08 Jan What Is a Trust?
What Is a Trust?
By: Barry E. Haimo, Esq.
March 27, 2014
A trust is an incredibly valuable and versatile tool that can enable you to accomplish many of your estate and business planning objectives. There are all kinds of different types of trusts out there, many with very specific rules and intentions.
However, the two basic categories of trusts are revocable trusts and irrevocable trusts. Additional types of trusts include various types of charitable trusts, grantor retained annuity trusts (GRATs) and qualified personal residence trusts (QPRTs).
What are they? How do they work?
The Nuts and Bolts of Trusts
Legally speaking, revocable trusts (and specially drafted irrevocable trusts) are separate entities from you as soon as you create them. That being said, they still “remain you” for income tax purposes until your death. You control them as trustee, so they largely represent you – just in another form of ownership that possesses critical advantages over many other types of financial planning devices.
Basically, you create a separate legal entity that owns and administers property for the benefit of certain beneficiaries. One or more trustees are appointed to administer the trust pursuant to the document’s precise instructions. They must adhere to the instructions laid out in the trust at the risk of being held personally liable. That’s why trustees are called fiduciaries – because they are subject to a higher standard of care in exercising their duties.
Since trusts are separate legal entities, they do not “die” when the people who create them pass away. In fact, they can last for up to 360 years in Florida.
Because trusts can own virtually any type of property, they ensure a smooth transition of family and/or business assets or wealth to subsequent generations, while still exercising a fair amount of control over the property far beyond the time of death. Trusts are also particularly useful in a variety of situations, including: blended families, complex family dynamics, subsequent divorces, substance abuse situations, elder abuse prevention, controlling assets, consolidating accounts, asset protection, and income tax, estate tax, and gift tax planning.
Special Powers of Trusts
As mentioned above, there are many types of trusts. Each have unique advantages and disadvantages. Some are excellent for simple estate planning. Others are useful for estate and gift tax planning. Still others can be used for current and deferred charitable giving.
Here are some of the most commonly used special powers of trusts.
Trusts both provide more flexibility than wills and can be incredibly specific about how, when, and by whom the assets they contain are to be used. Specialty provisions are one of the things that can make them so specific.
Add these types of provisions into your trust and you can very carefully control the manner in which assets are distributed. Some examples of specialty provisions are milestone distributions (such as birthdays, graduations, or other lifetime achievements), a stipulation that requires the assets to be used for the beneficiary’s education, or language that connects potential distribution to the beneficiary’s current lifestyle.
Again, these are merely examples. As long as it is legal and not against public policy, most likely any specialty provisions that you wish to add will be valid and enforceable.
Where trusts are relevant to everyone is how helpful they are in avoiding probate and guardianship, which can be very time consuming, expensive, and dangerously unpredictable. Not to mention the fact that anything that goes through probate becomes public knowledge, eliminating any possibility of keeping your decedent’s affairs a private matter.
With a Florida living trust, you can skip probate for most assets – including bank accounts, real estate, vehicles, and more. All you need to do is have a knowledgeable attorney help you set up a trust and name yourself as trustee. Then you craft the appropriately tailored trust document to address your goals and circumstances, and of course don’t forget to fund it, or transfer the ownership of your property to the trustee of the trust (often you and/or your spouse). Then, when you become incapacitated or pass away, the successor trustee automatically takes over. He or she will be able to maintain the trust and distribute the assets in the trust to the named beneficiaries without going through probate or guardianship proceedings.
Finally, trusts are excellent vehicles to integrate into an asset protection plan, thereby taking advantage of both estate planning and asset protection techniques planning simultaneously.
Given how powerful trusts can be, you have to ensure that they are carefully drafted by an experienced professional who understands Florida probate and estate planning law.
Barry E. Haimo, Esq.
Strategic Planning With Purpose
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Originally posted 2014-03-27 10:00:58.