pay their own income taxes and have their own federal income tax brackets.
Gun Trusts
A gun trust is a special trust designed to hold Title 2, Class III weapons such as machine guns, suppressors, short barreled rifles, short barreled shotguns, and other weapons. The trust is set up for the benefit of an established beneficiary while granting possession to the trustee.
The chief benefits of a gun trust include: the ability to acquire certain firearms without the approval of a Chief Law Enforcement Officer, the ability to have multiple operators without having to effectuate additional transfers, and the avoidance of the probate process breaching the owner’s right to privacy.
A gun trust is a complicated and sophisticated legal instrument that requires extensive knowledge regarding overlapping areas of federal and state law.
One should never attempt to put a gun trust into place without consulting an attorney knowledgeable in these areas, otherwise harsh criminal and civil consequences could result..
Trust Litigation
Much like wills, the validity of trusts are frequently contested in the courts. Additionally, the trustee given power over the trust may be sued for improper accounting and trust mismanagement.
When something like this happens to you or your trust, you need an attorney who is knowledgeable about trust litigation.
At Ourednik Law Offices, we are prepared to assist you in handling your trust in a variety of legal actions including: challenges to trust validity, trust contests, and trust reformation.
We are also prepared to defend you as trustee against charges of improper accounting, breach of fiduciary duty, and trust misappropriation/mismanagement.
How We Can Help You
As indicated above, there are many options to consider when utilizing a trust as part of your estate plan and it is best to speak with an experienced Florida attorney who can help advise you on the type of trust that may benefit your circumstances.
At Ourednik Law Offices, our attorneys have experience in trust formation, tax law, and asset protection and we are always prepared to assist you in discovering what a well-drafted trust can provide for you and your family.