David M. Andrews
Attorney at Law
125 Nix Boat Yard Road, Saint Augustine, Florida 32084

TRUSTS
LIVING TRUSTS IN FLORIDA
FREQUENTLY ASKED QUESTIONS

What is a living trust and how is it formed?
A living trust is a separate legal entity formed by you. You're called the grantor or settlor. The trustee can be yourself, another trusted individual, or a corporate trustee such as a bank or other financial institution. The trustee's job is to manage the assets transferred for the sake of the trust's beneficiaries. The beneficiaries can be anybody you wish but usually it is yourself. You, as grantor, transfer some or all of your assets to the trust by retitling them in the name of the trustee. Upon your incapacity or death the successor trustee manages the trust. At your death, the trust becomes irrevocable. The successor trustee can only manage assets that have been transferred into the trust.

Does a living trust avoid probate?
Yes. However, many assets avoid probate, such as jointly held accounts, life insurance, retirement plan benefits, IRA's, and annuities. Avoiding probate does not assure all expenses and red tape associated with one's death will be avoided. Whether your estate goes through a living trust or probate, your debts, taxes, and expenses must be paid. Your successor trustee becomes personally responsible to see that these things are done. Any assets which have not been transferred to the trust do require probate.

Does a living trust allow for a quicker distribution of my estate?
The day after you die your successor trustee has the ability to liquidate all of your accounts and distribute the money. However, that person is still personally responsible to assure that creditors and taxes are paid. If done correctly, it is not faster than probate. It is clearly no faster if a federal estate tax return must be filed because that process can easily take two years with or without a trust. The probate process allows creditors 90 days to make claims against your assets. A trust without probate is subject to creditors' claims for up to two years.

Is a living trust more private than probate?
In probate, your assets are not made public. However, your will is a public document. On the other hand, it is common with a living trust to have copies furnished to banks, brokerage houses, and other financial institutions, as well as having it recorded in the public records on some occasions.

Privacy can be a problem. If the estate is probated, there are formal court requirements to assure that the personal representative fulfills his/her duties. If the trust is private and the trustee does not communicate well, the beneficiaries are left in the dark as to what is going on. If the trustee does not do his/her duty then the beneficiary must hire an attorney and sue the trustee to get the information. This places a heavy burden on the beneficiary if the trustee is not cooperative.

Do I need a living trust to save estate taxes?
A revocable living trust, by itself, has no effect on your income or estate taxes. If you are married, it is the bypass trust (sometimes called a family trust) for the benefit of survivors which comes into being after your death that saves the estate taxes. Bypass trusts can be created in living trusts or in a will.

Does a living trust avoid guardianship?
If you have been diligent. There are two aspects of guardianship. There is a guardian of your person (to make personal and medical decisions for you if you are unable) and a guardian of your property (to make financial decisions). One of the best reasons to have a living trust is to handle your finances if you become unable to. Upon your disability, the assets in a living trust will be handled by the successor trustee of your trust without having to appoint a guardian. Of course, if some of your assets are not in the trust, a guardian of your property may have to be appointed anyway because those assets are outside of the successor trustee's realm of authority. In addition, the fact that one has a living trust does not prevent the appointment of a guardian of your person if the need arises. Only a Court can appoint a guardian.

Can a power of attorney be used instead of a living trust?
A durable power of attorney transfers to some other person the right to sign your name. That person makes all of the decisions as to how that power should be used. There are no rules or guidelines given in a power as there are in a trust. A power is effective the moment you sign it. The power is revoked at the moment of your death. If you grant someone the right to sign your name you do not have to retitle your assets.

Does a living trust protect against catastrophic medical bills?
No. Assets in a living trust are considered yours for all purposes. Creditors can as easily attach assets in a living trust as assets in your name.

Are there any disadvantages in using a living trust?
Yes. As we have all learned in life there is no "silver bullet." The published information about trusts often creates a false sense of security. Once formed it must be attended to and administered properly, both before and after your death, to assure that you maximize its capabilities. Many of the advantages touted for trusts do not benefit you but someone else. You must weigh the advantage to you and your loved ones. I have had many experiences when not all of the assets are in the living trust at the time of one's incapacity or death. Then those assets must go through probate (at your death). Living trusts require one's active involvement and vigilance to make sure that assets, new and old, are transferred into the trust.

In addition, living trusts require initial administrative efforts if they are to be properly funded. Trust accounts are treated differently than individual accounts or jointly-held accounts by most institutions. Each institution has a different policy in accepting trust accounts, and sometimes that policy is frustrating. Straightforward assets, such as savings accounts, CD's, and brokerage accounts, cause very little problems for the trust owner. However, more complicated assets, such as direct investment accounts, real property, limited partnerships, royalties, mineral rights, stock in closely-held corporations, etc., can be a problem when using the trust. You must reach the conclusion as to whether or not the administration of a living trusts is worth your time and money.

Does an income tax return have to be filed for a living trust?
Sometimes. As long as you are the trustee or co-trustee of your living trust, the only income tax return you file is your normal Form 1040. However, if you are not the trustee or co-trustee of your living trust (because you have resigned, have been removed because of incapacity, or have died), the living trust must file its own income tax return (Form 1041) in addition to your normal Form 1040.

Under what circumstances should a living trust be used?
This must be decided by you on an individual basis. A living trust is clearly helpful under three circumstances.

· You are particularly concerned about the management of your assets in the event of your incapacity because you have no one to rely on.

· You have out-of-state real property that will require a probate procedure. Avoiding additional out-of-state probate procedures by establishing a trust to hold title to property in another state can be less costly and more efficient than out-of-state probate.

· You do not want to manage your financial matters. (Which, by the way, is the original use of a living trust.) You could transfer the burdensome details of handling finances to a child, relative, or trust department through the use of a living trust.

CAVEAT: The above is the author's summary. None of these matters should be undertaken without advice and counsel of an experienced attorney licensed to practice law in the State of Florida.