When the average person thinks of a trust, it can conjure up images of the rich and famous -- high class families with more money than they know what to do with. Wealth management is one way you can benefit from a revocable living trust, but it’s not the only one. Find out why you would need a trust, and when you should talk to an estate planning attorney to decide if it is right for you.
This blog post will focus specifically on a living revocable trust. This type of trust is created and funded while you are alive. You use the assets in the trust for as long as you need them. Then after you pass away, whatever is left passes to your named beneficiaries in the way and amounts you have laid out in the trust documents. It is called a revocable trust because you are legally allowed to change or even completely dissolve your trust if your circumstances change and you need more flexibility than the trust documents provide.
There are also irrevocable trusts. Once these trusts are created you can’t dip back in to use the assets except as permitted by the trust documents. They serve specific purposes, and have rules about how they are formed, and who gets the assets when. Your estate planning attorney will discuss if and when an irrevocable trust may be better for your specific circumstances.
There are downsides to having your assets locked into a trust. Drafting and funding a trust can be time consuming, and expensive. And living as a trustee to your own living trust adds a layer of complexity that some people simply don’t want. In those cases, the question becomes, when do you need a trust?
There is a reason why the rich and famous use trusts to manage their money. If they didn’t and something unexpected were to happen to them, their heirs could lose a substantial portion of their inheritances to estate taxes. Under the 2017 Tax Cuts and Jobs Act, the lower limit for estate taxes increased from approximately $5 million per person to $11.4 million per person (adjusted for inflation) or $22.8 million per couple. These higher limits on untaxed estates will stay in effect until at least 2026 (unless Congress passes another law in the meantime), but then the limit will drop back down to around $6 million. Also, 17 states and the District of Columbia have lower limits for their own estate taxes. Florida is not one of those states.
If you believe you will still be around in 2026 and your estate may be worth more than $6 million altogether, then you might need a trust as part of a plan to minimize estate taxes when you pass away, but also for when your children pass away. Money that is left to a spouse or child can be protected from estate taxes when that person passes away. But having too much money is far from the only reason you may need a trust.
Another reason to consider a trust instead of a Will is privacy. After you die, anything left in your name alone must be divided up according to Florida intestacy law, or the terms of your Will. Both of these processes are part of the public record maintained by the probate court. However, assets titled jointly with rights of survivorship, or that have been transferred over to your trust, don’t have to be probated. If you have properly created and funded your trust, you may be able to keep your affairs private and minimize the information about you and your assets that show up in the public court records.
One of the benefits of a living revocable trust is that it works while you are alive, as well as after you pass away. You will probably name yourself the primary trustee, keeping control over what happens to your assets while you are alive and well. However, nearly every trust also names substitute trustees who can take over after you can no longer do the work of administering the trust.
If you have a family history of dementia or Alzheimer’s disease, you probably know that death isn’t the only thing that can make someone else take care of you. With a living revocable trust, if you become mentally incapacitated, the administration of your trust passes to the next trustee. This prevents your loved ones from having to file a petition for guardianship or conservatorship in the Florida probate court. Instead, your trustee will have the authority to pay for your care out of the trust assets.
Sometimes the reason you need a trust has nothing to do with you at all. If you have a child with special needs or a loved one who receives government assistance, a living revocable trust can make sure they receive the inheritance they need to provide for their care without putting their government benefits at risk. Many government assistance programs are “means-tested.” If your beneficiary were to receive his or her inheritance all at once, that lump sum could push above the income limit for their benefits. Using special needs provisions in your trust you can spread out your loved one’s inheritance and protect their right to receive the benefits they need from the government.
Spendthrift provisions and creditor trusts can serve a similar purpose as a special needs trust when someone you love shouldn’t receive a large sum of money for any reason. A living revocable trust can help you control when your children, spouse, and other beneficiaries receive their money, spreading it out over time or putting distribution decisions in the hands of a responsible trustee. If you have a loved one who spends all their money, wrestles with substance abuse, has substantial creditors, or may be facing divorce, you may need a trust to protect your assets and your beneficiaries.
One last use of a trust is to provide for your pets after you are gone. This type of trust can be part of your broader estate plan, or it can be created as part of your living revocable trust. It assigns a trustee whose job it is to care for your pet and gives them the funds they need to give your fuzzy friend the lifestyle they are used to.
Not every estate plan needs to include a trust, but you also shouldn’t ignore the option just because your estate isn’t very large. At Harrison Estate Law, we help our clients identify the best estate planning tools to meet their goals, whether a Will is enough or they need a trust. We are happy to help you with setting up a new estate plan or to review and update and fund an existing trust. Please contact us online or via email or call 352-559-9828 to schedule a free consultation. If you don’t live close to Gainesville we are happy to set up a phone or Skype call.