At our Coral Springs, Florida law firm, we know that setting up a revocable trust as part of a comprehensive estate plan can be an important way for some clients to secure the handling of their assets and to maintain privacy after they pass away or become incapacitated.
Unlike some types of trusts, revocable trusts–also known as revocable living trusts or simply living trusts–can be amended during the trustee’s lifetime. This makes them valuable estate planning tools for some individuals.
(See Understanding the benefits of estate planning in Florida.)
However, our law practice has seen many Florida residents make crucial mistakes when they create a revocable living trust that can undermine its main purposes and lead to problems down the road.
In a previous blog, How to Set Up a Trust in Florida, we explained the various types of trusts, who they’re best for, and how to create a revocable living trust under the guidance of a skilled wills, trust and probate attorney in South Florida.
This blog, from the LAW OFFICE of GARY M. LANDAU, P.A. focuses on the three biggest mistakes we see people making when they create or are the trustee for a living trust, and how to avoid them.
Mistake Number 1: Not Funding the Trust with All Assets
A trust is simply a document describing the ownership of assets inside the trust as belonging to the trust rather than to an individual. By itself, it doesn’t move assets away from the individual owner. That has to be done by the trustee, one asset at a time.
So it’s no wonder that one of the biggest problems people who own revocable living trusts have is that they fail to fully fund the trust. This includes changing the title of deeds to your home (or homes); altering who owns your bank accounts, investment accounts, stocks, bonds, and other securities; and ensuring that other valuable personal property is in the name of the trust.
Assets that remain outside the trust are not governed by its terms. This means that the person named as successor trustee cannot simply claim ownership over these assets upon the trustee’s death.
For example, say you have a home that, despite your creation of a trust, has not been retitled to reflect the trust’s ownership. Upon your passing, the home will need to go through a regular probate process.
(See 8 Steps involved in probate in Florida.)
To avoid this outcome, as soon as you create a trust, sit with your investment advisor or your attorney and make a list of all assets you intend to be part of the trust. Then contact your bank and other asset holders to initiate these transfers.
Over time, as you acquire new assets, don’t forget to purchase them in the name of the trust. It’s common for people who come to our law office after a trustee-holder’s passing to have newer assets that are outside the trust and need to be probated.
Be aware that not all assets should be transferred into a revocable living trust. One example is a retirement account, because transferring it may trigger unwanted tax consequences.
Mistake Number 2: Failing to Update the Trust Over the Years
Life is nothing if not a constant parade of change. People marry, they divorce, they have children, and loved ones pass away. Yet, many people create a trust and put it away forever, failing to amend the document to reflect the impacts of these life events. This oversight can lead to confusion, disputes, and unintended consequences.
For example, if the person named as successor trustee passes away before the trustee does, you must name a new person to that role. Failure to name a living successor trustee in your trust documents creates confusion that may need to be sorted out by the courts.
Another example is when someone names their two children as successor trustees, but later in life they had a third; they’ll want to amend the trust to include all three of these now-grown children.
Changes in laws or tax regulations over time could also impact your trust. This is why it’s smart to pull out the trust documents every five or so years–and always after a major life event–to see if any amendments are needed.
Mistake Number 3: Not Safeguarding the Trust Agreement
Many people in Florida create a revocable living trust early in their retirement years, when they’ve started thinking about estate planning. Then they go about their happy lives for the next 20 or more years. Only when they want to change the trust, sell or refinance an asset, or after they pass away does the scramble to find the document begin.
The inability to find an original signed and printed trust document, or at least a clear copy, is a common but serious problem for trust owners and successor trustees. This is because trust documents are not filed with the courts, but are simply handed to the trustee after they are created.
This problem became apparent to one of our law firm’s recent clients, the successor trustee to his late father’s trust. The trust document was lost a decade ago, sometime after the son became successor trustee.
For all these years, the son has been living, problem-free, in his father’s former home. However, he now wants to refinance. Without the document proving he is the successor trustee, banks have been refusing to close the deal. This stressful, time-consuming, and potentially financially impactful situation could have been avoided had he safeguarded the trust agreement over the years.
When we create a revocable living trust for our clients, we provide two original signed versions of the trust. We also advise clients to make at least four or five copies and pass them to family members or close friends, to ensure that someone will have a backup if the original documents are misplaced, stolen, or destroyed by a house fire.
