Living Trust Planning: More Than Avoiding Probate

Creating an efficient estate plan often means avoiding probate upon your death. However, trusts can provide a whole host of other benefits, such as:

  • Reducing costs and hastening access to assets for beneficiaries (this is even more important if you own a closely-held business);
  • Providing for your surviving spouse, while preserving your legacy for your children from a previous marriage;
  • Allowing intricate giving structures among charitable and/or individual beneficiaries;
  • Caring for your special needs child or grandchild, while preserving any needs-based government benefits (e.g., Medicaid) she may be entitled to;
  • Ensuring the proper care of your beloved pet(s) or farm animals;
  • Protecting your child’s inheritance from his impending divorce;
  • Managing assets for your minor child or grandchild;
  • Extending the benefits of family wealth over a longer period of time; 
  • Providing professional guidance and management for more complex estates or for a child who is not financially-savvy.

A living trust is a legal document created by an individual or a couple during their lifetime, called the Settlor, to hold and own the Settlor’s assets. The living trust is managed by the Trustee, who is typically, but not always, the same person as the Settlor.

The living trust’s main goal is to prevent your assets from going through probate upon your death, which generally saves time and expense for your beneficiaries. But to achieve this goal, you must do what is called “funding the trust.” This critical step involves contacting the financial institutions where your assets are held and changing the name on the account from your own, individual name to the name of your trust. In our office, we aid and direct you on how to correctly place your assets into your trust.

Upon the Settlor’s (i.e., your) death, the successor Trustee takes over and continues to administer the Trust in accordance with your final wishes, without seeking probate court involvement or approval. 

There are many different living trusts that may be beneficial to you and your heirs.  These include, but are not limited to:

Revocable Living Trust

The revocable living trust gives a Settlor the most flexibility. The Settlor is almost always the initial Trustee, so that means the Settlor can still manage his assets as he sees fit during his lifetime (while he has capacity). He does not need to give up control to reap the benefits of a revocable living trust – and, in fact, it is called “revocable” because the Settlor may amend or revoke the trust at any time. Because of the flexibility and control provided to the Settlor, it is a popular option, but it is generally not used as an asset protection device.

Irrevocable Asset Protection Trust

While not for everyone, these trusts can help protect your assets from the high cost of nursing home care or if you have a high-risk career. This is also one instance where the Settlor is NOT the Trustee and, therefore, the Settlor cannot manage the assets on his own. The trust is also “irrevocable” which means once it is set-up and funded, it cannot be amended or dissolved by the Settlor. However, because of these limitations on the Settlor, it can provide protection for the Settlor’s assets.

Special Needs Trusts

A special needs trust, sometimes called a supplemental needs trust, allows a disabled person (as defined under the Social Security rules) to have an unlimited amount of assets held in trust for her benefit. The assets held in a special needs trust are not counted when assessing qualification for needs-based government benefits, as long as it is drafted and administered correctly. It is very important to seek the counsel of an attorney when considering this legal device. If done properly, this will allow the person to have full access to government benefits (such as SSI and Medicaid) while still being able to benefit from the trust funds for other, supplemental needs. These “supplemental needs” are not covered by governmental support but will increase the disabled person’s quality of life.

Dynasty Trusts

A dynasty trust is used to transfer family wealth from generation to generation without triggering federal taxation such as gift, estate, or generation-skipping transfer tax (Note: None of these taxes exist at the state-level in Florida). A dynasty trust is an irrevocable trust that can benefit a family for as long as there are assets in the trust, and as long as the Settlor specifies it is to last or until it is required to be terminated by law (which in Florida is generally 360 years). This is another instance where the Settlor cannot serve as Trustee, and careful consideration needs to be taken when selecting one.

Pet Trusts

A pet trust allows you to arrange for the care of your pet(s) or farm animals should something happen to you. Without a plan, your pet could be one of the thousands that enter animal shelters each year when their owner dies or becomes incapacitated. In the trust you provide the funds necessary to ensure your pets continue to get the comforts they are accustomed to. Even if you do not to set-up a pet trust, it is still very important to specify in your estate plan how to care for your pets and to select the person you want to be responsible for their care.

Charitable Trusts

Charitable trusts are a great way to support nonprofit organizations or causes, while also benefitting from positive tax incentives. If you create a charitable trust, in most cases, you retain the interest in the income from the assets within the trust during your lifetime, and the remainder will be distributed to your selected nonprofit organization(s) upon death. However, some are drafted to provide the trust’s income to the nonprofit organization during the Settlor’s lifetime and the remainder to the Settlor’s family upon death.

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