Answers to Frequently Asked Questions About a Florida Trust
What is a trust and how does it work?
A trust is a legal arrangement where one party, called the grantor, creates a trust and names a trustee, who manages assets on behalf of another party, known as the beneficiary. In some types of trusts, the same person fills all three roles. In other trusts the roles are distinct. The trustee must follow instructions in the trust for managing or distributing the trust assets for the beneficiary.
Trusts are different from wills, which govern how the courts should distribute assets in an individual’s name after they pass away.
(See An experienced will and trust lawyer explains the difference between wills and trusts.)
Can a trust help avoid probate?
In some cases a trust can help the children or other beneficiaries avoid probate after a person passes away. This is because the person doesn’t legally own the assets–the trust does. Upon the trustee’s death, the successor trustee seamlessly steps into that role, without needing to go through the probate procedure.
However, this only covers assets owned in the name of the trust. As mentioned above, many people have assets in their own name as well as assets owned by the trust, generally because they have forgotten to move existing assets or to purchase new assets in the trust’s name. These assets must go through the probate process.
For this reason, an attorney creating a living trust for a client should also create a “pour-over will” to govern the distribution of assets remaining outside of the trust when the person dies.
What types of trusts are available in Florida?
Florida law provides for several types of trusts, which fill differing needs and goals. Examples of some trusts include:
- Revocable living trust (discussed above, which a person can change or revoke during their lifetime)
- Irrevocable trust (often used by very wealthy individuals to take care of their children or grandchildren and generally cannot be modified after creation)
- Special-purpose trusts such as a charitable trust (for donating to charities) or a special needs planning trusts (to provide for people in need of special care).
What benefits does a revocable living trust offer?
A revocable living trust can make it easier for heirs to assume a person’s assets upon their death. It may help avoid the expense and time of a probate process (if every appropriate asset is put into the trust). Because it doesn’t involve the court papers of a probate, some like the privacy a living trust provides.
A trust can also help you manage your assets if you become incapacitated, as the trustee can step in to handle your financial affairs. Unlike an irrevocable trust, a revocable living trust can be altered or terminated during your lifetime if you change your mind about who should be the successor trustee or other terms in the document.
What benefits does an irrevocable trust offer?
An irrevocable trust is often used for tax planning. Placing assets inside the irrevocable trust may educes the taxable estate. Assets in the trust can also be protected from certain creditors and legal judgments, and, as with a revocable living trust, trust assets do not need to go through probate.
Because an irrevocable trust cannot easily be amended or revoked, it’s important to work closely with a knowledgeable tax attorney and/or trust attorney before making the decision to create such a trust.
How do I set up a trust in Florida?
A trust is one element of a comprehensive estate plan. If you decide a trust is right for you, you’ll work with a Florida trust attorney to draft the legal trust document that outlines the terms of the trust, the trustee, and beneficiaries. Then you’ll need to fund the trust by transferring ownership of your assets into the trust’s name.
If I establish a trust, do I still need a will?
Yes. Because all assets may not be inside the trust when a person passes away, everyone who creates any kind of trust also needs a will.
In addition to instructing who your assets will go to, a will is also important because it designates who you want as guardians of your minor children. Married couples should create two wills, one for each spouse.
Contact the LAW OFFICE of GARY M. LANDAU, P.A. to Determine If a Trust Should Be Part of Your Florida Estate Plan
Have you been searching for a “trust and estate planning attorney near me?”
With more than 25 years of experience in our practice areas and countless satisfied clients, Gary M. Landau and his team are uniquely positioned to help you with your probate and real estate needs in Coral Springs, Parkland, and throughout Florida. Whether you’re ready to probate a loved one’s estate or to write your own will, or if you are purchasing a home, have inherited a home, or want a closing agent to handle title insurance and all documents for your closing or refinancing, the LAW OFFICE OF GARY M. LANDAU, P.A. is ready to work with you.
Call our office at (954) 979-6566 or complete our online form today to schedule a free consultation. We work with our clients in person, over the phone, or on Zoom. We serve Coral Springs, Parkland, and all of South Florida.
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The information in this blog post (“post”) is provided for general informational purposes only and may not reflect the current law in your jurisdiction.
LAW OFFICE OF GARY M. LANDAU, P.A.
7401 Wiles Road, Suite 204
Coral Springs, FL 33067
(954) 979-6566
https://www.garylandau.com/